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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission file number: 001-31265

AVATECH SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (410) 581-8080

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value

Indicate by check mark whether the registrant: (1) has 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 (2) 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 registrant’s knowledge, in definitive proxy or information statement incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act.    Yes  ¨    No  x

The aggregate market value of the voting stock held by non-affiliates of the registrant as of September 24, 2004 was $4,909,492.

The number of shares of common stock outstanding as of September 24, 2004 was 9,626,455.

DOCUMENTS INCORPORATED BY REFERENCE

To the extent specified, Part III of this Form 10-K incorporates information by reference to the Registrant’s definitive proxy statement for its 2004 Annual Meeting of Shareholders (to be filed).

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PART I

ITEM 1. BUSINESS

Background

Avatech Solutions, Inc. was formed as a Delaware corporation on September 9, 1996. During fiscal years 1997 through 1999, we consummated business combinations with ten companies that provided design automation software, training, technical support, and professional services to corporations, government agencies, and educational institutions throughout the United States.

In November 2002, Avatech Solutions completed a merger with PlanetCAD, Inc and became a wholly owned subsidiary of PlanetCAD, Inc., after which PlanetCAD changed its name to Avatech Solutions, Inc. and Avatech changed its name to Avatech Solutions Subsidiary, Inc. As a result of the merger, PlanetCAD’s shareholders retained twenty-five percent of the surviving company and, in exchange for all of the common stock of Avatech Solutions, Inc., Avatech’s shareholders were issued registered shares constituting seventy-five percent of the surviving company’s outstanding common stock. Avatech was deemed to have acquired PlanetCAD because Avatech’s shareholders received the majority of the common stock of the post-merger company. In November 2002, Avatech Solutions, Inc. began trading on the OTC Bulletin Board under the symbol AVSO.OB.

In the fourth quarter of our fiscal year ended June 30, 2003 and the first quarter of fiscal year 2004, we restructured the business to eliminate certain unprofitable operating segments, including the acquired PlanetCAD operations and four reseller locations.

General

We are a leader in design and engineering technology solutions with expertise in CAD software, data management and process optimization for the manufacturing, engineering, building design and facilities management industries. We specialize in software resale, integration, standards development and deployment, education and technical support, aimed at improving design and documentation efficiencies and the seamless integration of workflow processes. Our sales are to corporations, government agencies, and educational institutions worldwide.

We differentiate ourselves from traditional product resellers through our wide range of value-added services, consisting primarily of training, technical support, and professional services. We also provide software customization, data migration, computer aided design standards consulting, process workflow analysis, and implementation assistance for complex design environments. Our strategic focus is to respond to our customers’ requests for interoperability and provide solutions that address broad, enterprise-wide initiatives.

Our national sales and service delivery network consists of approximately 133 personnel operating out of sixteen business offices across the country. Our sales database has over 180,000 point-of-contact names collected over a fifteen-year time span and an active customer list of approximately 18,000 private firms and federal, state, and local agencies.

Our product sales are cyclic, and increase when the developer of a specific software product offers a new version, promotions or discontinues support of an older product.

As is common among software resellers, we purchase our products from our suppliers with a combination of cash and credit extended by the supplier. We do not carry significant inventory, and generally place an order with the supplier only after receiving a firm commitment from our customer. Except in unusual situations, we do not allow our customers to return merchandise, and do not offer extended payment terms to our customers.

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Products

Substantially all of our business consists of the sale of prepackaged software and associated services to customers in the United States. Our sales are focused on three major product categories and associated value-added services.

Design Automation. More than 90% of our total revenue arises from the resale of design software developed by Autodesk, Inc. (Autodesk) for the building design and land development, manufacturing, utilities, and telecommunications industries, and the delivery of related services from the sales of these products. These product sales are primarily packaged software programs installed on a user workstation, on a local area network server, or in a hosted environment. The programs perform and support a wide variety of functions related to design, drafting, manufacturing, workflow automation, and document management activities.

In addition to our Autodesk offerings, we also provide other solutions to our design automation customers, such as electronic document management software from Cyco Software, Inc., which provides methodical and organized processes to store, retrieve, manage, and version design files, drawings, and related documents such as customer correspondence, inventory lists, digital images, and other items. We offer Proof Positive^™, a quality assurance solution for mechanical design, which we also develop and support. In addition, we offer ongoing support for legacy products such as STONErule^® for CATIA, a design automation toolkit. These products are based on client/server architecture, and are scalable from a departmental solution to a division level infrastructure system.

We provide a variety of services along with our design automation software sales, to assist our customers in maximizing the benefits from these software applications. These services include training, technical support, and professional services.

We offer training courses in over thirty different subjects related to various software solutions offered at nineteen training facilities and through mobile labs that we can send to a customer site or other off-site facilities. We have 17 employees who serve as class instructors and have formal training or successful industry experience in the topics they are teaching. We can also provide training services that are highly tailored to meet the needs of a particular customer, including company-specific operational topics, customized product usage, and other general technology or process training. As part of our training offering, we have developed and deployed an Internet based assessment tool that allows our clients to test their employees’ knowledge and ability to use the software tools. We can write custom questions to focus the assessment on the specific tasks of a particular client, or can make the assessment broader to help identify the productivity issues within a company. Following the assessment and using reports, we are able to create a custom curriculum and learning environment to directly address the client’s needs. This tool is also being integrated into our standard training classes to ensure customer satisfaction, to identify areas where our training offerings or instructors may need improvement and/or to identify opportunities for additional offerings. Our instructors must pass annual subject-matter exams required by Autodesk and other software providers to retain their product-based teaching certifications.

We provide end-user and corporate technical support services through our National Support Center (NSC) located in Omaha, Nebraska. A staff of five full-time product and technology consultants assists customers calling with questions about product features, functions, usability issues, and configurations. The NSC offers services through multiple access levels including prepaid services, actual elapsed time, and annual support contracts. Customers can communicate with the NSC through e-mail, telephone, and fax channels. Standard NSC support services are offered on a 12-hour by 5-day basis, with premium pricing for extended coverage hours.

Our professional services include project-focused offerings such as software customization, data migration, computer aided design standards consulting, supplemental staffing for design work, drawing digitization, and symbol library development. We have two project managers and four industry specialists who provide professional services to our design automation customers. We also provide technology interoperability, engineering collaboration, and workflow improvement solutions with design automation and manufacturing organizations.

Product Lifecycle Management. In July of 2003, we entered into an Authorized Reseller Agreement with Dassault Systèmes of France, a world leader in product lifecycle management (PLM) solutions, with more than 65,000 customers in 80 countries. This agreement makes us a Dassault Systèmes Business Partner and authorizes us

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to sell Dassault’s SmarTeam PLM solution throughout North America. PLM software solutions are expected to be a significant new tool for manufacturers in multiple vertical industries over the next decade, and this agreement positions us to provide unique cost-effective PLM solutions designed to help companies optimize business processes, shorten the time-to-market, increase innovation, and reduce costs.

We market PLM solutions to our existing and new small and medium-sized business customers through a team of dedicated salespeople. As of June 30, 2004 we have four dedicated sales people and five dedicated technical specialists involved in marketing and supporting sales of PLM product and associated services.

Facilities Management. In May 2003, we entered into an Authorized Reseller Agreement with Archibus, Inc. of Boston, MA, a world leader in facilities and infrastructure management products, with more than 100,000 enterprise users, and one million web users worldwide. This Agreement authorizes us sell Archibus’s FM solution throughout the United States. Its flagship product, ARCHIBUS/FM, is a powerful suite of integrated applications that creates a single, comprehensive repository of information on an organization’s people, places, processes, and physical assets. Physical assets, such as real estate, buildings, equipment, materials, and furniture make up a significant percentage of an organization’s total asset value. These assets are used by many different business units, departments, and individuals, and must be accurately managed in order to extend asset life cycles and keep operating costs at a minimum.

Total Infrastructure and Facilities Management (TIFM) solutions enable organizations to make informed strategic and business decisions that optimize return on investment, lower asset life cycle costs, and increase enterprise-wide productivity and profitability. Organizations of all sizes, spanning the financial, educational, governmental, healthcare, and manufacturing industries, use TIFM to deliver timely, relevant facilities information as part of their strategic business plans.

Geographic Information Systems (GIS) software permits users to link together disparate data files (maps, aerial photos, tax records, marketing data, etc.) and provide the user with a unified image and knowledge base of a specific geographic location or building location. When integrated with Internet browsers and document management tools into a facilities management solution, users gain substantial knowledge about their buildings, their neighborhoods, and their documents, providing increased effectiveness and cost containment.

New technology based on powerful desktop computer hardware has enabled software developers to offer products that are easier to use and less expensive than the previous applications, thus expanding the volume of purchases, installation, and level of usage from the traditional civil engineering, utilities, public works, and transportation logistics markets and into the emergency services and Homeland Security segments.

In the fourth quarter of our fiscal year ended June 30, 2003, we began to sell, customize, and implement facilities management solutions through our three dedicated salespeople, two dedicated technical specialists and a network of strategic partners. We also provide GIS database development services to facilities management customers, both through our own employees and our strategic partners.

Markets

Design Automation. In the design automation market, we focus on providing enterprise solutions to small- and medium-sized businesses with under one billion dollars of annual revenue, primarily in the architecture, engineering, and construction (AEC) market and the mechanical design and manufacturing (MDM) market. The AEC market is comprised of design services focused on the construction of large physical assets such as buildings, roads, factories, utility companies, and commercial infrastructure projects. The MDM market is primarily focused on the design, tooling, assembly, and testing of instruments, electronic devices, machines, mechanical devices, and power-driven equipment. We also sell prepackaged design automation software to small companies with less than fifty million dollars of annual revenue on an order-fulfillment basis through our call center in Tampa, Florida.

While several local and regional competitors exist in the various geographic territories where we conduct business, we have a competitive advantage in terms of geographic reach, comprehensive training and support, and the provision of other products and services. We are one of the largest commercial Autodesk resellers in the United

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States. Two national competitors that could be compared to us in scale, size, geographical reach, and target markets for the resale of Autodesk products are INCAT International, Inc. (INCAT) and RAND A Technology Corporation (RAND).

INCAT is a systems integrator for design automation products. They have thirty offices in nine countries with worldwide headquarters in the United Kingdom and fifteen offices in the United States. They have approximately eight hundred employees worldwide, with approximately sixty-five percent in consulting, design engineering and technical support. While INCAT is larger than Avatech, we estimate that the Autodesk portion of its business is less than our Autodesk business.

RAND is the largest computer-aided design and engineering technology company worldwide. It also has been selling Dassault’s SmarTeam PLM solution in North America for approximately two years. However, we estimate that its North American Autodesk-related business is less than ours. It has twelve U.S. offices in the Midwest, Northwest and Florida. RAND operates 104 offices located in twenty-seven countries with its corporate headquarters in Canada.

Product Lifecycle Management. We recently have begun to provide Dassault’s SmarTeam products, which are rapidly implemented, scalable, tailored and uniquely cost-effective PLM solutions designed to offer streamlined data management, improved workflow, and comprehensive collaboration to help companies optimize business processes, shorten the time-to-market, increase innovation, and reduce costs. We provide these solutions as part of an enterprise solution for existing and new small- and medium-sized business customers. According to AMR Research, the PLM software market was two billion dollars in 2001 and will grow to nearly eight billion dollars by 2006.

Prior to our arrangement, Dassault’s SmarTeam products were generally marketed in the United States exclusively through IBM and on every other continent through leading resellers.

We believe that PLM software and services represents a significant opportunity for future growth. Our arrangement with Dassault not only provides us with a potentially significant new product line, but also allows us to expand our higher margin service revenues and significantly increases the average size of sales transactions. PLM software greatly enhances manufacturing efficiencies and permits manufacturers to manage products through their active lifecycles. We believe that our arrangement with Dassault provides us with important product diversity consistent with our new strategy of increased investment of people, diversification of product and service offerings.

Facilities Management. We provide facilities management solutions to organizations of all sizes, spanning the financial, educational, governmental, healthcare, and manufacturing industries. Our major competitors in facilities management products are CFI, BRG – Business Resource Group, and DB Associates. CFI is a privately held company based in Southfield, MI. It provides mainly ARCHIBUS/FM products, as well as consulting services and outsourced staffing, but they are no longer an Autodesk distribution partner. BRG – Business Resource Group (“BRG”) is a privately held company based in San Jose, CA, whose primary business is the resale of commercial furniture systems. BRG focuses on the ARCHIBUS/FM product line and provides consulting and implementation services and outsourced staffing. DB Associates, parent company of the wholly owned subsidiary, Facilities Resources, Inc. (“FRI”), focuses primarily on furniture management and warehousing services. We believe FRI is the largest ARCHIBUS/FM partner by volume. We believe that our larger employee pool and well-developed customer base give us advantages over these competitors and will contribute to future growth in this market.

Arrangements with Principal Suppliers

Our revenues are primarily derived from the resale of vendor software products and services. These resales are made pursuant to channel sales agreements whereby we are granted authority to purchase and resell the vendor products and services. Under these agreements, we either resell software directly to our customers or act as a sales agent for various vendors and receive commissions for our sales efforts.

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We are required to enter into an annual Authorized Channel Partner Agreement with Autodesk, Inc. whereby Autodesk appoints us as a non-exclusive partner to market, distribute, and support Autodesk software products. Collectively with our subsidiaries, we must achieve a yearly minimum revenue in the amount of $300,000 from the sale of Autodesk’s software products in order to be eligible to purchase such products directly from Autodesk. This agreement authorizes us to sell certain software products to certain customers in specific geographic areas of the United States. There are no clauses in this agreement that limit or restrict the services that we can offer to customers.

We have also entered into an Authorized Reseller Agreement with Dassault Systèmes whereby we market and distribute Dassault’s SmarTeam PLM products in the United States. In connection with this July 2003 arrangement, Dassault provided us with certain financial assistance, including funds to create a dedicated PLM sales force and related marketing efforts.

Customers

We market our products to private companies, public corporations, government agencies, and educational institutions throughout the United States. In the fiscal year ended June 30, 2004, the revenues generated by our top ten customers represented approximately five percent of consolidated revenues, and no single customer accounted for ten percent or more of our consolidated revenues.

Intellectual Property

We regard our technology and other proprietary rights as essential to our business. We rely on copyright, trade secret, confidentiality procedures, contract provisions, and trademark law to protect our technology and intellectual property. We have also entered into confidentiality agreements with our consultants and corporate partners and intend to control access to, and distribution of our products, documentation, and other proprietary information.

We own several federally registered trademarks, including “AVATECH SOLUTIONS,” and “AVANEWS,” and have a number of trademark applications pending. We have no patents or patent applications pending. We acquired a number of other trademarks as a result of our merger with PlanetCAD.

This Annual Report contains trademarks and trade names of Avatech Solutions, Inc. and its affiliates as well as those of other companies. All trademarks and trade names appearing in this report are the property of their respective holders.

Employees

At June 30, 2004, we had approximately 131 full time employees and two part time employees located in sixteen offices throughout the United States. Many of our current employees formerly were employees of the companies that we acquired. Approximately 37 are located in Maryland, where we have our corporate headquarters, as well as one sales and one training location. Maryland is also the location of our centralized accounting, order processing, and marketing functions. Approximately 50 of our employees are engaged in sales and marketing activities and approximately 46 employees are engaged in service fulfillment.

Our future success depends in significant part upon the continued services of our key sales, technical, and senior management personnel and our ability to attract and retain highly qualified sales, technical, and managerial personnel. None of our employees are represented by collective bargaining agreements, and we have never experienced a work stoppage. We believe our employee relations are good.

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Available Information

Our Internet website is www.avatechsolutions.com. We make available free of charge on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports as soon as reasonably practicable after we electronically file with or furnish such materials to the SEC.

Our executive offices are located at 10715 Red Run Blvd, Suite 101, Owings Mills, Maryland 21117 and our telephone number is (410) 581-8080.

ITEM 2. PROPERTIES

Our corporate offices are located in Owings Mills, Maryland where we lease approximately 13,430 square feet of office space, pursuant to a lease which expires on July 21, 2011. These facilities house our executive and primary administrative offices as well as accounting, order processing operations, IT, sales, and marketing. We also lease office space at the following locations:

Not listed are leases for space that we have vacated if the sublessee’s payments to us defray, in whole or in substantial part, our lease payment obligations.

The commercial real estate market is volatile and unpredictable in terms of available space, rental fees, and occupancy rates and preferred locations. We cannot be certain that additional space will be available when we require it, or that it will be affordable or in a preferred location.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we are involved in legal matters or named as a defendant in legal actions arising from normal operations, or are presented with claims for damages arising out of our actions. Management believes that these matters will not have a material adverse effect on our financial statements.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

A Special Meeting of Shareholders was held on June 4, 2004. Of the 12,075,703 shares entitled to vote at the meeting, 8,001,203 voted. The following matters were voted on at the meeting:

EXECUTIVE OFFICERS

Set forth below is information, as of June 30, 2004, with respect to the individuals who serve as our executive officers.

DONALD R. WALSH. Before joining Avatech as its CEO in December 2002, Mr. Walsh was the Executive Vice President of Business & Network Systems Sales for InterVoice-Brite, Inc., a global leader in the call automation industry, a position he held since August 1999. From August 1990 until the 1999 merger of Brite Voice Systems, Inc. with InterVoice, Inc., Mr. Walsh served in a number of management roles including the Executive Vice President of Worldwide Sales for the Brite Voice Systems. Before joining Brite Voice Systems, Mr. Walsh served as President of PSC Information Services, a division of a Philadelphia suburban corporation that provides data processing products and services. Mr. Walsh’s experience also includes 23 years of experience with IBM.

BETH O. MACLAUGHLIN. Ms. MacLaughlin joined Avatech in 1998 as its Controller and was appointed Vice President-Finance, Controller and Interim Chief Financial Officer in August 2003. Prior to joining Avatech in 1998, she served as director of Finance for NRL & Associates, a manufacturing firm, and held responsibilities as a staff accountant for two public accounting firms. She was adjunct professor of accounting at Catonsville Community College and an accounting instructor at Anne Arundel Community College during the period 1995 through 2001. She is a certified public accountant and holds a B.S. in Accounting from the University of Baltimore, where she graduated with cum laude honors in 1994.

W. SCOTT HARRIS. Mr. Harris joined Avatech on June 1, 2004 after serving as president and COO of Washington Cable Supply, Inc., from May 2003 through May 2004, where he was responsible for all aspects of the company’s operations. Mr. Harris served as Chief Operating Officer of Adaptave Trade, Inc. from December 2000 to January 2002, and as Chief Operating Officer of Guestech L.L.C. from June 1999 through September 2000. At various times during 2000 through 2003, Mr. Harris provided strategic consulting services through Scottswood Consulting, at which he served as a principal, primarily to early stage services, software and hardware technology companies, helping them to become profitable entities and adding value for investors. As General Manager and COO of The Harris Group, Mr. Harris developed and executed a five-year business plan that led to the sale of the company to Bell & Howell, where he continued as the Vice President, Software Operations & Business Development for a $400 million division. He held a long distinguished career at IBM. Mr. Harris holds a BS in Information Systems Management from Tulane University.

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CHRISTOPHER D. OLANDER. During his thirty-year career, Mr. Olander has concentrated on technology start-ups, corporate finance, securities regulation, merger and acquisition transactions, and complex banking transactions. He has a unique combination of law and business experience; he has represented companies, investment banks, merchant banks, venture capital funds and trustees in securities transactions totaling in excess of $30 billion. Before joining Avatech, Mr. Olander was of counsel at Neuberger Quinn Gielen Rubin & Gibber from October 2002 through June 2004, President and CEO of Phone Genie Technology, Inc. from July 2001 through October 2002, Executive Vice President and Chief Internet Strategist at QUADS Financial Group, Inc. from February 2000 through July 2001, and President and CEO of ExpertDriven, Inc. from June 1999 to February 2000. He was managing partner at Shapiro and Olander from 1977 to 1999. Mr. Olander is a 1970 graduate of The Johns Hopkins University, and a 1973 graduate, with honors, of the University of Maryland School of Law.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Price Data

Prior to our merger with PlanetCAD, PlanetCAD’s common stock was listed on the American Stock Exchange under the symbol “PCD”. Since the date of the merger, our common stock has been trading on the OTC Bulletin Board under the symbol “AVSO.OB”. The following table indicates the high and low sales prices per share, rounded to the nearest whole cent, reported by the American Stock Exchange, for the periods indicated prior to November 20, 2002 and as available through the OTC market for the periods indicated since that date. The OTC quotations represent prices between dealers and do not reflect the retailer markups, markdowns or commissions, and may not represent actual transactions. All prices shown have been restated to reflect the two-for-one stock dividend which was distributed on October 1, 2003 for shareholders of record at September 15, 2003 as well as the one-for-twenty reverse stock split that occurred on October 22, 2002.

Recent Closing Prices

On September 24, 2004, the last closing price for our common stock on the OTC Bulletin Board, as reported by Reuters, was $0.51.

Dividend Information

We have never paid cash dividends on our common stock and we anticipate that we will continue to retain any earnings for the foreseeable future for use in the expansion and operation of our business.

Our Series D Convertible Preferred Stock is eligible for 10% annual, cumulative dividends, payable quarterly, when and as declared by the Board of Directors. These dividends have priority over any declaration or payment of any dividend or other distribution on our Common Stock and all other currently outstanding shares of our equity securities. For the year ended June 30, 2004, dividends totaling $56,305 were paid to preferred shareholders.

Number of Stockholders

As of September 24, 2004, there were 258 holders of record of our common stock and 16 holders of our Series D Convertible Preferred Stock.

Recent Sales of Unregistered Securities

On April 21, 2004, our Board of Directors authorized the issuance of warrants to purchase 51,838 shares of our common stock to Mr. Hindman, with an exercise price of $0.45 per share, expiring on March 31, 2009, in consideration for his agreement on April 1, 2004 to extend the due date of loans made to the company from July 1, 2004 to July 1, 2005.

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ITEM 6. SELECTED FINANCIAL DATA

The following selected historical annual consolidated financial data is derived from our audited financial statements as of and for the five years ended June 30, 2004. The following consolidated financial data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this Report.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS SHOULD BE READ IN CONJUNCTION WITH THE CONSOLIDATED FINANCIAL STATEMENTS AND THE RELATED NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.

Certain statements set forth below constitute “forward-looking statements”. Such forward-looking statements involve known and unknown risk, uncertainties and other factors including, but not limited to, those discussed in our annual and quarterly reports, that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements implied by such forward-looking statements. These forward-looking statements may generally be identified by the use of the words “may”, “will”, “believe”, “should”, “expect”, “anticipate”, “estimate”, and similar expressions. Given these uncertainties, investors and prospective investors are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update information contained in any forward-looking statement.

Overview

We are a leading provider of design automation and data management solutions for the manufacturing, building design, engineering, and total infrastructure and facilities management markets. We specialize in technical support, training, and consulting aimed at improving design and documentation efficiencies and the seamless integration of workflow processes. These technology solutions enable our customers to enhance productivity, profitability, and competitive position. We are one of the largest Autodesk software integrators worldwide and a leading provider of engineering document management solutions.

During the fall of 2003, we revised our growth strategy and began to focus on new ways of expanding our people resources, product offerings, and geographic “footprint.” We are accomplishing this strategy by:

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This revised growth strategy was intended to match our product and service offerings more precisely with the needs of our customers. In July 2003, we entered into an Authorized Reseller Agreement with Dassault Systèmes Corp., an international developer and distributor of PLM application software and services, whereby we will market and distribute Dassault’s SmarTeam PLM products in the United States. In connection with this agreement, Dassault provided us with certain financial assistance to create a dedicated PLM sales force and to conduct related marketing efforts. We plan to continue implementing this strategy by expanding geographically through targeted mergers and acquisitions, opening new locations, and expanding international product distribution relationships.

Beginning in June 2003 and continuing through the second quarter of the fiscal year ended June 30, 2004, we instituted a number of cost containment measures to align our selling, general and administrative expenses with our revenue levels. We accomplished this plan by:

As a result, we reduced selling, general and administrative expenses related to underperforming offices. In accordance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-lived Assets,” the results of operations of these operating units are treated as discontinued operations, and reported as a separate component of operating results in our consolidated statements of operations.

We considered these expense reduction measures necessary to help reduce operating losses arising from the prolonged impact of economic recession on the software industry and also to help us carry out our revised strategy. Our consolidated financial statements consistently present these operations as discontinued operations. Unless otherwise indicated, all amounts included in this Discussion and Analysis of Financial Condition and Results of Operations are from continuing operations.

Product Sales. Our product sales consist primarily of the resale of packaged design software, including:

We also offer Autodesk’s subscription programs, which entitle subscribers to receive software upgrades, web support and eLearning lessons directly from Autodesk. Because we do not participate in the delivery of these subscription products or the web support and eLearning lesson benefits, we record the margin (the difference between the revenue and cost of the product) from the sale of Autodesk software subscriptions as commission revenue. Approximately 92% of our total product revenue is related to the resale of Autodesk products.

Service Revenue. We provide services in the form of training, consulting services, professional services, and technical support to our design automation, PLM, and F/AM customers. We also offer our customers an assessment tool to analyze the ability and knowledge of current and potential employees in computer aided design.

We employ a technical staff of approximately 52 personnel associated with these types of services. In the third quarter of fiscal 2004, we revised our sales commission plan to focus on increasing service sales and higher service margins. Because we replaced approximately 50% of our applications engineers during the third and fourth quarters of fiscal 2004, and it takes three to four months for these personnel to complete their training and become billable at acceptable levels, we have not yet determined the success of our new commission structure.

Commission Revenue. We generate commission revenue from the resale of Autodesk software to various customers, a number of which Autodesk considers “major accounts.” Autodesk designates these customers as major accounts based on specific criteria, primarily sales volume, and typically gives these customers volume discounts. We are responsible for managing and reselling Autodesk products to a number of these major account customers; however, software products are shipped directly from Autodesk to the customers. We receive commissions upon shipment of the products from Autodesk to the customer based on the product sales price.

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Cost of Product Sales. Our cost of product sales consists of the cost of purchasing products from software suppliers or hardware manufacturers. We also include the associated shipping and handling costs in cost of product sales.

Cost of Service Revenue. Cost of service revenue includes the direct costs associated with the implementation of software and hardware solutions as well as training, support services, and professional services. These costs consist primarily of compensation, benefits, travel, and the costs of third-party contractors engaged by us. Our cost of service revenue does not include an allocation of overhead costs.

Selling, General and Administrative Expenses. Selling, general and administrative expenses consist primarily of compensation and other expenses associated with management, finance, human resources, and information systems. We also include advertising and public relations expenses and expenses for facilities, such as rent and utilities, in selling, general and administrative expenses.

Depreciation and Amortization Expenses. Depreciation and amortization expenses represent the period costs associated with our investment in property and equipment, consisting principally of computer equipment, software, furniture and fixtures, and leasehold improvements. We compute depreciation and amortization expenses using the straight-line method. We lease all of our facilities and depreciate leasehold improvements over the lesser of the lease term or the estimated useful life of the asset.

Interest Expense. Interest expense consists primarily of interest on our revolving line-of-credit and subordinated debt, which we incurred to fund operations over the past three years.

Critical Accounting Policies

General. Our consolidated financial statements are impacted by the accounting policies used and the estimates and assumptions made by management during their preparation. Critical accounting policies and estimates that impact the consolidated financial statements are those that relate to software revenue recognition and estimates of bad debts. We discuss all of these critical accounting policies with our Audit Committee on a periodic basis. Presented below is a description of the accounting policies that are most critical to an understanding of our consolidated financial statements.

Software Revenue Recognition. We derive most of our revenue from the resale of packaged software products. Our product sales may also include hardware that we may purchase for the convenience of our customers. Historically, we have not experienced significant customer returns. We earn service revenue from training and other professional services, which often are related to the products that we sell but are not essential to the functionality of the software. We offer annual support contracts to our customers for the software products that we sell, or we offer maintenance and support services under hourly billing arrangements.

We recognize revenue from software arrangements in accordance with the provisions of AICPA Statement of Position No. 97-2, Software Revenue Recognition, as amended by SOP No. 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. Prior to recognizing any revenue under these arrangements, (1) persuasive evidence of an arrangement must exist, (2) delivery of the software or service must have occurred, (3) all fees must be assessed as fixed or determinable, and (4) all fees must be probable of collection. We determine whether criteria (3) and (4) have been satisfied based on our judgment regarding the fixed nature of the fee charged for services rendered and products delivered and the collectibility of such fee. Revenue recognized in a reporting period could be adversely affected if future changes in conditions related to a transaction cause us to determine these criteria are not met. In the past, we have not needed to adjust our reported revenue due to changes in conditions, and we continue to evaluate current conditions that may affect the nature and timing of our revenue recognition.

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Our customer arrangements can involve the sale of one or more elements. When this occurs, we allocate revenue to each element if we can determine reliably the relative fair value of each element. We limit the assessment of fair value to the price that we charge when the element is sold separately. If the fair value of each element in a multiple element arrangement cannot be reliably determined, and if the fair value of any undelivered element cannot also be reliably determined, all revenue under the arrangement is deferred until such time as the only remaining undelivered element is maintenance, or in the absence of maintenance, implementation services, upon which time revenue is recognized over the remaining maintenance or service period. We have established the fair value of the product and service elements within the design automation software arrangements that we sell. However, we do not have sufficient vendor-specific evidence of the fair value of the maintenance programs and services we offer in tandem with our newer PLM products, and accordingly, we recognize revenue associated with these arrangements over the maintenance or service period in accordance with our stated accounting policy. Revenue that is deferred and recognized over a maintenance or service period is recognized in proportion to the services delivered, or ratably if no better measure of performance can be determined.

The timing of the revenue that we recognize in future periods from our multiple element arrangements with customers will be dependent upon our ability to establish or continue to have vendor-specific evidence of the fair value of each of the elements in these types of arrangements. In the near term, we expect the number of PLM solutions that we sell to increase, thereby increasing our deferred revenue.

Bad Debts. We maintain an allowance for doubtful accounts for estimated losses which may result from the inability of our customers to pay for purchased products and services or for disputes that affect our ability to fully collect our accounts receivable. We estimate this allowance by reviewing the status of our past-due accounts and record general reserves based on our historical bad debt expense. Our actual experience has not varied significantly from our estimates; however, if the financial condition of our customers were to deteriorate, resulting in their inability to pay for products or services, we may need to record additional allowances in future periods. To mitigate this risk, we perform ongoing credit evaluations of our customers.

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Years Ended June 30, 2002, 2003, and 2004

The following table sets forth the percentages of total revenue represented by selected items reflected in our audited Consolidated Statements of Operations included elsewhere in this report. The year-to-year comparisons of financial results are not necessarily indicative of future results.

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Year Ended June 30, 2003 Compared to Year Ended June 30, 2004

Revenue

Total Revenue. Total revenue for our fiscal year ended June 30, 2004 was $28.0 million, compared to $22.5 million in fiscal 2003, an increase of $5.5 million. Our total revenue includes product sales, service revenue, and commission revenue.

For fiscal 2004, revenue in two categories—product sales and commission revenue—increased due to a positive general economic turnaround, Autodesk’s new product releases and promotional activities, and demand caused by customers upgrading their software. During fiscal 2004, we began to offer PLM and F/AM software products from Dassault and Archibus. Also, during October 2003, we reduced prices when Autodesk reduced the price we pay for products by 20% under a short-term promotional program, which increased our volume of units delivered.

Product Sales. Product sales for fiscal 2004 were $17.7 million, compared to $12.4 million in fiscal 2003, increasing $5.3 million. The increase was due to an improving economy, Autodesk’s reduction in “major accounts,” many of whom then started purchasing from us, and increased commercial customer product and service sales from our new product groups, PLM and F/AM.

Service Revenue. Service revenue for fiscal 2004 was $5.5 million, compared to $5.9 million in fiscal 2003, decreasing $461,000. This decrease in service revenue is the result of the market focusing on product upgrades from discontinued products and a reduction in the number of our service employees dedicated to service activities. We also experienced an unusually high rate of turnover in service professionals, replacing approximately one-half of our application engineers during fiscal 2004. Although some employee turnover is normal, the higher turnover rate during fiscal 2004 occurred because we terminated underperforming service employees and hired better qualified personnel. However, it generally takes three to four months for new service personnel to complete their training, and we were not able to fill vacancies in time to prevent the decrease in service revenue. We have reestablished our professional service group with highly qualified personnel, and we expect all of our new service professionals to be fully trained by October 2004.

Commission Revenue. Commission revenue for fiscal 2004 was $4.8 million, compared to $4.2 million in fiscal 2003, increasing $571,000. The increase in commission revenue was a result of two factors: an increase in net subscription revenue of approximately $952,000, primarily due to the industry-wide increase in sales volume related to the associated software products; and a decrease of approximately $381,000 in commission revenue from Autodesk major accounts due to Autodesk’s new, more restrictive criteria for major accounts, which reduced the number of customers who qualified for major account discounts. Because many of these customers continued to purchase Autodesk software and related services from us, some of the revenue from these customers that we recognized as commission revenue during fiscal 2003 was included in our product sales and service revenue during fiscal 2004.

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Cost of Revenue and Expenses

Cost of Product Sales. Cost of product sales for fiscal 2004 was $12.6 million, compared to $8.8 million for fiscal 2003, increasing $3.9 million. This increase was primarily due to increased sales volume. Cost of product sales as a percentage of related revenue for fiscal 2004 also increased slightly to 71.4% from 71.0% in the same period in fiscal 2003.

Cost of service revenue. Cost of service revenue for fiscal 2004 was $4.1 million, compared to $3.8 million for fiscal 2003, increasing $319,000. Cost of service revenue as a percentage of related revenue for fiscal 2004 increased to 74.7% from 63.5% in the same period in fiscal 2003. We attribute this increase in cost of service revenue as a percentage of revenue primarily to our need to subcontract certain work to third party providers in our PLM and F/AM service businesses until our own service organization is fully staffed and trained. During 2004, we were engaged to perform professional services as part of a few large F/AM software implementation projects. In order to provide the appropriate expertise and service the projects, we subcontracted some of this work to third party providers, which resulted in an increase the cost of service revenue.

Gross margin. We calculate gross margin percentage as the quotient obtained by dividing costs by the related revenue. Overall, the gross margin percentage decreased to 40.1% for fiscal 2004, compared to 44.3% in fiscal 2003, primarily due the combination of the increase cost of service revenue and an overall decrease in service revenue. We currently are focused on developing our PLM and F/AM markets for products and related services, and until such time as we generate significant revenue from these new product and service offerings, our margins will be affected by our investment in a professional, well-trained service staff. We ultimately expect our service revenue from F/AM and PLM to increase and for our margins to return to historical levels.

Other Operating Expenses

Selling, General and Administrative. Selling, general and administrative expenses for fiscal 2004 were $11.1 million, compared to $12.2 million during the fiscal year ended June 30, 2003, decreasing $1.1 million. Selling, general and administrative expenses as a percent of total revenue were 39.6% during fiscal 2004, and 54.2% during the same period in fiscal 2003. This decrease in selling, general and administrative expenses was principally due to a combination of elements: a $297,000 increase in marketing cooperative credits from Autodesk due to increased sales volume, reimbursement of $1.2 million of our PLM marketing expenses by Dassault, and our company-wide focus on controlling expenses.

Depreciation and Amortization. Depreciation and amortization expenses for fiscal 2004 were $331,000, compared to $412,000 for fiscal 2003, decreasing $81,000. Depreciation and amortization expenses of property and equipment decreased as a result of an increase in the number of fully depreciated assets compared to the prior period.

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Other Non-operating Income (Expense).

Other non-operating income (expense) was ($466,000) and $1.6 million in fiscal 2004 and fiscal 2003, respectively. The significant increase in other income during the 2003 fiscal year relates to a gain recorded from the extinguishment of our debt. In January 1999, we borrowed $3.0 million from a significant supplier. In August 2002, we executed an agreement to extinguish the debt for a cash payment of $1.0 million, resulting in a $2.0 million gain on the extinguishment of debt. The minority interest represents dividends paid on shares of preferred stock issued by one of our subsidiaries.

Income Tax Expense

Income tax expense was $30,000 and $408,000 in fiscal 2004 and fiscal 2003, respectively. In August 2002, we realized a $2.0 million taxable gain from the extinguishment of certain debt, which resulted in our recording a net deferred tax asset of $373,000 at June 30, 2002. In 2003, we recorded deferred income tax expense of $373,000 related to the estimated reduction in deferred tax assets in 2003. Our tax expense in fiscal 2004 relates solely to state and local income taxes. Because we have significant net operating loss carryforwards, we do not expect to pay federal income taxes for the foreseeable future.

Cumulative Effect of Change in Accounting Principle

As of July 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“Statement 142”). As a result of adopting Statement 142 and performing the required transitional impairment tests, we recorded a non-cash charge of $520,000, which is included in cumulative effect of change in accounting principle in the 2003 consolidated statement of operations. The impairment charge relates solely to Avatech of Michigan, a business unit that ceased operations in June 2003.

Year Ended June 30, 2002 Compared to Year Ended June 30, 2003

Revenue

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Total revenue for our fiscal year ended June 30, 2003 was $22.5 million, compared to $26.6 million for fiscal 2002, decreasing $4.2 million. For fiscal 2003, revenue in two of three categories—product sales and commission revenue—decreased as a result of the weak economic conditions and a restructuring of Autodesk’s major account programs. Product sales in fiscal 2003 were $12.4 million compared to $16.6 million in fiscal 2002, a decrease of $4.2 million. We attribute this fluctuation in product sales to weak economic conditions, causing customers to defer purchasing software products as well as the timing and customer acceptance of product upgrades. During the fiscal year ended June 30, 2003, Autodesk reduced the number of customers designated as major accounts by changing the specific criteria for granting volume discounts, reducing our customer base for commission revenue. As a result, commission revenue for fiscal 2003 decreased by 1%, or $47,000.

During fiscal 2003, we continued to realign our sales organization and focus on being a full solution service provider for our customers, increasing our professional and technical support service contracts over the prior period. As a result, our service revenue increased $157,000 in fiscal 2003 to $5.9 million from $5.7 million in fiscal 2002. Our training service revenue increased due to an increase in the number of training seminars held at Avatech sites also were engaged to perform professional services as part of a few large facilities management software implementation projects initiated in 2003.

Cost of Revenues and Expenses

Cost of Product Sales. Cost of product sales for fiscal 2003 were $8.8 million, compared to $11.1 for fiscal 2002, decreasing $2.3 million. We attribute this increase in cost of product sales to Autodesk’s restructuring of its marketing cooperative program, which increased the price we pay for Autodesk products by approximately 5%, while increasing the payments we receive from Autodesk for advertising expenses. These new credits are offset against our marketing expenses (included in selling, general and administrative expenses) rather than our cost of product sales.

Cost of Service Revenue. Cost of service revenue for fiscal 2003 was $3.8 million, compared to $3.4 million in fiscal 2002, increasing $402,000. We attribute this increase in cost of service revenue primarily to our need to subcontract certain work to third party providers. During 2003, we were engaged to perform professional services as part of a few large facilities management software implementation projects. In order to provide the appropriate expertise and service the projects, we subcontracted some of this work to third party providers, which resulted in an increase in related the cost of service revenues.

Gross Margin Percentage. Overall, the gross margin percentage decreased to 44.3% for fiscal 2003 from 45.8% in fiscal 2002, primarily due to increased costs resulting from Autodesk’s restructuring of its marketing cooperative program, and increased outsourcing of service contracts. Cost of product sales as a percentage of related revenues for fiscal 2003 increased to 71.0% from 66.6% in the same period in 2002 and cost of service revenue as a percentage of related revenues for fiscal 2003 increased to 63.5% from 58.3% in fiscal 2002.

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Other Operating Expenses

Selling, General and Administrative. Selling, general and administrative expenses for fiscal 2003 were $12.2 million, compared to $11.7 million for fiscal 2002, increasing $481,000. Selling, general and administrative expenses as a percent of total revenues for fiscal 2003 increased to 54.2% from 44.0% in fiscal 2002. We attribute the increase in selling, general and administrative expenses to the fixed cost required to support a nationwide network of offices, and to the PlanetCAD merger on November 19, 2002. After this reverse merger, our professional services costs increased by $370,000 and insurance expenses increased by $172,000 due to the cost of being a public company.

Depreciation and Amortization. Depreciation and amortization expenses for fiscal 2003 were $412,000, compared to $503,000 during fiscal 2002, decreasing $92,000. Depreciation and amortization expenses for property and equipment decreased as a result of reduced capital expenditures for computer equipment and software and an increase in the number of fully depreciated assets compared to the prior period. For the year ended June 30, 2002, we recorded an impairment charge of $285,000 for the write-down of unamortized goodwill to its estimated fair value. We recorded this impairment charge in the third quarter of 2002 after determining that sales at one subsidiary were unlikely to reach previously projected levels. We evaluated the goodwill for impairment by comparing our best estimate of undiscounted future cash flows with the carrying value of goodwill. As the carrying value of goodwill exceeded the estimate of undiscounted future cash flows, a discounted cash flow analysis was performed to estimate the fair value of the goodwill.

Other Non-operating Income (Expense)

Other non-operating income (expense) was ($439,800) and $1.6 million in fiscal 2002 and fiscal 2003, respectively. The significant increase in other income during the 2003 fiscal year relates to a gain recorded from the extinguishment of our debt. In January 1999, we borrowed $3.0 million from a significant supplier. In August 2002, we executed an agreement to extinguish the debt for a cash payment of $1.0 million resulting in a $2.0 million gain on the extinguishment of debt. The extinguishment of debt also contributed to the $197,000 reduction in interest expense in fiscal 2003 compared to fiscal 2002. The minority interest represents dividends paid during fiscal 2003 on shares of preferred stock issued by one of our subsidiaries.

Income Tax Expense (Benefit)

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Income tax expense (benefit) was ($298,000) and $408,000 in fiscal 2002 and fiscal 2003, respectively. In August 2002, we realized a $2.0 million taxable gain from the extinguishment of certain debt, which resulted in us recording a net deferred tax asset of $373,000 at June 30, 2002. In fiscal 2003, we recorded deferred income tax expense of $373,000 related to the estimated reduction in deferred tax assets in fiscal 2003. This increase in deferred income tax expense, coupled with certain state tax expenses, resulted in the additional income tax expense for fiscal 2003. We have significant net operating loss carryforwards, which are available to reduce future taxable income.

Cumulative Effect of Change in Accounting Principle

As of July 1, 2002, we adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (“Statement 142”). As a result of adopting Statement 142 and performing the required transitional impairment tests, we recorded a non-cash charge of $520,000, which is included in cumulative effect of change in accounting principle in the 2003 consolidated statement of operations. The impairment charge relates solely to Avatech of Michigan, a business unit that ceased operations in June 2003.

Liquidity and Capital Resources

Historically, we have financed our operations and met our capital expenditure requirements primarily through cash flows provided by operations, borrowings under short-term and long-term debt arrangements, and sales of preferred stock.

During fiscal 2004, we used $1.2 million of cash in operations, primarily as a result of our loss before non-cash charges of $300,000 and working capital needs of $0.9 million. Our working capital needs increased principally as a result of increases in accounts receivable caused by higher revenue. During fiscal 2004, our revenue increased about $5.5 million to $28.0 million compared to $22.5 million in fiscal 2003, which led to a corresponding increase in our gross accounts receivable balance of about $700,000 between June 30, 2003 and June 30, 2004. We financed these operating cash requirements through borrowings of $1.5 million from a software vendor, and the net cash proceeds of $330,000 from the sale of preferred stock and stock purchase warrants. We purchase over 90% of the products we sell from Autodesk, which provides us with the ability to purchase up to $3.0 million of inventory under 60 to 90 day payment terms. Historically, we have been able to manage our average days sales outstanding in a range from 40 to 50 days. Our customary collection terms range from 30 to 60 days for all of our customers.

Our investing activities consist principally of investments in computer and office equipment. Our capital expenditures for fiscal 2004 were approximately $332,000, compared to $273,000 for the same period in 2003. If funds from operations are sufficient, or if additional investment capital becomes available, we intend to make a significant investment in our infrastructure during fiscal 2005. If neither occurs, these capital expenditures will be deferred.

Our line of credit with a bank allows us to borrow up to $2.0 million (temporarily increased to $2.5 million through October 31, 2004), limited to 85% of eligible accounts receivable. At June 30, 2004, our outstanding balance under this line-of-credit totaled $1.6 million. The line-of-credit expires in September 2006 and is payable within 60 days of demand.

Prior to the merger with PlanetCAD, Inc. in November 2002, we had outstanding $1.7 million of 10% subordinated notes. The notes were to mature on July 1, 2003 and interest was payable quarterly until maturity or prepayment. On November 19, 2002, with the completion of the merger with PlanetCAD, subordinated note holders owning an aggregate of $1.5 million of subordinated notes exchanged their notes for preferred stock in our subsidiary. These shares will automatically convert to common stock no later than November 2004.

On July 22, 2003, we entered into a loan agreement with a software vendor to borrow up to $1.5 million for working capital purposes. The loan was received in two payments, with the initial funding of $1.0 million occurring

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on July 25, 2003 and the remaining $500,000 provided on February 5, 2004. The loan agreement requires repayment of principal plus interest at 6% per annum in thirty-five equal quarterly installments beginning in January 2005. We must meet certain financial and non-financial covenants in connection with this agreement.

Additionally, we have outstanding borrowings of approximately $879,000 (net of unamortized debt discount) at June 30, 2004 that are payable to a director and shareholder. On April 1, 2004, the maturity date of this borrowing was extended to July 1, 2005. Currently, we expect to be able to satisfy this outstanding debt as of the maturity date.

Our outstanding debt totaled $4.2 million at June 30, 2004, and we had a deficiency of working capital of $3.0 million. Our deficiency of working capital is in large part caused by the classification of our line of credit as a current liability due to its demand provisions. Despite the existence of the 60-day demand provision on this line-of-credit, we do not believe it is likely that the bank will exercise the demand provisions of the agreement. In the event that the bank does so, we believe that other lenders would provide us with a line of credit with similar terms, as long as our financial position and results of operations have not significantly declined.

Our existing outstanding indebtedness restricts our ability to, among other things, incur additional debt, repay certain other debt, pay dividends, and make certain investments, mergers or acquisitions. In addition, we cannot declare dividends or incur additional debt without the written approval from our lenders, which significantly restricts our ability to raise additional capital. Our ability to receive the necessary approvals is largely dependent upon our relationship with our lenders.

We believe that our working capital needs have stabilized, and we believe our near-term needs can be met from our available cash resources, cash flows from operations and our line of credit. Because of our reliance on Autodesk to supply us with the products that we sell, and due to the concentration of our revenue from the sale of Autodesk products, we cannot readily predict our ability to generate sufficient cash from our operations to meet our obligations beyond July 1, 2005. In the event that our operating results unexpectedly decline and we are unable to generate cash flows from our operations in the near term, then we may be unable to meet our existing obligations in the normal course of business and expand our operations to allow for continued long-term improvement in operating results.

Below is a summary of our contractual obligations and commitments at June 30, 2004:

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Quarterly Results of Operations

The following table sets forth unaudited quarterly financial information for each of the eight quarters in the two years ended June 30, 2004. Management believes that this information has been prepared on the same basis as the audited consolidated financial statements appearing elsewhere in this Report and, in management’s opinion, this information includes all adjustments, consisting only of normal recurring adjustments, necessary to fairly present the unaudited quarterly operating results when read in conjunction with our audited consolidated financial statements and the notes thereto appearing elsewhere in this Report. These operating results are not necessarily indicative of results for any future period.