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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K/A
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: JUNE 30, 2000
Commission File Number: 000-30027
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MOLDFLOW CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 04-3406763
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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430 BOSTON POST ROAD, WAYLAND, MA 01778
(Address of principal executive offices, including zip code)
(508) 358-5848
(Registrant's telephone number, including area code)
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Securities registered pursuant to Securities registered pursuant to
Section 12(b) of the Act: Section 12(g) of the Act:
NONE COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
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Indicate by check mark whether the registrant has (i) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (ii) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. Yes /X/ No / /
The aggregate market value of our voting stock held by non-affiliates was
$83,836,053 on September 20, 2000 based on the last reported sale price of our
common stock on The Nasdaq Stock Market on that day. There were 9,291,007 shares
of our common stock outstanding on that day.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's definitive Proxy Statement in connection with the
2000 Annual Meeting of Stockholders are incorporated by reference into Part III
of this Form 10-K.
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MOLDFLOW CORPORATION
ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 2000
TABLE OF CONTENTS
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PART I.
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 9
Item 3. Legal Proceedings........................................... 10
Item 4. Submission of Matters to a Vote of Security Holders......... 10
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 10
Item 6. Selected Financial Data..................................... 10
Item 7. Management's Discussion and Analysis of Financial Condition 12
and Results of Operations...................................
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 22
Item 8. Financial Statements and Supplementary Data................. 22
Item 9. Changes in and Disagreements with Accountants on Accounting 22
and Financial Disclosure....................................
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 23
Item 11. Executive Compensation...................................... 23
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 23
Item 13. Certain Relationships and Related Transactions.............. 23
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 23
Exhibit Index............................................... 24
Signatures.................................................. 27
Schedule II................................................. 28
APPENDIX A
Consolidated Financial Statements........................... F-1
Notes to Consolidated Financial Statements.................. F-6
Report of Independent Accountants........................... F-24
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The Company's Form 10-K reported the following unaudited pro forma
results in Note 3 to the Company's consolidated financial statements to
reflect the Company's acquisition of C-Mold as if it had occurred on July 1,
1998:
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FISCAL YEAR ENDED JUNE 30,
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1999 2000
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(unaudited)
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Unaudited pro forma
net income (loss)
per common share:
Basic..................... $(5.94) $0.77
Diluted................... (5.94) 0.29
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This Form 10-K/A is being filed solely to correct an error in computing
the unaudited pro forma net income (loss) per common share in Note 3 to the
Company's consolidated financial statements. Because the Company did not have
sufficient capital available to fund the C-Mold acquisition as of the assumed
pro forma date of July 1, 1998, the preparation of pro forma financial data
on a per share basis should include an assumption that 861,538 shares of the
Company's common stock were issued to fund this acquisition. In fact, these
shares were not issued on July 1, 1998 and the C-Mold acquisition was funded
out of the proceeds of the Company's initial public offering. The Company's
audited consolidated financial statements for each of the fiscal years ended
June 30, 1999 and 2000, including the Company's actual net income per common
share, as well as the unaudited pro forma revenue and net income (loss) in
Note 3, are unchanged from those previously reported in this Form 10-K.
The corrected unaudited pro forma disclosure is as follows:
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FISCAL YEAR ENDED JUNE 30,
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1999 2000
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(unaudited)
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Unaudited pro forma
net income (loss)
per common share:
Basic..................... $(1.40) $0.62
Diluted................... (1.40) 0.26
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PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. YOU CAN IDENTIFY THESE
STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "MAY," "WILL," "EXPECT,"
"ANTICIPATE," "BELIEVE," "ESTIMATE," AND "CONTINUE" OR SIMILAR WORDS. YOU SHOULD
READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY BECAUSE THEY DISCUSS OUR
FUTURE EXPECTATIONS, CONTAIN PROJECTIONS OF OUR FUTURE RESULTS OF OPERATIONS OR
OF OUR FINANCIAL CONDITION, OR STATE OTHER "FORWARD-LOOKING" INFORMATION. WE
BELIEVE THAT IT IS IMPORTANT TO COMMUNICATE OUR FUTURE EXPECTATIONS TO OUR
INVESTORS. HOWEVER, THERE MAY BE EVENTS IN THE FUTURE THAT WE ARE NOT ABLE TO
ACCURATELY PREDICT OR CONTROL AND THAT MAY CAUSE OUR ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE EXPECTATIONS WE DESCRIBE IN OUR FORWARD-LOOKING STATEMENTS.
INVESTORS ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED AS
A RESULT OF VARIOUS FACTORS, INCLUDING THOSE FACTORS DESCRIBED IN "IMPORTANT
FACTORS THAT MAY AFFECT FUTURE RESULTS" BEGINNING ON PAGE 18. READERS SHOULD NOT
PLACE UNDUE RELIANCE ON OUR FORWARD-LOOKING STATEMENTS, AND THE COMPANY ASSUMES
NO OBLIGATION TO UPDATE ANY FORWARD-LOOKING STATEMENTS.
ITEM 1. BUSINESS
OVERVIEW
We believe we are the world's leading developer of software solutions that
enhance the design, analysis, and manufacture of injection molded plastic parts.
Common consumer products that make extensive use of plastic parts include
cellular telephones, personal digital assistants, pagers, automobiles,
televisions, cameras, toys and personal computers. The commercial success of
each of these products often relies heavily upon reducing the time to bring new
products to market, reducing engineering and manufacturing costs, and improving
product quality and design.
Participants in all aspects of the injection molded plastic parts
manufacturing process, including part designers, mold designers, manufacturing
engineers and machine operators use our products. Our products enable our
customers to speed their products to market, decrease manufacturing costs and
reduce costly design and manufacturing errors by:
- assisting part designers in the selection of a plastic material,
- determining the strength, rigidity and ease of manufacturing of a given
part design,
- predicting the amount a plastic part will shrink or warp during
production,
- optimizing production conditions such as machine temperatures, injection
speeds, cooling times and the locations in a mold to inject the plastic,
- identifying and providing optimized solutions for adverse variations
during production, and
- providing features which facilitate collaboration over shared media, such
as the Internet.
Prior to 1997, we offered a single product line, Moldflow Plastics
Insight-TM- (MPI-TM-), which could only be used by highly specialized engineers
conducting in-depth plastics simulation. Our two newest product lines, Moldflow
Plastics Advisers-TM- (MPA-TM-) and Moldflow Plastics Xpert-TM- (MPX-TM-), can
be used by participants in all phases of the design and production process for
injection molded plastic parts, including initial part design, production set-up
and production monitoring by injection molding machine operators and design
engineers, many of whom do not specialize in plastic part design. We believe a
large, untapped market for our new product lines exists.
Our strategy includes exploiting the universal accessibility of the Internet
to further grow our business. We have configured some of our products for use in
an application service provider ("ASP") model, which would permit our customers
to use our products on demand over the Internet on a
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pay-per-use basis. We also intend to create an Internet portal to enable
customers to use our production set-up and monitoring product to remotely
monitor the injection molding process, including machine efficiency and
production data, from anywhere in the world.
Our products are used by more than 3,200 customers at more than 3,700 sites
in over 55 countries around the world. We sell our products primarily through
our direct sales force in North America, Europe and Asia and, to a lesser
extent, through original equipment manufacturers and through distributors in
defined geographic regions. Representative customers include Baxter
International, DaimlerChrysler, DuPont, Fuji Xerox, Hewlett-Packard, Lego,
Lucent Technologies, Motorola, Nokia and Samsung. We have distribution
arrangements with Parametric Technology Corporation (PTC), Structural Dynamics
Research Corporation (SDRC) and CoCreate and resellers of products of
SolidWorks, a subsidiary of Dassault Systemes, and Autodesk.
Our development efforts are focused on creating software tools that improve
the entire span of product development for injection molded plastic parts to
enable our customers to enhance their competitiveness and reduce their costs. We
believe we have the widest and most advanced range of software solutions and
proprietary technology to address the problems that arise in each phase of the
process of designing and manufacturing injection molded plastic parts.
OUR PRODUCTS
We offer software solutions for all phases of designing and manufacturing
injection molded plastic parts. We have categorized our product offerings into
three distinct families, the Moldflow Plastics Advisers ("MPA") series for part
design and high-level mold design, the Moldflow Plastics Insight ("MPI") series
for more in-depth mold design and the Moldflow Plastics Xpert ("MPX") series for
production set-up and production monitoring. In addition, we have recently
introduced plasticszone.com-TM-, the world's first e-business site designed for
intelligent, predictive engineering for injection molded plastics. Our products
employ complex and proprietary mathematical concepts. For example, our MPA and
MPI products employ our patented dual domain technology, which permits users to
conduct complex plastic flow simulations using the solid models created by their
design modeling software. As a result, users can eliminate the otherwise
necessary, time consuming and error prone step of creating a different type of
model based upon the part geometry contained in the solid model's database. Our
products run on the most widely used computing platforms and operating systems,
including various versions of Windows and UNIX.
MOLDFLOW PLASTICS ADVISERS
Our MPA series provides part and mold designers with applications that
permit them to quickly check the ultimate manufacturability of their designs at
an early stage in the design process. We have designed MPA to input its results
directly into MPX to enhance the efficiency of machine set-up. The MPA series
consists of two products:
PART ADVISER is a user-friendly application which enables product
designers without expertise in designing plastic parts to address key
manufacturing concerns in the preliminary design stage. Part Adviser offers
practical advice for the broad range of problems that it identifies without
the need to consult with engineers who specialize in plastic part design.
For the first time, part designers are able to receive rapid feedback on the
extent to which a number of factors, including modifications such as part
geometry, material selection or plastic fill locations affect the
manufacturability of a plastic part. In addition, Part Adviser permits the
designer to instantly share information with team members across the
Internet.
MOLD ADVISER extends the capabilities of Part Adviser to permit the mold
designer to layout and analyze an optimal mold. This product eliminates the
need to design and build molds through trial-and-error, enabling a mold
designer to create molds quickly and efficiently.
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MOLDFLOW PLASTICS INSIGHT
The MPI series contains our broadest set of predictive capabilities for
injection molding for use by highly specialized design engineers. The MPI series
assists design engineers in determining the optimal combination of part
geometry, material choice, mold design and processing parameters to produce
quality finished products. MPI allows the optimization of the variables which
remain in the mold designer's control to adjust. For instance, a mold designer
often receives a part design and is not permitted to make changes to the design,
but rather must create a mold design and a set of operating conditions best
suited for the part as designed. MPI may also be used in connection with a
completed mold which was poorly designed and is producing defective parts at an
unacceptable rate. In these cases, MPI can be used to find the best possible
operating conditions for the mold-part combination to minimize the defects. The
results generated by our MPI products can be input directly into our MPX product
to reduce machine set-up time.
All applications in the MPI series use an integrated environment which
permits users to easily import all of the most commonly used types of
computer-generated models, select and compare material grades, prepare models
for analysis, sequence a series of analysis jobs, undertake advanced analysis
post-processing and use Internet-based capabilities to enhance collaboration
with team members. In these applications, we believe that we offer the broadest
integration with existing computer-aided design products in the plastics
software industry.
MPI/FLOW predicts the flow and subsequent packing of plastics at the start
of the injection molding cycle to enable users to optimize locations for plastic
filling and processing conditions, assess possible part defects and
automatically determine the dimensions for a balanced feed system for the
plastic material.
MPI/COOL is used to design cooling circuits and a mold block around a part
to optimize mold design by adjusting the size and locations of the cooling
circuits. Because many warpage problems result from improper cooling design,
using MPI/COOL for mold designs enhances ultimate product quality. MPI/COOL also
enables all the benefits of mold cooling analysis to be applied to gas injection
molded parts.
MPI/WARP AND MPI/SHRINK predict and identify the cause and amount of warpage
and shrinkage in plastic parts. The mathematical tools incorporated in these
products permit the user to analyze warpage for the more than 6,000 plastics
materials in our database.
MPI/FUSION allows users to work directly from three-dimensional solid models
to perform detailed calculations. Based upon the same patented technology at the
core of the MPA series of products, MPI/FUSION permits more rapid investigation
into the characteristics of the plastic parts and molds being analyzed.
MPI/FLOW3D uses a fully three-dimensional meshing and solving technology to
analyze thick plastic parts. The majority of the MPI modules are focused on the
broadest class of plastic parts, those that are termed thin wall. There are
plastic parts, however, that are very thick or have widely varying thicknesses
throughout. Until the development of MPI/FLOW3D, creators of these types of
products had no commercially viable product alternative to investigate the
filling process to produce better parts and molds.
MPI/STRESS predicts the structural integrity of plastic components under
stress to quickly predict whether initial concept designs meet desired
structural requirements and whether the part will permanently deform if put
under load. The stress analysis calculates the amount of force that will cause
buckling and predicts the final buckled shape.
MPI/FIBER utilizes sophisticated visualization tools to provide insight into
the part's properties by allowing the user to see how fiber alignment varies
throughout the part's layers. The fiber analysis also
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predicts the effects of fiber orientation. The effects of plastic flow on fiber
orientation have a significant impact on the mechanical and structural
properties of fiber filled plastic injection molded parts. Plastics are often
filled with various forms and quantities of fibers to tailor the material's
operating characteristics, such as strength or resistance to bending.
MPI/OPTIM automatically determines the optimum processing conditions to be
set for a specific part on an injection molding machine to produce a part of
acceptable quality. These results may be used as input for MPX to ensure molding
machine setup is as quick and efficient as possible. The results may also be
used in isolation, as an input to assist the operator in finding the best
settings for a specific machine to produce the desired parts.
MPI/GAS provides predictive capabilities for the gas injection molding
process. The gas injection molding process is very similar to the injection
molding process described earlier but the machine produces an injection of air,
timed within the filling phase to follow the injection of plastic, to produce
wider, but hollow, channels within the part. These channels add structural
rigidity to the end product that is often desirable for large parts such as
television casings and lawn furniture.
MPI/TSETS provides tools to simulate the major thermoset molding processes.
Thermoset materials are a type of plastic which are used for products which must
withstand higher temperatures without alteration in their material properties.
Because other plastics may deform when exposed to high temperatures, thermoset
materials are used for a variety of plastic parts such as chip holders in
integrated circuits, distributor caps and other automotive engine components and
electrical outlets.
CM2K provides native Windows graphical user interface for the simulation of
10 molding processes to facilitate compressed project schedules and CAD/CAM
connectivity. Thermoplastic injection molding, gas-assisted injection molding,
injection-compression molding, and co-injection molding processes can be
simulated using the CM2K interface. Thermoset rubber injection molding, reaction
injection molding (RIM), resin transfer molding/structural reaction injection
molding (RTM/SRIM), microchip encapsulation and underfill (flip-chip)
encapsulation processes are also supported in the CM2K environment.
MOLDFLOW PLASTICS XPERT
Our MPX product attaches to injection molding machines to monitor and
control the plastic manufacturing process. MPX addresses common shop floor
issues such as machine set-up, process optimization and production part quality
monitoring. MPX interacts directly with the molding machine's built-in
controller to provide optimized process correction. With MPX, engineers and
die-setters can consistently and systematically set up molds, identify a robust
molding window and monitor production. MPX can be used with substantially all
injection molding machines and provides operators with a single, intuitive user
interface, minimizing the need for machine-specific operator training. In
addition, MPX gives real-time feedback, providing a mechanism for rapid manual
or automatic process adjustments. We designed MPX to reduce mold set-up times
and to optimize the efficiency of the part production cycle. Our MPX product
consists of three integrated modules:
SETUP XPERT enables systematic mold set-up from starting points
generated by MPA, MPI or operator inputs, independent of operator and
location. Setup Xpert optimizes the molding cycle and maximizes the usage of
machine capabilities without requiring the operator to have in-depth
knowledge of the individual machine or process. Setup Xpert quickly sets up
and optimizes each machine, while ensuring that each operator uses the same
set-up procedures.
OPTIMIZATION XPERT establishes a defined range of operating conditions
within which acceptable quality parts will be produced. Optimization Xpert
can reduce to a few minutes an optimization task that previously took
several hours or was not performed. The identification of a defined range
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of operating conditions is one of the key steps in being able to determine
what operating conditions can be used by the machine to prevent scrap and
machine downtime.
PRODUCTION XPERT graphically monitors variables specific to the
injection molding process and automatically evaluates the quality of the
production process. In addition, Production Xpert spots problems and either
provides suggestions on how to correct the process or makes the necessary
changes.
PLASTICSZONE.COM
In May 2000 we introduced plasticszone.com, a business and productivity site
for professionals working with injection molded plastics. The site provides an
array of products, including IMPA(TM), a fully functional electronic version of
the Part Adviser product. IMPA is the first analysis package for injection
molded plastics available on an ASP model accessible over the Internet. IMPA is
based upon our patent-pending technology that allows the application to be run
on the user's computer system instead of on the ASP's computer system. As a
result, no large proprietary data file is ever required to be sent over a public
network. In addition to IMPA, the site contains a number of activity zones,
which include access to intellectual content and activities pertinent to
participants in the design-to-manufacture of injection molded plastic parts.
SALES AND MARKETING
We distribute our products and services primarily through a direct sales
organization. As of June 30, 2000, our direct sales organization consisted of 38
sales associates, who operated out of offices located in Australia, China,
France, Germany, Italy, Japan, Korea, Netherlands, Singapore, Sweden, Taiwan,
the United Kingdom and the United States. Our direct sales model involves
pairing a sales associate and an engineer to form a sales team. These teams work
together to conduct a thorough evaluation of potential customers' design and
manufacturing processes and provide the potential customers with a detailed
analysis of the cost savings our products could produce in a selected aspect of
their business. Based upon the success of this sales model to date in increasing
sales, as well as the awareness among our potential customers of our products,
we intend to continue building our direct sales organization worldwide.
To supplement the efforts of our direct sales organization, we also sell our
products through marketing and distribution arrangements with several design
software vendors as an integrated application on their solid modeling design
systems. For example, Parametric Technology Corporation (PTC) incorporates our
MPA product in a module of its Pro/ENGINEER product, which they call Pro/
PLASTIC ADVISOR, and Structural Dynamics Research Corporation (SDRC) sells our
MPA product as well as modules contained within our MPI family of products.
Several distributors of SolidWorks Corporation, a subsidiary of Dassault
Systemes S.A., distribute our MPA product and Autodesk, Inc. has designated us
an MAI partner, which gives us access to Autodesk's distribution channel to sell
our MPA product. We have retained over 100 distributors to provide worldwide
sales coverage to complement our direct sales organization.
CUSTOMER SUPPORT AND OTHER SERVICES
CUSTOMER SUPPORT AND TRAINING
We provide customer training on our products and technical support to our
customers, which they may access 24 hours a day. Our customers may access
customer support either through our telephone hotline or our website. In
addition, our product development staff is available to solve more complex
problems that our customer support personnel are unable to quickly solve.
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CONSULTING SERVICES
In addition to traditional customer support services, we also provide
consulting services to customers who lack employees with the expertise necessary
to take advantage of the full capability of our products. We employ design
engineers who use our products on behalf of our customers to optimize their part
design and production processes. We view providing consulting services as
complementary to our core business of selling sophisticated software solutions.
Accordingly, we provide consulting services typically in cases where we believe
that providing these services will help build relationships with future
customers for our software products.
MATERIAL TESTING SERVICES
Our material testing group provides testing services to our customers who
are seeking accurate, reliable material data on new or existing grades of
polymers, measured under a wide range of practical molding conditions. We have
established a database containing information on more than 6,000 plastics
materials. We conduct this testing at our facilities located near Melbourne,
Australia and Ithaca, New York, which we have equipped with state-of-the-art
equipment, including in Melbourne, a number of injection molding machines. The
research and testing conducted at these facilities provides essential data for
our full line of software applications.
PRODUCT DEVELOPMENT
Our product development strategy focuses on ongoing development and
innovation of new technologies to increase our customers' productivity and
provide solutions that our customers can integrate into their existing computing
platforms. We plan to extend our leadership position in plastics simulation
technology by continuing to make significant investments in research and
development and to maintain our market share by rapidly creating and delivering
new product releases to our customers. We intend to take advantage of current
and future technology trends, such as the Internet, to ensure our customers are
always able to gain incremental competitive advantage in their respective
industries.
Our product development activities take place in facilities located in the
United States, Australia and the United Kingdom. The information systems of each
of these facilities have been linked to provide a continuous development
environment, enabling software development to be undertaken 24 hours per day.
We also fund or participate in a wide assortment of external research and
development projects, often being conducted by the world's leading experts in
their fields. For instance, we currently have an ongoing project in France with
CEMEF, a highly regarded center for plastic material research. In many cases,
under these projects we gain access to fundamental research with comprehensive
experimentation results. Often the centers agree to restricted publishing rights
in order to pursue topics of mutual interest. A partial list of our
collaborative partners includes ENSAM (France) for shrinkage, Cranfield
University (United Kingdom) for analysis of fiber filled parts, Universities of
Leeds and Bradford (United Kingdom) for fiber orientation measurement, Technical
University of Eindhoven (Netherlands) for numerical methods, University of
Sydney (Australia) for fluid mechanics and Nanyang Technological University of
Singapore for optimization. We believe that these relationships provide a
significant benefit to our product development efforts.
As of June 30, 2000, our product development staff had 71 employees, most of
whom hold advanced degrees and have industry experience in engineering,
mathematics, computer science or related disciplines. We seek to recruit highly
skilled employees, and our ability to attract and retain such employees will be
a principal factor in our success in maintaining our leading technological
position. We believe that such investments in research and development are
required in order for us to remain competitive and we believe our cadre of
software developers and our worldwide development capabilities represent a
significant competitive advantage.
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ACQUISITION OF C-MOLD
On April 13, 2000, we acquired Advanced CAE Technologies, Inc., which
formerly conducted business as C-Mold. C-Mold was a developer of competing
software solutions complementary to our product offerings in the areas of part
design and in-depth plastics simulation. The acquisition of C-Mold has expanded
our development capabilities and we believe that it will enable us to broaden
our product lines into adjacent markets more quickly. C-Mold had $7.7 million in
revenue for its fiscal year ended September 30, 1999. The purchase price was
$11.3 million in cash, including transaction costs, and we acquired tangible net
assets of $2.1 million. In addition to the tangible assets, we acquired
$2.3 million of identifiable intangible assets which included an assembled
workforce, protective covenants, and developed technology and in-process
research and development, and $6.8 million of goodwill. In connection with the
acquisition, we recorded a one-time charge of $70,000 related to the relocation
of our corporate headquarters to Wayland, Massachusetts.
We plan to integrate certain of the C-Mold simulation and analysis products
with our products. In particular, we have announced our plan to integrate the
C-Mold Advanced Products family with our Moldflow Plastics Insight product
family. In other cases, notably the C-Mold 3D-Quickfill product, we have
announced a plan to phase out the product and provide a support and upgrade path
for customers to the corresponding Moldflow product family, the Moldflow
Plastics Advisers.
COMPETITION
The markets into which our products are sold are highly competitive. We
compete with many companies engaged in selling software solutions to companies
engaged in product development and manufacturing. We also face competition from
materials vendors, injection molding machine manufacturers and small vendors,
such as independent engineering consultants. In addition, new competitors may
arise as we introduce new products into the marketplace.
The entrance of new competitors would be likely to intensify competition in
all or a portion of the markets in which we compete. Some of our current and
possible future competitors have greater financial, technical, marketing and
other resources than we do, and some have well established relationships with
our current and potential customers. Competitors may form alliances and rapidly
acquire significant market share. Moreover, competition may increase as a result
of software industry consolidation.
We believe that the principal competitive factors affecting our market
include:
- speed of innovation,
- ease of use,
- flexibility,
- quality,
- ease of integration into or communication with computer-aided design
systems,
- compatibility across computer platforms,
- range of supported computer platforms,
- performance,
- price and cost of ownership,
- customer service and support,
- company reputation and financial viability, and
- effectiveness of sales and marketing efforts.
We believe that we compete effectively on these factors.
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TECHNOLOGY AND PROPRIETARY RIGHTS
Our proprietary technology applies general mathematical models describing
the behavior of plastics as fluids under conditions of heat and pressure to the
real world environment of plastic polymers and injection molding machines. We
believe that our broad range of proven numerical methods represents considerable
intellectual property and that these trade secrets are difficult to reproduce.
We own all of the core technology used in our products and license only assorted
peripheral software that facilitates the operation of our products' core
functions.
We engage in a regular review of our proprietary technology to determine the
optimal method of protecting such technology. We have been granted patents on
portions of our technology and have filed both U.S. and international
applications with respect to other technologies and business processes. We view
these patents as one important way of protecting our key intellectual property
that may not be protected by the use of other methods. We may not obtain any of
the patents for which we have applied and may not be able to enforce any patents
we currently hold or obtain in the future.
We rely on a combination of trade secret, copyright and trademark laws,
license agreements, nondisclosure and other contractual provisions and technical
measures to protect the unpatented proprietary technology contained in our
products. We distribute our software under software license agreements that
typically grant customers nonexclusive, nontransferable licenses to use our
products. These agreements usually restrict use of the licensed software to our
customer's internal operations on designated computers at specified sites unless
the customer obtains a site license for the customer's use of the software, and
are subject to terms and conditions prohibiting unauthorized reproduction or
transfer of the software.
For certain software such as the MPA series, we rely primarily on
"shrink-wrapped" or "click-wrapped" licenses that are not signed by licensees
and therefore may be unenforceable under the laws of certain jurisdictions.
We also seek to protect the source code of our software through trade secret
and copyright law. We have obtained or applied for United States federal
trademark mark protection on certain valuable trademarks and logos. We have also
applied for or obtained trademark registrations of these key marks in a number
of foreign jurisdictions and are in the process of seeking trademark
registrations in other foreign countries.
We require our employees and consultants to sign a confidentiality and
non-competition agreement. Under these agreements, our employees agree not to
disclose trade secrets or confidential information and agree not to engage in or
be connected with any business that is competitive with our business while
employed by us, and in some cases for specified periods thereafter. Within these
agreements, employees also agree that any products or technology they create
during the term of their employment are our property.
Despite these precautions, misappropriation of our technology may occur.
Further, patent, trademark, copyright and trade secret protection may not be
available for our products in every country.
The software development industry is characterized by rapid technological
change. Therefore, we believe that factors such as the technological and
creative skills of our personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are more
important to establishing and maintaining a technology leadership position than
the various legal protections of our technology which may be available.
We seek to monitor the public records in order to become aware of any
potentially conflicting proprietary rights. To date, we have not received any
notification that any of our products infringe on the proprietary rights of
third parties. We can not assure you, however, that third parties will not claim
8
<PAGE>
such infringement by us or our licensors with respect to current or future
products. We expect that software product developers will increasingly be
subject to such claims as the number of products and competitors in our market
segment grows and the product functionality in different market segments
overlaps. In addition, patents on software and business methods are becoming
more common and we expect that more patents will be issued in our technical
field. Any such claims, with or without merit, could be time-consuming, result
in costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Moreover, such royalty or licensing agreements,
if required, may not be on terms acceptable to us.
We integrate third-party software into our products. This software may not
continue to be available on commercially reasonable terms. If we cannot maintain
licenses to this third-party software, distribution of our products could be
delayed until equivalent software could be developed or licensed and integrated
into our products. This could cause delays in our product sales and development
efforts.
EMPLOYEES
As of June 30, 2000, we had 238 employees, 55 of whom resided in Australia,
93 of whom resided in the United States, 19 of whom resided in the United
Kingdom and 71 of whom resided in other countries. None of our employees are
subject to any collective bargaining agreement. We believe that our relationship
with our employees is good.
ITEM 2. PROPERTIES
We operate out of three primary facilities. Due to our growth and the recent
expansion of our staff in connection with the C-Mold acquisition, we have
recently signed a lease for a 22,694 square foot office space located in
Wayland, Massachusetts pursuant to a 5-year lease that expires in August 2005.
On September 18, 2000, we completed our move into the Wayland facility.
Personnel located at this facility include our senior management team, some of
our North American sales force, some product marketing and development personnel
and some finance and administration personnel. We also lease a 7,900 square foot
office in Lexington, Massachusetts, which had been our corporate headquarters.
The Company will relinquish its lease on the Lexington office on November 30,
2000.
We own an 18,100 square foot office building set on approximately 15 acres
in the Kilsyth suburb of Melbourne, Australia. Personnel located at our
Melbourne facility include members of our software development and research
team, some of our materials testing personnel, a portion of our Asia Pacific
sales force and administrative staff. We lease a 13,000 square foot office and
laboratory building in Ithaca, New York pursuant to a 1-year lease that expires
in April 2001 and is renewable for three additional years. Personnel located at
our Ithaca facility include members of our software development and research
team, some of our materials testing personnel, and administrative personnel.
We also maintain a leased office containing a portion of our sales,
administrative and software development personnel in the United Kingdom as well
as leased direct sales offices in China, France, Germany, Italy, Japan, Korea,
Netherlands, Singapore and Sweden. We had aggregate lease payments of $837,000
in our 2000 fiscal year.
In addition to our primary operating facilities, we own a 10,200 square foot
office building set on approximately 2 acres of land in Louisville, Kentucky.
This building was acquired when we purchased C-Mold and is presently held for
sale. We also own an office condominium in Taiwan in which some of our sales
support personnel are located.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may be involved in various claims and legal
proceedings arising in the ordinary course of business. We are not currently a
party to any such claims or proceedings which, if decided adversely to us, would
either individually or in the aggregate have a material adverse effect on our
business, financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No items were submitted to security holders during the fourth fiscal
quarter.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock began trading on the Nasdaq National Market (the
"Nasdaq") on March 28, 2000 under the symbol "MFLO". The following table sets
forth the quarterly high and low sales prices per share reported on the Nasdaq.
<TABLE>
<CAPTION>
PERIOD OR QUARTER ENDED HIGH LOW
----------------------- -------- --------
<S> <C> <C>
April 1, 2000............................................... $16.94 $15.25
June 30, 2000............................................... $18.50 $13.50
</TABLE>
On September 20, 2000, the last reported sale price of the common stock on
the NASDAQ was $21.00 per share. On September 20, 2000, there were 95 holders of
record of the Company's common stock.
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain our future earnings, if any, to finance the expansion
of our business and do not expect to pay any cash dividends in the foreseeable
future. In addition, our existing credit facility does not permit us to pay cash
dividends.
During the fiscal quarter ended June 30, 2000, we issued and sold
unregistered securities upon the exercise of previously granted stock options as
set forth below. There was no public offering in any such transaction based on
the private nature of the transactions and we believe that each transaction was
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Act"), by reason of Section 4(2) of the Act or Rule 701
promulgated thereunder.
(i) April--12,170 shares at an aggregate exercise price of $4,628
(ii) May--6,682 shares at an aggregate exercise price of $3,833
(iii) June--2,970 shares at an aggregate exercise price of $3,650
The effective date of the Securities Act registration statement for which
the use of proceeds information is being disclosed is March 27, 2000, and the
Commission file number assigned to the registration statement is 333-95289. The
use of proceeds of our initial public offering has not changed from that
reported in our quarterly report on Form 10-Q for the period ended April 1,
2000.
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and related notes included
elsewhere in this document. The statement of operations data for the years ended
June 30, 1998, 1999 and 2000 and the balance sheet data at June 30, 1999 and
2000 are derived from our audited consolidated financial statements appearing
elsewhere in this document. The statement of operations data for the year ended
June 30, 1997 and the balance sheet data at June 30, 1997 and 1998 are derived
from our audited consolidated financial
10
<PAGE>
statements not included in this document. The statement of operations data for
the year ended June 30, 1996 and the balance sheet data at June 30, 1996 are
derived from our unaudited consolidated financial statements not included in
this document. The unaudited consolidated financial statements, in the opinion
of management, have been prepared on the same basis as the audited consolidated
financial statements and reflect all adjustments necessary for a fair
presentation of that data.
The computation of basic and diluted net income per common share has been
adjusted retroactively for all periods presented to reflect the redesignation of
our common and preferred stock in March 1998. As a result of the treatment of
this redesignation, we had no common stock outstanding prior to June 30, 1998
for purposes of computing net income per common share. Accordingly, basic net
income per common share was zero for the years ended June 30, 1996, 1997 and
1998.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue:
Software license.............................. $ 6,531 $ 6,743 $ 8514 $12,238 $16,742
Services...................................... 7,472 8,080 7,875 7,983 10,627
------- ------- ------- ------- -------
Total revenue............................... 14,003 14,823 16,389 20,221 27,369
------- ------- ------- ------- -------
Costs and expenses:
Cost of software licenses revenue............. 261 377 397 378 785
Cost of services revenue...................... 2,615 1,904 1,685 1,319 1,057
Research and development...................... 3,535 3,527 3,062 3,466 4,074
Selling and marketing......................... 6,094 6,703 7,287 9,673 13,495
General and administrative.................... 2,550 3,719 3,303 3,839 5,018
Litigation.................................... -- -- -- 620 785
Nonrecurring charges.......................... -- -- -- -- 284
Amortization of goodwill and other intangible
assets...................................... 2,904 2,370 84 -- 311
------- ------- ------- ------- -------
Total operating expenses.................... 17,959 18,600 15,818 19,295 25,809
------- ------- ------- ------- -------
Income (loss) from operations................... (3,956) (3,777) 571 926 1,560
Interest income (expense), net.................. 135 (139) (238) (177) 427
Other income (loss), net........................ (24) 17 19 (92) 1,717
------- ------- ------- ------- -------
Income (loss) before income taxes............. (3,845) (3,899) 352 657 3,704
Provision for income taxes...................... 414 371 163 176 251
------- ------- ------- ------- -------
Net income (loss)............................. (4,259) (4,270) 189 481 3,453
Accretion on redeemable preferred stock......... 482 741 80 -- --
------- ------- ------- ------- -------
Net income (loss) available to
common stockholders......................... $(4,741) $(5,011) $ 109 $ 481 $ 3,453
======= ======= ======= ======= =======
Net income per common share:
Basic......................................... $ -- $ -- $ -- $ 1.82 $ 1.29
Diluted....................................... $ -- $ -- $ 0.04 $ 0.08 $ 0.48
Shares used in computing net income per share:
Basic......................................... -- -- -- 265 2,667
Diluted....................................... -- -- 5,228 6,166 7,190
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30,
----------------------------------------------------
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................... $ 1,638 $ 1,009 $ 1,700 $ 1,240 $27,259
Working capital................................. (572) (3,260) (1,999) (2,108) 30,991
Working capital, net of deferred revenue........ 1,528 (501) 984 1,310 36,094
Total assets.................................... 16,432 13,940 14,336 10,247 57,323
Long term debt, net of current portion.......... -- 524 890 -- 852
Redeemable convertible preferred stock.......... 9,582 10,322 -- -- --
Stockholders' equity (deficit).................. (5,340) (10,584) 34 1,270 43,778
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and 21E of
the Securities Exchange Act of 1934, as amended. You can identify these
statements by forward-looking words such as "may," "will," "expect,"
"anticipate," "believe," "estimate," and "continue" or similar words. You should
read statements that contain these words carefully because they discuss our
future expectations, contain projections of our future results of operations or
of our financial condition, or state other "forward-looking" information. We
believe that it is important to communicate our future expectations to our
investors. However, there may be events in the future that we are not able to
accurately predict or control and that may cause our actual results to differ
materially from the expectations we describe in our forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, and actual results may differ materially from those discussed as
a result of various factors, including those factors described in "Important
Factors That May Affect Future Results" beginning on page 18. Readers should not
place undue reliance on our forward-looking statements, and the Company assumes
no obligation to update any forward-looking statements.
BUSINESS OVERVIEW
Our primary business is the development, sale and support of software
applications for the plastics industry, and more specifically, for the design
and manufacture of plastic injection molded parts. Our products allow a product
designer or engineer to simulate the manufacture of a plastic part to determine
and maintain the optimal part design and manufacturing conditions throughout the
manufacturing process.
We develop software products internally and through cooperative research
relationships with a number of public and private educational and research
organizations around the world. Prior to June 1997, our products consisted
solely of our Moldflow Plastics Insight ("MPI") Series for in-depth mold design.
Since then, we have introduced two new product lines. Our Moldflow Plastics
Adviser ("MPA") Series for part design and high-level mold design was introduced
in fiscal 1997 and our Moldflow Plastics Xpert ("MPX") Series for production
set-up and production monitoring was introduced in fiscal 1999. We have also
introduced additional modules of our MPI product series since June 1997.
We sell our products and services internationally through our direct sales
operations in thirteen countries. In addition, we sell through a network of
distributors and value-added resellers, and through distribution arrangements
with developers of other design software products. In addition, we have recently
introduced plasticszone.com, the world's first e-business site designed for
intelligent, predictive engineering for injection molded plastics.
12
<PAGE>
In April 2000, we completed the acquisition of Advanced CAE
Technology, Inc., which formerly conducted business as "C-Mold." The acquisition
was accounted for as a purchase. Accordingly, the operating results of C-Mold
have been included in our results of operations from the date of acquisition.
RESULTS OF OPERATIONS
The following table sets forth statement of income data for the last three
years as a percentage of total revenues:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Software licenses......................................... 51.9% 60.5% 61.2%
Services.................................................. 48.1 39.5 38.8
----- ----- -----
Total revenue........................................... 100.0% 100.0% 100.0%
===== ===== =====
Costs and expenses:
Cost of software licenses revenue......................... 2.4% 1.9% 2.9%
Cost of services revenue.................................. 10.3 6.5 3.9
Research and development.................................. 18.7 17.1 14.9
Selling and marketing..................................... 44.4 47.8 49.3
General and administrative................................ 20.2 19.0 18.3
Litigation................................................ -- 3.1 2.9
Nonrecurring charges...................................... -- -- 1.0
Amortization of goodwill and other intangible assets...... 0.5 -- 1.1
----- ----- -----
Total operating expenses................................ 96.5 95.4 94.3
----- ----- -----
Income from operations...................................... 3.5 4.6 5.7
Interest income............................................. -- 0.1 1.9
Interest expense............................................ (1.5) (1.0) (0.3)
Other income (loss), net.................................... 0.1 (0.5) 6.2
----- ----- -----
Income before income taxes.............................. 2.1 3.2 13.5
Provision for income taxes.................................. 1.0 0.9 0.9
----- ----- -----
Net income.............................................. 1.1% 2.3% 12.6%
===== ===== =====
</TABLE>
REVENUE
We generate revenue from two principal sources: license fees for our
packaged software products and services revenue derived from maintenance and
support services related to our software products, consulting, training and
material testing. In 2000, 61% of our revenue was derived from the sale of
software licenses.
SOFTWARE LICENSES REVENUE. Software licenses revenue increased 44% and 37%
in 1999 and 2000, respectively, from the prior year. Several factors have
contributed to these increases. We introduced new products, including our MPX
product and new modules for our MPI product line, and released new version
updates to existing products, including our MPA product, which was first
introduced in fiscal 1997. We increased our direct sales coverage, adding new
sales offices in Italy and Sweden, and increased the number of our sales
representatives from 20 at June 30, 1998 to 38 at June 30, 2000. As a result, we
have increased the proportion of total licenses revenue sold directly to
end-user customers from 67% in 1998 to 76% in 2000.
SERVICES REVENUE. Our services revenue is derived from the sale of software
maintenance and support contracts and the performance of consulting, training
and material testing services. Services
13
<PAGE>
revenue has a lower gross profit margin than license revenue and accounted for
approximately 39% of our total revenue in 1999 and 2000. Revenue from services
increased 1% and 33% in 1999 and 2000, respectively, from the prior year. These
increases were primarily in the sale of maintenance contracts, which was the
result of growth in our customer base arising from software license sales. To a
lesser extent, the acquisition of C-Mold provided additional services revenue
during the fourth quarter of 2000.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------------
1998 1999 2000
--------- --------- ---------
(IN THOUSANDS, EXCEPT PERCENTAGE
DATA)
<S> <C> <C> <C>
Revenue
USA....................................................... $ 5,521 $ 6,974 $ 7,804
Europe.................................................... 5,856 8,235 10,399
Asia/Australia............................................ 5,012 5,012 9,166
------- ------- -------
Total revenue........................................... $16,389 $20,221 $27,369
======= ======= =======
% of Total revenue
USA....................................................... 33.7% 34.5% 28.5%
Europe.................................................... 35.7 40.7 38.0
Asia/Australia............................................ 30.6 24.8 33.5
------- ------- -------
Total................................................... 100.0% 100.0% 100.0%
======= ======= =======
</TABLE>
The improvement in economic conditions during 2000 in Asia, particularly in
Japan and Korea, was the primary factor driving the growth of sales in that
region.
COSTS AND EXPENSES
COST OF SOFTWARE LICENSES REVENUE. Our cost of software licenses revenue is
comprised of costs for reproducing and distributing software and documentation,
third-party royalty costs and the cost of hardware components associated with
our MPX product. These costs were relatively unchanged during 1998 and 1999, but
increased by 108% in 2000 due to the increase in MPX sales, which have a lower
gross margin than our other products, and an increase in personnel costs.
COST OF SERVICES REVENUE. Our cost of services revenue includes the cost of
providing training, consulting and material testing services, such as salaries,
travel and related costs and the cost of providing maintenance and support
services, such as support personnel salaries and the costs of software
maintenance releases. These costs have been decreasing during the last three
years as we have been implementing our strategy of redirecting field technical
personnel from largely passive roles of customer hotline and maintenance
services to active roles in pre-sales activities and customer retention
programs. Consequently, these costs are being redirected to selling and
marketing.
RESEARCH AND DEVELOPMENT. Our research and development expenses consist
primarily of the salaries, benefits, travel and facility costs associated with
our development organization. These costs increased from the prior year by 13%
in 1999 and 18% in 2000. These increases were driven primarily by headcount
additions. Though our research organization is geographically dispersed, with
facilities in Australia, the United Kingdom and the United States, the majority
of our expenses have historically been recorded in Australia. This has resulted
in lower overall cost incurred for our research and development organization
than would be the case if our development activities were primarily located in
the United States. With the acquisition of C-Mold in April 2000, we now have
significant development activities in the United States.
SELLING AND MARKETING. Our selling and marketing expenses consist primarily
of salaries, commissions, travel, benefits and facilities costs associated with
our sales and marketing organizations, along with those costs incurred for
marketing programs, such as advertising, promotions and trade
14
<PAGE>
shows. These costs increased from the prior year by 33% in 1999 and 40% in 2000.
This growth was due principally to the continued redirection of field technical
personnel to pre-sales support roles and to an increase in the number of direct
sales force personnel and, to a lesser extent, an increase in promotional
activities in connection with the rollout of new products.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses include
the costs of our corporate, finance, human resources, information technology and
other administrative functions. These costs increased from the prior year by 16%
in 1999 and 31% in 2000. This growth is the result of additional hiring of
corporate staff, increased costs for professional services incurred as a result
of becoming a publicly-held company and increased management compensation
expenses related to operating performance.
LITIGATION. Our litigation expenses consisted of legal costs incurred to
pursue our claims against C-Mold regarding theft of our trade secrets and to
defend against related counterclaims. Upon the closing of our acquisition of
C-Mold, all related claims were dismissed. As a result, we anticipate no further
significant litigation costs to be incurred in connection with this action.
NONRECURRING CHARGES. Our acquisition of C-Mold was accounted for as a
purchase and, accordingly, the operating results of C-Mold have been included in
our results of operations from the date of acquisition. In connection with the
acquisition, we incurred nonrecurring charges of $284,000 to immediately expense
purchased in-process research and development and for lease termination costs.
In the opinion of management, the purchased in-process research and development
had not yet reached technological feasibility and had no alternative future use.
Consequently, we recorded a nonrecurring charge of $214,000 to write off such
in-process research and development costs during the fourth quarter of 2000.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. These costs represent
the amortization of intangible assets acquired, including goodwill, developed
technology, assembled workforce and protective covenants. These charges in 2000
resulted from our acquisition of C-Mold and in 1998 from the acquisition of a
third-party distributor of our products.
OTHER INCOME AND EXPENSE
INTEREST INCOME. Our interest income is derived from earnings on the
investment of our excess cash balance in various financial instruments. The
available cash balance came from the unused portion of the proceeds of our
initial public offering.
INTEREST EXPENSE. Our interest expense is related primarily to the use of
our lines of credit and our secured loans. During 2000, we paid down the
balances on our lines of credit, thus reducing our interest expense.
OTHER INCOME (LOSS), NET. Other income (loss), net includes foreign
currency transaction gains and losses, miscellaneous income and expense, and
realized gains and losses on the sale or disposal of assets. During 2000, we
realized a gain of $1.7 million on the sale of a portion of our minority
investment in a software company in connection with that company's initial
public offering in India.
PROVISION FOR INCOME TAXES. Our effective income tax rate was 46%, 27% and
7% for 1998, 1999 and 2000, respectively. The lower tax rates in 1999 and 2000
were primarily the result of the use of net operating loss carryforwards
("NOLs"). It is management's opinion that our remaining NOLs will not be
sufficient to maintain the effective tax rate for 2000 in future periods.
LIQUIDITY AND CAPITAL RESOURCES
We have historically financed our operations and met our capital expenditure
requirements primarily through sales of our capital stock, stockholder loans,
funds generated from operations and borrowings from lending institutions. In
March 2000, we completed our initial public offering of common stock. As of
June 30, 2000, our primary sources of liquidity consisted of our total cash and
15
<PAGE>
cash equivalents balance of $27.3 million, our marketable securities balance of
$8.5 million and available borrowings of $1.9 million under our $3.3 million
domestic and foreign revolving lines of credit, which are secured by
substantially all of our assets. As of June 30, 2000, there were no amounts
outstanding on our lines of credit. Borrowings under our lines of credit are
subject to a borrowing base of 80% of eligible domestic accounts receivable, 30%
of eligible foreign accounts receivable, and 90% of a standby letter of credit
issued by an Australian bank. The assets of our Australian subsidiary secure the
standby letter of credit. Interest on borrowings under these lines of credit is
payable monthly at rates of prime plus 1.25% and prime plus 1.5% for the
domestic and foreign lines, respectively. The standby letter of credit is
subject to a fee of 0.5% per annum.
Net cash provided by operating activities was $771,000 in 1998,
$1.2 million in 1999 and $1.4 million in 2000. Over the three year period, cash
was provided by operations through increases in net income, deferred maintenance
and support contract revenues, and accounts payable, offset by increases in
accounts receivable, prepaid expenses and other assets.
Net cash used in investing activities was $729,000 in 1998, $854,000 in 1999
and $11.9 million in 2000. In 1998 and 1999, cash was used for purchases of
property and equipment, primarily for computers, networking and materials
laboratory test equipment to support our global product development activities,
and to enable data communications among our worldwide development, sales,
customer support and administrative organizations. In 2000, in addition to the
purchase of fixed assets, $7.9 million (net of cash acquired) was used to
purchase C-Mold and $5.0 million was invested in marketable securities. Also in
2000, $1.8 million was provided by the proceeds from the sale of a portion of
our minority investment in an Indian software company. The Company's remaining
investment in this software company has been categorized as available-for-sale
marketable securities.
Net cash provided by financing activities was $716,000 in 1998 and
$35.9 million in 2000. Net cash of $907,000 was used in financing activities in
1999. In all three years, cash was provided from borrowings on our line of
credit and used in payments on our debt obligations. In 2000, $36.9 million was
provided by the initial public offering of our common stock.
We believe that our current cash, cash equivalents, and available lines of
credit will be sufficient to meet our anticipated cash needs for working capital
and capital expenditures for at least the next 12 months following the date of
this Annual Report. On a long-term basis or to complete acquisitions in the
short term, we may require additional external financing through credit
facilities, sales of additional equity or other financing vehicles. There can be
no assurance that such financing can be obtained on favorable terms, if at all.
YEAR 2000 ISSUES
As of June 30, 2000, we are unaware of any problems that have arisen with
respect to year 2000 issues in our current products, our internal computer
systems or in the computer systems of our vendors. Prior to January 1, 2000, we
conducted a comprehensive review of the potential impact that the change in the
date to the year 2000 would have on our current products and computer systems.
Based on this review, we determined that all of our current products and major
computer systems are able to recognize and appropriately process dates
commencing in the year 2000. Our historical costs to assess our year 2000
readiness have not been significant. The majority of the costs required to
complete our year 2000 compliance process were incurred as part of our normal
capital asset acquisition program, and would have been incurred without
consideration of year 2000 issues. We are not currently able to estimate the
final aggregate cost of addressing the year 2000 issue, because funds may be
required as a result of future findings. However, given the lack of any problems
related to the year 2000 since the year change, we do not anticipate that we
will experience any material problems related to the year 2000 in the future. As
a result, we do not expect costs associated with these problems to have an
adverse effect on our business and financial results.
16
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN No. 44"), "Accounting for Certain Transactions
Involving Stock Compensation--An Interpretation of APB Opinion No. 25." FIN
No. 44 addresses the application of APB Opinion No. 25 and among other issues
clarifies the following: the definition of an employee for purposes of applying
APB Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN No. 44 is
effective July 1, 2000, but certain conclusions in FIN No. 44 cover specific
events that occurred after either December 15, 1998 or January 12, 2000. The
Company does not expect the application of FIN No. 44 to have a material impact
on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial
Statements." This statement was amended by the issuance of SAB 101B, "Second
Amendment: Revenue Recognition in Financial Statements," which delayed the
implementation date of SAB 101 until the fourth fiscal quarter of fiscal years
beginning after December 15, 1999. SAB 101 summarizes the SEC's views in
applying generally accepted accounting principles to selected revenue
recognition issues in financial statements. The Company is currently assessing
the impact of SAB 101 on its financial position and results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS 133, as amended by SFAS 137, is
effective for all quarters of all years beginning after June 15, 2000. The
Company did not use derivative instruments or engage in hedging activities in
fiscal 2000.
EUROPEAN UNION CURRENCY CONVERSION
On January 1, 1999, eleven member nations of the European Economic and
Monetary Union began using a common currency, the Euro. For a three-year
transition period ending June 30, 2002, both the Euro and each of the currencies
for such member countries will remain in circulation. After June 30, 2002, the
Euro will be the sole legal tender for those countries. The adoption of the Euro
will affect many financial systems and business applications as the commerce of
those countries may be transacted both in the Euro and the existing national
currency during the transition period. Historically, significant portions of our
revenue have been generated in Europe. Of the eleven countries currently using
the Euro, we have subsidiary operations in France, Germany, Ireland, Italy, the
Netherlands and Spain. We have assessed the potential impact of the Euro
conversion in a number of areas, particularly on our pricing and other marketing
strategies. Although we do not currently expect that the conversion, either
during or after the transition period, will have an adverse effect on our
operations or financial condition, there can be no assurance that it will not
have some unexpected adverse impact.
IMPACT OF INFLATION
We believe that our revenue and results of operations have not been
significantly impacted by inflation during the past three fiscal years.
17
<PAGE>
IMPORTANT FACTORS THAT MAY AFFECT FUTURE RESULTS
IF WE EXPERIENCE DELAYS IN INTRODUCING NEW PRODUCTS OR IF OUR EXISTING OR
NEW PRODUCTS DO NOT ACHIEVE MARKET ACCEPTANCE, WE MAY LOSE REVENUE.
Our industry is characterized by:
- rapid technological advances,
- evolving industry standards,
- changes in end-user requirements,
- intense competition,
- technically complex products,
- frequent new product introductions, and
- evolving offerings by product manufacturers.
We believe our future success will depend, in part, on our ability to
anticipate or adapt to these factors and to offer on a timely basis products
that meet customer demands. For example, the introduction of new products and
services embodying new technologies and the emergence of new industry standards
can render our existing products obsolete. The development of new or enhanced
products is a complex and uncertain process requiring the anticipation of
technological and market trends. We may experience design, manufacturing,
marketing and other difficulties that could delay or prevent our development,
introduction or marketing of new products and enhancements and result in
unexpected expenses.
Our growth and profitability also will depend upon our ability to expand the
use and market penetration of our existing product lines as well as new products
we introduce. Market acceptance of our products will depend in part on our
ability to demonstrate the cost-effectiveness, ease of use and technological
advantages of our products over competing products.
BECAUSE WE DO NOT HAVE EXTENSIVE EXPERIENCE DEVELOPING INTERNET-ENABLED
PRODUCTS, WE MAY INCUR SIGNIFICANT COSTS DEVELOPING INTERNET-ENABLED PRODUCTS
AND MAY NOT BE ABLE TO DEVELOP THESE PRODUCTS.
Our business strategy includes providing additional Internet-related
functions to our products to exploit the trend toward worldwide collaborative
product development and manufacturing and to explore new pricing and packaging
strategies made possible by the Internet. We have limited experience in
developing and marketing Internet-enabled products. We may incur significant
costs developing Internet-enabled products and may be unable to capitalize on
the rapid transformation of the Internet as a computing platform, communications
vehicle and distribution channel.
IF INTERNET USAGE DOES NOT CONTINUE TO GROW, WE MAY NOT BE ABLE TO
SUCCESSFULLY IMPLEMENT OUR INTERNET STRATEGY.
Widespread use of the Internet is a relatively recent phenomenon. The future
success of our Internet strategy depends, in part, on the continued development
of the Internet as a viable commercial medium. We cannot be certain that the
Internet will continue to be developed or accessible for free or at nominal cost
to users. In this event, our future growth may be adversely impacted.
WE MAY EXPERIENCE DIFFICULTY ACHIEVING SALES TARGETS, MAKING TIMELY PRODUCT
RELEASES OR OTHERWISE OPERATING OUR BUSINESS IF WE ARE UNABLE TO ATTRACT OR
RETAIN KEY PERSONNEL.
In order to grow our business, we will have to hire additional employees in
various countries. Our future success, therefore, will depend, in part, on
attracting and retaining additional qualified management, marketing and
technical personnel. We do not know whether we will be successful in
18
<PAGE>
hiring or retaining qualified personnel. Competition for personnel throughout
the software industry is intense.
IF WE BECOME SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WE COULD
INCUR SIGNIFICANT EXPENSES AND WE COULD BE PREVENTED FROM OFFERING SPECIFIC
PRODUCTS OR SERVICES.
Our products include proprietary intellectual property. We may become
subject to claims that we infringe on the proprietary rights of others. In the
United States, a significant number of software and business method patents have
been issued over the past decade and the holders of these patents have been
actively seeking out potential infringers. If any element of our products or
services violates third-party proprietary rights, we might not be able to obtain
licenses on commercially reasonable terms to continue offering our products or
services without substantial re-engineering and any effort to undertake such
re-engineering might not be successful. In addition, any claim of infringement
could cause us to incur substantial costs defending against the claim, even if
the claim is invalid, and could distract our management from our business. Any
judgment against us could require us to pay substantial damages and could also
include an injunction or other court order that could prevent us from offering
our products and services.
WE MAY LOSE SALES TO COMPETITORS IF WE ARE UNABLE TO PROTECT IMPORTANT
INTELLECTUAL PROPERTY.
Our ability to compete effectively against other companies in our industry
will depend, in part, on our ability to protect our proprietary rights in our
technology. We may be unable to maintain the proprietary nature of our
technology. While we have attempted to safeguard and maintain our proprietary
rights, we do not know whether we have been or will be completely successful in
doing so.
We rely, in part, on contractual provisions to protect our trade secrets and
proprietary knowledge. These agreements may be breached, and we may not have
adequate remedies for any breach. Our trade secrets may also become known
without breach of such agreements or may be independently developed by
competitors. In addition, foreign countries, including some of those in which we
do business, may reduce or limit the protection of our intellectual property
rights.
OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED
BY INTERNATIONAL BUSINESS RISKS.
The majority of our employees, including sales, support and research and
development personnel, are located outside of the United States. Conducting
business outside of the United States is subject to numerous risks, including:
- decreased liquidity resulting from longer accounts receivable collection
cycles typical of foreign countries,
- decreased revenue on foreign sales resulting from possible foreign
currency exchange and conversion issues,
- lower productivity resulting from difficulties managing our sales, support
and research and development operations across many countries,
- lost revenue resulting from difficulties associated with enforcing
agreements and collecting receivables through foreign legal systems,
- lost revenue resulting from the imposition by foreign governments of trade
protection measures, and
- higher cost of sales resulting from import or export licensing
requirements.
19
<PAGE>
THE ACQUISITION OF C-MOLD AND FUTURE ACQUISITIONS AND STRATEGIC
RELATIONSHIPS MAY RESULT IN LOST REVENUE CAUSED BY BUSINESS DISRUPTIONS AND
MISSED OPPORTUNITIES CAUSED BY THE DISTRACTION OF OUR MANAGEMENT.
On April 13, 2000, we acquired Advanced CAE Technology, Inc., a software
company formerly conducting business as C-Mold. If we are unable to effectively
integrate C-Mold's products, personnel and systems, our business and operating
results will likely suffer. This integration is requiring time and focus by our
management team. Further, we cannot guarantee that we will realize any of the
benefits or strategic objectives we were seeking in acquiring C-Mold. In
connection with accounting for the acquisition of C-Mold, we have recorded a
significant amount of goodwill and other identifiable intangible assets, the
amortization of which will adversely affect our results of operations in future
periods.
Additionally, we may engage in other acquisitions and strategic
relationships in the future. We may not be able to identify suitable acquisition
candidates, and, if we do identify suitable candidates, we may not be able to
make such acquisitions on commercially acceptable terms or at all. If we acquire
another company, we will only receive the anticipated benefits if we
successfully integrate the acquired business into our existing business in a
timely and non-disruptive manner. We may have to devote a significant amount of
time and management and financial resources to do so. Even with this investment
of management and financial resources, an acquisition may not produce the
revenues, earnings or business synergies that we anticipated. If we fail to
integrate the acquired business effectively or if key employees of that business
leave, the anticipated benefits of the acquisition would be jeopardized. The
time, capital, management and other resources spent on an acquisition that
failed to meet our expectations could cause our business and financial condition
to be materially and adversely affected. In addition, acquisitions can involve
non-recurring charges and amortization of significant amounts of goodwill and
other acquired identifiable intangible assets that could adversely affect our
results of operations.
WE HAVE MORE LIMITED FINANCIAL AND OTHER RESOURCES THAN MANY OF OUR
COMPETITORS AND POTENTIAL COMPETITORS AND MAY BE UNABLE TO COMPETE SUCCESSFULLY
AGAINST THEM.
We operate in a highly competitive environment and may not be able to
successfully compete. Companies in our industry and entities in similar
industries could decide to focus on the development of software solutions for
the design, analysis and manufacturing of injection molded plastic parts. Many
of these entities have substantially greater financial, research and
development, manufacturing and marketing resources than we do. Increased
competition may result in price reductions, reduced profitability and loss of
market share.
OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND
AS A RESULT PERIOD-TO-PERIOD COMPARISONS OF OUR RESULTS OF OPERATIONS ARE NOT
NECESSARILY MEANINGFUL AND SHOULD NOT BE RELIED UPON AS INDICATORS OF FUTURE
PERFORMANCE.
We have experienced significant fluctuations in our results of operations on
a quarterly basis. In particular, we have historically experienced lower revenue
in our first fiscal quarter as compared with the preceding quarter as a result
of seasonal factors, which decrease demand for our products in this quarter. For
instance, our total revenue in the first quarter of fiscal 2000 was
$5.2 million as compared with total revenue of $5.6 million in the immediately
preceding fourth quarter. We expect to continue to experience significant
fluctuations in our future quarterly results of operations due to a variety of
factors, many of which are outside of our control, including:
- seasonal slowdowns, in particular, in our first fiscal quarter, in many of
the markets in which we sell our products,
- the timing and magnitude of capital expenditures, including costs relating
to the expansion of our operations and infrastructure,
20
<PAGE>
- introductions of new services or enhancements by us and our competitors,
- changes in our and our competitors' pricing policies,
- currency fluctuations, and
- timing and integration of acquisitions.
WE MAY HAVE DIFFICULTY MANAGING THE EXPANSION OF OUR OPERATIONS, WHICH COULD
RESULT IN DAMAGE TO CUSTOMER RELATIONSHIPS OR DELAYED BILLING OR COLLECTION OF
REVENUE.
The implementation of our business strategy could result in a period of
rapid growth in the number of our employees and the scope of our operations. In
addition, due to the acquisition of C-Mold, we have expanded the number of
employees and facilities. Rapid expansion could place a significant strain on
our senior management team and our operational, financial and other resources as
we attempt to expand our operations in multiple locations around the world. We
may have difficulty effectively managing the budgeting, forecasting, global
hiring and other business control issues presented by such a rapid expansion.
This could, among other things, adversely affect our relationships with our
customers and result in delays in billing and collections of revenue from our
customers and increased costs.
IF WE ARE UNABLE TO MAINTAIN AND LEVERAGE OUR STRATEGIC ALLIANCES, WE MAY BE
UNABLE TO GROW AS PLANNED.
We are, and will continue to be, dependent to some extent on distribution
arrangements and strategic partnerships with third-parties because we sell a
portion of our products through these third parties. In addition, we may sell
other products, including our internet products through third-party distributors
or web platform operators in the future. These third parties may not fulfill
their agreements with us. In particular, third-party distributors or web
platform operators may breach or terminate their distribution agreements with us
or fail to devote sufficient time and resources to successfully commercialize,
or increase sales of, our products. As a result, our revenues from these
arrangements depend, in part, on third parties' sales of our products.
DISRUPTION OF OPERATIONS AT OUR DEVELOPMENT FACILITIES COULD INTERFERE WITH
OUR PRODUCT DEVELOPMENT AND PRODUCTION CYCLES.
A significant portion of our computer equipment, source code and personnel,
including critical resources dedicated to research and development, are
presently located at operating facilities in Australia, New York and the United
Kingdom. The occurrence of a natural disaster or other unanticipated catastrophe
at any of these facilities could cause interruptions in our operations and
services. Extensive or multiple interruptions in our operations at our
development facilities could severely disrupt our product development.
OUR MOLDFLOW PLASTICS XPERT (MPX) PRODUCT LINE MAY LEAD TO PRODUCT LIABILITY
CLAIMS AGAINST US.
We have designed our Moldflow Plastics Xpert (MPX) product line to be
installed directly on our customers' injection molding machines and to
automatically adjust the operation of these machines. As a result, it is
possible that our customers may claim that our product interfered with the
proper operation of their machines and may seek reimbursement for consequential
and other damages from us. Although we expressly disclaim any liability for
consequential or other damages in connection with our sale of the MPX product,
this disclaimer may not protect us from claims for damages from our customers
and these claims may adversely affect our relationships with our customers or
our reputation generally. In addition, our insurance coverage limits may not be
adequate to protect us against any product liability claims that arise. This
insurance is expensive and may not be available on acceptable terms, or at all.
21
<PAGE>
OUR STOCK PRICE IS HIGHLY VOLATILE AND OUR STOCK PRICE COULD EXPERIENCE
SUBSTANTIAL DECLINES AND OUR MANAGEMENT'S ATTENTION MAY BE DIVERTED FROM MORE
PRODUCTIVE TASKS.
The stock market has, from time to time, experienced extreme price and
volume fluctuations. Many factors may cause the market price for our common
stock to decline, perhaps substantially, following this offering, including:
- a decrease in the demand for our common stock,
- revenues and operating results failing to meet the expectations of
securities analysts or investors in any quarter,
- downward revisions in securities analysts' estimates or changes in general
market conditions,
- technological innovations by competitors or in competing technologies,
- investor perception of our industry or our prospects, and
- general technology or economic trends.
In the past, companies that have experienced volatility in the market price
of their stock have been the subject of securities class action litigation. We
may be involved in a securities class action litigation in the future. Such
litigation often results in substantial costs and a diversion of management's
attention and resources and could harm our business, financial condition and
results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We develop our products in research centers in Australia, the United Kingdom
and the United States. We sell our products globally through our direct sales
force and indirect distributor channels. As a result, our financial results are
affected by factors such as changes in foreign currency exchange rates and weak
economic conditions in foreign markets. In the future, we expect to increase our
international operations in our existing markets and in geographic locations
where we do not have any operations now.
We collect amounts representing a substantial portion of our revenues and
pay amounts representing a substantial portion of our operating expenses in
foreign currencies. As a result, changes in currency exchange rates from time to
time may affect our operating results. In fiscal 2000, we did not engage in
hedging transactions. However, in fiscal 2001, we have initiated a hedging
program designed to reduce our exposure to changes in currency exchange rates.
We cannot assure you, however, that these efforts or others that we may make in
the future to hedge our exposure to currency exchange rate changes will be
successful.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The index to the Consolidated Financial Statements of the Company is
included in Item 14, and the Consolidated Financial Statements follow the
signature pages to this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There were no changes in, or disagreements with, our accountants on
accounting and financial disclosure.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS. Incorporated herein by reference is the information appearing
under the caption "Information Regarding Directors" in the Company's definitive
Proxy Statement for its 2000 Annual Meeting of Stockholders.
EXECUTIVE OFFICERS. Incorporated herein by reference is the information
appearing under the caption "Executive Officers" in the Company's definitive
Proxy Statement for its 2000 Annual Meeting of Stockholders.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information appearing under the
caption "Executive Compensation" in the Company's definitive Proxy Statement for
its 2000 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information appearing under the
caption "Principal and Management Stockholders" in the Company's definitive
Proxy Statement for its 2000 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the information appearing under the
caption "Certain Relationships and Related Transactions" in the Company's
definitive Proxy Statement for its 2000 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(a)(1) FINANCIAL STATEMENTS
The financial statements and notes thereto are listed in the Index to
Consolidated Financial Statements on page F-1 of this report.
14(a)(2) FINANCIAL STATEMENT SCHEDULES
The following are contained on the indicated pages of this annual report on
Form 10-K:
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Schedule II-- Valuation and Qualifying Accounts............. 28
</TABLE>
Schedules not listed above are omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
14(a)(3) EXHIBITS
The following exhibits are filed as part of this report. Where such filing
is made by incorporation by reference to a previously filed statement, such
statement is identified.
23
<PAGE>
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
------- -----
<C> <S>
+2.1 Agreement and Plan of Merger, dated February 11, 2000, by
and among the Registrant, Moldflow Merger Corp. (a
subsidiary of the Registrant), Advanced CAE Technology, Inc.
d/b/a C-Mold ("C-Mold") and certain stockholders of C-Mold.
*3.1 Third Amended and Restated Certificate of Incorporation of
the Registrant.
*3.2 Second Amended and Restated By-laws of the Registrant.
+10.1 Indenture of Lease, dated October 15, 1996, between Moldflow
Pty. Ltd and Mortimer B. Zuckerman and Edward H. Linde,
Trustees of 91 Hartwell Avenue Trust, which relates to space
in a certain building known as, and with an address at,
91 Hartwell Avenue, Lexington, Massachusetts.
+10.2 Acknowledgment of Assumption of Lease, dated June 28, 1999,
by and among Boston Properties Limited Partnership (as
successor-in-interest to the Trustees of 91 Hartwell Avenue
Trust), Moldflow Pty. Ltd and the Registrant.
+10.6 Amended and Restated Credit Agreement, dated January 28,
1998 ("Amended and Restated Credit Agreement"), by and among
the Registrant, Thomas, Helmet, Floatflow, JTC, Westpac,
Ampersand II, Ampersand III and Ampersand III CF.
+10.7 First Amendment to Amended and Restated Credit Agreement,
dated August 25, 1998.
+10.8 Termination of Amended and Restated Credit Agreement.
+10.9 Loan Agreement, dated April 23, 1998, by and among Silicon
Valley Bank, the Registrant, Moldflow International Pty.
Ltd. and Moldflow Pty. Ltd.
+10.10 Loan Document Modification Agreement No. 2, dated
November 30, 1998, by and between Silicon Valley Bank and
the Registrant.
+10.11 Amendment to Loan Modification Agreement No. 2, dated
January 19, 1999, by and between Silicon Valley Bank and the
Registrant.
+10.12 Loan Document Modification Agreement No. 3, dated as of
June 1, 1999, by and between Silicon Valley Bank and the
Registrant.
+10.13 Loan Document Modification Agreement No. 4, dated as of
October 22, 1999, by and between Silicon Valley Bank and the
Registrant.
+10.14 Warrant to Purchase Common Stock, dated April 23, 1998,
issued by the Registrant to Silicon Valley Bank.
+10.15 Stock Restriction Agreement, dated July 1, 1998, between the
Registrant and Marc J. L. Dulude.**
+10.16 Amended and Restated Promissory Note, dated September 9,
1999, issued by Marc J. L. Dulude in favor of the
Registrant.**
+10.17 Stock Restriction Agreement, dated July 1, 1998, between the
Registrant and Suzanne E. Rogers.**
+10.18 Amended and Restated Promissory Note, dated September 9,
1999, issued by Suzanne E. Rogers in favor of the
Registrant.**
+10.19 Stock Restriction Agreement, dated July 1, 1998, between the
Registrant and Kenneth R. Welch.**
+10.20 Amended and Restated Promissory Note, dated September 9,
1999, issued by Kenneth R. Welch in favor of the
Registrant.**
+10.21 Stock Restriction Agreement, dated July 1, 1998, between the
Registrant and Richard M. Underwood.**
+10.22 Amended and Restated Promissory Note, dated September 9,
1999, issued by Richard M. Underwood in favor of the
Registrant.**
+10.23 Service Agreement, dated July 1, 1994, between Moldflow Pty.
Ltd. and A. Roland Thomas.**
+10.24 Letter Amendment, dated June 30, 1997, to Service Agreement
between Moldflow Pty. Ltd. and A. Roland Thomas.**
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. TITLE
------- -----
<C> <S>
+10.25 Letter Amendment, dated July 1, 1999, to Service Agreement
between Moldflow Pty. Ltd. and A. Roland Thomas.**
+10.26 Loan Agreement, dated July 1, 1999 between Moldflow Pty.
Ltd. and A. Roland Thomas.**
+10.27 Moldflow Corporation 2000 Stock Option and Incentive Plan.
+10.28 Form of Incentive Stock Option Agreement under the Moldflow
Corporation 2000 Stock Option and Incentive Plan.
+10.29 Form of Non-Qualified Stock Option Agreement for Company
Employees under the Moldflow Corporation 2000 Stock Option
and Incentive Plan.
+10.30 Moldflow Corporation Employee Stock Purchase Plan.
+10.31 Moldflow Corporation 1997 Equity Incentive Plan.
+10.32 Form of Incentive Stock Option Agreement under the Moldflow
Corporation 1997 Equity Incentive Plan.
+10.33 Form of Non-Qualified Stock Option Agreement under the
Moldflow Corporation 1997 Equity Incentive Plan.
+10.34 Form of Non-Qualified Stock Option Agreement for Australian
employees under the Moldflow Corporation 1997 Equity
Incentive Plan.
+10.35 Employment Agreement, dated February 1, 2000, between the
Registrant and Marc J. L. Dulude.**
+10.36 Employment Agreement, dated February 1, 2000, between the
Registrant and Suzanne E. Rogers.**
+10.37 Employment Agreement, dated February 1, 2000, between the
Registrant and Kenneth R. Welch.**
+10.38 Employment Agreement, dated February 1, 2000, between the
Registrant and Richard M. Underwood.**
+10.39 Employment Agreement, dated March 20, 2000, between the
Registrant and A. Roland Thomas.**
+10.40 Form of Director Indemnification Agreement to be entered
into between the Registrant and each non-employee
director.**
+10.41 Form of Non-Qualified Stock Option Agreement for
Non-Employee Directors under the Moldflow Corporation 2000
Stock Option and Incentive Plan.**
***10.42 Lease, dated as of June 16, 2000 by and between Wayland
Business Center, LLC, as Landlord and Moldflow Corporation
as Tenant.
***10.43 Amendment No. 1 to Employment Agreement dated March 20, 2000
between Moldflow Corporation and A. Roland Thomas.**
***21.1 Subsidiaries of the Registrant.
***23.1 Consent of PricewaterhouseCoopers LLP.
***27.1 Financial Data Schedule.
</TABLE>
------------------------
+ Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-95289) and incorporated by reference thereto.
* Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on May 12, 2000
and incorporated by reference thereto.
** Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of this report.
*** Previously filed as an exhibit to this Annual Report on Form 10-K.
14(b) REPORTS ON FORM 8-K
On April 26, 2000 the Company filed a report on Form 8-K reporting in
Item 2 the completion of the acquisition of Advanced CAE Technology, Inc. (d/b/a
C-Mold) on April 13, 2000. The report on
25
<PAGE>
Form 8-K also included the financial statements required by Item 7 which were
incorporated by reference to the Consolidated Financial Statements of Advanced
CAE Technology Inc. and the Unaudited Pro Forma Combined Financial Information
for Moldflow Corporation which were included in Amendment No. 4 to the
Registration Statement on Form S-1, Registration No. 333-95289 of Moldflow
Corporation, filed with the Securities and Exchange Commission on March 24,
2000.
14(c) EXHIBITS
Exhibits filed with this Annual Report are as set forth in the Exhibit Index
which immediately follows the Notes to the Consolidated Financial Statements.
14(d) OTHER FINANCIAL STATEMENTS
Not applicable.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Form
10K/A to be signed on its behalf by the undersigned, thereunto duly
authorized.
<TABLE>
<S> <C> <C>
MOLDFLOW CORPORATION
By: /s/ SUZANNE E. ROGERS
-----------------------------------------
Suzanne E. Rogers
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
</TABLE>
Date: November 13, 2000
27
<PAGE>
SCHEDULE II
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS OF MOLDFLOW CORPORATION
<TABLE>
<CAPTION>
BEGINNING ENDING
ITEM BALANCE ADDITIONS DEDUCTIONS BALANCE
---- --------- --------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
For the year ended June 30, 1998:
Allowance for doubtful accounts.................... $ 347 $ 275(a) $ (83)(b) $ 539
Deferred tax asset valuation allowance............. 7,378 5(a) (1,090)(c) 6,293
For the year ended June 30, 1999:
Allowance for doubtful accounts.................... 539 33(a) (340)(b) 232
Deferred tax asset valuation allowance............. 6,293 416(a) (173)(c) 6,536
For the year ended June 30, 2000:
Allowance for doubtful accounts.................... 232 639(a) (165)(b) 706
Deferred tax asset valuation allowance............. 6,536 1,071(a) (2,310)(c) 5,297
</TABLE>
------------------------
(a) Additional provisions and foreign currency translation effects.
(b) Specific write-offs and foreign currency translation effects.
(c) Utilization of net operating losses, reductions in other deferred tax assets
and foreign currency translation effects.
28
<PAGE>
APPENDIX A
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheet at June 30, 1999 and 2000........ F-2
Consolidated Statement of Income for the years ended June
30, 1998, 1999 and 2000................................... F-3
Consolidated Statement of Stockholders' Equity for the years
ended June 30, 1998, 1999 and 2000........................ F-4
Consolidated Statement of Cash Flows for the years ended
June 30, 1998, 1999 and 2000.............................. F-5
Notes to Consolidated Financial Statements.................. F-6
Report of Independent Accountants........................... F-24
</TABLE>
F-1
<PAGE>
MOLDFLOW CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 2000
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 1,240 $27,259
Marketable securities..................................... -- 8,452
Accounts receivable, net of allowance for doubtful
accounts of $232 and $706 at June 30, 1999 and 2000,
respectively............................................ 4,444 5,972
Inventories............................................... 84 220
Prepaid expenses.......................................... 283 551
Other currents assets..................................... 539 1,175
-------- -------
Total current assets.................................... 6,590 43,629
Fixed assets, net........................................... 3,110 4,864
Intangible assets, net of accumulated amortization of $0 and
$105 at June 30, 1999 and 2000, respectively.............. -- 1,994
Goodwill, net of accumulated amortization of $0 and $206 at
June 30, 1999 and 2000, respectively...................... -- 6,628
Other assets................................................ 547 208
-------- -------
Total assets.............................................. $ 10,247 $57,323
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 832 $ 58
Current portion of capital lease obligations.............. 191 10
Accounts payable.......................................... 1,422 1,203
Accrued expenses.......................................... 2,835 6,264
Deferred revenue.......................................... 3,418 5,103
-------- -------
Total current liabilities............................... 8,698 12,638
Long-term debt, net of current portion...................... -- 852
Capital lease obligations, net of current portion........... 11 --
Other long-term liabilities................................. 268 55
-------- -------
Total liabilities......................................... 8,977 13,545
-------- -------
Commitments and contingencies (Note 14)
Stockholders' equity:
Convertible preferred stock, $0.01 par value, 8,254,386
and no shares authorized at June 30, 1999 and 2000,
respectively; 8,139,579 and no shares issued and
outstanding at June 30, 1999 and 2000, respectively..... 12,366 --
Preferred stock, $0.01 par value; no and 5,000,000 shares
authorized at June 30, 1999 and 2000, respectively; no
shares issued and outstanding at June 30, 1999 and
2000.................................................... -- --
Common stock, $0.01 par value; 8,333,333 and 60,000,000
shares authorized at June 30, 1999 and 2000,
respectively; 553,177 and 9,278,493 shares issued and
outstanding at June 30, 1999 and 2000, respectively..... 6 93
Additional paid-in capital................................ 270 49,482
Deferred stock compensation............................... (67) (47)
Notes receivable from stockholders........................ (198) (210)
Accumulated deficit....................................... (11,713) (8,260)
Accumulated other comprehensive income.................... 606 2,720
-------- -------
Total stockholders' equity.............................. 1,270 43,778
-------- -------
Total liabilities and stockholders' equity.............. $ 10,247 $57,323
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<PAGE>
MOLDFLOW CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Software licenses......................................... $ 8,514 $12,238 $16,742
Services.................................................. 7,875 7,983 10,627
------- ------- -------
Total Revenue........................................... 16,389 20,221 27,369
------- ------- -------
Costs and expenses:
Cost of software licenses revenue......................... 397 378 785
Cost of services revenue.................................. 1,685 1,319 1,057
Research and development.................................. 3,062 3,466 4,074
Selling and marketing..................................... 7,287 9,673 13,495
General and administrative................................ 3,303 3,839 5,018
Litigation................................................ -- 620 785
Nonrecurring charges...................................... -- -- 284
Amortization of goodwill and other intangible assets...... 84 -- 311
------- ------- -------
Total operating expenses................................ 15,818 19,295 25,809
------- ------- -------
Income from operations...................................... 571 926 1,560
Interest income............................................. -- 21 512
Interest expense............................................ (238) (198) (85)
Other income (loss), net.................................... 19 (92) 1,717
------- ------- -------
Income before income taxes.............................. 352 657 3,704
Provision for income taxes.................................. 163 176 251
------- ------- -------
Net income.............................................. 189 481 3,453
Accretion on redeemable preferred stock..................... 80 -- --
------- ------- -------
Net income available to common stockholders............. $ 109 $ 481 $ 3,453
======= ======= =======
Net income per common share:
Basic................................................... $ -- $ 1.82 $ 1.29
Diluted................................................. $ 0.04 $ 0.08 $ 0.48
Shares used in computing net income per common share:
Basic................................................... -- 265 2,667
Diluted................................................. 5,228 6,166 7,190
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
MOLDFLOW CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
--------------------- ---------------------- PAID-IN STOCK
SHARES AMOUNT SHARES PAR VALUE CAPITAL COMPENSATION
---------- -------- ---------- --------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997............................... -- $ -- 2,020,256 $ 298 $ 776 $ --
Accretion of redeemable preferred stock to redemption
value................................................
Issuance of common stock in exchange for redemption
rights of outstanding preferred stock................ 29,167 4 73
Exchange of Class A convertible preferred stock for
Series A convertible preferred stock, which was
redesigned as series C-2 convertible preferred
stock................................................ 1,855,688 8,382
Exchange of convertible preferred stock for Series B
convertible preferred stock, which was redesignated
as series C-3 convertible preferred stock............ 666,666 1,943
Redesignation of common stock as series C-1 convertible
preferred stock...................................... 4,918,616 1,151 (2,049,423) (302) (849)
Comprehensive income:
Net income...........................................
Foreign currency translation adjustment..............
Comprehensive income.................................
---------- -------- ---------- ----- ------- ----
Balance at June 30, 1998............................... 7,440,970 11,476 -- -- -- --
Conversion of promissory notes to series C-3
convertible preferred stock.......................... 698,609 890
Issuance of common stock............................... 551,287 6 192
Exercise of stock options.............................. 1,890 -- 1
Deferred compensation associated with stock options.... 77 (77)
Amortization of deferred compensation.................. 10
Comprehensive income:
Net income...........................................
Foreign currency translation adjustment..............
Comprehensive income.................................
---------- -------- ---------- ----- ------- ----
Balance at June 30, 1999............................... 8,139,579 12,366 553,177 6 270 (67)
Exercise of stock options.............................. 45,916 -- 35
Amortization of deferred compensation.................. 20
Conversion of outstanding shares of convertible
preferred stock to shares of common stock............ (8,139,579) (12,366) 5,488,450 55 12,311
Proceeds from initial public offering of common stock,
net of issuance costs................................ 3,000,000 30 34,673
Exercise of warrants................................... 9,294 -- --
Proceeds from issuance of common stock to the
underwriters of the Company's initial public offering
of common shares pursuant to an option in the
underwriting agreements.............................. 181,656 2 2,193
Interest on notes receivable from stockholders.........
Comprehensive income:
Net income...........................................
Unrealized gain on investment, net of taxes..........
Foreign currency translation adjustment..............
Comprehensive income.................................
---------- -------- ---------- ----- ------- ----
Balance at June 30, 2000............................... -- $ -- 9,278,493 $ 93 $49,482 $(47)
========== ======== ========== ===== ======= ====
<CAPTION>
NOTES ACCUMULATED
RECEIVABLE COMPREHENSIVE OTHER TOTAL
FROM INCOME ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCKHOLDERS (LOSS) DEFICIT INCOME EQUITY
------------ ------------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1997............................... $ -- $(12,303) $ 645 $(10,584)
Accretion of redeemable preferred stock to redemption
value................................................ (80) (80)
Issuance of common stock in exchange for redemption
rights of outstanding preferred stock................ 77
Exchange of Class A convertible preferred stock for
Series A convertible preferred stock, which was
redesigned as series C-2 convertible preferred
stock................................................ 8,382
Exchange of convertible preferred stock for Series B
convertible preferred stock, which was redesignated
as series C-3 convertible preferred stock............ 1,943
Redesignation of common stock as series C-1 convertible
preferred stock...................................... --
Comprehensive income:
Net income........................................... $ 189 189 189
Foreign currency translation adjustment.............. 107 107 107
-------
Comprehensive income................................. $ 296
----- ======= -------- ------ --------
Balance at June 30, 1998............................... -- (12,194) 752 34
Conversion of promissory notes to series C-3
convertible preferred stock.......................... 890
Issuance of common stock............................... (198) --
Exercise of stock options.............................. 1
Deferred compensation associated with stock options.... --
Amortization of deferred compensation.................. 10
Comprehensive income:
Net income........................................... $ 481 481 481
Foreign currency translation adjustment.............. (146) (146) (146)
-------
Comprehensive income................................. $ 335
----- ======= -------- ------ --------
Balance at June 30, 1999............................... (198) (11,713) 606 1,270
Exercise of stock options.............................. 35
Amortization of deferred compensation.................. 20
Conversion of outstanding shares of convertible
preferred stock to shares of common stock............ --
Proceeds from initial public offering of common stock,
net of issuance costs................................ 34,703
Exercise of warrants................................... --
Proceeds from issuance of common stock to the
underwriters of the Company's initial public offering
of common shares pursuant to an option in the
underwriting agreements.............................. 2,195
Interest on notes receivable from stockholders......... (12) (12)
Comprehensive income:
Net income........................................... $ 3,453 3,453 3,453
Unrealized gain on investment, net of taxes.......... 2,281 2,281 2,281
Foreign currency translation adjustment.............. (167) (167) (167)
-------
Comprehensive income................................. $ 5,567
----- ======= -------- ------ --------
Balance at June 30, 2000............................... (210) $ (8,260) $2,720 $ 43,778
===== ======== ====== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
MOLDFLOW CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 189 $ 481 $ 3,453
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of long term investment.................... -- -- (1,744)
Loss on disposals of fixed assets....................... -- 18 40
Depreciation and amortization........................... 810 881 1,240
Provision for doubtful accounts......................... 256 29 13
Foreign exchange losses (gains)......................... 51 97 (17)
Changes in assets and liabilities, net of effects of
acquisition:
Accounts receivable................................... (1,901) (7) (600)
Inventories, prepaid expenses, other current assets... (47) 209 (891)
Other assets.......................................... (40) (209) (211)
Accounts payable...................................... 122 437 (212)
Accrued expenses...................................... 889 (1,104) 332
Deferred revenue...................................... 442 374 (38)
------- ------- --------
Net cash provided by operating activities........... 771 1,206 1,365
------- ------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of fixed assets................................. (729) (863) (875)
Investment in marketable securities....................... -- -- (4,957)
Acquisition of C-Mold, net of cash acquired............... -- -- (7,860)
Proceeds from sale of long term investment................ -- -- 1,779
Proceeds from fixed asset disposals....................... -- 9 4
------- ------- --------
Net cash used in investing activities............... (729) (854) (11,909)
------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable to stockholders... 460 -- --
Borrowings on bank notes payable.......................... 1,495 1,412 1,450
Payments on bank notes payable............................ (1,124) (2,120) (2,276)
Payments on capital lease obligations..................... (115) (200) (180)
Proceeds from issuance of common stock.................... -- 1 36,933
------- ------- --------
Net cash provided by (used in) financing
activities........................................ 716 (907) 35,927
------- ------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... (67) 95 636
------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 691 (460) 26,019
Cash and cash equivalents, beginning of year................ 1,009 1,700 1,240
------- ------- --------
Cash and cash equivalents, end of year...................... $ 1,700 $ 1,240 $ 27,259
======= ======= ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 183 $ 225 $ 104
Cash paid for income taxes................................ 112 157 212
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of fixed assets under capital leases.......... $ 18 $ -- $ 34
Conversion of notes payable to stockholder into
series C-3 convertible preferred stock.................. -- 890 --
Issuance of common stock in exchange for notes
receivable.............................................. -- 198 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS
Moldflow Corporation (the "Company") was incorporated in Delaware, USA in
January 1997. The Company was formed as the successor corporation to Moldflow
International Pty. Ltd. ("MIPL"), an Australian corporation that had been
incorporated in March 1994. On August 5, 1997, the stockholders of MIPL effected
a reorganization of that company's shares, resulting in MIPL becoming a wholly
owned subsidiary of the Company, and the stockholders of MIPL becoming
stockholders of the Company (Note 8).
The Company was formed to design, develop, manufacture and market computer
software applications for the design, engineering and manufacture of injection
molded plastic parts and, as such, revenues are derived from the plastic design
and manufacturing industry. The Company sells its products primarily to
customers in the United States, Europe, Asia and Australia.
On April 13, 2000, the Company completed an acquisition of Advanced CAE
Technology, Inc., which formerly conducted business as "C-Mold" (Note 3). The
business combination was accounted for using the purchase method of accounting.
Accordingly, these financial statements present together the financial position
and results of operations of the Company and C-Mold from the date of
acquisition.
The Company's fiscal year end is June 30. References to 1998, 1999 or 2000
mean the fiscal year ended June 30, unless otherwise indicated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all of its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated in the consolidated financial statements.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of international subsidiaries, whose functional
currency is the local currency, are translated at the rates in effect at the
balance sheet date and translation adjustments are recorded in stockholders'
equity as a component of accumulated other comprehensive income. Statement of
income amounts are translated at the average rate for the year. Foreign currency
transaction gains and losses are included in other income and expense.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a maturity of three months or
less are considered to be cash equivalents. The Company invests excess cash
primarily in overnight investments held at major financial institutions.
Accordingly, these investments are subject to minimal credit and market risk and
are reported at cost, which approximates fair value.
MARKETABLE SECURITIES
The Company's marketable securities at June 30, 2000 consisted of corporate
bonds with maturities in excess of three months but less than two years and
shares of a publicly traded company. These investments are classified as
available-for-sale and are reported at fair value, with unrealized gains and
F-6
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
losses included in accumulated other comprehensive income, net of the related
tax effect of $1.2 million. As of June 30, 2000, unrealized gains on these
marketable securities were $3.5 million.
ACCOUNTS RECEIVABLE, CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS
Financial instruments which potentially expose the Company to concentrations
of credit risk include accounts receivable and marketable securities. The
Company's customer base consists of a large number of geographically dispersed
customers. The Company maintains reserves for potential credit losses on
accounts receivable and such losses, in the aggregate, have not exceeded
management expectations. The Company invests its excess cash in financial
instruments with high credit quality in accordance with its investment policy,
as approved by the board of directors.
Revenue of $2,074,000 (13% of total revenue), $1,888,000 (9% of total
revenue) and $2,268,000 (8% of total revenue) was attributable to one customer
in fiscal 1998, 1999 and 2000, respectively. At June 30, 1999 and 2000, accounts
receivable from that customer accounted for $153,000 (3% of total accounts
receivable) and $182,000 (3% of total accounts receivable), respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 2000, the Company's financial instruments consisted of cash and
cash equivalents, marketable securities, accounts receivable, accounts payable,
accrued expenses, deferred revenue, and long-term debt. The carrying amounts of
these instruments at June 30, 2000 approximate their fair values.
INVENTORIES
Inventories are predominantly finished goods and are stated at the lower of
cost, using the first-in, first-out method, or market.
FIXED ASSETS
Fixed assets are recorded at cost and are depreciated using the
straight-line method over their estimated useful lives. Fixed assets held under
capital leases are stated at the lower of the fair market value of the related
asset or the present value of the minimum lease payments at the inception of the
lease and are amortized using the straight-line method over the shorter of the
life of the related asset or the term of the lease. Maintenance and repair costs
are charged to expense as incurred; improvements are capitalized. Upon
retirement or sale, the cost of the asset disposed of and the related
accumulated depreciation are removed from the accounts with any resulting gain
or loss credited or charged to other income.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of cost over the fair value of the net assets
acquired in the purchase of C-Mold (Note 3). Goodwill is amortized using the
straight-line method over seven years. The cost of other acquired intangibles is
amortized using the straight-line method over the following useful lives:
developed technology--4 years, assembled workforce--4 years and non-compete
covenants with former members of C-Mold senior management--5 years.
F-7
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed Of," the Company records
impairment losses on long-lived assets used in operations, including goodwill
and other intangible assets, when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. Through June 30, 2000, the Company had not
recognized any impairment loss on its long-lived assets.
REVENUE RECOGNITION
Revenue is derived from the licensing of computer software products and from
services consisting of maintenance and support, consulting, material testing and
training. The Company has adopted the guidelines of Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"), as amended by Statement of
Position 98-9, "Modification of SOP No. 97-2, Software Revenue Recognition, with
Respect to Certain Transactions" ("SOP 98-9"), both of which provide guidance on
applying generally accepted accounting principles in recognizing revenue on
software transactions.
The Company recognizes revenue from sales of software licenses upon product
shipment provided that evidence of the purchase commitment exists, the license
fee is fixed and determinable, collection is probable and all other revenue
recognition criteria of SOP 97-2 are met. Generally, the Company's software
products do not require significant modification or customization. Installation
of the products is generally routine, requires insignificant effort and is not
essential to the functionality of the product. The Company recognizes revenue
from maintenance and support ratably over the contract period and from training
and other related services as the services are performed.
Maintenance and support contracts are often entered into at the same time as
the sale of software licenses. In accordance with SOP 97-2, the Company
considers these multiple elements of a single arrangement. Payment for this
arrangement is typically received up-front, and the total fee is then allocated
ratably to these elements based upon vendor specific objective evidence of fair
value ("VSOE") for each, which is determined based upon the prices charged to
customers when these elements are sold separately; the revenue allocated to each
is then recognized as described above for these elements.
When VSOE does not exist for all elements of an arrangement, the Company
employs the "residual method" of accounting for revenue recognition, as defined
by SOP 98-9. The residual method requires that the portion of the total
arrangement fee attributable to the undelivered elements, as indicated by VSOE,
is deferred and subsequently recognized in accordance with SOP 97-2. The
difference between the total arrangement fee and the amount deferred for the
undelivered elements is recognized as revenue related to the delivered elements,
if all other revenue recognition criteria of SOP 97-2 are met. VSOE for the
undelivered elements is determined based on the prices charged to customers when
these elements are sold separately, typically from the renewal of the annual
maintenance and support contracts.
SOFTWARE DEVELOPMENT COSTS
Costs associated with the research and development of the Company's products
are expensed as incurred. Costs associated with the development of computer
software are expensed prior to
F-8
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
establishing technological feasibility, as defined by SFAS No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,"
and capitalized thereafter until commercial release of the software products.
Software development costs eligible for capitalization have not been significant
to date.
Costs of software applications developed or obtained for internal use that
are incurred during the applications' development stage are capitalized in
accordance with Statement of Position 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained For Internal Use." Costs eligible for
capitalization have not been significant to date.
ADVERTISING COSTS
The Company expenses the cost of advertising as incurred or, as appropriate,
the first time the advertising takes place. Advertising costs for the years
ended June 30, 1998, 1999 and 2000 were $207,000, $741,000 and $714,000,
respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation to employees in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees," and related interpretation. Accordingly, compensation
expense is recorded for options issued to employees in fixed amounts to the
extent that the fixed exercise prices are less than the fair market value of the
Company's common stock at the date of grant. The Company follows the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation"
(Note 10). All stock-based awards to non-employees are accounted for at their
fair value in accordance with SFAS No. 123.
NET INCOME PER COMMON SHARE
The Company computes net income per common share in accordance with SFAS
No. 128, "Earnings Per Share," ("SFAS 128") and SEC Staff Accounting Bulletin
No. 98 ("SAB 98"). Under the provisions of SFAS 128 and SAB 98, basic earnings
per common share is computed by dividing net income available to common
stockholders by the weighted-average number of common shares outstanding.
Diluted earnings per common share is computed by dividing net income by the
weighted-average number of common shares outstanding and, when dilutive, all
potential common equivalent shares outstanding including restricted stock,
options and warrants. The dilutive effect of options and warrants to purchase
common stock is determined under the treasury stock method using the average
fair value of common stock for the period (Note 11).
COMPREHENSIVE INCOME
As required, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income" on July 1, 1998. Under SFAS No. 130, the Company is required to display
comprehensive income and its components as part of the Company's full set of
financial statements. The measurement and presentation of net income did not
change. Comprehensive income is comprised of net income and other comprehensive
income. Other comprehensive income includes certain changes in equity that are
excluded from net income. At June 30, 2000, accumulated other comprehensive
income was comprised of cumulative foreign currency translation adjustments and
unrealized gains on marketable securities.
F-9
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The individual components of comprehensive income are reflected in the statement
of stockholders' equity for the years ended June 30, 1998, 1999 and 2000.
USE OF 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44 ("FIN No. 44"), "Accounting for Certain Transactions
involving Stock Compensation--An interpretation of APB Opinion No. 25." FIN
No. 44 addresses the application of APB No. 25 and, among other issues,
clarifies the following: the definition of an employee for purposes of applying
APB No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN No. 44 is
effective July 1, 2000, but certain conclusions in FIN No. 44 cover specific
events that occurred after either December 15, 1998 or January 12, 2000. The
Company does not expect the application of FIN No. 44 to have a material impact
on the Company's financial position or results of operations.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101") "Revenue Recognition in Financial
Statements." This statement was amended by the issuance of SAB 101B, "Second
Amendment: Revenue Recognition in Financial Statements," which delayed the
implementation date of SAB 101 until the fourth fiscal quarter of fiscal years
beginning after December 15, 1999. SAB 101 summarizes the SEC's views in
applying generally accepted accounting principles to selected revenue
recognition issues in financial statements. The Company is currently assessing
the impact of SAB 101 on its financial position and results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133").
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, and for hedging activities. SFAS 133, as amended by SFAS 137, is
effective for all quarters of all years beginning after June 15, 2000. The
Company did not use derivative instruments or engage in hedging activities in
fiscal 2000.
3. ACQUISITION
On April 13, 2000, the Company acquired Advanced CAE Technology, Inc., which
formerly conducted business as C-Mold, for $11.3 million in cash. The
acquisition was accounted for using the purchase method of accounting, and the
results of C-Mold have been included in the Company's consolidated financial
statements since the date of acquisition. Accordingly, the purchase price has
been allocated to the assets acquired and liabilities assumed at their fair
values on the date of the
F-10
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION (CONTINUED)
acquisition, based on management's estimates and, with respect to the
identifiable intangible assets, an independent professional appraisal. The
excess of the purchase price over the amounts allocated to the assets acquired
and liabilities assumed was recorded as goodwill. The purchase price was
allocated as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets.............................................. $ 4,685
Property and equipment...................................... 1,884
Assembled workforce......................................... 832
Developed technology........................................ 655
Non-compete covenants....................................... 611
In-process research and development......................... 214
Other long term assets...................................... 199
Current liabilities......................................... (3,780)
Non-current liabilities..................................... (881)
Goodwill.................................................... 6,834
-------
$11,253
=======
</TABLE>
In the opinion of management, the purchased in-process research and
development had not yet reached technological feasibility and had no alternative
future use. Consequently, a nonrecurring charge of $214,000 was recognized
during the fourth quarter of fiscal 2000 to expense the value of the acquired
in-process research and development. The value assigned was determined by
identifying research projects that were in-process as of the date of acquisition
for which technological feasibility had not yet been established. To determine
the fair value of the acquired in-process research and development, the Company
considered the stage of completion, the costs incurred and the costs to
complete, and the contribution of existing core technology, estimating the
resulting net future cash flows from the products under development, discounted
to their net present value.
The following table summarizes the unaudited pro forma results of operations
for the years ended June 30, 1999 and 2000 as if the acquisition of C-Mold had
been completed on July 1, 1998. The unaudited pro forma data gives effect to
actual operating results prior to the acquisition, including adjustments to
amortization of goodwill and other intangible assets but excluding the
nonrecurring charge for in-process research and development. These pro forma
amounts do not purport to be indicative of actual results had the acquisition
occurred on July 1, 1998 or that may be obtained in the future.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------
1999 2000
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Revenue................................................... $27,889 $33,495
Net income (loss)......................................... (1,573) 2,063
Net income (loss) per common share:
Basic................................................... $ (1.40) $ 0.62
Diluted................................................. (1.40) 0.26
</TABLE>
F-11
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. FIXED ASSETS
Fixed assets consist of the following (in thousands):
<TABLE>
<CAPTION>
ESTIMATED JUNE 30,
USEFUL LIFE -------------------
(YEARS) 1999 2000
------------ -------- --------
<S> <C> <C> <C>
Land............................................. -- $ 562 $ 990
Buildings........................................ 30 1,392 2,285
Equipment........................................ 5-7 2,149 2,557
Computer equipment............................... 3-5 1,491 1,642
Furniture and fixtures........................... 7-10 493 568
Computers and equipment under capital leases..... 3-7 708 633
Other............................................ 3-7 20 405
------- -------
6,815 9,080
Less--accumulated depreciation and
amortization................................... (3,705) (4,216)
------- -------
$ 3,110 $ 4,864
======= =======
</TABLE>
Depreciation expense, including amortization of assets under capital leases,
was $726,000, $881,000, and $929,000 for the years ended June 30, 1998, 1999 and
2000, respectively. Accumulated amortization for assets held under capital
leases was $425,000, $596,000 and $575,000 at June 30, 1998, 1999 and 2000,
respectively.
5. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 2000
-------- --------
<S> <C> <C>
Employee wages and commissions.............................. $ 565 $1,218
Employee leave costs........................................ 604 465
Employee retirement costs................................... 344 620
Professional fees........................................... 591 713
Taxes and withholding....................................... 336 2,104
Severance costs............................................. -- 573
Lease termination charges................................... -- 70
Other....................................................... 395 501
------ ------
$2,835 $6,264
====== ======
</TABLE>
In June 2000, the Company recorded a charge of $70,000 related to exit costs
incurred in the relocation of its corporate headquarters to Wayland,
Massachusetts. The amount is included as a nonrecurring charge in the Company's
consolidated statement of income. The exit costs specifically relate to
non-cancelable lease costs which terminate in November 2000.
F-12
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. NOTES PAYABLE TO STOCKHOLDERS
In January 1997, certain subsidiaries of the Company entered into loan
agreements with stockholders of the Company, which provided the Company with a
maximum borrowing amount of $1,073,000. Interest expense incurred by the Company
under these agreements in the year ended June 30, 1998 was $85,000.
On July 6, 1998, the Company converted the outstanding principal balance of
the notes of $890,000 into 698,609 shares of the Company's series C-3
convertible preferred stock. Accrued interest of $107,000 was paid in cash upon
conversion.
7. BANK NOTES PAYABLE
LINES OF CREDIT
In April 1998, the Company entered into an agreement with a bank for a
revolving credit facility totaling $3,750,000. In November 1998, the overall
facility was reduced to $3,250,000. Borrowings under the facility are secured by
certain assets of the Company and its Australian subsidiaries, and by a standby
letter of credit issued by an Australian bank. Available borrowings under the
line are computed based upon a percentage of domestic and foreign accounts
receivable and the value of the standby letter of credit in the amount of
$754,000. The line bears interest at the rate of prime plus 1.25% (10.75% at
June 30, 2000) and prime plus 1.50% (11.00% at June 30, 2000) on the domestic
and foreign lines, respectively, and was subject to a commitment fee of one half
of one percent. All outstanding principal plus accrued interest was due in
October 1999, however, on October 22, 1999, the term of the facility was
extended to December 31, 2000. All other significant provisions of the facility
remained unchanged.
At June 30, 1999 and 2000, borrowings under the facility were $767,000 and
$0, respectively. The agreement contains covenants which, among other matters,
restrict or limit the ability of the Company to pay dividends, incur
indebtedness, merge, acquire or sell assets. The Company must also maintain
certain financial ratios regarding liquidity, profitability and net worth, among
other restrictions. At June 30, 2000, the Company was in compliance with these
covenants.
In connection with the facility, the Company issued warrants to purchase up
to 20,833 shares of the Company's common stock. These warrants were immediately
exercisable at $7.20 per share and had an expiration date of April 2005. The
value ascribed to these warrants was determined by management using the
Black-Scholes pricing model with the following assumptions: risk-free interest
rate of 5.8%; expected life of 7 years; expected volatility of 100%; and no
dividend yield. The resulting value of the warrants was not significant. The
warrants were exercised on March 28, 2000 in connection with the Company's
initial public offering of common stock.
EQUIPMENT LOANS
At June 30, 1999 and 2000, the Company had $65,000 and $13,000,
respectively, outstanding under various equipment term loans. The loans bear
interest at variable rates ranging from 6% to 8% and require monthly payments of
principal and interest through 2001.
SECURED LOANS
At June 30, 2000, the Company had $897,000 outstanding under two mortgage
contracts secured by real estate in Louisville, Kentucky and Taiwan. Of this
amount, $45,000 was classified as current.
F-13
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. BANK NOTES PAYABLE (CONTINUED)
The loan agreement for the Louisville facility has an adjustable interest
rate defined at the prime rate (8.25% at June 30, 2000). At June 30, 2000, the
unpaid balance was $607,000, of which $23,000 is classified as current. The loan
is to be repaid in equal monthly payments of $6,000. Each payment will be
applied first to interest with the remainder applied to principal. Based on the
current monthly payments of $6,000 and an interest rate of 8.25%, the Company
will be required to make a final payment of approximately $490,000 in the year
2005. The agreement is secured by the real property located in Louisville. The
Company was in compliance with the related debt covenants at June 30, 2000. This
facility is currently being held for sale; if sold, this loan must be repaid.
The mortgage loan for the Taiwan facility was refinanced by C-Mold during
its fiscal 1997 and is due in 2012. At June 30, 2000, the unpaid balance on the
mortgage was $290,000, of which $22,000 is classified as current. The interest
rate on the mortgage loan is adjusted annually (8.3% at June 30, 2000). Monthly
interest and principal payments are $4,000.
Future principal payments for these mortgages as of June 30, 2000 are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
--------------------
<S> <C>
2001........................................................ $ 45
2002........................................................ 52
2003........................................................ 56
2004........................................................ 61
2005........................................................ 66
Thereafter.................................................. 617
----
897
Less: current portion....................................... 45
----
$852
====
</TABLE>
8. PREFERRED STOCK
On June 30, 1997, the Board of Directors of MIPL voted to enter into an
agreement with its stockholders and with the Company, whereby MIPL would
reacquire all of its outstanding and issued shares and issue an equal number of
common and convertible preferred shares to the Company. Simultaneously under the
arrangement, the former stockholders of MIPL would become stockholders of the
Company. Upon execution of the share exchange on August 5, 1997, the Company
effectively reorganized and MIPL became a wholly owned subsidiary of the
Company. The exchange resulted in the issuance by the Company of common stock,
series A convertible preferred stock and series B convertible preferred stock.
Prior to the exchange, the MIPL preferred stockholders' redemption rights
were removed. As consideration for the removal of these redemption rights, these
stockholders received 29,167 common shares of MIPL, which were valued at
$77,000.
On March 9, 1998, the Company redesignated the previously issued common,
series A convertible preferred and series B convertible preferred into shares of
series C-1, C-2 and C-3 convertible preferred stock, respectively. In addition,
on that date, the Company increased the number of
F-14
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. PREFERRED STOCK (CONTINUED)
authorized common shares from 4,166,667 to 8,333,333 and increased the number of
all classes of authorized convertible preferred shares from 5,732,032 to
8,254,386.
On July 6, 1998, the Company converted the outstanding principal balance of
$890,000 in notes payable to stockholders of the Company into 698,609 shares of
newly designated series C-3 convertible preferred stock.
On March 27, 2000, in conjunction with the Company's initial public offering
of common shares, all shares of series C-1, C-2 and C-3 convertible preferred
stock were automatically converted into common stock in accordance with the
terms of their conversion rights. Conversion was based on a formula, which
resulted in a 1-for-0.41667 exchange for the series C-1 and C-3 holders and a
1-for-1.54668 exchange for the series C-2 holders.
Convertible preferred stock consists of the following (amounts in thousands,
except share data):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 2000
-------- --------
<S> <C> <C>
Series C-1 convertible preferred stock; $0.01 par value;
4,918,616 and no shares authorized, issued and outstanding
at June 30, 1999 and 2000, respectively................... $ 1,151 $ --
Series C-2 convertible preferred stock; $0.01 par value;
1,855,688 and no shares authorized, issued and outstanding
at June 30, 1999 and 2000, respectively................... 8,382 --
Series C-3 convertible preferred stock; $0.01 par value;
1,480,082 shares authorized and 1,365,275 shares issued
and outstanding at June 30, 1999; no shares authorized,
issued or outstanding at June 30, 2000.................... 2,833 --
------- -------
$12,366 $ --
======= =======
</TABLE>
On January 20, 2000, the Board of Directors approved an amendment to the
Company's certificate of incorporation increasing the number of authorized
shares of preferred stock to 5,000,000, with a par value of $0.01 per share.
This increase became effective on March 31, 2000.
9. COMMON STOCK
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to dividends when-and-if declared by the Board of Directors.
On July 1, 1998, the Company issued 551,287 shares of its common stock to
certain officers and senior managers of the Company for a cash purchase price of
$198,000. In connection with this issuance, the employees entered into Stock
Restriction Agreements that contain restrictions on the sale of the shares by
the employees and loan agreements evidenced by promissory notes bearing interest
at 5.77% and maturing on June 30, 2003. The shares purchased by the employees
under the Stock Restriction Agreements vest on varying schedules through fiscal
year 2003.
On January 20, 2000, the Board of Directors approved a 2.4-to-1 reverse
stock split of the Company's common stock which became effective on March 23,
2000. All share and per share
F-15
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK (CONTINUED)
information in the accompanying consolidated financial statements and notes has
been retroactively restated to reflect the effect of this reverse stock split.
On March 31, 2000, the Company completed an initial public offering of
common stock, which resulted in the issuance of 3,000,000 shares of common
stock. Proceeds to the Company, net of the underwriting discount and costs of
the offering, were $34.7 million. Additionally, effective March 31, 2000, the
number of authorized shares of common stock of the Company was increased to
60,000,000.
On April 13, 2000, the underwriters of the Company's initial public offering
exercised their option to purchase an additional 450,000 shares of common stock,
of which 181,656 shares were issued by the Company. The proceeds to the Company,
net of the underwriting discount, were $2.2 million.
At June 30, 2000 the Company had 2,204,650 shares of its common stock
reserved for issuance under the Company's Stock Option and Incentive Plan and
Employee Stock Purchase Plan.
10. STOCK PLANS
STOCK OPTION PLAN
In August 1997, the Company adopted the 1997 Equity Incentive Plan (the
"1997 Plan") which provides for the grant of incentive stock options,
non-qualified stock options, stock awards and stock purchase rights for the
purchase of up to 931,303 shares of the Company's common stock by officers,
employees, consultants and directors of the Company. In April 1999, the number
of shares available under the 1997 Plan was increased to 1,537,158 shares. The
Board of Directors is responsible for administration of the 1997 Plan. The Board
determines the term of each option, the option exercise price, the number of
shares for which each option is granted and the rate at which each option is
exercisable. Incentive stock options may be granted to any officer or employee
at an exercise price per share of not less than the fair value per common share
on the date of the grant (not less than 110% of fair value in the case of
holders of more than 10% of the Company's voting stock) and with a term not to
exceed ten years from the date of the grant (five years for incentive stock
options granted to holders of more than 10% of the Company's voting stock).
Non-qualified stock options may be granted to any officer, employee, consultant
or director at an exercise price per share of not less than the book value per
share. The Company will not issue any more shares under the 1997 Plan.
On January 20, 2000, the Board of Directors approved the Moldflow
Corporation 2000 Stock Option and Incentive Plan (the "2000 Plan"), which
provides for the grant of incentive stock options, stock awards and stock
purchase rights for the purchase of up to 2,000,000 shares of common stock by
officers, employees, consultants and directors of the Company. As with the 1997
Plan, the 2000 Plan is administered by the Board of Directors. The Board
determines the term of each option, the option exercise price, the number of
shares for which each option is granted and the rate at which each option is
exercisable. Incentive stock options may be granted to any officer or employee
at an exercise price per share of not less than the fair value per common share
on the date of the grant (not less than 110% of fair value in the case of
holders of more than 10% of the Company's voting stock) and with a term not to
exceed ten years from the date of the grant (five years for incentive stock
options granted to holders of more than 10% of the Company's voting stock).
Non-qualified stock options may be granted to any officer, employee, consultant
or director at an exercise price per share of not less than the book value per
share.
F-16
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK PLANS (CONTINUED)
In January 1999 an amendment was made to certain employee stock options
which resulted in a determinable measurement date. Deferred compensation of
$77,000 was recorded, in accordance with APB No. 25, and is being amortized over
the related vesting period. Related compensation expense of $10,000 and $20,000
was recorded during the years ended June 30, 1999 and 2000, respectively. During
fiscal 2000, the Company granted options to purchase 1,042 shares of its common
stock at an exercise price below the then fair market value of the Company's
stock, as determined by the Board of Directors. In addition, the Company granted
an option to purchase 521 shares of its common stock to a consultant. The
Company recorded compensation expense of $12,000 in fiscal 2000 relating to
these two option grants.
Except for the options noted above, no other compensation cost has been
recognized for employee stock-based compensation for the years ended June 30,
1998, 1999 and 2000. Had compensation cost been determined based on the fair
value at the grant dates for awards in 1998, 1999 and 2000 consistent with the
provisions of SFAS No. 123, the Company's net income (loss) available to common
stockholders would have been the pro forma amounts indicated below. Because
options vest over several years and additional option grants are expected to be
made in future years, the pro forma results are not representative of the pro
forma results for future years.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss) available to common stockholders
As reported......................................... $ 109 $ 481 $3,453
Pro forma........................................... (58) 462 2,285
Net income (loss) per common share:
Basic--as reported.................................. $ -- $1.82 $ 1.29
Pro forma basic..................................... -- 1.74 0.86
Diluted--as reported................................ 0.04 0.08 0.48
Pro forma diluted................................... -- 0.07 0.32
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions for
grants:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Dividend yield..................................... -- -- --
Volatility......................................... 0.001% 0.001% 75.00%
Risk-free interest rate............................ 5.8% 4.6% 6.3%
Expected option life............................... 8 yrs 8 yrs 7.3 yrs
</TABLE>
F-17
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK PLANS (CONTINUED)
A summary of the status of the Company's stock options as of June 30, 1998,
1999 and 2000, and changes during the years then ended, is presented below:
<TABLE>
<CAPTION>
1998 1999 2000
----------------------------- ---------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ---------------- --------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year............................ -- $ -- 795,624 $2.45 566,105 $ 3.07
Granted........................... 1,267,277 1.15 375,938 4.44 374,738 15.07
Exercised......................... -- -- (553,177) 0.36 (45,916) 0.53
Canceled.......................... (471,653) 2.45 (52,280) 0.36 (31,323) 8.49
---------- --------- ----------
Outstanding at end of year........ 795,624 2.45 566,105 3.07 863,604 8.22
========== ========= ==========
Options exercisable at end of
year............................ 254,392 68,382 159,614
Weighted average fair value of
options granted during the
year............................ $ 0.41 $ 1.37 $ 11.42
Options available for future
grant........................... 135,679 417,877 1,704,650
</TABLE>
In conjunction with the redesignation of the Company's common and preferred
stock in March 1998 (Note 8), 390,842 options with an exercise price of $2.64
were exchanged for 697,910 options with an exercise price of $0.36. The exercise
price at the time of the exchange was considered the fair market value of the
common stock of the Company subsequent to the redesignation. All other terms of
the new options remained consistent with the terms of the exchanged options.
The following table summarizes information about stock options outstanding
at June 30, 2000:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
WEIGHTED AVERAGE REMAINING CONTRACTUAL SHARES WEIGHTED AVERAGE
EXERCISE PRICE SHARES EXERCISE LIFE (YEARS) EXERCISABLE EXERCISE PRICE
-------------- -------- ---------------- --------------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
$0.36-$5.00............... 257,229 $ 0.73 5.7 97,522 $0.60
$5.01-$10.00.............. 273,084 6.19 6.9 62,092 6.02
$10.01-$15.00............. 78,941 12.11 8.7 -- --
$15.01-$20.00............. 254,350 16.76 7.7 -- --
------- -------
$0.36-$20.00.............. 863,604 8.22 6.9 159,614 2.71
======= =======
</TABLE>
STOCK PURCHASE PLAN
On January 20, 2000, the Board of Directors approved the Moldflow
Corporation Employee Stock Purchase Plan with an authorization of up to 500,000
shares of common stock. This plan is open to all eligible employees of the
Company. Under the plan, each employee may elect to have up to 10% of his or her
base salary withheld and applied toward the purchase of shares within each
six-month offering period. The purchase price per share is determined based on
85% of the lower of the fair market value of the stock on the first or the last
day of each offering period. At June 30, 2000, no shares had been issued under
the plan.
11. NET INCOME PER COMMON SHARE
Under the provisions of SFAS 128, the computation of basic and diluted net
income per common share has been adjusted retroactively for all periods
presented to reflect the redesignation of the
F-18
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. NET INCOME PER COMMON SHARE (CONTINUED)
Company's common and preferred stock in March 1998 (Note 8). As a result of this
treatment of the redesignation, the Company had no common stock outstanding
prior to June 30, 1998 for purposes of computing net income per common share.
Accordingly, basic net income per common share was zero for the year ended
June 30, 1998.
Options and warrants to purchase 432,000 and 335,000 shares of common stock
were outstanding for the years ended June 30, 1999 and 2000, respectively, but
were not included in the calculation of diluted net income per common share, as
their inclusion would be antidilutive.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Net income.................................................. $ 189 $ 481 $3,453
Accretion on preferred stock................................ 80 -- --
------ ------ ------
Net income available to common stockholders................. $ 109 $ 481 $3,453
====== ====== ======
Weighted average shares used in computing net income per
common share--basic....................................... -- 265 2,667
------ ------ ------
Effect of dilutive securities:
Restricted stock.......................................... -- 287 158
Employee stock options and warrants....................... 34 162 310
Convertible preferred stock............................... 5,194 5,452 4,055
------ ------ ------
Dilutive potential common shares........................ 5,228 5,901 4,523
------ ------ ------
Weighted average shares used in computing net income per
common share--diluted..................................... 5,228 6,166 7,190
====== ====== ======
Net income per common share--basic.......................... $ -- $ 1.82 $ 1.29
Net income per common share--diluted........................ $ 0.04 $ 0.08 $ 0.48
</TABLE>
12. INCOME TAXES
The income before income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Domestic income (loss)...................................... $(57) $(3,335) $1,999
Foreign income.............................................. 409 3,992 1,705
---- ------- ------
Income before income taxes................................ $352 $ 657 $3,704
==== ======= ======
</TABLE>
F-19
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal............................................... $ 10 $ 5 $ 10
State................................................. 47 18 73
Foreign............................................... 184 153 86
---- ---- ----
Total current....................................... 241 176 169
---- ---- ----
Deferred:
Federal............................................... (78) -- 74
State................................................. -- -- 8
Foreign............................................... -- -- --
---- ---- ----
Total deferred...................................... (78) -- 82
---- ---- ----
$163 $176 $251
==== ==== ====
</TABLE>
The reconciliation of the provision for income taxes computed at the U.S.
federal statutory tax rate to the actual provision is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
Statutory federal rate of 34%......................... $120 $223 $ 1,259
Foreign withholding taxes............................. 36 79 (26)
State income taxes, net of federal benefit............ (51) 12 53
Permanent differences................................. 11 (94) (6)
Change in valuation allowance......................... 27 (54) (1,018)
Foreign tax rate differential......................... 35 20 15
Other................................................. (15) (10) (26)
---- ---- -------
$163 $176 $ 251
==== ==== =======
</TABLE>
F-20
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
The deferred tax assets and liabilities consist of the following (in
thousands):
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 2000
-------- --------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 4,472 $ 4,794
Foreign tax credit...................................... 326 537
Accrued expenses not deductible for tax purposes........ 133 274
Revenue deferred for financial purposes................. 1,614 47
Other................................................... 274 465
------- -------
Gross deferred tax assets............................. 6,819 6,117
Deferred tax asset valuation allowance.................. (6,536) (5,297)
------- -------
Total deferred tax assets............................. 283 820
Deferred tax liabilities.................................. (205) (948)
------- -------
Net deferred tax assets (liabilities)................. $ 78 $ (128)
======= =======
</TABLE>
At June 30, 2000, the Company had available federal, state and foreign net
operating loss carryforwards of approximately $9,538,000, $8,241,000 and
$3,429,000, respectively. These carryforwards expire at various times through
2020 if not utilized. Under the provisions of the U.S. Internal Revenue Code,
certain substantial changes in the Company's ownership may limit the amount of
federal net operating loss carryforwards and tax credit carryforwards which
could be utilized annually to offset federal future taxable income and taxes
payable.
Under generally accepted accounting principles, the benefit associated with
future deductible differences is recognized if it is more likely than not that
the benefit will be realized. Management believes that, based on the Company's
historical results of operations, it is more likely than not that a substantial
amount of the Company's deferred tax assets will not be realized. Accordingly,
the Company has recorded a valuation allowance of $6,536,000 and $5,297,000 at
June 30, 1999 and 2000, respectively. Management believes that the net deferred
tax asset represents management's best estimate, based upon the weight of
available evidence, of the deferred tax asset that will be realized. If such
evidence were to change, based upon near-term operating results and longer-term
projections, the amount of the valuation allowance recorded against the gross
deferred tax asset may be decreased or increased.
13. BENEFIT PLANS
401(K) SAVINGS PLAN
The Company has established a retirement savings plan under Section 401(k)
of the U.S. Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers
substantially all U.S. based employees of the Company who meet minimum age and
service requirements, and allows participants to defer a portion of their annual
compensation on a pre-tax basis. Matching contributions to the 401(k) Plan may
be made at the discretion of the Company. The Company contributed $132,000,
$175,000 and $227,000 to the 401(k) Plan in the years ended June 30, 1998, 1999
and 2000, respectively.
F-21
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. BENEFIT PLANS (CONTINUED)
SUPERANNUATION PLAN
Employees of the Company's Australian subsidiary are covered by a defined
contribution Superannuation Plan. The Superannuation Plan covers substantially
all Australian employees and, under Australian law, the Company is required to
contribute a fixed percentage of taxable compensation to this plan. The Company
contributed $157,000, $201,000 and $187,000 to the Superannuation Plan in the
years ended June 30, 1998, 1999 and 2000, respectively.
14. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases certain of its office space and certain office equipment
under noncancelable operating leases, which expire at various dates through
2009. In June 2000, the Company entered into a five-year lease for a new
corporate headquarters in Wayland, Massachusetts. The Company also leases
computers and other equipment under capital leases that expire in 2001. Future
minimum lease commitments at June 30, 2000, including the new headquarters
lease, are as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEAR ENDING JUNE 30, LEASES LEASES
-------------------- --------- --------
<S> <C> <C>
2001....................................................... $1,274 $11
2002....................................................... 949 --
2003....................................................... 825 --
2004....................................................... 776 --
2005....................................................... 768 --
Thereafter................................................. 652 --
------ ---
$5,244 11
======
Less: portion representing interest........................ 1
---
$10
===
</TABLE>
Total rent expense under these operating leases was $515,000, $664,000 and
$837,000 for the years ended June 30, 1998, 1999 and 2000, respectively.
LITIGATION
On February 17, 1999, the Company filed suit against a former employee and
the individual's then current employer, C-Mold, seeking immediate and permanent
injunctive relief in connection with the theft and misappropriation of the
Company's proprietary trade secrets. The complaint sought permanent injunction
against the defendants, actual, consequential and punitive damages, and recovery
of all legal costs.
During fiscal years 1999 and 2000, the Company incurred legal expenses of
$620,000 and $785,000, respectively, during the prosecution of this litigation.
These expenses have been included in litigation expenses in the consolidated
statement of income.
On April 13, 2000, in connection with the Company's acquisition of C-Mold,
this litigation was dismissed with prejudice by the agreement of all parties.
F-22
<PAGE>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT AND GEOGRAPHIC INFORMATION
The Company is engaged in one reportable industry segment: the development,
marketing and support of software products for the plastic design and
manufacturing industry.
The Company licenses its products to customers throughout the world. Sales
and marketing operations outside the United States are conducted principally
through the Company's foreign sales subsidiaries in Europe and Asia.
The Company's principal software development facility is located in
Australia and additional development facilities are located in the United States
and the United Kingdom.
Geographic information regarding the Company's operations was as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
REVENUE FROM UNAFFILIATED CUSTOMERS:
Asia/Australia
Software licenses......................................... $ 2,945 $ 3,156 $ 6,335
Services.................................................. 2,067 1,856 2,831
------- ------- -------
Total Asia/Australia.................................. 5,012 5,012 9,166
------- ------- -------
USA
Software licenses......................................... 2,443 3,904 3,977
Services.................................................. 3,078 3,070 3,827
------- ------- -------
Total USA............................................... 5,521 6,974 7,804
------- ------- -------
Europe
Software licenses......................................... 3,126 5,178 6,430
Services.................................................. 2,730 3,057 3,969
------- ------- -------
Total Europe............................................ 5,856 8,235 10,399
------- ------- -------
Consolidated
Software licenses......................................... 8,514 12,238 16,742
Services.................................................. 7,875 7,983 10,627
------- ------- -------
Total consolidated...................................... $16,389 $20,221 $27,369
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
------------------------------
1998 1999 2000
-------- -------- --------
<S> <C> <C> <C>
FIXED ASSETS, NET:
Asia/Australia............................................ $ 2,325 $ 2,363 $ 2,641
USA....................................................... 396 408 1,736
Europe.................................................... 257 339 431
------- ------- -------
Total consolidated...................................... $ 2,978 $ 3,110 $ 4,808
======= ======= =======
</TABLE>
F-23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Moldflow Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 23 of this Annual Report on Form 10-K
present fairly, in all material respects, the financial position of Moldflow
Corporation (the "Company") and its subsidiaries at June 30, 1999 and 2000, and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 2000, in conformity with accounting principles
generally accepted in the United States. In addition, in our opinion, the
financial statement schedules listed in the index appearing under Item 14(a)(2)
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements. These
financial statements and financial statement schedules are the responsibility of
the Company's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 8, 2000
F-24
