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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




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Form 10-K



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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,
2003

Commission File Number: 000-30027



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Moldflow Corporation

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                            
|------------------------------------------------------------------ |  | -------------------------------------------
|Delaware                                                           |  | 04-3406763                                 
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification Number)

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)


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

None


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

Common Stock, $0.01 par value per
share


Preferred Stock Purchase Rights


(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 þ          No o

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 o          No þ

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

The aggregate market value of our voting and
non-voting common stock held by non-affiliates is $61,763,738
based on the last reported sale price of our common stock on The
Nasdaq Stock Market on December 27, 2002. On
September 15, 2003, there were 10,054,059 shares of
our common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Companys definitive Proxy
Statement in connection with the 2003 Annual Meeting of
Stockholders are incorporated by reference into Part III of
this Form 10-K.



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TABLE OF CONTENTS



|                                               |                                                                                                         |  |  |  |  |  |  | 
|---------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|TABLE OF CONTENTS                             
|PART I                                        
|                                               | Item 1. Business                                                                                       
|                                               | Item 2. Properties                                                                                     
|                                               | Item 3. Legal Proceedings                                                                              
|PART II                                       
|                                               | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                          
|                                               | Item 6. Selected Financial Data                                                                        
|                                               | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                               | Item 7A. Quantitative and Qualitative Disclosures about Market Risk                                    
|                                               | Item 8. Financial Statements and Supplementary Data                                                    
|                                               | Item 9A. Controls and Procedures                                                                       
|PART III                                      
|                                               | Item 10. Directors and Executive Officers of the Registrant                                            
|                                               | Item 11. Executive Compensation                                                                        
|                                               | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                               | Item 13. Certain Relationships and Related Transactions                                                
|                                               | Item 14. Principal Accountant Fees and Services                                                        
|PART IV                                       
|                                               | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|EXHIBITS                                      
|SIGNATURES                                    
|SCHEDULE II                                   
|REPORT OF INDEPENDENT AUDITORS                
|EXHIBIT INDEX                                 
|EX-21.1 SUBSIDIARIES OF THE REGISTRANT        
|EX-23.1 CONSENT OF PRICEWATERHOUSE COOPERS LLP
|EX-31.1 CERTIFICATION OF CEO                  
|EX-31.2 CERTIFICATION OF CFO                  
|EX-32.1 SECTION 1350 CERTIFICATION OF CEO     
|EX-32.2 SECTION 1350 CERTIFICATION OF CFO     



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MOLDFLOW CORPORATION

ANNUAL REPORT ON FORM 10-K FOR FISCAL
YEAR ENDED JUNE 30, 2003






TABLE OF CONTENTS


|                                           |  |                                                                                           |      |      |    | 
|------------------------------------------ |  | ----------------------------------------------------------------------------------------- | ---- | ---- | -- | 
|                                           |  |                                                                                           |      | Page
|                                           |  |                                                                                           |      |     
|Part I.                                    |  |                                                                                           |      |      |    | 
|Item 1.                                    |  | Business                                                                                  |      |      | 2  | 
|Item 2.                                    |  | Properties                                                                                |      |      | 12 | 
|Item 3.                                    |  | Legal Proceedings                                                                         |      |      | 13 | 
|                                          
|Part II.                                   |  |                                                                                           |      |      |    | 
|Item 5.                                    |  | Market for Registrants Common Equity and
    Related Stockholder Matters                 |      |      | 13 | 
|Item 6.                                    |  | Selected Financial Data                                                                   |      |      | 13 | 
|Item 7.                                    |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations |      |      | 14 | 
|Item 7A.                                   |  | Quantitative and Qualitative Disclosures about
    Market Risk                            |      |      | 32 | 
|Item 8.                                    |  | Financial Statements and Supplementary Data                                               |      |      | 32 | 
|Item 9A.                                   |  | Controls and Procedures                                                                   |      |      | 32 | 
|                                          
|Part III.                                  |  |                                                                                           |      |      |    | 
|Item 10.                                   |  | Directors and Executive Officers of the Registrant                                        |      |      | 33 | 
|Item 11.                                   |  | Executive Compensation                                                                    |      |      | 33 | 
|Item 12.                                   |  | Security Ownership of Certain Beneficial Owners
    and Management and Related            |      |      |    | 
|                                           |  | Stockholder Matters                                                                       |      |      | 33 | 
|Item 13.                                   |  | Certain Relationships and Related Transactions                                            |      |      | 33 | 
|Item 14.                                   |  | Principal Accountant Fees and Services                                                    |      |      | 33 | 
|                                          
|Part IV.                                   |  |                                                                                           |      |      |    | 
|Item 15.                                   |  | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K                       |      |      | 33 | 
|Exhibit Index                              |  |                                                                                           | 35   |     
|Signatures                                 |  |                                                                                           | 37   |     
|Schedule II                                |  |                                                                                           | 38   |     
|Consolidated Financial Statements          |  |                                                                                           | F-1  |     
|Notes to Consolidated Financial Statements |  |                                                                                           | F-6  |     
|Report of Independent Auditors             |  |                                                                                           | F-30 |     

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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
Risk Factors and Important Factors That May Affect Future
Results beginning on page 28. Readers should not place
undue reliance on our forward-looking statements, and we assume
no obligation and do not intend to update any forward-looking
statements.

References to we, us,
our and similar pronouns refer to Moldflow
Corporation and its consolidated subsidiaries.




PART I






|        |         
|------- | --------
|Item 1. | Business

Overview

We believe we are the worlds leading global
provider of automation and optimization software solutions for
the plastics injection molding industry. Products that make
extensive use of plastic parts include automobiles, cellular
telephones, personal digital assistants, pagers, televisions,
cameras, medical instruments, 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. These products enable our customers
to speed their products to market, decrease manufacturing costs
and reduce costly design and manufacturing errors by:



| |   |                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | determining the degree to which the injection
    molding process will constrain part design,                                                                                                        
|
| |  | optimizing production conditions such as machine
    temperatures, injection speeds, cooling times and the locations
    in a mold to inject the plastic to balance quality and
    production speed,
|
| |  | allowing part designers to compare material
    choices,                                                                                                                                             
|
| |  | identifying and providing optimized solutions for
    adverse variations during production, such as shrinkage or
    warpage of the plastic part,                                                    
|
| |  | recording costs associated with molding a
    specific part,                                                                                                                                         
|
| |  | scheduling, monitoring and reporting plant floor
    molding and related operations, and                                                                                                             
|
| |  | providing features which facilitate collaboration
    over shared media, such as the Internet.                                                                                                       

We offer two product groups which provide
functionality across a broad spectrum of the plastics design to
manufacturing process. Our Design Optimization Solutions, which
include our Moldflow Plastics Advisers (MPA) and
Moldflow Plastics Insight (MPI) products, help part
and mold designers and plastics engineers design products that
will be manufactured correctly the first time, while our
Moldflow Manufacturing Solutions products (MMS)
allow manufacturing professionals to monitor, control and
optimize their process on the shop floor.

2



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Our products are used by more than 5,000
customers at more than 5,700 sites in over 60 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 developers of other design software products and
distributors in defined geographic regions. Representative
customers include Microsoft, DaimlerChrysler, Apple Computer,
Baxter International, BMW, duPont, Fuji Xerox, Hewlett-Packard,
Motorola, Nokia and Samsung. We have distribution arrangements
with PTC, Electronic Data Systems (EDS) and
resellers of products from SolidWorks, a subsidiary of Dassault
Systemes, and Autodesk.

Our development efforts are focused on creating
tools that improve the entire span of product development
through manufacture 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.

We reincorporated from Australia to Delaware in
1997 and we have grown our business in part by acquiring three
companies with complementary product lines. See Note 3 to
the Consolidated Financial Statements. We are engaged in one
reportable industry segment  the development,
marketing and support of software products for the plastics
design and manufacturing industry. Our segment financial
information is reported in Note 19 of the Notes to the
Consolidated Financial Statements. Our corporate website is
www.moldflow.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on
Form 8-K, and amendments to those reports filed or
furnished with the Securities and Exchange Commission pursuant
to Section 13(a) of the Exchange Act are available for
review on our website. Any such materials that we file with, or
furnish to, the Securities and Exchange Commission in the future
will be available on our website as soon as reasonably
practicable after they are electronically filed with, or
furnished to, the Securities and Exchange Commission. The
information on our website is not incorporated by reference into
this Annual Report on Form 10-K.

Industry Background



| |                                       
| | --------------------------------------
| | Injection Molded Plastics
    Industry

From high technology to traditional
manufacturing, companies in many industries today make extensive
use of plastic materials to produce component parts for their
products. The widespread use of plastics as a manufacturing
material has occurred because plastic parts can be formed into
an almost limitless number of shapes, are relatively inexpensive
to manufacture in volume and are easy to assemble.

In technology-driven industries, the use of
plastics has become increasingly important as weight, cost and
quality are standard points of competitive differentiation. Most
importantly, because plastics can be molded into extremely
complex shapes, they are uniquely suited for use in high
technology products. Products such as cell phones, personal
digital assistants, and notebook computers have all employed
increasingly complex designs characterized by smaller parts,
reduced weight, more sophisticated shapes and lower tolerances.
These complexities often lengthen the time to market for new
products. As product life cycles shrink and time to market
becomes increasingly important, successful manufacturers in
these industries must design and build products quickly and
correctly the first time. In particular, production delays or
high product defect rates for manufacturers in rapidly changing
industries can represent significant economic and opportunity
costs.

In todays global economy, manufacturers
seek to gain strategic advantage through excellence in
manufacturing or, alternatively, to outsource and create this
advantage through a supply chain. To meet their customers
needs, plastics manufacturers seek to scale quickly to become
full service contract manufacturers, as the basis for
competition in manufacturing is speed, flexibility and cost.
Injection molders must implement systems and processes to
achieve efficient cost effective production in their operations
and visibility into their supply chains.

3



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| |                          
| | -------------------------
| | Injection Molding Process

The dominant method for producing plastic parts
with complex shapes is injection molding. Injection molding
involves the injection of molten plastic into a mold cavity
where it is packed under pressure, subsequently cooled, and then
ejected, yielding a final part.

The injection molding process is extremely
complex. It requires the matching of part geometry to mold
geometry, as well as accommodating varying material, machine,
and environmental operating conditions. Not only must the mold
cavity be machined precisely to produce the desired shape of the
final part, but it also must account for shrinkage and warpage
of the plastic material as it cools and is ejected from the
mold. Problems can arise in this process if the part is too thin
or thick, if the molten plastic enters the mold at the wrong
temperature, if the locations of the points of entry of the
plastic into the mold are mismatched to the design of the part
or if the properties of the chosen plastic are poorly matched to
the products function. Each of these potential problems
can cause an excessive number of defective or substandard parts
to be produced, require several attempts to remachine the mold,
or result in longer production cycle times and higher costs.

The process of designing and producing injection
molded plastic parts consists of four distinct steps, the design
portion of which can take from several weeks to several months
depending on the complexity and other attributes of the part
being designed:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Part
    Design A design engineer,
    who typically does not specialize in the design of plastic
    parts, creates the initial design of the end product, including
    the plastic components. These design engineers face difficult
    plastic-related decisions which often fall outside of their area
    of specialization, including selecting a plastic material,
    estimating the strength and rigidity of the part, designing the
    part with shapes and thicknesses that can be readily produced
    using injection molding and completing each of the steps in a
    cost efficient manner.
|
| |  | Mold
    Design After the part has
    been designed, typically a second engineer designs the mold into
    which injection molding machines can fill and pack the selected
    plastic material to create the part. Designing a mold requires
    the engineer to estimate many important variables, including the
    amount the plastic part will warp or shrink and the optimal
    locations for injecting plastic into the mold. The cost of a
    mold can vary from as little as a few thousand dollars to more
    than one million dollars.                                                         
|
| |  | Production
    Set-up After the mold has
    been designed and built, the mold is fastened into an injection
    molding machine. A machine operator then adjusts several machine
    settings, such as machine temperature, injection speed and
    cooling time until the machine produces acceptable parts. In
    many instances, once acceptable parts are made with some
    frequency, the operator makes little or no effort to improve the
    machines set-up to optimize speed or minimize failure
    rates.                                                                                     
|
| |  | Production and Process
    Monitoring In most
    instances, once commercial production begins, machine operators
    monitor the injection molding machines performance, which
    will vary over time. This variation can be caused by operating
    conditions which shift as a result of factors such as
    temperature fluctuations and lot-to-lot variations in the raw
    plastic material, or a process which is too sensitive to these
    normal environmental changes.                                                                                                                          

Traditionally, these steps have been carried out
through a trial-and-error process which requires a significant
amount of guesswork throughout. As a result, the design and
development process has been inherently inefficient. An
incorrect guess at any step of this process may produce
suboptimal parts or require that portions or all of the process
be repeated, delaying production and increasing costs.

The inefficiencies and resulting cost increases
occurring in this process are further exacerbated when companies
outsource one or more of these steps. Many companies have set up
supply chains to match expertise and cost structures to each
step of this process and take advantage of available networks to
establish design anywhere, build anywhere
collaborations with suppliers and between divisions across their
company. The part design, mold design and production steps often
occur in geographically separated facilities. As a result, the
iterative process of designing a plastic part is frequently
hindered by having to coordinate this process across multiple
locations and time zones.

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The Moldflow Solution

Using our extensive knowledge of designing and
manufacturing with plastics, we have developed a suite of
software applications which enhance our customers ability
to optimize the design and production process for injection
molded plastic parts. Our approach, which we call Process Wide
Plastics Solutions, provides our customers with a software tool
for each step in this process, from part design through
production and process monitoring, in an integrated environment.
Together, our suite of products permits plastics manufacturers
to significantly decrease the guesswork involved in each step of
the injection molding process by replacing the traditional
trial-and-error process with an automated and integrated
process. Our products can significantly reduce the time it takes
to design plastic parts for injection molding, improve the
quality of the plastic part produced and decrease the cost of
the production process. With direct sales offices and
distribution partners worldwide, we believe that we are uniquely
positioned to deliver our evolving suite of software tools to
customers in any part of the world.

Our Products

We offer software solutions for all phases of
designing and manufacturing injection molded plastic parts. We
have categorized our product offerings into two distinct groups,
Design Optimization Solutions and Manufacturing Solutions.
Design Optimizations Solutions include the Moldflow Plastics
Advisers (MPA) series for part design and high-level
mold design and the Moldflow Plastics Insight (MPI)
series for more in-depth part and mold design. Moldflow
Manufacturing Solutions (MMS) products deliver a
complete collaborative manufacturing management system, which
provides production and process data for use in real-time
business performance management and automates the setup,
optimization and control of the injection molding process. In
addition, we created and support plasticszone.com, which we
believe to be the worlds first e-business site designed
for 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 solid model data generated by
their design modeling software. As a result, users can eliminate
the otherwise necessary, time-consuming and error-prone step of
creating a unique mathematical representation to be used solely
for simulating plastics flow.



| |                           
| | --------------------------
| | 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 MMS to enhance the efficiency of molding machine
set-up. The MPA series consists of three products:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Part Adviseris 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
    it identifies without the need to consult with engineers who
    specialize in plastic part design. 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 create reports which can be instantly
    shared with fellow design team members across the Internet.
|
| | Mold Adviserextends
    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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | iMPAis a fully
    functional, application service provider (ASP)
    version of our Part Adviser product and provides access to this
    product on a pay-per-use basis.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

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| |                          
| | -------------------------
| | Moldflow Plastics Insight

The MPI series contains our broadest set of
predictive capabilities for injection molding and is typically
used 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 that may be adjusted by the mold
designer. 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 or it can be used to identify the changes necessary
in the mold to improve part yields. The results generated by our
MPI products can be input directly into our MMS 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/ Flowpredicts
    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/ Coolis 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 of
    the benefits of mold cooling analysis to be applied to gas
    injection molded parts.                                                                                                                                                                               
|
| | MPI/ Warpand
    MPI/ Shrinkpredict and identify the cause and amount of
    warpage and shrinkage in plastic parts.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | MPI/ Fusionallows
    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/ Flow3Duses 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/ Stresspredicts
    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 which will cause buckling and predicts the final
    buckled shape.                                                                                                                                                                                                                                                
|
| | MPI/ Fiberutilizes
    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. Plastics are
    often filled with various forms and quantities of fibers to
    tailor the materials operating characteristics, such as
    resistance to bending. The fiber analysis also 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.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | MPI/ Optimautomatically 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 variables for MMS to
    ensure molding machine set-up 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/ Gasprovides
    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/ Co-Injectionprovides an invaluable tool for
    simulating the sequential co-injection process, where a skin
    material is injected first, followed by the injection of a
    different core material. Users can view the advancement of the
    materials in the cavity and see the dynamic, changing
    relationship between skin and core materials as filling
    progresses.                                                                                                                                                                                                                                              
|
| | MPI/ Injection Compressionsimulates all major process control
    methods for a total evaluation of candidate materials, part
    design, mold design and process conditions. Users can simulate
    processes where polymer injection and mold compression occur
    simultaneously or sequentially.                                                                                                                                                                                                                                                                                                                                  
|
| | MPI/ Reactive Moldingallows users to simulate a variety of
    thermoset molding processes including reaction injection molding
    (RIM), structural reaction injection molding
    (SRIM), and thermoset and rubber injection molding.
    Thermosets are a type of plastic which are used for products
    that must withstand high temperatures without alteration of
    their physical properties and are used for a variety of
    applications including integrated circuit microchip
    encapsulation, automotive headlamp housings, engine valve covers
    and other automotive engine components and circuit breakers.
|
| | MPI/ Microchip Encapsulationextends the capabilities of MPI/
    Reactive Molding to simulate the encapsulation of semiconductor
    chips with reactive resins. The encapsulation process
    facilitates heat dissipation and enables electrical
    interconnection of the chips.                                                                                                                                                                                                                                                                                                                                                   
|
| | MPI/ Underfill Encapsulationis an optional add-on module that
    extends the capabilities of MPI/ Reactive Molding to simulate
    the pressurized underfill encapsulation process.                                                                                                                                                                                                                                                                                                                                                                                                                                                   



| |                                     
| | ------------------------------------
| | Moldflow Manufacturing
    Solutions

In todays competitive manufacturing
environment, injection molders and die casters must implement
systems and processes to ensure efficient, cost effective
production in their operations. Beyond the setup, optimization
and control of the process itself, there are injection molding
manufacturing related tasks that must be performed, optimized,
standardized and integrated across the company-wide enterprise.
These additional tasks include production scheduling, preventive
maintenance, process and production monitoring, statistical
process control, statistical quality control and production
reporting. MMS products address all of these needs and more with
modular, scalable solutions that work for small, independent
shops as well as large, multinational corporations.

Specifically, MMS 1.0 is a Collaborative
Manufacturing Management (CMM) system for the
plastics injection molding and metal die casting industries that
captures and makes available extensive process and production
data for use in real-time business performance management. CMM
is the framework for organizing and controlling the key business
processes of a manufacturing enterprise. Business leaders use it
to drive strategic planning and technology assessment, as well
as map existing conditions and a migration path for
improvements. The MMS system represents the integration of a
series of modules powered by proven Moldflow Plastics Xpert
(MPX) and Moldflow Shotscope technology, which
global manufacturers are using today to achieve real-time
performance management.

7



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| |                  
| | -----------------
| | Moldflow CPI 2000

Moldflow CPI 2000, currently available only in
certain European markets, is a production monitoring system that
enables real-time scheduling, monitoring and reporting of data
from the factory floor. The status of all monitored machines is
displayed at a glance, indicating machines running out of
specification limits, or those that have a fault. Cycle time,
down time, part reject rates and the efficiency of every machine
is instantly available. The impact of machine efficiency on
scheduling and delivery is automatically updated.

Moldflow CPI 2000 provides a sophisticated
scheduling and management system from initial order to product
delivery, as well as stock control and preventive maintenance
modules. The statistical production control module allows users
to correct problems before they affect production. In addition,
Moldflow CPI 2000 can generate a comprehensive set of reports
for production, materials, machinery and tools.

Our Customers

Our products are used at more than 5,700 user
sites in more than 5,000 companies, which are located in over 60
countries spanning the globe. No single customer accounted for
more than 10% of our revenue for fiscal 2003. Representative
customers in various industries include:

Automotive

DaimlerChrysler Corporation

BMW AG


DENSO Corporation


Ford Motor Company


Hyundai Business Group


Valeo SA


Volkswagen AG


Toys

Fisher Price, Inc.

Hasbro, Inc.


Mattel, Inc.


Electronics

Apple Computer Inc.

The Framatome Group


Fuji Xerox Co., Ltd.


Hewlett-Packard Company


Microsoft Corporation


Motorola, Inc.


Nokia Corporation


Siemens AG


Tyco Electronics, Inc.


Material Suppliers

Bayer AG

The Dow Chemical Company


Eastman Chemical Company


E. I. duPont de Nemours and Company


GE Plastics


M. A. Hanna Company


Medical

Bausch and Lomb Surgical

Baxter International, Inc.


Becton Dickinson and Company


8



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##### Table of Contents



Other/ Multiple Industries

Fisher & Paykel Industries Limited

LG Group


Minnesota Mining and Manufacturing (3M)


Montblanc-Simplo GmbH


Perlos Oyj


Samsung Group


Sales and Marketing

We distribute our products and services primarily
through our direct sales organization. As of June 30, 2003,
our direct sales organization consisted of 33 sales
associates, who operated out of offices located in Australia,
China, France, Germany, Italy, Japan, Korea, the Netherlands,
Singapore, Spain, Sweden, Taiwan, the United Kingdom and the
United States. Our direct sales model involves pairing a sales
associate and an applications 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. See Note 19 to the Consolidated Financial
Statements for information regarding the geographic distribution
of our results of operations.

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, PTC incorporates our MPA product in a
module of its Pro/ ENGINEER product suite, which they call Pro/
PLASTIC ADVISOR and EDS sells our MPA product as well as
multiple modules contained within our MPI family of products. We
have distribution arrangements with resellers of products from
SolidWorks, a subsidiary of Dassault Systems, and Autodesk. We
have established this network of distributors to provide
worldwide sales coverage to complement our direct sales
organization. Sales of our products may be subject to seasonal
variations, particularly in our first fiscal quarter, in many of
the markets in which we sell our products.

Certain of our products and services are also
distributed through plasticszone.com, our proprietary website.
Plasticszone.com is a business and productivity website for
professionals working with injection molded plastics.
Plasticszone.com offers activity zones that provide access to
our iMPA product, the Internet version of our MPA
product, and to our various service offerings.

Backlog

We generally ship our Design Optimization
Solutions products within 30 days of acceptance of an order
and execution of the appropriate license documentation.
Shipments of our MMS products are dependent upon acceptance of
an order, execution of the appropriate license documentation,
hardware availability and customer delivery requirements which
may result in orders that exist at the end of a quarter that
have not been shipped or recognized as revenue.

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 solve
quickly. We provide implementation assistance to our
Manufacturing Solutions customers to assist them in realizing
the full capability of our products. We have an established
curriculum of training courses provided by us or by our
partners, leading to certification in the use of our products.

9



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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 approximately
7,500 plastic materials. We conduct this testing at our
facilities located near Melbourne, Australia, and in Ithaca, New
York, which are equipped with state-of-the-art equipment,
including 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
environments. 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.

Our product development activities take place in
research centers located in the United States, Australia, France
and the United Kingdom. We have linked the information systems
of each of these facilities to provide a continuous development
environment, enabling product development to be undertaken 24
hours per day.

To enhance our product development efforts, we
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. In many cases,
through these projects we gain access to fundamental research
with comprehensive experimental results. Often the researchers
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, University of Illinois
(USA) for analysis of fiber filled parts, University of
Bradford (United Kingdom) for fiber orientation measurement and
process control, Technical University of Eindhoven (Netherlands)
for numerical methods, University of Sydney (Australia) and The
National University of Singapore for fluid mechanics.

As of June 30, 2003, our product development
staff had 64 employees, many 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. In fiscal 2003,
2002 and 2001 our research and development expenses were
$5.7 million, $6.2 million and $6.6 million,
respectively, which is net of certain software development costs
required to be capitalized under generally accepted accounting
principles. Costs of $669,000 and $602,000 were capitalized in
2003 and 2002, respectively. See Note 6 to the Consolidated
Financial Statements.

Competition

The markets into which our products are sold are
highly competitive. We compete with many companies engaged in
selling software solutions to companies involved in product
development and manufacturing. Our Design Optimization Solutions
products face competition from computer-aided design
(CAD) and com-

10



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##### Table of Contents



puter-aided engineering (CAE) companies,
materials vendors and independent engineering consultants. Our
Manufacturing Solutions products face competition from injection
molding manufacturers and industrial automation system
providers. In addition, new competitors may surface 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 markets include:



| |   |                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | speed of innovation,                                                                                                                                                                                                  
|
| |  | ease of use,                                                                                                                                                                                                          
|
| |  | flexibility,                                                                                                                                                                                                          
|
| |  | quality,                                                                                                                                                                                                              
|
| |  | ease of integration into or communication with
    enterprise engineering applications, such as computer-aided
    design systems, product life cycle management systems, or
    enterprise resource planning systems,
|
| |  | performance and functionality,                                                                                                                                                                                        
|
| |  | 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.

Technology and Proprietary Rights

Our success depends to a significant degree upon
our ability to develop and maintain proprietary products and
technologies. We currently 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 currently own two issued United States patents
and corresponding international patents. We have other U.S. and
international patent applications pending. These patents cover a
relatively small portion of our overall portfolio of
intellectual property. 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 intend to continue to
file patent applications as we develop new products and
technologies. The patent positions of companies like ours are
generally uncertain and involve complex legal and factual
questions. Furthermore, even if patents are licensed or issued
to us, others may design around the patented technologies. In
addition, we could incur substantial litigation costs if we are
required to initiate patent litigation to enforce our patent
rights, and the outcome of any patent litigation is uncertain.

We rely on a combination of trade secrets,
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 non-exclusive,
non-transferable 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 software, and are subject to terms and conditions
prohibiting unauthorized reproduction or transfer of the
software. For certain software, such as the

11



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##### Table of Contents



MPA series, we rely primarily on
click-wrapped licenses that are not signed by
licensees and therefore may be unenforceable under the laws of
some jurisdictions. Further, software security measures are
employed in our products to seek to prevent unauthorized use of
our software.


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
protection on various 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 specific
product of ours infringes on the proprietary rights of third
parties; however, we are generally aware of other issued patents
in similar technological areas. We can not assure you that third
parties will not claim 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 issue 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, 2003, we had 246 employees,
84 of whom resided in the United States, 50 of whom resided in
Australia and 112 of whom resided in other countries. We believe
that our relationship with our employees is good.






|        |           
|------- | ----------
|Item 2. | Properties

We operate primarily in leased facilities. We
lease 22,694 square feet of office space located in Wayland,
Massachusetts pursuant to a 5-year lease that expires in August
2005. This facility serves as our corporate headquarters and
personnel located at this facility include most members of our
senior management team, technical support personnel, product
marketing personnel, some development personnel, and some
finance and administration personnel. We also lease office space
in the other countries in which we do business. Our aggregate
lease expenses were $2.2 million in fiscal 2003, which
excludes certain lease termination charges that were included in
our restructuring charge.

12



---



##### Table of Contents



We own an 18,100 square foot office building near
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 finance and
administrative staff.






|        |                  
|------- | -----------------
|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.




PART II




Item 5.Market
for Registrants Common Equity and Related Stockholder
Matters

Our common stock began trading on the Nasdaq
National Market (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 Nasdaq for our last two fiscal years.

|               |  |      |      |      |  |      |      |     |  |   |       |  |  |   |       | 
|-------------- |  | ---- | ---- | ---- |  | ---- | ---- | --- |  | - | ----- |  |  | - | ----- | 
|               |  |      |      |     
|               |  | 2003 |      | 2002
|               |  |      |      |     
|               |  | High |      | Low  |  | High |      | Low
|               |  |      |      |      |  |      |      |    
|First quarter  |  | $    | 7.95 |      |  | $    | 4.30 |     |  | $ | 16.25 |  |  | $ | 8.47  | 
|Second quarter |  | $    | 7.52 |      |  | $    | 4.06 |     |  | $ | 14.22 |  |  | $ | 8.59  | 
|Third quarter  |  | $    | 7.92 |      |  | $    | 6.27 |     |  | $ | 19.00 |  |  | $ | 10.49 | 
|Fourth quarter |  | $    | 9.65 |      |  | $    | 6.22 |     |  | $ | 13.50 |  |  | $ | 6.95  | 

On September 15, 2003, the last reported
sale price of the common stock on Nasdaq was $9.52
per share and there were 78 holders of record of our
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.




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 audited consolidated financial
statements and related notes included elsewhere in this
document. The statement of operations data for the years ended
June 30, 2003, 2002 and 2001 and the balance sheet data at
June 30, 2003 and 2002 are derived from our audited
consolidated financial statements appearing elsewhere in this
document. The statement of operations data for the years ended
June 30, 2000 and 1999 and the balance sheet data at
June 30, 2001, 2000 and 1999 are derived from our audited
consolidated financial statements not included in this document.

|                              |          |                                       |   |        |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |        |        | 
|----------------------------- | -------- | ------------------------------------- | - | ------ | ------ | ---- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ |  | - | ------ | ------ | 
|                              |          |                                      
|                              |          | Year Ended June 30,                  
|                              |          |                                      
|                              |          | 2003                                  |   | 2002   |        | 2001 |   | 2000   |        | 1999
|                              |          |                                       |   |        |        |      |   |        |        |     
|                              |          |                                      
|                              |          | (In thousands, except per share data)
|Statement of Operations Data: |          |                                       |   |        |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|Revenue:                      |          |                                       |   |        |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                              | Product  |                                       | $ | 17,259 |        |      | $ | 17,870 |        |      | $ | 24,494 |        |  | $ | 16,742 |        |  | $ | 12,238 |       
|                              | Services |                                       |   | 19,366 |        |      |   | 17,218 |        |      |   | 15,449 |        |  |   | 10,627 |        |  |   | 7,983  |       
|                              |          |                                       |   |        |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       
|                              |          | Total revenue                         |   |        | 36,625 |      |   |        | 35,088 |      |   |        | 39,943 |  |   |        | 27,369 |  |   |        | 20,221 | 
|                              |          |                                       |   |        |        |      |   |        |        |      |   |        |        |  |   |        |        |  |   |       

13



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##### Table of Contents



|                                               |                                               |                                       |       |        |        |      |        |        |        |      |       |        |        |  |       |        |        |  |      |       |        | 
|---------------------------------------------- | --------------------------------------------- | ------------------------------------- | ----- | ------ | ------ | ---- | ------ | ------ | ------ | ---- | ----- | ------ | ------ |  | ----- | ------ | ------ |  | ---- | ----- | ------ | 
|                                               |                                               |                                      
|                                               |                                               | Year Ended June 30,                  
|                                               |                                               |                                      
|                                               |                                               | 2003                                  |       | 2002   |        | 2001 |        | 2000   |        | 1999
|                                               |                                               |                                       |       |        |        |      |        |        |        |     
|                                               |                                               |                                      
|                                               |                                               | (In thousands, except per share data)
|Costs and expenses:                            |                                               |                                       |       |        |        |      |        |        |        |      |       |        |        |  |       |        |        |  |      |      
|                                               | Cost of product revenue                       |                                       | $     | 2,964  |        |      | $      | 2,518  |        |      | $     | 1,846  |        |  | $     | 785    |        |  | $    | 378   |       
|                                               | Cost of services revenue                      |                                       |       | 1,210  |        |      |        | 1,401  |        |      |       | 1,440  |        |  |       | 1,057  |        |  |      | 1,319 |       
|                                               | Research and development                      |                                       |       | 5,650  |        |      |        | 6,234  |        |      |       | 6,642  |        |  |       | 4,074  |        |  |      | 3,466 |       
|                                               | Selling and marketing                         |                                       |       | 18,638 |        |      |        | 18,134 |        |      |       | 19,396 |        |  |       | 13,495 |        |  |      | 9,673 |       
|                                               | General and administrative                    |                                       |       | 7,242  |        |      |        | 6,660  |        |      |       | 6,095  |        |  |       | 5,018  |        |  |      | 3,839 |       
|                                               | Litigation                                    |                                       |       |       |        |      |        |       |        |      |       |       |        |  |       | 785    |        |  |      | 620   |       
|                                               | Restructuring and acquisition related charges |                                       |       | 405    |        |      |        | 1,272  |        |      |       |       |        |  |       | 284    |        |  |      |      |       
|                                               | Amortization of goodwill                      |                                       |       |       |        |      |        |       |        |      |       | 1,100  |        |  |       | 206    |        |  |      |      |       
|                                               | Amortization of other intangible assets       |                                       |       | 605    |        |      |        | 656    |        |      |       | 601    |        |  |       | 105    |        |  |      |      |       
|                                               |                                               |                                       |       |        |        |      |        |        |        |      |       |        |        |  |       |        |        |  |      |      
|                                               |                                               | Total operating expenses              |       |        | 36,714 |      |        |        | 36,875 |      |       |        | 37,120 |  |       |        | 25,809 |  |      |       | 19,295 | 
|                                               |                                               |                                       |       |        |        |      |        |        |        |      |       |        |        |  |       |        |        |  |      |      
|Income (loss) from operations                  |                                               |                                       | (89   | )      |        |      | (1,787 | )      |        |      | 2,823 |        |        |  | 1,560 |        |        |  | 926  |      
|Interest income (expense), net                 |                                               |                                       | 1,089 |        |        |      | 1,455  |        |        |      | 2,139 |        |        |  | 427   |        |        |  | (177 | )    
|Other income (loss), net                       |                                               |                                       | (198  | )      |        |      | 1,712  |        |        |      | 272   |        |        |  | 1,717 |        |        |  | (92  | )    
|                                               |                                               |                                       |       |        |        |      |        |        |        |      |       |        |        |  |       |        |        |  |      |      
|                                               | Income before income taxes                    |                                       |       | 802    |        |      |        | 1,380  |        |      |       | 5,234  |        |  |       | 3,704  |        |  |      | 657   |       
|Provision for income taxes                     |                                               |                                       | 920   |        |        |      | 600    |        |        |      | 1,726 |        |        |  | 251   |        |        |  | 176  |      
|                                               |                                               |                                       |       |        |        |      |        |        |        |      |       |        |        |  |       |        |        |  |      |      
|                                               | Net income (loss)                             |                                       | $     | (118   | )      |      | $      | 780    |        |      | $     | 3,508  |        |  | $     | 3,453  |        |  | $    | 481   |       
|                                               |                                               |                                       |       |        |        |      |        |        |        |      |       |        |        |  |       |        |        |  |      |      
|Net income (loss) per common share:            |                                               |                                       |       |        |        |      |        |        |        |      |       |        |        |  |       |        |        |  |      |      
|                                               | Basic                                         |                                       | $     | (0.01  | )      |      | $      | 0.08   |        |      | $     | 0.36   |        |  | $     | 1.29   |        |  | $    | 1.82  |       
|                                               | Diluted                                       |                                       | $     | (0.01  | )      |      | $      | 0.08   |        |      | $     | 0.35   |        |  | $     | 0.48   |        |  | $    | 0.08  |       
|Shares used in computing net income per share: |                                               |                                       |       |        |        |      |        |        |        |      |       |        |        |  |       |        |        |  |      |      
|                                               | Basic                                         |                                       |       | 10,020 |        |      |        | 10,076 |        |      |       | 9,658  |        |  |       | 2,667  |        |  |      | 265   |       
|                                               | Diluted                                       |                                       |       | 10,020 |        |      |        | 10,360 |        |      |       | 10,124 |        |  |       | 7,190  |        |  |      | 6,166 |       

|                                                 |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        |  
|------------------------------------------------ |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | -
|                                                 |  |               
|                                                 |  | As of June 30,
|                                                 |  |               
|                                                 |  | 2003           |        | 2002 |  | 2001 |        | 2000 |  | 1999
|                                                 |  |                |        |      |  |      |        |      |  |     
|                                                 |  |               
|                                                 |  | (In thousands)
|Balance Sheet Data:                              |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        |  
|Cash, cash equivalents and marketable securities |  | $              | 52,140 |      |  | $    | 50,867 |      |  | $    | 45,719 |  |  | $ | 35,711 |  |  | $ | 1,240  |  
|Working capital                                  |  |                | 45,624 |      |  |      | 44,133 |      |  |      | 42,511 |  |  |   | 30,991 |  |  |   | (2,108 | )
|Working capital, net of deferred revenue         |  |                | 54,175 |      |  |      | 52,064 |      |  |      | 48,883 |  |  |   | 36,094 |  |  |   | 1,310  |  
|Total assets                                     |  |                | 79,477 |      |  |      | 76,013 |      |  |      | 71,455 |  |  |   | 57,323 |  |  |   | 10,247 |  
|Long-term debt, net of current portion           |  |                |       |      |  |      |       |      |  |      |       |  |  |   | 852    |  |  |   |       |  
|Stockholders equity                             |  |                | 60,649 |      |  |      | 58,640 |      |  |      | 57,593 |  |  |   | 43,778 |  |  |   | 1,270  |  




Item 7.Managements
Discussion and Analysis of Financial Condition and Results of
Operations

Forward-Looking Statements

This portion of our Annual Report contains
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
Risk Factors and Important Factors That May Affect Future
Results beginning on page 28. Readers should not
place undue reliance on our forward-looking statements, and we
assume no obligation and do not intend to update any
forward-looking statements.

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Business Overview

Our primary business is the development, sale and
support of software applications for the design and manufacture
of injection molded plastic parts. We develop software products
internally and through cooperative research relationships with a
number of public and private educational and research
organizations around the world. We categorize our products into
two groups, Design Optimization Solutions and Manufacturing
Solutions. Our Design Optimization Solutions allow a product
designer or engineer to simulate the manufacture of a plastic
part to determine the optimal part design and part/ mold
combination. Our Design Optimization Solutions include our MPI
series for in-depth mold design and our MPA series for part
design and high-level mold design. Our Manufacturing Solutions
allow plant engineers and managers to automate production and
maintain and optimize manufacturing conditions throughout the
manufacturing process. Through 2002, our Manufacturing Solutions
included three independent products: MPX, Moldflow Shotscope and
EZ-Track. In April 2003, we introduced MMS 1.0, which
integrates our MPX and Shotscope applications on a common
platform. The release of MMS 1.0 delivers a complete
collaborative manufacturing management system, which provides
production and process data for use in real-time business
performance management and automates the setup, optimization and
control of the injection molding and metal die casting process.

We sell our products and services internationally
through our direct sales operations in 14 countries. We
also sell through a network of distributors and value-added
resellers and through distribution arrangements with developers
of other design software products.

On April 13, 2000, the Company acquired all
of the outstanding shares of Advanced CAE Technology, Inc.,
which formerly conducted business as C-Mold. On
March 28, 2001, the Company acquired all of the outstanding
shares of Branden Technologies, Inc. (Branden). On
January 9, 2003, the Company acquired substantially all of
the assets and the ongoing operations of Côntrole de
Processus Industriels s.a.r.l. (CPI), a provider of
production monitoring systems to the French plastics industry.
We believe that the acquisition of CPI will increase our
presence in the European product monitoring market, allowing us
to better serve our customers.

Critical Accounting Policies and Significant
Judgments and Estimates

The preparation of consolidated financial
statements requires estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. On
an on-going basis, management evaluates its estimates and
judgments, including those related to bad debts, inventories,
income taxes, warranty obligations, intangible assets,
contingencies and litigation. We base our estimates on
historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying
values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these
estimates.

A summary of our accounting policies that we
believe are most critical to understanding fully our
consolidated financial statements is as follows:



| |   |                                                                           
| | - | --------------------------------------------------------------------------
| |  | revenue recognition,                                                      
|
| |  | valuation allowances,                                                     
|
| |  | acquisition accounting,                                                   
|
| |  | impairment of intangible assets, goodwill and
    other long-lived assets,
|
| |  | income tax accounting,                                                    
|
| |  | restructuring charges,                                                    
|
| |  | hedge accounting, and                                                     
|
| |  | capitalization of software development costs.                             

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| |                    
| | -------------------
| | Revenue Recognition

We derive revenue from the licensing of computer
products and from services consisting of maintenance and
support, consulting, material testing and training. We follow
AICPA Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended by SOP
No. 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.

We recognize revenue from sales upon product
shipment provided that evidence of the purchase commitment
exists, the license fee is fixed or determinable, management
deems that collection is reasonably assured and all other
revenue recognition criteria of SOP 97-2 are met. Our
products do not require significant modification or
customization and installation of the products is generally
routine and may be performed by the customer or other third
parties. We recognize revenue from maintenance and support
contracts ratably over the related contract period and from
training and other services as they 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, we consider 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). VSOE is
determined based upon prices charged to customers when these
elements are sold separately. The revenue allocated to each
element is then recognized as described above.

When VSOE does not exist for all of the delivered
elements of an arrangement, but does exist for the undelivered
elements, we employ 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.

We also provide consulting services, training of
customers employees, and material testing services. When
bundled with other elements in a single arrangement, revenue is
allocated to these services as described above. Revenue
allocated to these activities is then recognized as the services
are performed.



| |                     
| | --------------------
| | Valuation Allowances

Management must estimate the amount of our
accounts receivable which may be uncollectible due to the
inability of our customers to make payments. We review the
composition of accounts receivable and analyze historical bad
debts, customer concentrations, customer credit-worthiness,
current economic trends and changes in our customer payment
patterns when evaluating the adequacy of the allowance for
doubtful accounts. We record the allowance for doubtful accounts
primarily on a specific identification basis. If the financial
condition of one or more of our customers deteriorates after
entering into a revenue arrangement resulting in an impairment
of their ability to make payments, additional allowances may be
required. As of June 30, 2003, our accounts receivable
balance was $6.1 million, net of allowances for doubtful
accounts of $347,000.

Management writes down its inventory for
estimated obsolescence or unmarketable inventory equal to the
difference between the cost of inventory and the estimated
market value based upon assumptions about future demand and
market conditions. If actual demand and market conditions are
less favorable than those assumed by management, additional
inventory write-downs may be required. As of June 30, 2003,
our inventory balance was $313,000 after a write-down of
$179,000 resulting from a corporate restructuring plan related
to our January 2003 acquisition of CPI. This was included as a
component of the cost of product revenue in March 2003.

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Significant judgments and estimates are involved
in assessing each of these valuation allowances. Different
assumptions could yield materially different results.



| |                       
| | ----------------------
| | Acquisition Accounting

On April 13, 2000, we acquired all of the
outstanding shares of CMold. On March 28, 2001, we
acquired all of the outstanding shares of Branden. On
January 9, 2003, we acquired substantially all of the
assets and the ongoing operations of CPI. These business
combinations were accounted for using the purchase method of
accounting. Accordingly, our consolidated financial statements
include the financial position and results of operations of each
acquired business from the date of their respective acquisition.
See Note 3 to the Consolidated Financial Statements.

In these acquisitions, the purchase price of the
acquired business was allocated to the assets acquired and
liabilities assumed at their fair values on the date of the
acquisition. The fair values of these items were based upon
managements estimates and, in certain cases, an
independent professional valuation. Certain of the acquired
assets were intangible in nature, including developed
technologies, assembled workforces, acquired customer base and
non-compete agreements. Management employed a number of
valuation methodologies in determining the fair value of these
intangible assets. The fair value of the acquired developed
technologies was based upon a discounted cash flow model.
Assembled workforces (later reclassified to goodwill) and the
acquired customer base were valued using estimated replacement
costs. Values assigned to non-compete agreements were based upon
the salaries of the individuals subject to such agreements and
other generally accepted valuation methodologies. The excess
purchase price over the amounts allocated to the assets acquired
and liabilities assumed was recorded as goodwill. See
Note 4 to the Consolidated Financial Statements.

All such valuation methodologies, including the
determination of subsequent amortization periods, involve
significant judgments and estimates. Different assumptions and
subsequent actual events could yield materially different
results.



| |                                                                          
| | -------------------------------------------------------------------------
| | Impairment of Intangible Assets, Goodwill
    and Other Long-Lived Assets

Management assesses the impairment of
identifiable intangible assets, goodwill and other long-lived
assets at least on an annual basis and whenever events or
changes in circumstances indicate that the carrying value may
not be recoverable. Factors we consider important which could
trigger an impairment review include the following:



| |   |                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------
| |  | significant underperformance relative to
    projected future operating results,                                     
|
| |  | significant changes in the manner of our use of
    the acquired assets or the strategy for our overall business, and
|
| |  | significant negative industry or economic trends.                                                                    

When we determine that the carrying value of
intangible assets, goodwill and other long-lived assets may not
be recoverable based upon the existence of one or more of the
above indicators of potential impairment, we assess whether an
impairment has occurred.

Our assessment of intangible assets, other
long-lived assets and, prior to July 1, 2001, goodwill is
based on whether net book value of the assets exceeds related
projected undiscounted cash flows from these assets, considering
a number of factors including past operating results, budgets,
economic projections, market trends and product development
cycles. Potential impairment of goodwill after July 1, 2001
is evaluated in accordance with SFAS No. 142.

For the purposes of the impairment tests,
management considers the Company itself a single reporting unit,
as defined by SFAS No. 142. To conduct these tests, the
fair value of the reporting unit is compared to its carrying
value. To the extent that the reporting units carrying
value exceeds its fair value, we compare the implied fair value
of the reporting units goodwill to its carrying value to
determine if an impairment has occurred. This exercise entails
the allocation of the reporting units total fair value to
its assets and liabilities in

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a manner similar to that of the purchase price
allocation methodology prescribed under SFAS No. 141. Any
resulting impairment would be expensed immediately.


To estimate the fair value of the reporting unit,
we first employ a market value approach. Under this approach,
the average closing price of the Companys common stock, as
reported by the Nasdaq national market, is determined for a set
number of days in our third fiscal quarter. A control premium is
added to this average price based upon an estimation by
independent valuation professionals engaged to compile and
examine a five-year history of merger and acquisition history of
similar sized businesses in our industry. This adjusted value is
deemed to be the fair value of the Companys stock under
the market value approach and is multiplied by the number of
shares of common stock outstanding to determine the
Companys total fair value. This is then compared to the
recorded carrying value of our total net assets on that same day
to identify potential impairment. While we believe that the
market value approach provides a reasonable estimate of fair
value, there are macroeconomic factors that could significantly
affect the results of this methodology. If we believe that these
factors have resulted in an inaccurate estimation of fair value,
other valuation models will be employed including the income
approach or the cost approach. The blended results from these
three methodologies would then be used to estimate the total
fair value.

These assessments and the related analyses
involve significant judgments and estimates. Different
assumptions could yield materially different results.

In May 2002, we settled several claims
outstanding against an escrow account established in our
acquisition of C-Mold. This settlement resulted in our receipt
of $470,000 of cash and recognition of $446,000, net, of
non-recurring gains. Included in this net amount, among other
things, was the write-off of $61,000 of intangible assets
related to certain non-compete agreements which we considered
impaired after the settlement. In March 2003, we initiated a
corporate restructuring plan that resulted in the impairment of
certain developed technology originally acquired in the fiscal
2001 purchase of Branden Technologies Inc. A charge of $217,000
was recorded to write-off the net carrying value of this
developed technology, which was related to our EZ-Track product,
which has since been discontinued. As of June 30, 2003, our
remaining goodwill and intangible assets were
$10.4 million, net of accumulated amortization of
$3.3 million.



| |                      
| | ---------------------
| | Restructuring Charges

We periodically record charges resulting from
restructuring of our operations, including the consolidation of
operations, changes in our strategic plan, or managerial
responses to declines in demand, increasing costs, or other
events. The determination of restructuring charges requires
managements judgment and may include such costs and
charges as those related to employee severance, termination
benefits, the write-off of assets, professional service fees and
costs for future lease commitments on excess facilities, net of
any estimated income from subleases. In determining the amount
of charges related to excess facilities, we are required to
estimate such factors as vacancy rates, the time required to
sublet properties and sublease rates. All such estimates are
reviewed and, if necessary, revised on a quarterly basis, which
may result in adjustments to previously recorded reserves. These
assessments and the related analyses involve significant
judgments and estimates. Different assumptions could yield
materially different results.

In April 2002, we enacted a restructuring plan to
resize our business and reduce overhead costs. In March 2003, we
enacted a restructuring plan related to our acquisition of CPI.
Each of these restructuring plans involved the recording of
certain restructuring charges. See Note 9 to the
Consolidated Financial Statements.



| |                      
| | ---------------------
| | Income Tax Accounting

As part of the process of preparing our
consolidated financial statements, we are required to estimate
our income taxes in each of the jurisdictions in which we
operate. This process involves estimating our current tax
liability and assessing temporary differences resulting from
differing treatment of items, such as deferred revenue, for tax
and accounting purposes. These differences give rise to deferred
tax assets and liabilities, which are included in our
consolidated balance sheet. We must then periodically assess the
likelihood that our deferred tax assets will be recovered from
future taxable income and, to the extent that we believe it is
more likely than not that all or a portion of the deferred tax
assets will not be realized, we must establish a valuation

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allowance. To the extent we establish a valuation
allowance or increase this allowance, we must include an expense
within the tax provision of our consolidated statement of
operations.


Based upon our historical results of operations,
it is more likely than not that a portion of our deferred tax
assets will not be realized. Accordingly, we have recorded a
valuation allowance of $789,000 as of June 30, 2003, due to
uncertainties related to our ability to utilize some of our
deferred tax assets, primarily consisting of net operating
losses, before they expire. Our net deferred tax asset balance
was $501,000 at June 30, 2003. Management believes that the
net deferred tax asset balance represents the best estimate,
based upon the weight of available evidence, of the deferred tax
assets 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 assets may be decreased or
increased.



| |                 
| | ----------------
| | Hedge Accounting

We hedge a portion of our forecasted foreign
currency denominated intercompany sales and a portion of our
foreign currency denominated intercompany research and
development payments with derivative financial instruments,
including currency options, forward contracts, zero cost collars
and other instruments. As the hedging activities are based upon
forecasts, a significant amount of judgment and estimation is
required in assessing the appropriateness of hedge accounting
for the instruments. If these judgments or estimates are
incorrect, or if the hedging transactions are not highly
effective in offsetting the changes in cash flows of the hedged
items, amounts currently recorded as unrealized gains and losses
may be realized in our earnings. At June 30, 2003, hedging
instruments with fair values of $337,000 and $32,000 were
recorded as components of other current assets and accrued
expenses, respectively. Net unrealized gains on these
instruments of $27,000 were included as a component of equity in
accumulated other comprehensive income. See Note 2 and Note 5 to
the Consolidated Financial Statements.



| |                                                 
| | ------------------------------------------------
| | Capitalization of Software Development
    Costs

We follow Statement of Financial Accounting
Standards (SFAS) No. 86, Accounting for
the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed, which requires that costs associated with the
development of computer software and related products be
expensed prior to establishing technological feasibility, and
capitalized thereafter until commercial release of the software
products. Both the assessment of the amount of costs required to
be capitalized and the determination of subsequent amortization
periods involve significant judgments and estimates. Different
assumptions and subsequent actual events could yield materially
different results. As of June 30, 2003, our capitalized
software development costs were $1.1 million, net of
accumulated amortization of $217,000. These costs are being
amortized over a five-year period.

Results of Operations

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.

Product revenue.Typically, our customers pay an
up-front, one-time fee for our products. The amount of the fee
depends upon the number and type of software modules licensed,
the associated hardware components and the number of the
customers employees or other users who can access the
software product simultaneously. Our MPA product is subject to
the terms of a click-wrapped software license
agreement that is included as part of each customers
installation process. Revenue for our iMPA product, a
fully functional, application service provider version of our
Part Adviser product, is earned on a pay-per-use basis and, to
date, has not been significant. For sales of our other products,
we generally require a signed license agreement. In addition, we
receive royalty payments from developers of other software
products related to the bundling of our software with their
design software programs.

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Services revenue.We
derive revenue from maintenance and support contracts that
require us to provide technical support services to customers
and unspecified product upgrades and enhancements on a
when-and-if-available basis. We also provide consulting and
implementation services, training of customers employees
and material testing services.

We recognize our product revenue and our services
revenue as described in Critical Accounting Policies and
Significant Judgments and Estimates-Revenue Recognition.

Cost of product revenue.Cost of product revenue consists
primarily of the costs associated with hardware components for
our Manufacturing Solutions products, compact discs and related
packaging material, duplication and shipping costs and the
salaries of our distribution personnel. In some cases, we pay
royalties to third parties for usage-based licenses of their
products that are embedded in our products. Product royalties
are expensed when the related obligation arises, which is
generally upon the license of our products, and are included in
cost of product revenue. Also included in cost of product
revenue is amortization expense related to capitalized software
development costs. In fiscal 2003, cost of product revenue also
included a charge to write-off certain inventory in connection
with our March 2003 restructuring plan.

Cost of services revenue.Cost of services revenue consists
primarily of salary, fringe benefit and facility related costs
of our maintenance and support, consulting and training
activities and of our material testing laboratories, and is
expensed when incurred. Additionally, from time to time, we
engage outside consultants to meet peaks in customer demand for
consulting and implementation services.

Research and development.We employ a development staff to
develop new products and enhance our existing products. Product
development expenditures, which include salaries, benefits,
travel, payments to universities and other research institutions
and facilities costs, are generally charged to operations as
incurred. SFAS No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise
Marketed, requires the capitalization of certain software
development costs subsequent to the establishment of
technological feasibility up to the point of the products
release. Prior to fiscal 2002, costs eligible for capitalization
were not significant. Since that time, the complexity of many of
our newly developed software products has increased, and, as a
result, the period of time and costs incurred between the
establishment of technological feasibility of the product and
the point of the products release have become more
significant. Accordingly, the amount of capitalized research and
development costs has also increased.

In accordance with SFAS No. 86, research and
development costs of $669,000 and $602,000 were capitalized in
fiscal 2003 and 2002, respectively. All such capitalized costs
are being amortized to cost of product revenue over five years,
the estimated economic life of the related products. We expect
to incur additional capitalizable software development costs of
similar amounts in fiscal 2004 with the planned releases of
several product enhancements.

Selling and marketing.We sell our products primarily through
our direct sales force and indirect distribution channels.
Selling and marketing expenses consist primarily of salaries,
commissions to our sales staff, employee benefits costs, sales
office facilities, travel and promotional events such as trade
shows, advertising, print and web-based collateral materials,
and public relations programs.

General and administrative.General and administrative expenses
include compensation, routine legal, audit, tax consulting,
regulatory compliance, insurance and other costs of our
executive management, finance, information technology, human
resources and administrative support activities.

Litigation.In 2000
and 1999, we incurred unusual litigation expenses to pursue
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 in April 2000, all related claims were
dismissed. As a result, we have not incurred and anticipate that
we will not incur any further significant litigation costs
related to this matter.

Restructuring charges.In March 2003, we incurred charges
related to actions we took to restructure our business. The
restructuring was a result of our January 2003 acquisition of
CPI, and was enacted to integrate CPIs operations into our
existing operations and to incorporate CPIs products into
our current product line. This restructuring plan comprehended
our pre-existing employees and assets and included the
involuntary

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termination of four technical employees, a
reduction of space at a leased facility, the write-off of
inventory, other assets and certain intangible assets which
became obsolete or otherwise impaired by the integration of
CPIs products and operations. All such charges and
expense, except the charge to write-off inventories, have been
included as restructuring charges. In fiscal 2002, we incurred
charges related to actions we took to resize our business and to
reduce our overhead costs. Included in these charges were costs
incurred to terminate leases on certain facilities in the United
States and Europe, severance costs related to the involuntary
termination of 37 employees and professional fees arising from
related legal, accounting and tax services.


Amortization of goodwill.These costs represent the amortization
of goodwill recorded in connection with our acquisitions. During
the first quarter of fiscal 2002, we adopted the provisions of
SFAS No. 141, Business Combinations and SFAS
No. 142, Goodwill and Other Intangible Assets.
These standards, among other things, eliminated the requirement
to amortize goodwill. As such, we ceased amortization of
goodwill at the beginning of fiscal 2002.

Amortization of other intangible assets.These costs represent the amortization
of other intangible assets recorded in connection with our
acquisitions. These assets include developed technology,
customer base and non-compete agreements.

Interest income, net.Interest income, net includes interest
income earned on invested cash balances, net of our cost of
borrowings, including interest cost incurred on our working
capital lines of credit.

Other income (loss), net.Other income (loss), net includes
realized and unrealized gains and losses arising from
translation of foreign currency denominated asset and liability
balances, recognized gains and losses on our foreign currency
hedging instruments, and other non-operating income and expense
items.

Provision for income taxes.Our income tax expense includes
federal, state and foreign income taxes. The determination of
our provision for income tax expense requires significant
management judgment regarding forecasts of net income and tax
obligations in the various jurisdictions in which the Company
operates and includes the tax effects of certain items of income
and expense that are reported in differing periods for financial
statement and tax return purposes. Further, we must assess the
likelihood of realizing on our deferred tax assets. If it is
more likely than not that any or all of our deferred tax assets
will not be realized, we must establish a valuation allowance by
including an expense within the income tax provision.
Accordingly, our effective tax rate may vary from period to
period based on changes in estimated taxable income or loss,
changes to the valuation allowance, changes to federal, state or
foreign tax laws, changes in our business across different
jurisdictions with varying country, state and local income tax
rates, deductibility of certain costs and expenses by
jurisdiction and as a result of acquisitions.

Our fiscal year end is June 30. References
to 2003, 2002 or 2001 mean the fiscal year ended June 30,
unless otherwise indicated.

The following table sets forth statement of
operations data for the periods indicated as a percentage of
total revenue:

|         |          |                            |  |      |       |      |  |      |       |   |  |      |       |  
|-------- | -------- | -------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | ---- | ----- | -
|         |          |                           
|         |          | Fiscal Year Ended June 30,
|         |          |                           
|         |          | 2003                       |  | 2002 |       | 2001
|         |          |                            |  |      |       |     
|Revenue: |          |                            |  |      |       |      |  |      |       |   |  |     
|         | Product  |                            |  | 47.1 | %     |      |  | 50.9 | %     |   |  | 61.3 | %    
|         | Services |                            |  | 52.9 |       |      |  | 49.1 |       |   |  | 38.7 |      
|         |          |                            |  |      |       |      |  |      |       |   |  |     
|         |          | Total revenue              |  |      | 100.0 | %    |  |      | 100.0 | % |  |      | 100.0 | %
|         |          |                            |  |      |       |      |  |      |       |   |  |     

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|                              |                                         |                            |      |      |       |      |      |      |       |  |     |      |      | 
|----------------------------- | --------------------------------------- | -------------------------- | ---- | ---- | ----- | ---- | ---- | ---- | ----- |  | --- | ---- | ---- | 
|                              |                                         |                           
|                              |                                         | Fiscal Year Ended June 30,
|                              |                                         |                           
|                              |                                         | 2003                       |      | 2002 |       | 2001
|                              |                                         |                            |      |      |       |     
|Costs and expenses:           |                                         |                            |      |      |       |      |      |      |       |  |     |     
|                              | Cost of product revenue                 |                            |      | 8.1  | %     |      |      | 7.2  | %     |  |     | 4.6  | %   
|                              | Cost of services revenue                |                            |      | 3.3  |       |      |      | 4.0  |       |  |     | 3.6  |     
|                              | Research and development                |                            |      | 15.4 |       |      |      | 17.8 |       |  |     | 16.6 |     
|                              | Selling and marketing                   |                            |      | 50.9 |       |      |      | 51.7 |       |  |     | 48.6 |     
|                              | General and administrative              |                            |      | 19.7 |       |      |      | 18.9 |       |  |     | 15.2 |     
|                              | Restructuring charges                   |                            |      | 1.1  |       |      |      | 3.6  |       |  |     |     |     
|                              | Amortization of goodwill                |                            |      |     |       |      |      |     |       |  |     | 2.8  |     
|                              | Amortization of other intangible assets |                            |      | 1.7  |       |      |      | 1.9  |       |  |     | 1.5  |     
|                              |                                         |                            |      |      |       |      |      |      |       |  |     |     
|                              |                                         | Total operating expenses   |      |      | 100.2 |      |      |      | 105.1 |  |     |      | 92.9 | 
|                              |                                         |                            |      |      |       |      |      |      |       |  |     |     
|Income (loss) from operations |                                         |                            | (0.2 | )    |       |      | (5.1 | )    |       |  | 7.1 |     
|Interest income, net          |                                         |                            | 3.0  |      |       |      | 4.1  |      |       |  | 5.3 |     
|Other income (loss), net      |                                         |                            | (0.6 | )    |       |      | 4.9  |      |       |  | 0.7 |     
|                              |                                         |                            |      |      |       |      |      |      |       |  |     |     
|                              | Income before income taxes              |                            |      | 2.2  |       |      |      | 3.9  |       |  |     | 13.1 |     
|Provision for income taxes    |                                         |                            | 2.5  |      |       |      | 1.7  |      |       |  | 4.3 |     
|                              |                                         |                            |      |      |       |      |      |      |       |  |     |     
|                              | Net income (loss)                       |                            |      | (0.3 | )%    |      |      | 2.2  | %     |  |     | 8.8  | %   
|                              |                                         |                            |      |      |       |      |      |      |       |  |     |     

Comparison of Fiscal Years 2001, 2002 and
2003



| |        
| | -------
| | Revenue

In fiscal 2003, total revenue increased
$1.5 million, or 4%, from $35.1 million to
$36.6 million. On a constant currency basis which excludes
the impact of changes in foreign exchange rates from those of
the previous year, total revenue decreased approximately 3% from
fiscal 2002. The following table sets forth our total revenue by
geographic region for each of fiscal 2003, 2002 and 2001:

|                             |                 |                            |   |        |   |      |   |        |   |  |   |        |  
|---------------------------- | --------------- | -------------------------- | - | ------ | - | ---- | - | ------ | - |  | - | ------ | -
|                             |                 |                           
|                             |                 | Fiscal Year Ended June 30,
|                             |                 |                           
|                             |                 | 2003                       |   | 2002   |   | 2001
|                             |                 |                            |   |        |   |     
|                             |                 |                           
|                             |                 | (In thousands)            
|Revenue:                     |                 |                            |   |        |   |      |   |        |   |  |   |       
|                             | Asia/ Australia |                            | $ | 12,403 |   |      | $ | 11,247 |   |  | $ | 13,034 |  
|                             | Americas        |                            |   | 10,065 |   |      |   | 11,064 |   |  |   | 13,286 |  
|                             | Europe          |                            |   | 14,157 |   |      |   | 12,777 |   |  |   | 13,623 |  
|                             |                 |                            |   |        |   |      |   |        |   |  |   |       
|                             | Total           |                            | $ | 36,625 |   |      | $ | 35,088 |   |  | $ | 39,943 |  
|                             |                 |                            |   |        |   |      |   |        |   |  |   |       
|Percentage of total revenue: |                 |                            |   |        |   |      |   |        |   |  |   |       
|                             | Asia/ Australia |                            |   | 33.9   | % |      |   | 32.1   | % |  |   | 32.6   | %
|                             | Americas        |                            |   | 27.5   |   |      |   | 31.5   |   |  |   | 33.3   |  
|                             | Europe          |                            |   | 38.6   |   |      |   | 36.4   |   |  |   | 34.1   |  
|                             |                 |                            |   |        |   |      |   |        |   |  |   |       
|                             | Total           |                            |   | 100.0  | % |      |   | 100.0  | % |  |   | 100.0  | %
|                             |                 |                            |   |        |   |      |   |        |   |  |   |       

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##### Table of Contents



Product revenue.The
following table sets forth our product revenue by product group
and geography for each of 2003, 2002 and 2001:

|                                     |                               |                            |   |        |   |      |   |        |   |  |   |        |  
|------------------------------------ | ----------------------------- | -------------------------- | - | ------ | - | ---- | - | ------ | - |  | - | ------ | -
|                                     |                               |                           
|                                     |                               | Fiscal Year Ended June 30,
|                                     |                               |                           
|                                     |                               | 2003                       |   | 2002   |   | 2001
|                                     |                               |                            |   |        |   |     
|                                     |                               |                           
|                                     |                               | (In thousands)            
|Asia/ Australia product revenue:     |                               |                            |   |        |   |      |   |        |   |  |   |       
|                                     | Design Optimization Solutions |                            | $ | 6,558  |   |      | $ | 6,460  |   |  | $ | 8,338  |  
|                                     | Manufacturing Solutions       |                            |   | 169    |   |      |   | 121    |   |  |   | 490    |  
|                                     |                               |                            |   |        |   |      |   |        |   |  |   |       
|                                     | Total                         |                            |   | 6,727  |   |      |   | 6,581  |   |  |   | 8,828  |  
|                                     |                               |                            |   |        |   |      |   |        |   |  |   |       
|Americas product revenue:            |                               |                            |   |        |   |      |   |        |   |  |   |       
|                                     | Design Optimization Solutions |                            |   | 2,432  |   |      |   | 3,091  |   |  |   | 6,710  |  
|                                     | Manufacturing Solutions       |                            |   | 1,775  |   |      |   | 1,427  |   |  |   | 412    |  
|                                     |                               |                            |   |        |   |      |   |        |   |  |   |       
|                                     | Total                         |                            |   | 4,207  |   |      |   | 4,518  |   |  |   | 7,122  |  
|                                     |                               |                            |   |        |   |      |   |        |   |  |   |       
|Europe product revenue:              |                               |                            |   |        |   |      |   |        |   |  |   |       
|                                     | Design Optimization Solutions |                            |   | 4,243  |   |      |   | 5,304  |   |  |   | 7,650  |  
|                                     | Manufacturing Solutions       |                            |   | 2,082  |   |      |   | 1,467  |   |  |   | 894    |  
|                                     |                               |                            |   |        |   |      |   |        |   |  |   |       
|                                     | Total                         |                            |   | 6,325  |   |      |   | 6,771  |   |  |   | 8,544  |  
|                                     |                               |                            |   |        |   |      |   |        |   |  |   |       
|Total product revenue:               |                               |                            |   |        |   |      |   |        |   |  |   |       
|                                     | Design Optimization Solutions |                            |   | 13,233 |   |      |   | 14,855 |   |  |   | 22,698 |  
|                                     | Manufacturing Solutions       |                            |   | 4,026  |   |      |   | 3,015  |   |  |   | 1,796  |  
|                                     |                               |                            |   |        |   |      |   |        |   |  |   |       
|                                     | Total                         |                            | $ | 17,259 |   |      | $ | 17,870 |   |  | $ | 24,494 |  
|                                     |                               |                            |   |        |   |      |   |        |   |  |   |       
|Percentage of total product revenue: |                               |                            |   |        |   |      |   |        |   |  |   |       
|                                     | Design Optimization Solutions |                            |   | 76.7   | % |      |   | 83.1   | % |  |   | 92.7   | %
|                                     | Manufacturing Solutions       |                            |   | 23.3   |   |      |   | 16.9   |   |  |   | 7.3    |  
|                                     |                               |                            |   |        |   |      |   |        |   |  |   |       
|                                     | Total                         |                            |   | 100.0  | % |      |   | 100.0  | % |  |   | 100.0  | %
|                                     |                               |                            |   |        |   |      |   |        |   |  |   |       

In fiscal 2003, product revenue decreased by
$611,000, or 3.4%, from $17.9 million in 2002 to
$17.3 million in 2003. The overall decrease in product
revenue in fiscal 2003 was primarily a result of the continued
economic slowdown experienced in the markets we address. Demand
for our products, particularly our Design Optimization
Solutions, is largely driven by the number of new designs and
molds created to meet the demand for the end products of our
customers. The industries in which many of our key customers
operate, including the consumer products, telecommunications and
electronics industries have been among those most severely
impacted by prolonged economic pressures. As such, these
companies have typically reduced their spending on capital
items, including spending on our products.

The overall decline in product revenue during
fiscal 2003 was partially offset by a 34% increase in product
revenue from sales of our Manufacturing Solutions products. The
increase in product revenue from this product line was primarily
attributable to growth in our European market, and to a lesser
degree, favorable foreign exchange rates. The growth in the
underlying business was primarily the result of orders received
for large plant-wide implementations in the electronics and
automotive sectors and the impact of revenue in Europe from the
CPI 2000 product line, which contributed sales of $373,000
following our January 2003 acquisition of CPI.

The overall decline in product revenue during
fiscal 2003 was also partially offset by a 13% increase in
Japanese product revenue, primarily in our Design Optimization
Solutions. Japanese product revenue was $4.4 million,
$3.9 million and $5.7 million in fiscal 2003, 2002 and
2001, respectively. We believe that the increase in product
revenue in Japan is a result of a broadening of the market for
our products beyond our traditional customer base to include
members of the original equipment manufacturers
(OEM) supply chain and a mild economic recovery in
Japan which resulted in higher levels of capital spending by our
customers.

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In fiscal 2002, product revenue decreased by
$6.6 million, or 27%, from $24.5 million in 2001 to
$17.9 million in 2002. The decrease in product revenue in
fiscal 2002 was a result of the aforementioned economic declines
in the industries of our primary customers. This decrease was
partially offset by increased sales of our Manufacturing
Solutions, which was primarily attributable to the impact of our
acquisition of Branden in March 2001.

We added 323 new customers in fiscal 2003,
compared to approximately 460 and 600 new customers in 2002 and
2001, respectively. Sales to new customers represented 39% of
total product revenue in fiscal 2003, compared to 40% and 44% of
total product revenue in 2002 and 2001, respectively. We sold
476 seats of Design Optimization products and
633 seats of Manufacturing Solutions products in fiscal
2003, compared to 790 and 1,200 seats of Design
Optimization products and 332 and 130 seats of
Manufacturing Solutions products in 2002 and 2001, respectively.
In fiscal 2003, the seat count of Manufacturing Solutions
products includes 162 seats of Moldflow CPI 2000, sold
subsequent to our acquisition of CPI. Pricing of individual
products within these product families can vary greatly, and the
mix of products sold during a given period can significantly
impact our average selling price per seat. As such, we do not
believe that an average selling price per seat provides a
meaningful measure of our business.

Services revenue.Services revenue has a lower gross
profit margin than product revenue and accounted for
approximately 53% of our total revenue in 2003, compared to 49%
and 39% of our total revenue in 2002 and 2001, respectively.
Revenue from services increased by 12% in 2003, from
$17.2 million to $19.4 million and by 12% in 2002,
from $15.4 million to $17.2 million. These increases
were primarily from the sale of maintenance contracts, which was
the result of historical growth in our installed customer base
arising from software license sales.

Costs and
Expenses

Cost of product revenue.Our cost of product revenue was
$3.0 million in 2003, $2.5 million in 2002 and
$1.8 million in 2001. In 2003, cost of product revenue
included a $179,000 charge to write-off certain inventory in
connection with our March 2003 restructuring plan. The increases
in 2003 and 2002 are related to increased sales of our
Manufacturing Solutions products, which have a higher cost of
material than our Design Optimization products. In addition,
amortization expense arising from capitalized software
development costs was $146,000 in 2003, compared to $71,000 in
2002, a result of the increase in our capitalized software
development costs. There were no such amortization expenses in
2001.

Cost of services revenue.Our cost of services revenue was
$1.2 million in 2003 and $1.4 million in both 2002 and
2001. The decrease was primarily a result of reduced
compensation and facility costs resulting from our April 2002
restructuring plan.

Research and development.Our research and development expenses
were $5.7 million in 2003, $6.2 million in 2002 and
$6.6 million in 2001. The decreases in each year were
primarily attributable to capitalization of development costs
pursuant to the provisions of SFAS No. 86, which began in
fiscal 2002. We capitalized $669,000 and $602,000 of development
costs in 2003 and 2002, respectively. In addition, we eliminated
12 technical positions in our April 2002 restructuring, which
reduced our research and development expenses in both 2003 and
2002.

Selling and marketing.Our selling and marketing expenses
were $18.6 million in 2003, $18.1 million in 2002 and
$19.4 million in 2001. The increase in 2003 as compared to
2002 was primarily attributable to increased commission expense
resulting from our increased total revenue, and to a lesser
degree, foreign exchange rates. This increase was partially
offset by the impact of our elimination of 17 sales and
marketing positions in April 2002 as part of our restructuring
plan. The decrease in 2002 as compared to 2001 was due to
reduced sales commission expense in light of the decline in
revenue and, to a lesser extent, the impact of the April 2002
restructuring.

General and administrative.Our general and administrative
expenses were $7.2 million in 2003, $6.7 million in
2002 and $6.1 million in 2001. In 2003, these increases
were a result of higher compensation

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costs and escalating professional service fees,
including the cost of our audit, tax planning and compliance and
other accounting services. In light of the more highly regulated
financial reporting environment, we expect similar increases in
fiscal 2004 as we continue to fully comply with such regulatory
requirements. In 2002, increases in professional service fees
and increases in our directors and officers liability
insurance premiums were partially offset by the elimination of 8
administrative positions in April 2002 as part of the
restructuring.


Restructuring charges.In fiscal 2003, we incurred a $405,000
charge related to actions we took to restructure our
pre-existing business as a result of our January 2003
acquisition of CPI. This restructuring plan included the
involuntary termination of four technical employees, a reduction
of space at a leased facility in the United States, the
write-off of inventory and other assets and the write-off of
certain intangible assets. All such charges and expenses, except
the charge to write-off inventories, have been included as
restructuring charges.

In fiscal 2002, we incurred a $1.3 million
charge related to our April 2002 restructuring plan. This plan
was enacted to resize the Company and reduce overhead in light
of the economic climate. The restructuring included the
involuntary termination of 37 employees in several
countries and the closure or reduction of certain leased
offices. The severance portion of the charge was $382,000 and
affected staff across all major functions. The largest component
of the charge, $606,000, was related to a 40% reduction in the
utilization of our leased space in the United Kingdom. Other
components of the charge included $66,000 of lease termination
costs for facilities in the United States and France, $52,000 of
lease termination costs for equipment and automobiles and
$166,000 of professional fees for tax and legal consultation.
See Note 9 to the Consolidated Financial Statements.

Amortization of goodwill.Amortization of goodwill was zero in
2003 and 2002 and $1.1 million in 2001. Amortization
expense in 2001 included a full year of amortization of goodwill
acquired in the C-Mold purchase and three months of
amortization of goodwill acquired in the Branden purchase.
Goodwill amortization ceased upon our adoption of SFAS
No. 142 on July 1, 2001. See Note 4 to the
Consolidated Financial Statements.

Amortization of other intangible assets.Amortization of other intangible
assets was $605,000 in 2003, $656,000 in 2002 and $601,000 in
2001. The reduction in amortization expense in 2003 from the
write-off of certain intangible assets in relation to our March
2003 restructuring plan was partially offset by $54,000 of new
amortization expense resulting from our January 2003 acquisition
of the operations of CPI. On July 1, 2001, we reclassified
the carrying value of our acquired assembled workforce to
goodwill, in accordance with SFAS No. 141. The amortization
expense for fiscal 2002 reflects the net impact of eliminating
the amortization of this assembled workforce and adding a full
year of amortization of intangible assets acquired in the
Branden purchase.

Other Income
and Expenses

Interest income (expense), net.Our interest income was
$1.1 million in 2003, $1.5 million in 2002 and
$2.1 million in 2001. Interest income is earned on
investment of our cash balances. In 2003 and 2002, we earned
lower income on our investments due to the declining interest
rate environment, as reinvestments of maturities were at lower
rates than in previous years.

Other income (loss), net.Other income (loss), net includes
realized and unrealized gains and losses arising from
translation of foreign currency denominated asset and liability
balances, recognized gains and losses on our foreign currency
hedging instruments, and other non-operating income and expense
items. During 2002, we realized a net gain of $625,000 on the
sale of land and other property in Australia, a net gain of
$504,000 on the sale of our remaining minority investment in an
Indian software company and other income of $446,000 arising
from our settlement of several claims against an escrow account
established at the time of our acquisition of C-Mold.

Provision for income taxes.Our effective income tax rate was 115%
for 2003, 44% for 2002 and 33% for 2001. In 2003 and 2002, we
incurred income taxes in certain foreign jurisdictions that
could not be offset in the financial statement tax provision by
tax benefits arising from losses in other jurisdictions. We
expect that a

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similar result will occur in future periods due
to the globally distributed nature of our operations and certain
fixed income amounts in those jurisdictions.


Liquidity and Capital Resources

Historically, we have financed our operations and
met our capital expenditure requirements primarily through funds
generated from operations, sales of our capital stock and
borrowings from lending institutions. As of June 30, 2003,
our primary sources of liquidity consisted of our total cash and
cash equivalents balance of $38.3 million, our marketable
securities balance of $13.8 million and our credit
facilities. In December 2002, we renewed our primary
$5.0 million, unsecured working capital credit facility
with a domestic bank. The available borrowing base of the
facility is subject to a calculation that is based upon eligible
accounts receivable. Advances may be in the form of loans,
letters of credit, foreign exchange contracts or other cash
management lines. The facility includes restrictive covenants,
all of which we were in compliance with at June 30, 2003.
These covenants include liquidity and profitability measures and
restrictions that limit the ability of Moldflow to merge,
acquire or sell assets without prior approval from the bank. At
June 30, 2003, we had employed $2.2 million of
available borrowings through outstanding foreign exchange
contracts and letters of credit. The remaining available
borrowings were $2.4 million. In addition to our primary
working capital line of credit, we also utilize domestic and
foreign banking institutions to provide liquidity to our
subsidiaries. We also have relationships with other banking
institutions in order to facilitate foreign currency and hedging
transactions. As of June 30, 2003, we had no outstanding
debt. See Note 10 to the Consolidated Financial Statements.

At June 30, 2003, our marketable securities
consisted of corporate bonds with maturities in excess of three
months but less than one year. Investments in marketable
securities are made in accordance with our corporate investment
policy. The primary objective of this policy is the preservation
of capital. Investments are limited to high quality corporate
debt, government securities, municipal debt securities, money
market funds and similar instruments. The policy establishes
maturity limits, liquidity requirements and concentration
limits. At June 30, 2003, we were in compliance with this
policy.

Net cash provided by operating activities was
$2.4 million in 2003, $5.0 million in 2002 and
$6.2 million in 2001. In all years cash was primarily
provided by net income (loss) as adjusted for non-cash items. In
2003, non-cash items included depreciation and amortization
charges of $2.2 million, realized foreign exchange losses
of $160,000, the write-off of assets due to our restructuring
activities of $471,000 and other smaller items. In 2002, we
realized net gains of $622,000 on our sale of land and certain
other property in Australia, a net gain of $504,000 on our sale
of our investment an Indian software company and net foreign
exchange gains of $206,000. Non-cash charges in 2002 also
included $2.0 million of depreciation and amortization,
additional provisions for doubtful accounts and other smaller
non-cash charges. In 2001, net income was impacted by
$3.1 million of non-cash charges, primarily arising from
depreciation and amortization, and net foreign exchange gains of
$298,000.

Investing activities used cash of
$13.4 million in 2003, primarily from the investment of
cash in marketable securities of $10.6 million. In
addition, $1.2 million was used to purchase fixed assets,
$902,000 was used to purchase the assets and the ongoing
operations of CPI and $669,000 of costs were capitalized related
to the development of software products. In 2002, marketable
securities matured or were otherwise converted into cash
equivalents, increasing our balance of cash and cash equivalents
by $9.1 million. Also, cash of $1.1 million was used
to purchase fixed assets and $602,000 of costs were capitalized
related to the development of software products. Investing
activities provided cash of $8.8 million in 2002 from our
sale of land and certain other property in Australia and our
sale of our investment in the Indian software company. Net cash
used in investing activities was $11.8 million in 2001. In
addition to the purchase of fixed assets, $3.7 million, net
of cash acquired, was used to purchase Branden and
$7.3 million was invested in marketable securities, net of
proceeds from maturities and sales of similar instruments. Also
in 2001, $1.5 million of proceeds were received on the sale
of real estate.

Net cash of $524,000 and $55,000 was used in
financing activities in 2003 and 2002, respectively. In both
years, cash used to reacquire shares of our outstanding common
stock was partially offset by proceeds received

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from stock option exercises, purchases of stock
under our Employee Stock Purchase Plan and repayment of notes
receivable from stockholders. Net cash of $12.3 million was
provided by financing activities in 2001, primarily from the
$13.0 million received from our second public offering of
our common stock, stock option exercises and purchases of stock
under our Employee Stock Purchase Plan. In 2001, we repaid in
full our outstanding long-term debt obligations.


We believe that our current cash, cash
equivalents, marketable securities 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
twelve 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.

Off-Balance Sheet Financing
Arrangements

We do not have any special purpose entities or
off-balance sheet financing arrangements.

Contractual Obligations

As of June 30, 2003, our outstanding
obligations for operating lease commitments were as follows (in
thousands):

|                     |  |           |       | 
|-------------------- |  | --------- | ----- | 
|                     |  | Operating
|Year Ending June 30, |  | Leases   
|                     |  |          
|2004                 |  | $         | 2,282 | 
|2005                 |  |           | 1,686 | 
|2006                 |  |           | 823   | 
|2007                 |  |           | 553   | 
|2008                 |  |           | 531   | 
|Thereafter           |  |           | 1,304 | 
|                     |  |           |       | 
|                     |  | $         | 7,179 | 
|                     |  |           |       | 

Recent Accounting Pronouncements

In January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities, an
Interpretation of ARB 51. The primary objective of FIN
No. 46 is to provide guidance on the identification of
entities for which control is achieved through means other than
through voting rights (variable interest entities or
VIEs) and how to determine when and which business
enterprise should consolidate the VIE. This new model for
consolidation applies to an entity for which either:
(a) the equity investors (if any) do not have a controlling
financial interest; or (b) the equity investment at risk is
insufficient to finance that entitys activities without
receiving additional subordinated financial support from other
parties. In addition, FIN No. 46 requires that both the
primary beneficiary and all other enterprises with a significant
variable interest in a VIE make additional disclosures. We are
required to apply FIN No. 46 to all new variable interest
entities created or acquired after January 31, 2003. For
variable interest entities created or acquired prior to
February 1, 2003, we are required to apply FIN No. 46
on July 1, 2003. As of June 30, 2003, we had no interest in
any VIE.

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.

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Risk Factors and Important Factors That May
Affect Future Results

You should carefully consider the following risks
and uncertainties prior to making an investment in our common
stock. The following risks and uncertainties may also cause our
actual results to differ materially from those contained in or
predicted by our forward-looking statements.



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | The existing general economic slowdown,
    particularly in our end markets, may continue to impact our
    results.

The demand for our products is largely driven by
the demand for the products in our primary end markets. Many of
these end markets, particularly the automotive,
telecommunications, and electronics industries have experienced
severe economic declines over the past 24 months which
significantly and adversely affected our business in fiscal 2002
and 2003. A continuation of this general economic slowdown will
materially and adversely affect us by decreasing our revenue as
compared to prior years, as was the case in fiscal 2002, or by
lowering our revenue growth rates when compared to those
experienced prior to fiscal 2002. In addition, increased
hostilities around the world are continuing to cause widespread
uncertainty and speculation in the United States and world
financial markets. This uncertainty and speculation may result
in further economic contraction and a further suspension in the
normal purchasing patterns of our customers.



| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Our business model and market focus is
    changing as we further develop and exploit our Manufacturing
    Solutions products.

The development and implementation of a robust
set of Manufacturing Solutions products has required that we
devote significant research and development, marketing and
executive level resources to this product family. Further
expenditures of time and effort will be required in order to
maximize the potential of this set of products. Optimizing sales
of this product group will also require that we capitalize on
existing customer synergies through a common product strategy
and that our sales model be effective in selling both Design
Optimization Solutions and Manufacturing Solutions products. Our
results of operations could be adversely affected by significant
delays in developing, completing or shipping our new or enhanced
Manufacturing Solutions products as well as by delays in
acceptance of these products by customers. Because these
products interact with other factory or enterprise-wide systems,
we may be required to provided additional functionality or
services, which may delay the recognition of revenue.
Acquisition of other businesses, such as CPI, may delay the
development and completion of our Manufacturing Solutions
products as we seek to integrate newly acquired technology onto
our product platform.



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 historical
fluctuations in our results of operations on a quarterly basis.
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,                                                                                                                                                                        
|
| |  | changes in the mix of products and services we
    provide as sales of our Manufacturing Solutions products and our
    services will result in lower gross margins and a longer selling
    cycle,                                                                                                  
|
| |  | the timing and magnitude of capital expenditures,
    including costs relating to the expansion of our operations and
    infrastructure, and planned program spending, such as that
    required for major marketing initiatives or tradeshows,                                                     
|
| |  | the timing and magnitude of our tax expense,
    resulting from the globally distributed nature of our selling
    and research and development operations that may lead to
    increased taxable income in certain jurisdictions that may not
    yet be offset by loses in other tax jurisdictions,

28



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##### Table of Contents





| |   |                                                                                                                                          
| | - | -----------------------------------------------------------------------------------------------------------------------------------------
| |  | introductions of new services or enhancements by
    us and our competitors and changes in our and our
    competitors pricing policies,
|
| |  | currency fluctuations, and                                                                                                               
|
| |  | timing and integration of acquisitions.                                                                                                  

In addition, like many software companies, we
usually record a larger percentage of our quarterly revenue in
the third month of the fiscal quarter. Also, our Manufacturing
Solutions products may involve a longer selling cycle with
corresponding larger order sizes which may lead to an inability
to close on orders or make shipments in the period immediately
preceding the end of the fiscal quarter. Accordingly, our
quarterly results are often difficult to predict prior to the
final days of the quarter.



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Future mergers, acquisitions and strategic
    relationships may result in lost revenue caused by business
    disruptions and missed opportunities caused by the distraction
    of our management.

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 merge with or
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

29



---



##### Table of Contents



of significant amounts of acquired identifiable
intangible assets that could adversely affect our results of
operations.




| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 and
elsewhere, 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. In addition, our Manufacturing Solutions products
require interaction with an injection molding machine, the use
and technology of which are subject to a wide variety of
world-wide patents and other intellectual property protection.
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 face the following risks in protecting our
intellectual property:



| |   |                                                                                                                                                                                                                                                                                    
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | we cannot be certain that our pending United
    States and foreign patent applications will result in issued
    patents or that the claims allowed are or will be sufficiently
    broad to protect our technology,                                                              
|
| |  | third parties may design around our patented
    technologies or seek to challenge or invalidate our patented
    technologies,                                                                                                                                                    
|
| |  | patents of others may have an adverse effect on
    our ability to do business,                                                                                                                                                                                                    
|
| |  | the contractual provisions that we rely on, in
    part, to protect our trade secrets and proprietary knowledge may
    be breached, and we may not have adequate remedies for any
    breach and our trade secrets and proprietary information may be
    disclosed to the public,
|
| |  | our trade secrets may also become known without
    breach of such agreements or may be independently developed by
    competitors,                                                                                                                                                
|
| |  | foreign countries, including some of those in
    which we do business, may reduce or limit the protection of our
    intellectual property rights, and                                                                                                                            
|
| |  | the cost of enforcing the protection of our
    intellectual property rights may reduce our future profitability.                                                                                                                                                                  



| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | 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. Similarly, the majority of our
revenues are derived from customers outside the United States
and certain intellectual property is owned by subsidiary
companies located outside 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 certain foreign
    countries,

30



---



##### Table of Contents





| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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,                                                                                                 
|
| |  | decreased earnings based on changes in tax
    regulations in foreign jurisdictions or the timing of required
    tax payments in foreign jurisdictions that may not yet be offset
    by tax benefits arising from losses in other jurisdictions,
|
| |  | 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.                                                                                                                                                                  



| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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.



| |                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------
| | 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, the United States and Europe.
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 Manufacturing Solutions products may
    lead to product liability claims against us.

Our Manufacturing Solutions products are
installed directly on our customers injection molding
machines and, in certain cases, 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 these products, 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.



| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 experienced extreme price
and volume fluctuations. In addition, the per share price of our
common stock has experienced significant volatility since we
have been a public company. Many factors may cause the market
price for our common stock to decline, including:



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | revenues and operating results failing to meet
    the expectations of securities analysts or investors in any
    quarter,

31



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##### Table of Contents





| |   |                                                                                                  
| | - | -------------------------------------------------------------------------------------------------
| |  | downward revisions in securities analysts
    estimates or changes in general market conditions,
|
| |  | changes in our senior management personnel,                                                      
|
| |  | distribution or sale of shares of Moldflow stock
    by insiders or affiliated persons,          
|
| |  | technological innovations by competitors or in
    competing technologies,                       
|
| |  | a decrease in the demand for our common stock,                                                   
|
| |  | 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
subjects of securities class action litigation. We may be
involved in 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, France 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, political climate 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. We engage in
hedging transactions designed to reduce our exposure to changes
in currency exchange rates. We cannot assure you, however, that
any efforts we make to hedge our exposure to currency exchange
rate changes will be successful. For a more detailed description
of our hedging activities, see Item 7 
Managements Discussion and Analysis of Financial Condition
and Results of Operations  Critical Accounting
Policies and Significant Judgments and Estimates 
Hedge Accounting.

We invest our excess cash balances in highly
liquid, interest bearing instruments. These instruments expose
us to interest rate risk and, as a result, changes in interest
rates from time to time may affect our operating results. These
instruments, along with our accounts receivable, also
potentially expose us to credit risk. Our investments are
limited to high grade corporate debt securities, government
issued debt, municipal debt securities, money market funds, and
similar high quality instruments to mitigate this credit risk.
The credit risk associated with accounts receivable is limited
due to the large number of customers and their broad dispersion
over geographic regions and industries.






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

The index to the Consolidated Financial
Statements of Moldflow Corporation is included in Item 15,
and the Consolidated Financial Statements follow the signature
pages to this Annual Report on Form 10-K.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

As required by Rules 13a-15 and 15d-15 under
the Securities Exchange Act of 1934, we have evaluated with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures as of the end of the period
covered by this report. In designing and evaluating our
disclosure controls and procedures, we and our management
recognize that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and our management
necessarily was required to apply its judgment in evaluating and
implementing possible controls and procedures. Based upon that
evaluation, our Chief

32



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##### Table of Contents



Executive Officer and Chief Financial Officer
have concluded that they believe that, as of June 30, 2003,
our disclosure controls and procedures were reasonably effective
to ensure that information required to be disclosed by us in the
reports we file or submit under the Exchange Act is recorded,
processed, summarized and reported, within the time periods
specified in the Securities and Exchange Commissions rules
and forms. In compliance with the rules, we intend to continue
to review and document our disclosure controls and procedures,
including our internal control over financial reporting, on an
ongoing basis, and may from time to time make changes aimed at
enhancing their effectiveness and to ensure that our systems
evolve with our business. There were no changes in our internal
control over financial reporting that occurred during our most
recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect our internal control over
financial reporting.





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 2003 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 2003 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 2003 Annual Meeting of Stockholders.






|         |                                                                                                       
|-------- | ------------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management and Related Stockholder
    Matters

Incorporated herein by reference is the
information appearing under the captions Information
Regarding Moldflow Stock Ownership and Equity
Compensation Plan Information in the Companys
definitive Proxy Statement for its 2003 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 2003 Annual
Meeting of Stockholders.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

Incorporated by reference is the information
appearing under the caption Independent Accountants
in the Companys definitive Proxy Statement for its 2003
Annual Meeting of Stockholders.




PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

15(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.

33



---



##### Table of Contents



15(a)(2) Financial Statement Schedule

The following are contained on the indicated
pages of this Annual Report on Form 10-K:

|                                                    |  |          |    | 
|--------------------------------------------------- |  | -------- | -- | 
|                                                    |  | Page No.
|                                                    |  |         
|Schedule II  Valuation and
    Qualifying Accounts |  |          | 38 | 

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.

15(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 or report, such statement or
report is identified.

34



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##### Table of Contents






EXHIBITS

|        |        |       |  |                                                                                                                                                                                                                                                      
|------- | ------ | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |      
|No.     |        | Title
|        |        |      
|        | 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.                                                                                                                                                                                           
|        | 3.    | 3     |  | Certificate of Amendment of Third Amended and
    Restated Certificate of Incorporation.                                                                                                                                                             
|        | 3.   | 4     |  | Certificate of Designations, Preferences and
    Rights of a Series of Preferred Stock of Moldflow Corporation
    classifying and designating the Series A Junior
    Participating Preferred Stock.                                                
|        | 4.   | 1     |  | Shareholder Rights Agreement, dated as of
    January 29, 2003, between Moldflow Corporation and
    EquiServe Trust Company, as Rights Agent.                                                                                                       
|        | #10.   | 19    |  | Moldflow Corporation 2000 Stock Option and
    Incentive Plan, as amended.                                                                                                                                                                           
|        | 10.   | 20    |  | Form of Incentive Stock Option Agreement under
    the Moldflow Corporation 2000 Stock Option and Incentive Plan.                                                                                                                                    
|        | 10.   | 21    |  | Form of Non-Qualified Stock Option Agreement for
    Company Employees under the Moldflow Corporation 2000 Stock
    Option and Incentive Plan.                                                                                                      
|        | 10.   | 22    |  | Moldflow Corporation Employee Stock Purchase Plan.                                                                                                                                                                                                   
|        | 10.   | 23    |  | Moldflow Corporation 1997 Equity Incentive Plan.                                                                                                                                                                                                     
|        | 10.   | 32    |  | Form of Director Indemnification Agreement to be
    entered into between the Registrant and each non-employee
    director.**                                                                                                                       
|        | 10.   | 33    |  | Form of Non-Qualified Stock Option Agreement for
    Non-Employee Directors under the Moldflow Corporation 2000 Stock
    Option and Incentive Plan.**                                                                                               
|        | ***10. | 34    |  | Lease, dated as of June 16, 2000 by and
    between Wayland Business Center, LLC, as Landlord and Moldflow
    Corporation as Tenant.                                                                                                                
|        | 10.  | 36    |  | Loan Agreement as of November 13, 2001
    between Silicon Valley Bank and Moldflow Corporation.                                                                                                                                                     
|        | #10.   | 37    |  | Letter Agreement between Moldflow Corporation and
    Marc Dulude dated as of July 2, 2002.**                                                                                                                                                        
|        | #10.   | 38    |  | Employment Agreement, dated August 16, 2002,
    between the Registrant and Suzanne E. Rogers MacCormack.**                                                                                                                                          
|        | #10.   | 39    |  | Employment Agreement, dated August 16, 2002,
    between the Registrant and Kenneth R. Welch.**                                                                                                                                                      
|        | #10.   | 40    |  | Employment Agreement, dated August 16, 2002,
    between the Registrant and Richard M. Underwood.**                                                                                                                                                  
|        | #10.   | 41    |  | Employment Agreement, dated August 16, 2002,
    between the Registrant and A. Roland Thomas.**                                                                                                                                                      
|        | #10.   | 42    |  | Loan Modification Agreement, dated as of
    June 11, 2002, between Silicon Valley Bank and Moldflow.                                                                                                                                                
|        | #10.   | 43    |  | Loan Modification Agreement, dated as of
    June 26, 2002, between Silicon Valley Bank and Moldflow.                                                                                                                                                
|        | #10.   | 44    |  | Loan Modification Agreement, dated as of
    December 6, 2002, between Silicon Valley Bank and Moldflow.                                                                                                                                             
|        | #10.   | 45    |  | Employment Agreement, dated November 1,
    2002, between the Registrant and Ian M. Pendlebury.**                                                                                                                                                    
|        | #10.   | 46    |  | Employment Agreement, dated October 31,
    2002, between the Registrant and Peter K. Kennedy.**                                                                                                                                                     
|        | #10.   | 47    |  | Employment Agreement, dated November 12,
    2002, between the Registrant and Lori M. Henderson. **                                                                                                                                                  

35



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##### Table of Contents



|        |     |       |  |                                                               
|------- | --- | ----- |  | --------------------------------------------------------------
|Exhibit |     |      
|No.     |     | Title
|        |     |      
|        | 21. | 1     |  | Subsidiaries of the Registrant.                               
|        | 23. | 1     |  | Consent of PricewaterhouseCoopers LLP.                        
|        | 31. | 1     |  | Certification of Chief Executive Officer.                     
|        | 31. | 2     |  | Certification of Chief Financial Officer.                     
|        | 32. | 1     |  | Section 1350 Certification of Chief
    Executive Officer.****
|        | 32. | 2     |  | Section 1350 Certification of Chief
    Financial Officer.****



---



|  |                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 February 11, 2002 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 February 7, 2003.



|  |                                                                                                                                                            
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------
| | Previously filed as an exhibit to the
    Companys Annual Report on Form 10-K filed with the
    Securities and Exchange Commission on September 19, 2002.



|   |                                                                                                                                                                      
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Previously filed as an exhibit to the
    Companys Registration Statement on Form 8-A filed
    with the Securities and Exchange Commission on February 3,
    2003.



|  |                                                                                                                                                                                                   
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | 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 15(c) of this report.



|    |                                                                                                                                                                      
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------
|*** | Previously filed as an exhibit to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended June 30, 2000 and incorporated by reference
    thereto.



|     |                                                                                                                                                                                                                                                                                                                                       
|---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**** | This certification shall not be deemed
    filed for purposes of Section 18 of the
    Securities Exchange Act of 1934, or otherwise subject to the
    liability of that section, nor shall it be deemed incorporated
    by reference into any filing under the Securities Act of 1933 or
    the Securities Exchange Act of 1934.

15(b) Reports on Form 8-K

Report on Form 8-K filed on April 24,
2003 attaching the press release reporting the Companys
financial results for its third fiscal quarter ended
March 29, 2003.

15(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.

15(d) Other Financial Statements

Not applicable.

36



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##### Table of Contents






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 10-K to be signed on
its behalf by the undersigned, thereunto duly authorized.



| |                     
| | --------------------
| | MOLDFLOW CORPORATION



| |     |                          
| | --- | -------------------------
| | By: | /s/ SUZANNE E. MACCORMACK

| |                             
| | ----------------------------
| |                             
| | Suzanne E. MacCormack       
| | Executive Vice President and
| | Chief Financial Officer     

Date: September 19, 2003

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant and in the
capacities and on the dates indicated.

|                          |  |                                                                                                                             |  |                   
|------------------------- |  | --------------------------------------------------------------------------------------------------------------------------- |  | ------------------
|Signature                 |  | Title                                                                                                                       |  | Date              
|                          |  |                                                                                                                             |  |                   
|                         
|/s/ A. ROLAND THOMAS      |  | President, Chief Executive Officer and Director
    (Principal Executive Officer)                                           |  | September 19, 2003
|                         
|/s/ SUZANNE E. MACCORMACK |  | Executive Vice President and Chief Financial
    Officer (Principal Financial Officer and Principal Accounting
    Officer) |  | September 19, 2003
|                         
|/s/ MARC J.L. DULUDE      |  | Director                                                                                                                    |  | September 19, 2003
|                         
|/s/ ROGER E. BROOKS       |  | Director                                                                                                                    |  | September 19, 2003
|                         
|/s/ FRANK W. HAYDU III    |  | Director                                                                                                                    |  | September 19, 2003
|                         
|/s/ ROBERT P. SCHECHTER   |  | Director                                                                                                                    |  | September 19, 2003
|                         
|/s/ CHARLES D. YIE        |  | Director                                                                                                                    |  | September 19, 2003

37



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##### Table of Contents






SCHEDULE II



|             |                                                              
|------------ | -------------------------------------------------------------
|Schedule II. | Valuation and Qualifying Accounts of Moldflow
    Corporation

|                                  |                                        |           |   |                |  |            |   |         |     |  |   |        |      |  |   |       | 
|--------------------------------- | -------------------------------------- | --------- | - | -------------- |  | ---------- | - | ------- | --- |  | - | ------ | ---- |  | - | ----- | 
|                                  |                                        | Beginning |   |                |  |            |   | Ending 
|Item                              |                                        | Balance   |   | Additions      |  | Deductions |   | Balance
|                                  |                                        |           |   |                |  |            |   |        
|                                  |                                        |           |   |                |  |           
|                                  |                                        |           |   | (In thousands) |  |           
|For the year ended June 30, 2003: |                                        |           |   |                |  |            |   |         |     |  |   |        |      |  |   |      
|                                  | Allowance for doubtful accounts        |           | $ | 315            |  |            | $ | 92      | (a) |  | $ | (60    | )(b) |  | $ | 347   | 
|                                  | Warranty provision                     |           |   | 13             |  |            |   | 31      | (a) |  |   | (2     | )    |  |   | 42    | 
|                                  | Deferred tax asset valuation allowance |           |   | 370            |  |            |   | 595     | (a) |  |   | (176   | )(c) |  |   | 789   | 
|For the year ended June 30, 2002: |                                        |           |   |                |  |            |   |         |     |  |   |        |      |  |   |      
|                                  | Allowance for doubtful accounts        |           |   | 366            |  |            |   | 211     | (a) |  |   | (262   | )(b) |  |   | 315   | 
|                                  | Warranty provision                     |           |   | 5              |  |            |   | 35      | (a) |  |   | (27    | )    |  |   | 13    | 
|                                  | Deferred tax asset valuation allowance |           |   | 4,496          |  |            |   | 511     | (a) |  |   | (4,637 | )(c) |  |   | 370   | 
|For the year ended June 30, 2001: |                                        |           |   |                |  |            |   |         |     |  |   |        |      |  |   |      
|                                  | Allowance for doubtful accounts        |           |   | 706            |  |            |   | 117     | (a) |  |   | (457   | )(b) |  | $ | 366   | 
|                                  | Warranty provision                     |           |   |               |  |            |   | 5       | (a) |  |   |       |      |  |   | 5     | 
|                                  | Deferred tax asset valuation allowance |           |   | 5,297          |  |            |   | 680     | (a) |  |   | (1,481 | )(c) |  |   | 4,496 | 



---



|    |                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------
|(a) | Additional provisions, acquired balances and
    foreign currency translation effects.                                        
|   
|(b) | Specific write-offs, recoveries and foreign
    currency translation effects.                                                 
|   
|(c) | Utilization of net operating losses, reductions
    in other deferred tax assets and foreign currency translation
    effects.

38



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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                    |  |  |      | 
|--------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Consolidated Balance Sheet at June 30, 2003
    and 2002.                                           |  |  | F-2  | 
|Consolidated Statement of Operations for the
    years ended June 30, 2003, 2002 and 2001.          |  |  | F-3  | 
|Consolidated Statement of Stockholders
    Equity for the years ended June 30, 2003, 2002 and 2001 |  |  | F-4  | 
|Consolidated Statement of Cash Flows for the
    years ended June 30, 2003, 2002 and 2001.          |  |  | F-5  | 
|Notes to Consolidated Financial Statements                                                          |  |  | F-6  | 
|Report of Independent Auditors                                                                      |  |  | F-30 | 

F-1



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##### Table of Contents



MOLDFLOW CORPORATION

CONSOLIDATED BALANCE SHEET

|                                                                    |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |        |        | 
|------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ----- | ------ | ------ |  | ----- | ------ | ------ | 
|                                                                    |                                                                                                                                                                                                                                                                              |                          
|                                                                    |                                                                                                                                                                                                                                                                              | June 30,                 
|                                                                    |                                                                                                                                                                                                                                                                              |                          
|                                                                    |                                                                                                                                                                                                                                                                              | 2003                      |       | 2002  
|                                                                    |                                                                                                                                                                                                                                                                              |                           |       |       
|                                                                    |                                                                                                                                                                                                                                                                              |                          
|                                                                    |                                                                                                                                                                                                                                                                              | (In thousands, except    
|                                                                    |                                                                                                                                                                                                                                                                              | share and per share      
|                                                                    |                                                                                                                                                                                                                                                                              | data)                    
|ASSETS                                                             
|Current assets:                                                     |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|                                                                    | Cash and cash equivalents                                                                                                                                                                                                                                                    |                           | $     | 38,320 |        |  | $     | 47,634 |       
|                                                                    | Marketable securities                                                                                                                                                                                                                                                        |                           |       | 13,820 |        |  |       | 3,233  |       
|                                                                    | Accounts receivable, net of allowance for
    doubtful accounts of $347 and $315 at June 30, 2003 and
    2002, respectively                                                                                                                                                 |                           |       | 6,147  |        |  |       | 5,927  |       
|                                                                    | Inventories                                                                                                                                                                                                                                                                  |                           |       | 313    |        |  |       | 705    |       
|                                                                    | Prepaid expenses                                                                                                                                                                                                                                                             |                           |       | 2,189  |        |  |       | 1,061  |       
|                                                                    | Other current assets                                                                                                                                                                                                                                                         |                           |       | 2,509  |        |  |       | 2,332  |       
|                                                                    |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|                                                                    |                                                                                                                                                                                                                                                                              | Total current assets      |       |        | 63,298 |  |       |        | 60,892 | 
|Fixed assets, net                                                   |                                                                                                                                                                                                                                                                              |                           | 3,891 |        |        |  | 3,793 |       
|Intangible assets, net                                              |                                                                                                                                                                                                                                                                              |                           | 685   |        |        |  | 1,311 |       
|Goodwill                                                            |                                                                                                                                                                                                                                                                              |                           | 9,670 |        |        |  | 8,790 |       
|Other assets                                                        |                                                                                                                                                                                                                                                                              |                           | 1,933 |        |        |  | 1,227 |       
|                                                                    |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|                                                                    | Total assets                                                                                                                                                                                                                                                                 |                           | $     | 79,477 |        |  | $     | 76,013 |       
|                                                                    |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY                           
|Current liabilities:                                                |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|                                                                    | Accounts payable                                                                                                                                                                                                                                                             |                           | $     | 1,684  |        |  | $     | 1,164  |       
|                                                                    | Accrued expenses                                                                                                                                                                                                                                                             |                           |       | 7,439  |        |  |       | 7,664  |       
|                                                                    | Deferred revenue                                                                                                                                                                                                                                                             |                           |       | 8,551  |        |  |       | 7,931  |       
|                                                                    |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|                                                                    |                                                                                                                                                                                                                                                                              | Total current liabilities |       |        | 17,674 |  |       |        | 16,759 | 
|Deferred revenue                                                    |                                                                                                                                                                                                                                                                              |                           | 513   |        |        |  |      |       
|Other long-term liabilities                                         |                                                                                                                                                                                                                                                                              |                           | 641   |        |        |  | 614   |       
|                                                                    |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|                                                                    | Total liabilities                                                                                                                                                                                                                                                            |                           |       | 18,828 |        |  |       | 17,373 |       
|                                                                    |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|Commitments, contingencies and guarantor
    arrangements (Note 18) |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|Stockholders equity:                                               |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|                                                                    | Preferred stock, $0.01 par value; 5,000,000
    shares authorized at June 30, 2003 and 2002; no shares
    issued and outstanding at June 30, 2003 and 2002.                                                                                                                 |                           |       |       |        |  |       |       |       
|                                                                    | Common stock, $0.01 par value; 40,000,000 shares
    authorized at June 30, 2003 and 2002; 10,217,299 and
    10,146,175 shares issued at June 30, 2003 and 2002,
    respectively; 10,031,882 and 10,110,813 shares outstanding at
    June 30, 2003 and 2002, respectively |                           |       | 102    |        |  |       | 101    |       
|                                                                    | Additional paid-in capital                                                                                                                                                                                                                                                   |                           |       | 62,867 |        |  |       | 62,769 |       
|                                                                    | Treasury stock, at cost; 185,417 and 35,362
    shares at June 30, 2003 and 2002, respectively                                                                                                                                                                               |                           |       | (926   | )      |  |       | (327   | )     
|                                                                    | Deferred stock compensation                                                                                                                                                                                                                                                  |                           |       |       |        |  |       | (8     | )     
|                                                                    | Notes receivable from stockholders                                                                                                                                                                                                                                           |                           |       |       |        |  |       | (29    | )     
|                                                                    | Accumulated deficit                                                                                                                                                                                                                                                          |                           |       | (4,090 | )      |  |       | (3,972 | )     
|                                                                    | Accumulated other comprehensive income                                                                                                                                                                                                                                       |                           |       | 2,696  |        |  |       | 106    |       
|                                                                    |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|                                                                    | Total stockholders equity                                                                                                                                                                                                                                                   |                           |       | 60,649 |        |  |       | 58,640 |       
|                                                                    |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       
|                                                                    | Total liabilities and stockholders equity                                                                                                                                                                                                                                   |                           | $     | 79,477 |        |  | $     | 76,013 |       
|                                                                    |                                                                                                                                                                                                                                                                              |                           |       |        |        |  |       |       

The accompanying notes are an integral part of
these consolidated financial statements.

F-2



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##### Table of Contents



MOLDFLOW CORPORATION

CONSOLIDATED STATEMENT OF OPERATIONS

|                                                                 |                                         |                            |       |        |        |      |        |        |        |  |       |        |        | 
|---------------------------------------------------------------- | --------------------------------------- | -------------------------- | ----- | ------ | ------ | ---- | ------ | ------ | ------ |  | ----- | ------ | ------ | 
|                                                                 |                                         |                           
|                                                                 |                                         | Year Ended June 30,       
|                                                                 |                                         |                           
|                                                                 |                                         | 2003                       |       | 2002   |        | 2001
|                                                                 |                                         |                            |       |        |        |     
|                                                                 |                                         |                           
|                                                                 |                                         | (In thousands, except     
|                                                                 |                                         | per share data)           
|Revenue:                                                         |                                         |                            |       |        |        |      |        |        |        |  |       |       
|                                                                 | Product                                 |                            | $     | 17,259 |        |      | $      | 17,870 |        |  | $     | 24,494 |       
|                                                                 | Services                                |                            |       | 19,366 |        |      |        | 17,218 |        |  |       | 15,449 |       
|                                                                 |                                         |                            |       |        |        |      |        |        |        |  |       |       
|                                                                 |                                         | Total revenue              |       |        | 36,625 |      |        |        | 35,088 |  |       |        | 39,943 | 
|                                                                 |                                         |                            |       |        |        |      |        |        |        |  |       |       
|Costs and expenses:                                              |                                         |                            |       |        |        |      |        |        |        |  |       |       
|                                                                 | Cost of product revenue                 |                            |       | 2,964  |        |      |        | 2,518  |        |  |       | 1,846  |       
|                                                                 | Cost of services revenue                |                            |       | 1,210  |        |      |        | 1,401  |        |  |       | 1,440  |       
|                                                                 | Research and development                |                            |       | 5,650  |        |      |        | 6,234  |        |  |       | 6,642  |       
|                                                                 | Selling and marketing                   |                            |       | 18,638 |        |      |        | 18,134 |        |  |       | 19,396 |       
|                                                                 | General and administrative              |                            |       | 7,242  |        |      |        | 6,660  |        |  |       | 6,095  |       
|                                                                 | Restructuring charges                   |                            |       | 405    |        |      |        | 1,272  |        |  |       |       |       
|                                                                 | Amortization of goodwill                |                            |       |       |        |      |        |       |        |  |       | 1,100  |       
|                                                                 | Amortization of other intangible assets |                            |       | 605    |        |      |        | 656    |        |  |       | 601    |       
|                                                                 |                                         |                            |       |        |        |      |        |        |        |  |       |       
|                                                                 |                                         | Total operating expenses   |       |        | 36,714 |      |        |        | 36,875 |  |       |        | 37,120 | 
|                                                                 |                                         |                            |       |        |        |      |        |        |        |  |       |       
|Income (loss) from operations                                    |                                         |                            | (89   | )      |        |      | (1,787 | )      |        |  | 2,823 |       
|Interest income                                                  |                                         |                            | 1,106 |        |        |      | 1,464  |        |        |  | 2,203 |       
|Interest expense                                                 |                                         |                            | (17   | )      |        |      | (9     | )      |        |  | (64   | )     
|Other income (loss), net                                         |                                         |                            | (198  | )      |        |      | 1,712  |        |        |  | 272   |       
|                                                                 |                                         |                            |       |        |        |      |        |        |        |  |       |       
|                                                                 |                                         | Income before income taxes |       |        | 802    |      |        |        | 1,380  |  |       |        | 5,234  | 
|Provision for income taxes                                       |                                         |                            | 920   |        |        |      | 600    |        |        |  | 1,726 |       
|                                                                 |                                         |                            |       |        |        |      |        |        |        |  |       |       
|                                                                 |                                         | Net income (loss)          |       | $      | (118   | )    |        | $      | 780    |  |       | $      | 3,508  | 
|                                                                 |                                         |                            |       |        |        |      |        |        |        |  |       |       
|Net income (loss) per common share:                              |                                         |                            |       |        |        |      |        |        |        |  |       |       
|                                                                 | Basic                                   |                            | $     | (0.01  | )      |      | $      | 0.08   |        |  | $     | 0.36   |       
|                                                                 | Diluted                                 |                            | $     | (0.01  | )      |      | $      | 0.08   |        |  | $     | 0.35   |       
|Shares used in computing net income
    (loss) per common share: |                                         |                            |       |        |        |      |        |        |        |  |       |       
|                                                                 | Basic                                   |                            |       | 10,020 |        |      |        | 10,076 |        |  |       | 9,658  |       
|                                                                 | Diluted                                 |                            |       | 10,020 |        |      |        | 10,360 |        |  |       | 10,124 |       

The accompanying notes are an integral part of
these consolidated financial statements.

F-3



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##### Table of Contents



MOLDFLOW CORPORATION

CONSOLIDATED STATEMENT OF STOCKHOLDERS
EQUITY

|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------- | --------------------------------- | ---------- | ---------- |  | ------- | --- | -------- |  | -------- | ------ | ------------ |  | ------------ | -------- | ----------- |  | ------------- | ---- | ------------- |  | ------------- | --- | - |  | - | ---- | - |  | - | ------ | ----- | - | - | ----- | ------ | - | - | ------ | ------ | - |  | - | ------ | -
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |              
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     | Treasury |  |          |        |              |  |              |          |             |  |               |      |              
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     | Stock    |  |          |        |              |  |              |          |             |  |               |      |              
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |              
|                                                                                                                                                                                     |                                                                      | Common Stock                      |            |            |  |         |     |          |  | Notes    |        |              |  | Accumulated  |          |             |  |              
|                                                                                                                                                                                     |                                                                      |                                   |            | Additional |  | Shares  |     |          |  | Deferred |        | Receivable   |  |              |          | Other       |  | Total         |      |              
|                                                                                                                                                                                     |                                                                      | Shares                            |            | Par        |  | Paid-in |     | in       |  |          |        | Stock        |  | from         |          | Accumulated |  | Comprehensive |      | Stockholders |  | Comprehensive
|                                                                                                                                                                                     |                                                                      | Issued                            |            | Value      |  | Capital |     | Treasury |  | At Cost  |        | Compensation |  | Stockholders |          | Deficit     |  | Income (Loss) |      | Equity        |  | Income       
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |              
|                                                                                                                                                                                     |                                                                      |                                  
|                                                                                                                                                                                     |                                                                      | (In thousands, except share data)
|Balance at June 30, 2000                                                                                                                                                             |                                                                      |                                   | 9,278,493  |            |  | $       | 93  |          |  | $        | 49,482 |              |  |              |         |             |  | $             |     |               |  | $             | (47 | ) |  | $ | (210 | ) |  | $ | (8,260 | )     |   | $ | 2,720 |        |   | $ | 43,778 |        |   |  |   |       
|Exercise of stock options                                                                                                                                                            |                                                                      |                                   | 60,445     |            |  |         |    |          |  |          | 90     |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 90     |        |   |  |   |       
|Issuance of stock under employee stock purchase
    plan                                                                                                                             |                                                                      |                                   | 10,825     |            |  |         |    |          |  |          | 147    |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 147    |        |   |  |   |       
|Amortization of deferred compensation                                                                                                                                                |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               | 19  |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 19     |        |   |  |   |       
|Interest on notes receivable from stockholders                                                                                                                                       |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   | (17  | ) |  |   |        |       |   |   |       |        |   |   | (17    | )      |   |  |   |       
|Stock options granted to a consultant                                                                                                                                                |                                                                      |                                   |            |            |  |         |     |          |  |          | 5      |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 5      |        |   |  |   |       
|Proceeds from second public offering of common
    stock, net of issuance costs                                                                                                      |                                                                      |                                   | 575,000    |            |  |         | 6   |          |  |          | 9,733  |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 9,739  |        |   |  |   |       
|Proceeds from issuance of common stock to the
    underwriters of the Companys second public offering of
    common shares pursuant to an option in the underwriting
    agreements |                                                                      |                                   | 170,000    |            |  |         | 2   |          |  |          | 3,050  |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 3,052  |        |   |  |   |       
|Repayment of notes receivable from stockholders                                                                                                                                      |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   | 190  |   |  |   |        |       |   |   |       |        |   |   | 190    |        |   |  |   |       
|Comprehensive income:                                                                                                                                                                |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  |   |       
|                                                                                                                                                                                     | Net income                                                           |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        | 3,508 |   |   |       |        |   |   |        | 3,508  |   |  | $ | 3,508  |  
|                                                                                                                                                                                     | Change in unrealized losses on investments, net
    of taxes         |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       | (1,953 | ) |   |        | (1,953 | ) |  |   | (1,953 | )
|                                                                                                                                                                                     | Change in unrealized gains on hedging
    instruments, net of taxes  |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       | 143    |   |   |        | 143    |   |  |   | 143    |  
|                                                                                                                                                                                     | Foreign currency translation adjustment                              |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       | (1,108 | ) |   |        | (1,108 | ) |  |   | (1,108 | )
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  |   |       
|                                                                                                                                                                                     | Comprehensive income                                                 |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  | $ | 590    |  
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  |   |       
|Balance at June 30, 2001.                                                                                                                                                            |                                                                      |                                   | 10,094,763 |            |  |         | 101 |          |  |          | 62,507 |              |  |              |         |             |  |               |     |               |  |               | (28 | ) |  |   | (37  | ) |  |   | (4,752 | )     |   |   | (198  | )      |   |   | 57,593 |        |   |  |   |       
|Purchase of treasury stock                                                                                                                                                           |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              | (50,000  | )           |  |               | (464 | )             |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | (464   | )      |   |  |   |       
|Exercise of stock options                                                                                                                                                            |                                                                      |                                   | 23,276     |            |  |         |    |          |  |          | 46     |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 46     |        |   |  |   |       
|Issuance of stock under employee stock purchase
    plan                                                                                                                             |                                                                      |                                   | 28,136     |            |  |         |    |          |  |          | 216    |              |  |              | 14,638   |             |  |               | 137  |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 353    |        |   |  |   |       
|Amortization of deferred compensation                                                                                                                                                |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               | 20  |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 20     |        |   |  |   |       
|Interest on notes receivable from stockholders                                                                                                                                       |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   | (2   | ) |  |   |        |       |   |   |       |        |   |   | (2     | )      |   |  |   |       
|Repayment of notes receivable from stockholders                                                                                                                                      |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   | 10   |   |  |   |        |       |   |   |       |        |   |   | 10     |        |   |  |   |       
|Comprehensive income:                                                                                                                                                                |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  |   |       
|                                                                                                                                                                                     | Net income                                                           |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        | 780   |   |   |       |        |   |   |        | 780    |   |  | $ | 780    |  
|                                                                                                                                                                                     | Change in unrealized losses on investments, net
    of taxes         |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       | (880   | ) |   |        | (880   | ) |  |   | (880   | )
|                                                                                                                                                                                     | Change in unrealized losses on hedging
    instruments, net of taxes |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       | (422   | ) |   |        | (422   | ) |  |   | (422   | )
|                                                                                                                                                                                     | Foreign currency translation adjustment                              |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       | 1,606  |   |   |        | 1,606  |   |  |   | 1,606  |  
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  |   |       
|                                                                                                                                                                                     | Comprehensive income                                                 |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  | $ | 1,084  |  
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  |   |       
|Balance at June 30, 2002.                                                                                                                                                            |                                                                      |                                   | 10,146,175 |            |  |         | 101 |          |  |          | 62,769 |              |  |              | (35,362  | )           |  |               | (327 | )             |  |               | (8  | ) |  |   | (29  | ) |  |   | (3,972 | )     |   |   | 106   |        |   |   | 58,640 |        |   |  |   |       
|Purchase of treasury stock                                                                                                                                                           |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              | (194,165 | )           |  |               | (909 | )             |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | (909   | )      |   |  |   |       
|Exercise of stock options                                                                                                                                                            |                                                                      |                                   | 71,124     |            |  |         | 1   |          |  |          | 67     |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 68     |        |   |  |   |       
|Issuance of stock under employee stock purchase
    plan                                                                                                                             |                                                                      |                                   |            |            |  |         |     |          |  |          | (22    | )            |  |              | 44,110   |             |  |               | 310  |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 288    |        |   |  |   |       
|Amortization of deferred compensation                                                                                                                                                |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               | 8   |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 8      |        |   |  |   |       
|Net repayment of notes receivable from
    stockholders                                                                                                                              |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   | 29   |   |  |   |        |       |   |   |       |        |   |   | 29     |        |   |  |   |       
|Tax benefits from exercise of stock options                                                                                                                                          |                                                                      |                                   |            |            |  |         |     |          |  |          | 53     |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   | 53     |        |   |  |   |       
|Comprehensive income:                                                                                                                                                                |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  |   |       
|                                                                                                                                                                                     | Net loss                                                             |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        | (118  | ) |   |       |        |   |   |        | (118   | ) |  | $ | (118   | )
|                                                                                                                                                                                     | Change in unrealized losses on investments, net
    of taxes         |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       | (993   | ) |   |        | (993   | ) |  |   | (993   | )
|                                                                                                                                                                                     | Change in unrealized losses on hedging
    instruments, net of taxes |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       | 306    |   |   |        | 306    |   |  |   | 306    |  
|                                                                                                                                                                                     | Foreign currency translation adjustment                              |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       | 3,277  |   |   |        | 3,277  |   |  |   | 3,277  |  
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  |   |       
|                                                                                                                                                                                     | Comprehensive income                                                 |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  | $ | 2,472  |  
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  |   |       
|Balance at June 30, 2003.                                                                                                                                                            |                                                                      |                                   | 10,217,299 |            |  | $       | 102 |          |  | $        | 62,867 |              |  |              | (185,417 | )           |  | $             | (926 | )             |  | $             |    |   |  | $ |     |   |  | $ | (4,090 | )     |   | $ | 2,696 |        |   | $ | 60,649 |        |   |  |   |       
|                                                                                                                                                                                     |                                                                      |                                   |            |            |  |         |     |          |  |          |        |              |  |              |          |             |  |               |      |               |  |               |     |   |  |   |      |   |  |   |        |       |   |   |       |        |   |   |        |        |   |  |   |       

The accompanying notes are an integral part of
these consolidated financial statements.

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##### Table of Contents



MOLDFLOW CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                                 |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |         |        |         |  
|---------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------------------------------------------------------- | ------- | ----- | ------- | ------ | ------ | ----- | ----- | ------ | ------- | ------ | ------- | -
|                                                                 |                                                                                              |                                                            
|                                                                 |                                                                                              | Year Ended June 30,                                        
|                                                                 |                                                                                              |                                                            
|                                                                 |                                                                                              | 2003                                                        |                                                         | 2002    |       | 2001   
|                                                                 |                                                                                              |                                                             |                                                         |         |       |        
|                                                                 |                                                                                              |                                                            
|                                                                 |                                                                                              | (In thousands)                                             
|Cash flows from operating
    activities:                        |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|                                                                 | Net income (loss)                                                                            |                                                             | $                                                       | (118    | )     |         | $      | 780    |       |       | $      | 3,508   |       
|                                                                 | Adjustments to reconcile net income
    (loss) to net cash provided by operating activities: |                                                             |                                                         |         |       |         |        |        |       |       |        |         |       
|                                                                 |                                                                                              | Gain on sale of investment in unaffiliated company          |                                                         |         |      |         |        |        | (504  | )     |        |         |       |        
|                                                                 |                                                                                              | Loss (gain) on disposals of fixed assets                    |                                                         |         |      |         |        |        | (622  | )     |        |         | 7      |        
|                                                                 |                                                                                              | Depreciation and amortization                               |                                                         |         | 2,034 |         |        |        | 1,964 |       |        |         | 2,877  |        
|                                                                 |                                                                                              | Amortization of capitalized software development
    costs  |                                                         |         | 146   |         |        |        | 71    |       |        |         |       |        
|                                                                 |                                                                                              | Provision for doubtful accounts                             |                                                         |         | 92    |         |        |        | 211   |       |        |         | 102    |        
|                                                                 |                                                                                              | Foreign exchange (gains) losses                             |                                                         |         | 160   |         |        |        | (206  | )     |        |         | (298   | )      
|                                                                 |                                                                                              | Write-off of assets due to restructuring
    activities     |                                                         |         | 471   |         |        |        |      |       |        |         |       |        
|                                                                 |                                                                                              | Other non-cash charges to income                            |                                                         |         | 78    |         |        |        | 94    |       |        |         | 72     |        
|                                                                 | Changes in assets and liabilities, net of effects
    of acquisitions in 2002 and 2003:      |                                                             |                                                         |         |       |         |        |        |       |       |        |         |       
|                                                                 |                                                                                              | Accounts receivable                                         |                                                         |         | 47    |         |        |        | 1,705 |       |        |         | (1,784 | )      
|                                                                 |                                                                                              | Inventories, prepaid expenses, and other current
    assets |                                                         |         | (882  | )       |        |        | (78   | )     |        |         | (829   | )      
|                                                                 |                                                                                              | Other assets                                                |                                                         |         | (157  | )       |        |        | (341  | )     |        |         | (49    | )      
|                                                                 |                                                                                              | Accounts payable                                            |                                                         |         | 399   |         |        |        | 38    |       |        |         | (205   | )      
|                                                                 |                                                                                              | Accrued expenses                                            |                                                         |         | (583  | )       |        |        | 870   |       |        |         | 1,239  |        
|                                                                 |                                                                                              | Deferred revenue                                            |                                                         |         | 697   |         |        |        | 979   |       |        |         | 1,586  |        
|                                                                 |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|                                                                 |                                                                                              |                                                             | Net cash provided by operating activities               |         |       | 2,384   |        |        |       | 4,961 |        |         |        | 6,226   |  
|                                                                 |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|Cash flows from investing
    activities:                        |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|                                                                 | Purchases of fixed assets                                                                    |                                                             |                                                         | (1,240  | )     |         |        | (1,143 | )     |       |        | (2,072  | )     
|                                                                 | Capitalization of software development costs                                                 |                                                             |                                                         | (669    | )     |         |        | (602   | )     |       |        |        |       
|                                                                 | Proceeds from fixed asset disposals                                                          |                                                             |                                                         |        |       |         |        | 931    |       |       |        | 1,543   |       
|                                                                 | Purchases of marketable securities                                                           |                                                             |                                                         | (14,822 | )     |         |        |       |       |       |        | (15,528 | )     
|                                                                 | Sales of marketable securities                                                               |                                                             |                                                         | 4,235   |       |         |        | 9,085  |       |       |        | 8,195   |       
|                                                                 | Additional C-Mold acquisition costs                                                          |                                                             |                                                         |        |       |         |        |       |       |       |        | (278    | )     
|                                                                 | Acquisition of Branden Technologies, net of cash
    acquired                                |                                                             |                                                         |        |       |         |        |       |       |       |        | (3,679  | )     
|                                                                 | Acquisition of CPI                                                                           |                                                             |                                                         | (902    | )     |         |        |       |       |       |        |        |       
|                                                                 | Proceeds from sale of investment in unaffiliated
    company                                 |                                                             |                                                         |        |       |         |        | 565    |       |       |        |        |       
|                                                                 |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|                                                                 |                                                                                              |                                                             | Net cash provided by (used in) investing
    activities |         |       | (13,398 | )      |        |       | 8,836 |        |         |        | (11,819 | )
|                                                                 |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|Cash flows from financing
    activities:                        |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|                                                                 | Repayment of notes receivable from stockholders                                              |                                                             |                                                         | 29      |       |         |        | 10     |       |       |        | 190     |       
|                                                                 | Borrowings on bank notes payable                                                             |                                                             |                                                         |        |       |         |        |       |       |       |        | 5       |       
|                                                                 | Payments on bank notes payable                                                               |                                                             |                                                         |        |       |         |        |       |       |       |        | (898    | )     
|                                                                 | Payments on capital lease obligations                                                        |                                                             |                                                         |        |       |         |        |       |       |       |        | (9      | )     
|                                                                 | Proceeds from issuance of common stock                                                       |                                                             |                                                         | 356     |       |         |        | 399    |       |       |        | 13,028  |       
|                                                                 | Purchase of treasury stock                                                                   |                                                             |                                                         | (909    | )     |         |        | (464   | )     |       |        |        |       
|                                                                 |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|                                                                 |                                                                                              |                                                             | Net cash provided by (used in) financing
    activities |         |       | (524    | )      |        |       | (55   | )      |         |        | 12,316  |  
|                                                                 |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                              |                                                             | 2,224                                                   |         |       |         | 923    |        |       |       | (1,013 | )      
|                                                                 |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|Net increase (decrease) in cash and cash
    equivalents         |                                                                                              |                                                             | (9,314                                                  | )       |       |         | 14,665 |        |       |       | 5,710  |        
|Cash and cash equivalents, beginning of year                     |                                                                                              |                                                             | 47,634                                                  |         |       |         | 32,969 |        |       |       | 27,259 |        
|                                                                 |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|Cash and cash equivalents, end of year                           |                                                                                              | $                                                           | 38,320                                                  |         |       | $       | 47,634 |        |       | $     | 32,969 |        
|                                                                 |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|Supplemental disclosure of cash flow
    information:            |                                                                                              |                                                             |                                                         |         |       |         |        |        |       |       |        |        
|                                                                 | Cash paid for interest                                                                       |                                                             | $                                                       |        |       |         | $      |       |       |       | $      | 46      |       
|                                                                 | Cash paid for income taxes                                                                   |                                                             |                                                         | 2,814   |       |         |        | 930    |       |       |        | 1,290   |       

The accompanying notes are an integral part of
these consolidated financial statements.

F-5



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##### Table of Contents



MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

1.     Basis of
Presentation and Nature of Business

Moldflow Corporation (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. On March 28,
2001, the Company acquired all of the outstanding shares of
Branden Technologies, Inc. On January 9, 2003, the Company
acquired substantially all of the assets and the ongoing
operations of Côntrole de Processus Industriels s.a.r.l.
(CPI). These business combinations were accounted
for using the purchase method of accounting. Accordingly, these
financial statements include the financial position and results
of operations of C-Mold, Branden and CPI from the dates of their
respective acquisition (Note 3).

The Companys fiscal year end is
June 30. References to 2003, 2002 or 2001 mean the fiscal
year ended June 30, unless otherwise indicated.

Certain prior year balance sheet amounts have
been reclassified to conform with the fiscal 2003 presentation.

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 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.
Statement of operations amounts are translated at the average
rate for the year. Resulting translation adjustments are
recorded in stockholders equity as a component of
accumulated other comprehensive income. Foreign currency
transaction gains and losses are included in other income and
expense. Net foreign currency transaction gains
(losses) were ($160,000), $206,000 and $298,000 for the
years ended June 30, 2003, 2002 and 2001, respectively.

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 and money market accounts of major
financial institutions. Accordingly, these investments are
subject to minimal credit and market risk and are reported at
amortized cost, which approximates fair value. At June 30,
2003, 30%, 27%, 21% and 14% of the Companys cash and cash
equivalents were invested in money market and investment
accounts of four separate financial institutions. The remaining
8% of the Companys cash and cash equivalents were held in
various operating bank accounts of its subsidiaries.

Marketable Securities

At June 30, 2003 and 2002, the
Companys marketable securities consisted of corporate
bonds with maturities in excess of three months but less than
one year. These investments are classified as available-for-sale
and are reported at fair value, with unrealized gains and losses
included in accumulated other comprehensive income, net of the
related tax effect. At June 30, 2001, marketable securities
also included

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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

shares of a publicly traded Indian software
company. These shares represented a minority interest in the
company and were sold in December 2001 for cash proceeds of
$565,000. The realized gain on the sale of these shares of
$504,000, net of related selling expenses, was included as a
component of other income and expense in fiscal 2002.

As of June 30, 2003 and 2002, the unrealized
gains (losses) on these marketable securities were $9,500,
net of related tax provision of $500, and ($5,000), net of
related tax benefit of $3,000, respectively.

Accounts Receivable, Concentration of Credit
Risk

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. Management
reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer
payment patterns to evaluate the adequacy of these reserves.
Reserves are recorded primarily on a specific identification
basis. To date, 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. The
primary objective of this policy is the preservation of the
Companys capital. Investments are limited to high grade
corporate debt securities, government issued debt, municipal
debt securities, money market funds, and similar high quality
instruments. The policy establishes maturity limits, liquidity
requirements and concentration limits. At June 30, 2003,
the Company was in compliance with this policy.

Fair Value of Financial Instruments

At June 30, 2003, the Companys
financial instruments consisted of cash and cash equivalents,
marketable securities, accounts receivable and accounts payable.
The carrying amounts of these instruments at June 30, 2003
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 value. The Company writes down its inventory
for estimated obsolescence or unmarketable inventory equal to
the difference between the market value of the items, based upon
assumptions of future demand and market conditions, and their
cost. These write-downs for the years ended June 30, 2003
and 2002, were $179,000 and $138,000, respectively.

Fixed Assets

Fixed assets are recorded at cost and are
depreciated using the straight-line method or the double
declining balance method over their estimated useful lives.
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 and expense.

Hedging

The Company hedges a portion of its forecasted
foreign currency denominated intercompany sales and a portion of
its foreign currency denominated intercompany research and
development payments over a period of up to fifteen months using
currency options, zero cost collars and other combinations of
options that constitute net purchased options. These derivatives
have been designated as cash-flow hedges and, as such, the

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MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

effective portion of the change in their fair
value is recorded as a component of accumulated other
comprehensive income until the underlying forecasted transaction
impacts earnings or is considered probable of not occurring.
Once the underlying forecasted transaction is realized or is
considered probable of not occurring, the appropriate gain or
loss from the derivative is reclassified from other accumulated
comprehensive income to current earnings as a component of other
income and expense. At the inception of the hedge transaction
and at least on a quarterly basis, the Company assesses whether
the derivatives that are used in hedging transactions are highly
effective in offsetting the changes in cash flows of the hedged
items.

Through the end of the fourth quarter of fiscal
2001, the Company assessed hedge effectiveness based on changes
in an instruments intrinsic value. This is the value
attributable to the difference between the spot exchange rate
and the option strike exchange rate. At the hedges
inception and through the date of the forecasted sales and
research and development payments, management considered that
the hedge would be highly effective since the critical terms of
the option contracts match those of the anticipated
transactions. Changes to the time value of an instrument,
defined as the total fair value determined through dealer quotes
less the intrinsic value, were deemed to be an ineffective
portion of the hedge and were recorded through current earnings
as a component of other income and expense.

From the end of the fourth quarter of fiscal
2001, the assessment of hedge effectiveness has been based on
changes in an instruments total value. Management
considers that, through the date of the forecasted sales and
research and development payments, the hedge will be completely
effective since the critical terms of the derivative contract
exactly match those of the forecasted transaction.

If the Company determines that a forecasted
transaction is no longer probable of occurring, the Company
discontinues hedge accounting for the ineffective portion of the
instrument hedging the transaction. Prospectively, any gain or
loss on the instrument is recognized in current earnings as a
component of other income and expense. Any cumulative gain or
loss on the instrument is recognized when it is considered that
the forecasted transaction is probable of not occurring.

Goodwill and Intangible Assets

Goodwill represents the excess of cost over the
fair value of the net assets acquired in the purchases of
C-Mold, Branden Technologies and CPI (Note 3). During
fiscal 2002, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 141,
Business Combinations and SFAS No. 142
Goodwill and Other Intangible Assets (Note 4).
Among other things, these standards address the accounting and
reporting for goodwill and other intangible assets at, and
subsequent to, the date of acquisition. Under these standards,
goodwill is no longer amortized and, as such, the Company
stopped amortizing its goodwill as of July 1, 2001.

Other intangible assets are amortized using the
straight-line method over each assets respective useful
life. The useful lives of intangible assets acquired in the
purchases of C-Mold, Branden Technologies and CPI are as follows:

|                       |  |             |       | 
|---------------------- |  | ----------- | ----- | 
|                       |  | Estimated  
|                       |  | Useful Life
|                       |  | (Years)    
|                       |  |            
|Customer base          |  |             | 3.5-7 | 
|Developed technology   |  |             | 4-7   | 
|Non-compete agreements |  |             | 1-5   | 

Impairment of Intangible Assets, Goodwill and
Other Long-Lived Assets

The Company evaluates intangible assets, goodwill
and other long-lived assets for impairment, at least on an
annual basis and whenever events or changes in circumstances
indicate that the carrying value may not be

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MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

recoverable from its estimated future cash flows.
Recoverability of intangible assets, other long-lived assets
and, prior to July 1, 2001, goodwill is measured by
comparing their net book value to the related projected
undiscounted cash flows from these assets, considering a number
of factors including past operating results, budgets, economic
projections, market trends and product development cycles. If
the net book value of the asset exceeds the related undiscounted
cash flows, the asset is considered impaired, and a second test
is performed to measure the amount of impairment loss. Potential
impairment of goodwill after July 1, 2001 is evaluated in
accordance with SFAS No. 142 (Note 4).

Revenue Recognition

Revenue is derived from the licensing of computer
products and from services consisting of maintenance and
support, consulting, material testing and training. The Company
follows AICPA Statement of Position (SOP) 97-2,
Software Revenue Recognition, as amended by SOP
No. 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 or
determinable, collection is reasonably assured and all other
revenue recognition criteria of SOP 97-2 are met. The
Companys software products do not require significant
modification or customization. Installation of the products is
generally routine and can be performed by the customer or other
third party providers. The Company recognizes revenue from
maintenance and support contracts ratably over the related
contract period and from training and other services as they 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 of the delivered
elements of an arrangement but does exist for the undelivered
elements, 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 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. Subsequently, the
costs are amortized to cost of software licenses revenue over
the estimated economic life of the product.

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MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Costs of software applications developed or
obtained for internal use that are incurred during the
applications development stage are capitalized in
accordance with SOP No. 98-1, Accounting for the
Costs of Computer Software Developed or Obtained For Internal
Use.

Advertising Costs

The Company expenses the cost of advertising as
incurred or, as appropriate, the first time the advertising
takes place. Advertising expenses for the years ended
June 30, 2003, 2002 and 2001 were $1.1 million,
$1.1 million and $936,000, 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 interpretations.
Accordingly, compensation expense is recorded for stock 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 14). All stock-based awards to non-employees are
accounted for at their fair value in accordance with SFAS
No. 123. In December 2002, the Financial Accounting
Standards Board (FASB) issued SFAS No. 148,
Accounting for Stock-Based Compensation, to provide
alternative methods of transition for a voluntary change to the
fair value based method of accounting for stock-based employee
compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial
statements about the method of accounting for stock-based
employee compensation and the effect of the method used on
reported results.

Had compensation cost been determined based on
the fair value at the grant dates for awards in 2003, 2002 and
2001 consistent with the provisions of SFAS No. 123, the
Companys net income (loss) 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.

|                                    |                                                                                                 |                        |   |        |   |      |   |        |   |  |   |        |  
|----------------------------------- | ----------------------------------------------------------------------------------------------- | ---------------------- | - | ------ | - | ---- | - | ------ | - |  | - | ------ | -
|                                    |                                                                                                 |                       
|                                    |                                                                                                 | Year Ended June 30,   
|                                    |                                                                                                 |                       
|                                    |                                                                                                 | 2003                   |   | 2002   |   | 2001
|                                    |                                                                                                 |                        |   |        |   |     
|                                    |                                                                                                 |                       
|                                    |                                                                                                 | (In thousands,        
|                                    |                                                                                                 | except per share data)
|Net income (loss):                  |                                                                                                 |                        |   |        |   |      |   |        |   |  |   |       
|                                    | As reported                                                                                     |                        | $ | (118   | ) |      | $ | 780    |   |  | $ | 3,508  |  
|                                    | Add: stock-based employee compensation expense
    determined under the fair value based method |                        |   | (4,765 | ) |      |   | (5,699 | ) |  |   | (3,978 | )
|                                    |                                                                                                 |                        |   |        |   |      |   |        |   |  |   |       
|                                    | Pro forma                                                                                       |                        | $ | (4,883 | ) |      | $ | (4,919 | ) |  | $ | (470   | )
|                                    |                                                                                                 |                        |   |        |   |      |   |        |   |  |   |       
|Net income (loss) per common share: |                                                                                                 |                        |   |        |   |      |   |        |   |  |   |       
|                                    | Basic  As reported                                                                             |                        | $ | (0.01  | ) |      | $ | 0.08   |   |  | $ | 0.36   |  
|                                    | Pro forma basic                                                                                 |                        | $ | (0.49  | ) |      | $ | (0.49  | ) |  | $ | (0.05  | )
|                                    | Diluted  As reported                                                                           |                        | $ | (0.01  | ) |      | $ | 0.08   |   |  | $ | 0.35   |  
|                                    | Pro forma diluted                                                                               |                        | $ | (0.49  | ) |      | $ | (0.49  | ) |  | $ | (0.05  | )

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MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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:

|                                |  |                     |      |      |  |      |      |   |  |  |      |  
|------------------------------- |  | ------------------- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                                |  |                    
|                                |  | Year Ended June 30,
|                                |  |                    
|                                |  | 2003                |      | 2002 |  | 2001
|                                |  |                     |      |      |  |     
|Dividend yield                  |  |                     |     |      |  |      |     |   |  |  |     |  
|Volatility                      |  |                     | 69.8 | %    |  |      | 73.9 | % |  |  | 93.3 | %
|Risk-free interest rate         |  |                     | 3.0  | %    |  |      | 4.5  | % |  |  | 6.5  | %
|Expected option life (in years) |  |                     | 4.7  |      |  |      | 4.4  |   |  |  | 7.5  |  

Net Income (Loss) Per Common Share

Basic earnings (loss) per common share is
computed by dividing net income (loss) by the weighted-average
number of common shares outstanding plus the weighted average
effect of vested restricted stock. Diluted earnings per common
share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding plus the
weighted average effect of vested restricted stock and, when
dilutive, all potential common equivalent shares outstanding
including options, warrants and unvested restricted stock. The
dilutive effect of options, warrants and unvested restricted
stock to purchase common stock is determined under the treasury
stock method using the average fair value of common stock for
the period (Note 15).

Comprehensive Income

Comprehensive income is comprised of net income
(loss) and other comprehensive income. Other comprehensive
income includes certain changes in equity that are excluded from
net income (loss). At June 30, 2003, accumulated other
comprehensive income was comprised of cumulative foreign
currency translation adjustments and unrealized gains and losses
on marketable securities and hedging instruments. The individual
components of comprehensive income are reflected in the
consolidated statement of stockholders equity for the
years ended June 30, 2003, 2002 and 2001.

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
disclosures 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 January 2003, the FASB issued FIN No. 46,
Consolidation of Variable Interest Entities, an
Interpretation of ARB 51. The primary objective of
FIN No. 46 is to provide guidance on the identification of
entities for which control is achieved through means other than
through voting rights (variable interest entities or
VIEs) and how to determine when and which business
enterprise should consolidate the VIE. This new model for
consolidation applies to an entity for which either:
(a) the equity investors (if any) do not have a controlling
financial interest; or (b) the equity investment at risk is
insufficient to finance that entitys activities without
receiving additional subordinated financial support from other
parties. In addition, FIN No. 46 requires that both the
primary beneficiary and all other enterprises with a significant
variable interest in a VIE make additional disclosures. The
Company is required to apply FIN No. 46 to all new variable
interest entities created or acquired after January 31,
2003. For variable interest entities created or acquired prior to

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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

February 1, 2003, the Company is required to
apply FIN No. 46 on July 1, 2003. As of June 30,
2003, the Company had no interests in any VIEs.

3.     Acquisitions

Branden Technologies, Inc.

On March 28, 2001, the Company acquired all
of the outstanding shares of Branden Technologies, Inc.
(Branden), located in Wilsonville, Oregon, for a
total of $3.7 million in cash, $1.1 million of which
was used to retire all of Brandens outstanding debt. The
acquisition was accounted for using the purchase method of
accounting, and the results of Branden have been included in the
Companys consolidated financial statements since the date
of acquisition.

The purchase price, net of the retirement of the
outstanding debt, has been allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed
at their fair values on the date of the acquisition, based upon
managements estimates. The excess of purchase price over
the amounts allocated was recorded as goodwill. The purchase
price, net of the $1.1 million used to retire
Brandens outstanding debt concurrent with the acquisition,
was allocated as follows (in thousands):

|                                |  |   |        |  
|------------------------------- |  | - | ------ | -
|Current assets                  |  | $ | 396    |  
|Property and equipment          |  |   | 6      |  
|Assembled workforce             |  |   | 220    |  
|Developed technology            |  |   | 320    |  
|Non-compete covenants           |  |   | 550    |  
|Customer base                   |  |   | 330    |  
|Other long-term assets          |  |   | 4      |  
|Current liabilities assumed     |  |   | (320   | )
|Non-current liabilities assumed |  |   | (1,082 | )
|Goodwill                        |  |   | 2,197  |  
|                                |  |   |        |  
|                                |  | $ | 2,621  |  
|                                |  |   |        |  

Côntrole de Processus Industriels
s.a.r.l.

On January 9, 2003, the Company acquired
substantially all of the assets and the ongoing operations of
Côntrole de Processus Industriels s.a.r.l.
(CPI), a provider of production monitoring systems
to the French plastics industry, for a cash purchase price of
$802,000. In addition, the Company paid $93,000 of costs
directly related to the acquisition. The Company believes that
the acquisition of CPI will increase the Companys presence
in the European product monitoring market allowing it to better
serve its customers. For this reason the purchase price exceeds
the fair value of the net tangible and identifiable intangible
assets acquired, resulting in goodwill. The results of CPI have
been included in the Companys consolidated financial
statements since the date of the acquisition.

The purchase price has been allocated to the
assets acquired and liabilities assumed at their estimated fair
values as of the date of the acquisition, based upon estimates
made by management of the Company. Certain of the acquired
assets were intangible in nature, including the acquired
customer base and non-compete agreements, the fair values of
which were determined through generally accepted valuation
methodologies. The excess of the total purchase price over the
amounts allocated to the assets acquired and liabilities assumed

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MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

was recorded as goodwill. The following table
summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of the acquisition (in
thousands):

|                            |  |   |      |  
|--------------------------- |  | - | ---- | -
|Inventories                 |  | $ | 36   |  
|Property and equipment      |  |   | 53   |  
|Non-compete covenants       |  |   | 100  |  
|Customer base               |  |   | 85   |  
|Goodwill                    |  |   | 843  |  
|Current liabilities assumed |  |   | (222 | )
|                            |  |   |      |  
|                            |  | $ | 895  |  
|                            |  |   |      |  

Subsequent to the acquisition, adjustments were
made to the estimates included in the original determination of
the purchase price, resulting in a revised purchase price of
$902,000. The estimated useful lives of the acquired customer
base and non-compete covenants are 42 months and
12 months, respectively. No portion of the goodwill or
other intangible assets is expected to be deductible for tax
purposes. A portion of the goodwill and other intangible assets
is recorded in the accounts of our French subsidiary and, as
such, will be subject to translation at the rates in effect at
the balance sheet date.

The following summarized unaudited pro forma
consolidated results of operations of the Company reflect the
effect of the CPI acquisition as if it had occurred at the
beginning of the periods presented. The unaudited pro forma
consolidated results of operations presented below are not
necessarily indicative of operating results which would have
been achieved had the acquisition been consummated as of the
beginning of the periods presented and should not be construed
as representative of future operations.

|                                    |         |                      |        |       |   |   |        |      | 
|----------------------------------- | ------- | -------------------- | ------ | ----- | - | - | ------ | ---- | 
|                                    |         |                     
|                                    |         | Year Ended June 30, 
|                                    |         |                     
|                                    |         | 2003                 |        | 2002 
|                                    |         |                      |        |      
|                                    |         |                     
|                                    |         | (In thousands except
|                                    |         | per share data)     
|Revenue                             |         | $                    | 36,777 |       |   | $ | 35,843 |     
|Net income (loss)                   |         |                      | (421   | )     |   |   | 406    |     
|Net income (loss) per common share: |         |                      |        |       |   |   |        |     
|                                    | Basic   |                      | $      | (0.04 | ) |   | $      | 0.04 | 
|                                    | Diluted |                      | $      | (0.04 | ) |   | $      | 0.04 | 

4.     Goodwill and
Intangible Assets

During the first quarter of fiscal 2002, the
Company adopted the provisions of SFAS No. 141,
Business Combinations and SFAS No. 142
Goodwill and Other Intangible Assets.
SFAS No. 141 establishes the purchase method as the
only acceptable methodology for accounting for a business
combination. In addition, SFAS No. 141 provides
guidance for allocating the cost of an acquired entity,
including the recognition and identification of goodwill and
other intangible assets. Under SFAS No. 141, an
assembled workforce does not meet the criteria for recognition
as an intangible asset that is separable from goodwill. As such,
at July 1, 2001, the Company reclassified to goodwill the
carrying value of its previously identified assembled workforces
that were recognized in the Companys acquisitions of
C-Mold and Branden Technologies (Note 3). As a result of
this reclassification, the gross carrying value of goodwill
increased by $786,000 to $10.4 million.

SFAS No. 142 addresses accounting and
reporting for goodwill and other intangible assets at and
subsequent to the date of acquisition. SFAS No. 142
provides guidance in determining the useful life of intangible
assets, stating that some intangible assets may have an
indefinite useful life to a company. SFAS No. 142 also
eliminates amortization of goodwill and introduces a two-step
impairment test model to be

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MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

applied upon adoption and annually thereafter. In
adopting SFAS No. 142, the Company conducted the
required transitional impairment test as of July 1, 2001,
concluding that no impairment of the goodwill acquired in the
acquisitions of C-Mold and Branden Technologies had occurred.
The Company ceased the amortization of goodwill as of
July 1, 2001 and reviewed the intangible assets acquired in
the aforementioned transactions, concluding that no change need
be made to the previously estimated useful lives of those assets.

For the purposes of the impairment tests, the
Company considers itself a single reporting unit, as defined by
SFAS No. 142. To conduct these tests, the fair value
of the reporting unit is compared to its carrying value. To the
extent that the reporting units carrying value exceeds its
fair value, the Company must then compare the implied fair value
of the reporting units goodwill to its carrying value to
determine if an impairment has occurred. This exercise entails
the allocation of the reporting units total fair value to
its assets and liabilities in a manner similar to that of the
purchase price allocation methodology prescribed under
SFAS No. 141. Any resulting impairment would be
expensed immediately.

To estimate its fair value, the Company first
employs a market value approach. Under this approach, the
average closing price of the Companys common stock, as
reported by the Nasdaq national market, is determined for a set
number of days in its third fiscal quarter. A control premium is
added to this average price based upon an estimation by
independent valuation professionals engaged to compile and
examine a five-year history of merger and acquisition history of
similar sized businesses in the Companys industry. This
adjusted value is deemed to be the fair value of the
Companys stock under the market value approach and is
multiplied by the number of shares of common stock outstanding
to determine the Companys total fair value. This is then
compared to the recorded carrying value of the Companys
total net assets on that same day to identify potential
impairment. While the Company believes that the market value
approach provides a reasonable estimate of fair value, there are
macroeconomic factors that could significantly affect the
results of this methodology. If the Company believes that these
factors have resulted in an inaccurate estimation of fair value,
other valuation models will be employed including the income
approach or the cost approach. The blended results from these
three methodologies would then be used to estimate the total
fair value of the Company.

The Company conducted the required annual
impairment test for the years ended June 30, 2003 and 2002,
and concluded that no impairment had occurred.

The following table reflects the unaudited
adjusted net income of the Company, giving effect to
SFAS No. 142 as if it were adopted on July 1,
2000:

|                                                                   |             |                       |      |       |   |      |     |      |  |   |       |      | 
|------------------------------------------------------------------ | ----------- | --------------------- | ---- | ----- | - | ---- | --- | ---- |  | - | ----- | ---- | 
|                                                                   |             |                      
|                                                                   |             | Year Ended June 30,  
|                                                                   |             |                      
|                                                                   |             | 2003                  |      | 2002  |   | 2001
|                                                                   |             |                       |      |       |   |     
|                                                                   |             |                      
|                                                                   |             | (In thousands, except
|                                                                   |             | per share data)      
|Net income (loss), as reported                                     |             | $                     | (118 | )     |   | $    | 780 |      |  | $ | 3,508 |     
|Add back: goodwill amortization expense, net of
    tax            |             |                       |     |       |   |      |    |      |  |   | 737   |     
|Add back: assembled workforce amortization
    expense, net of tax |             |                       |     |       |   |      |    |      |  |   | 150   |     
|                                                                   |             |                       |      |       |   |      |     |      |  |   |       |     
|Net income (loss), as adjusted                                     |             | $                     | (118 | )     |   | $    | 780 |      |  | $ | 4,395 |     
|                                                                   |             |                       |      |       |   |      |     |      |  |   |       |     
|Basic net income (loss) per common share:                          |             |                       |      |       |   |      |     |      |  |   |       |     
|                                                                   | As reported |                       | $    | (0.01 | ) |      | $   | 0.08 |  |   | $     | 0.36 | 
|                                                                   | As adjusted |                       | $    | (0.01 | ) |      | $   | 0.08 |  |   | $     | 0.46 | 
|Diluted net income (loss) per common share:                        |             |                       |      |       |   |      |     |      |  |   |       |     
|                                                                   | As reported |                       | $    | (0.01 | ) |      | $   | 0.08 |  |   | $     | 0.35 | 
|                                                                   | As adjusted |                       | $    | (0.01 | ) |      | $   | 0.08 |  |   | $     | 0.43 | 

F-14



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

All of the Companys acquired intangible
assets, except for goodwill, are subject to amortization over
their estimated useful lives. Intangible assets include customer
base, developed technology and non-compete agreements. No
significant residual value is estimated for these intangible
assets. Intangible asset amortization for the fiscal years ended
June 30, 2003, 2002 and 2001 was $605,000, $656,000 and
$601,000, respectively. The components of intangible assets are
as follows (in thousands):

|                   |                        |               |       |               |  |          |        |          |   |              |     |          |  |   |       |       |  |   |        |      |   |   |       |     | 
|------------------ | ---------------------- | ------------- | ----- | ------------- |  | -------- | ------ | -------- | - | ------------ | --- | -------- |  | - | ----- | ----- |  | - | ------ | ---- | - | - | ----- | --- | 
|                   |                        |               |       |              
|                   |                        | June 30, 2003 |       | June 30, 2002
|                   |                        |               |       |              
|                   |                        | Gross         |       |               |  | Net      |        | Gross    |   |              |     | Net     
|                   |                        | Carrying      |       | Accumulated   |  | Carrying |        | Carrying |   | Accumulated  |     | Carrying
|                   |                        | Amount        |       | Amortization  |  | Amount   |        | Amount   |   | Amortization |     | Amount  
|                   |                        |               |       |               |  |          |        |          |   |              |     |         
|Intangible assets: |                        |               |       |               |  |          |        |          |   |              |     |          |  |   |       |       |  |   |        |      |   |   |       |    
|                   | Customer base          |               | $     | 421           |  |          | $      | (116     | ) |              | $   | 305      |  |   | $     | 330   |  |   | $      | (58  | ) |   | $     | 272 | 
|                   | Developed technology   |               |       | 675           |  |          |        | (533     | ) |              |     | 142      |  |   |       | 975   |  |   |        | (420 | ) |   |       | 555 | 
|                   | Non-compete agreements |               |       | 1,205         |  |          |        | (967     | ) |              |     | 238      |  |   |       | 1,100 |  |   |        | (616 | ) |   |       | 484 | 
|                   |                        |               |       |               |  |          |        |          |   |              |     |          |  |   |       |       |  |   |        |      |   |   |       |    
|Total              |                        | $             | 2,301 |               |  | $        | (1,616 | )        |   | $            | 685 |          |  | $ | 2,405 |       |  | $ | (1,094 | )    |   | $ | 1,311 |    
|                   |                        |               |       |               |  |          |        |          |   |              |     |          |  |   |       |       |  |   |        |      |   |   |       |    

In May 2002, the Company settled several claims
outstanding against an escrow account established in the
acquisition of C-Mold. This settlement resulted in the receipt
of $470,000 of cash which was applied against certain prepaid
expenses and liabilities recorded in the acquisition. In
addition, a $61,000 intangible asset related to a non-compete
agreement was considered impaired after the settlement and was
expensed. These amounts resulted in the recognition of $446,000
of net non-recurring gains which were recorded as other income
in fiscal 2002.

In March 2003, the Company initiated a corporate
restructuring plan that resulted in the impairment of certain
developed technology originally acquired in the fiscal 2001
purchase of Branden Technologies Inc. (Note 9). A charge of
$217,000 was recorded to write-off the net carrying value of
this developed technology, which was related to the
Companys EZ-Track product.

As of June 30, 2003, the Company believes
there are no additional impairments of its intangible assets,
goodwill and other long-lived assets. However, no assurances can
be given that future evaluations of intangible assets, goodwill
and other long-lived assets will not result in charges as a
result of future impairment.

Expected future estimated annual amortization
expense of intangible assets is as follows:

|            |  |                |     | 
|----------- |  | -------------- | --- | 
|            |  | Estimated     
|            |  | Amortization  
|Fiscal year |  | Expense       
|            |  |               
|            |  | (In thousands)
|2004        |  | $              | 365 | 
|2005        |  |                | 149 | 
|2006        |  |                | 72  | 
|2007        |  |                | 50  | 
|2008        |  |                | 48  | 
|Thereafter  |  |                | 1   | 
|            |  |                |     | 
|            |  | $              | 685 | 
|            |  |                |     | 

F-15



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                                                            
|-- | -----------------------------------------------------------
|5. | Derivative Financial Instruments and Hedging
    Activities

At June 30, 2003, currency options and
collars designated as hedging instruments with notional amounts
of $2.1 million, $6.4 million and $2.3 million to
exchange Euros, Japanese yen and Australian dollars for
U.S. dollars, respectively, were outstanding. The fair
values of these instruments, as derived from dealer quotations,
have been recorded as components of other current assets or
other current liabilities, depending on their valuation. At
June 30, 2003, instruments with fair values of $337,000 and
$32,000 were recorded as components of other current assets and
other current liabilities, respectively. Net unrealized gains on
these instruments of $27,000 were included in accumulated other
comprehensive income. The Company expects these instruments to
affect earnings over the next twelve months. During the year
ended June 30, 2003, losses of $83,000 were recorded as
components of other income and expense on the effective portion
of options that were settled. During the year ended
June 30, 2003, a gain of $12,000 was recognized on the
ineffective portion of these options.

At June 30, 2002, currency options and
collars designated as hedging instruments with notional amounts
of $4.9 million, $18.1 million and $5.2 million
to exchange Euros, Japanese yen and Australian dollars for
U.S. dollars, respectively, were outstanding. The fair
values of these instruments, as derived from dealer quotations,
have been recorded as components of other current assets or
other current liabilities, depending on their valuation. At
June 30, 2003, instruments with fair values of $379,000 and
$637,000 were recorded as components of other current assets and
accrued expenses, respectively. Net unrealized losses on these
instruments of $279,000 were included in accumulated other
comprehensive income. During the year ended June 30, 2002,
gains of $293,000 were recorded as components of other income
and expense on the effective portion of options that were
settled. During the year ended June 30, 2002, a loss of
$13,000 was recognized on the ineffective portion of these
options. In June 2002, the Company discontinued hedge accounting
for the excess portion of instruments that were hedging
transactions considered probable of not occurring. These
ineffective portions were immediately sold and a net gain of
$29,000 was recognized in current earnings as a component of
other income and expenses.

The Company held no derivatives during fiscal
2003, 2002 or 2001 for non-hedging purposes.



|   |                           
|-- | --------------------------
|6. | Software Development Costs

Costs associated with the development of computer
software and related products are expensed prior to 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. Development
costs eligible for capitalization prior to the first quarter of
fiscal 2002 were not significant. The Company established
technological feasibility of Moldflow Plastics Insight
(MPI) 3.0 in the first quarter of fiscal 2002 and
released the product commercially in November 2001. In
accordance with SFAS No. 86, research and development
costs of $602,000 were capitalized as a component of fixed
assets. In the second quarter of fiscal 2003, the net carrying
value of these costs was reclassified from fixed assets to other
assets.

In fiscal 2003, the Company established
technological feasibility of four additional products.
MPI 4.0 and Shotscope 2.6, Moldflow Manufacturing
Solutions (MMS) 1.0, and MPI 4.1 were
commercially released in December 2002, March 2003 and June
2003, respectively. Accordingly, costs of $669,000 were
capitalized and included in other assets. All such costs have
been included in other assets and are being amortized to cost of
product revenue over a five-year period. Related amortization
expense for the fiscal years ended June 30,

F-16



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

2003 and 2002 was $146,000 and $71,000,
respectively. A summary of capitalized software development
costs follows:

|                              |  |                |       |      |  |   |     |  
|----------------------------- |  | -------------- | ----- | ---- |  | - | --- | -
|                              |  |               
|                              |  | June 30,      
|                              |  |               
|                              |  | 2003           |       | 2002
|                              |  |                |       |     
|                              |  |               
|                              |  | (In thousands)
|Gross carrying amount         |  | $              | 1,271 |      |  | $ | 602 |  
|Lessaccumulated amortization |  |                | (217  | )    |  |   | (71 | )
|                              |  |                |       |      |  |   |     |  
|Net carrying amount           |  | $              | 1,054 |      |  | $ | 531 |  
|                              |  |                |       |      |  |   |     |  



|   |             
|-- | ------------
|7. | Fixed Assets

Fixed assets consist of the following:

|                                                   |  |             |      |                |  |      |        |   |  |   |        |  
|-------------------------------------------------- |  | ----------- | ---- | -------------- |  | ---- | ------ | - |  | - | ------ | -
|                                                   |  |             |      |               
|                                                   |  | Estimated   |      | June 30,      
|                                                   |  | Useful Life |      |               
|                                                   |  | (Years)     |      | 2003           |  | 2002
|                                                   |  |             |      |                |  |     
|                                                   |  |             |      |               
|                                                   |  |             |      | (In thousands)
|Land                                               |  |             |     |                |  | $    | 239    |   |  | $ | 202    |  
|Buildings                                          |  |             | 30   |                |  |      | 1,414  |   |  |   | 1,183  |  
|Equipment                                          |  |             | 5-7  |                |  |      | 1,150  |   |  |   | 742    |  
|Computer equipment                                 |  |             | 3-5  |                |  |      | 4,932  |   |  |   | 3,716  |  
|Furniture and fixtures                             |  |             | 7-10 |                |  |      | 728    |   |  |   | 679    |  
|Computers and equipment under capital leases       |  |             | 3-7  |                |  |      | 562    |   |  |   | 475    |  
|Software                                           |  |             | 3-5  |                |  |      | 334    |   |  |   | 419    |  
|Other                                              |  |             | 3-10 |                |  |      | 865    |   |  |   | 842    |  
|                                                   |  |             |      |                |  |      |        |   |  |   |        |  
|                                                   |  |             |      |                |  |      | 10,224 |   |  |   | 8,258  |  
|Lessaccumulated depreciation and
    amortization |  |             |      |                |  |      | (6,333 | ) |  |   | (4,465 | )
|                                                   |  |             |      |                |  |      |        |   |  |   |        |  
|                                                   |  |             |      |                |  | $    | 3,891  |   |  | $ | 3,793  |  
|                                                   |  |             |      |                |  |      |        |   |  |   |        |  

Depreciation expense, including amortization of
assets under capital leases, was $1.4 million,
$1.3 million, and $1.2 million for the years ended
June 30, 2003, 2002 and 2001, respectively. Accumulated
amortization for assets held under capital leases was $533,000,
$442,000 and $587,000 at June 30, 2003, 2002 and 2001,
respectively.

F-17



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                 
|-- | ----------------
|8. | Accrued Expenses

Accrued expenses includes the following accruals
and other current liabilities:

|                                                   |  |                |       |      |  |   |       | 
|-------------------------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                                                   |  |               
|                                                   |  | June 30,      
|                                                   |  |               
|                                                   |  | 2003           |       | 2002
|                                                   |  |                |       |     
|                                                   |  |               
|                                                   |  | (In thousands)
|Employee wages, commissions and other compensation |  | $              | 1,423 |      |  | $ | 1,000 | 
|Employee leave costs                               |  |                | 1,343 |      |  |   | 806   | 
|Employee retirement costs                          |  |                | 362   |      |  |   | 282   | 
|Professional fees                                  |  |                | 906   |      |  |   | 583   | 
|Taxes and withholding                              |  |                | 2,071 |      |  |   | 3,062 | 
|Travel costs                                       |  |                | 107   |      |  |   | 146   | 
|Employee stock purchase plan withholdings          |  |                | 145   |      |  |   | 131   | 
|Employee health plan costs                         |  |                | 92    |      |  |   | 100   | 
|Restructuring costs                                |  |                | 128   |      |  |   | 247   | 
|Foreign currency options                           |  |                | 32    |      |  |   | 637   | 
|Warranty reserve                                   |  |                | 42    |      |  |   | 13    | 
|Other                                              |  |                | 788   |      |  |   | 657   | 
|                                                   |  |                |       |      |  |   |       | 
|                                                   |  | $              | 7,439 |      |  | $ | 7,664 | 
|                                                   |  |                |       |      |  |   |       | 



|   |                    
|-- | -------------------
|9. | Restructuring Plans

March 2003 Plan

In March 2003, the Company initiated a corporate
restructuring plan (the March 2003 plan) related to
its acquisition of CPI (Note 3). The March 2003 plan
included the involuntary termination of four technical employees
and a reduction of space at a leased facility, related to the
integration of CPIs operations. In addition, the March
2003 plan included the write-off of inventories and other assets
and certain intangible assets originally acquired in the
purchase of Branden Technologies in fiscal 2001, which were
deemed impaired by the acquisition of a similar product in
connection with the CPI transaction.

As a result of the March 2003 plan, the Company
recorded pre-tax charges and related accruals of $584,000
($486,000 after tax, or $0.05 per diluted share). Of this
charge, $179,000 related to the write-off of inventories and, as
such, was included as a component of the cost of product
revenue. The remainder of the charge was recorded as a
restructuring charge in the Companys Consolidated
Statement of Operations. All significant activities under the
March 2003 plan were completed as of June 30, 2003.

The following table presents the pre-tax charges
incurred by category of expenditure, and related restructuring
costs included in accrued expenses in the Companys balance
sheet (in thousands):

|                                |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|------------------------------- |  | ---------------- | --- | ------------------------------- |  | ------------ | --- | ----- |  | --------- | -- | ----------- |  | ----- | --- | ----- |  | - | --- | - |  | - | --- | - |  | - | --- | - |  | - | --- | -
|                                |  |                  |     |                                
|                                |  | Non-Cash Charges |     | Charges Requiring Cash Payments
|                                |  |                  |     |                                
|                                |  |                  |     | Write-off of                    |  | Write-off of |     |       |  | Employee  |    | Lease       |  |      
|                                |  | Write-off of     |     | Intangible                      |  | Other        |     |       |  | Severance |    | Termination |  | Other |     |      
|                                |  | Inventories      |     | Asset                           |  | Assets       |     | Total |  | Costs     |    | Costs       |  | Costs |     | Total
|                                |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |      
|Restructuring charge            |  | $                | 179 |                                 |  | $            | 217 |       |  | $         | 75 |             |  | $     | 471 |       |  | $ | 79  |   |  | $ | 45  |   |  | $ | 22  |   |  | $ | 146 |  
|                                |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Revision of estimated liability |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |       |  |   | 1   |   |  |   | (34 | ) |  |   |    |   |  |   | (33 | )
|Cash payments                   |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |       |  |   | (49 | ) |  |   | (11 | ) |  |   | (22 | ) |  |   | (82 | )
|                                |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Balance at June 30, 2003        |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |       |  | $ | 31  |   |  | $ |    |   |  | $ |    |   |  | $ | 31  |  
|                                |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  

F-18



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

April 2002 Plan

In April 2002, the Company enacted a corporate
restructuring plan (the April 2002 plan) to resize
the Company and to reduce overhead costs. The April 2002 plan
included the involuntary termination of 37 employees, the
closing of certain leased offices and the reduction in size of
other leased offices. All significant activities under the April
2002 plan are complete. As a result of the April 2002 plan, the
Company recorded pre-tax charges and related accruals in fiscal
2002 of $1.3 million. The remaining accrual balances as of
June 30, 2003 relate to long-term contractual obligations
from facility commitments that will be paid over six years. The
following table presents the balance of the accrued
restructuring charges:

|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  
|--------------------------------------------- |  | -------------- | --- | ----------- |  | ----- | ---- | ----- |  | - | ---- | - |  | - | ---- | -
|                                              |  | Employee       |     | Lease       |  |       |      |      
|                                              |  | Severance      |     | Termination |  | Other |      |      
|                                              |  | Costs          |     | Costs       |  | Costs |      | Total
|                                              |  |                |     |             |  |       |      |      
|                                              |  |               
|                                              |  | (In thousands)
|Balance at June 30, 2002                      |  | $              | 31  |             |  | $     | 642  |       |  | $ | 124  |   |  | $ | 797  |  
|Cash payments                                 |  |                | (26 | )           |  |       | (113 | )     |  |   | (115 | ) |  |   | (254 | )
|Foreign exchange impact and other adjustments |  |                | (5  | )           |  |       | 67   |       |  |   | (9   | ) |  |   | 53   |  
|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  
|Balance at June 30, 2003                      |  | $              |    |             |  | $     | 596  |       |  | $ |     |   |  | $ | 596  |  
|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  



|    |                  
|--- | -----------------
|10. | Credit Facilities

In December 2002, the Company renewed its
unsecured $5.0 million working capital credit facility with
a domestic bank. The facility expires December 5, 2003. The
available borrowing base of the facility is subject to a
calculation that is based upon eligible accounts receivable.
Advances may be in the form of loans, letters of credit, foreign
exchange contracts or other cash management lines. The facility
includes restrictive covenants, all of which the Company was in
compliance with at June 30, 2003. These covenants include
liquidity and profitability measures and restrictions that limit
the ability of the Company to merge, acquire or sell assets
without prior approval from the bank. At June 30, 2003, the
Company had employed $2.2 million of available borrowings
through outstanding foreign exchange contracts and letters of
credit. The remaining available borrowings were
$2.4 million.

Certain subsidiaries of the Company have
established credit facilities with two separate financial
institutions primarily for the purposes of establishing foreign
exchange contracts. Advances against these facilities bear
interest at the institutions published rates plus 2% per
annum. These credit facilities are unsecured. Advances against
these facilities are guaranteed by the Company. There were no
advances against these facilities as of June 30, 2003 or
2002.

Certain subsidiaries of the Company have
established other credit facilities totaling $206,000 with two
separate financial institutions for general working capital
requirements and foreign exchange contracts. Advances against
these facilities bear interest at the institutions
published rates, plus 1.5% per annum. Advances against one of
these facilities are secured by a $100,000 term deposit and the
assets of a subsidiary of the Company. There were no advances
against these facilities as of June 30, 2003 or 2002.



|    |                
|--- | ---------------
|11. | Preferred Stock

At June 30, 2003, there were no shares of
preferred stock issued or outstanding.



|    |             
|--- | ------------
|12. | 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.

F-19



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 vested on
varying schedules through fiscal 2003. Promissory note
repayments to the Company were $29,000, $10,000 and $190,000
during fiscal 2003, 2002 and 2001, respectively. As of
June 30, 2003, no shares were subject to restriction.

On December 12, 2000, the Company completed
a public offering of 2,305,000 shares of common stock, of which
1,730,000 shares were sold by certain selling stockholders and
575,000 shares were issued and sold by the Company. The proceeds
to the Company, net of underwriting discount and costs of the
offering, were $9.7 million. The Company did not receive
any of the proceeds from the sale of shares by the selling
stockholders.

On December 19, 2000, the underwriters of
the public offering exercised their option to purchase an
additional 345,750 shares of common stock, of which 170,000 were
issued by the Company. The proceeds to the Company, net of the
underwriting discount, were $3.1 million.

At June 30, 2003 the Company had 4,338,243
shares of its common stock reserved for issuance under its stock
option and stock purchase plans. Of these, 19,270 shares were
added during fiscal 2003 pursuant to a provision in the
Companys 2000 Stock Option and Incentive Plan that
automatically increases the number of shares available for grant
by 20% of the total number of shares of common stock issued
during each six month period ending June 30 and
December 31.



|    |               
|--- | --------------
|13. | Treasury Stock

On September 19, 2001, the Board of
Directors authorized the Company to repurchase up to 500,000
shares of its outstanding common stock. In September 2001, the
Company reacquired 50,000 shares for $464,000, an average cost
of $9.28 per share. In September 2002, the Company reacquired an
additional 194,165 shares of its outstanding common stock for
$909,000, an average cost of $4.68 per share. As of
June 30, 2003, 58,748 of these shares were reissued under
the Companys Employee Stock Purchase Plan and 185,417
shares remained in treasury.



|    |            
|--- | -----------
|14. | 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 par value per share. The Company
will not issue any more shares under the 1997 Plan.

F-20



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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. The administration and significant terms of the
2000 Plan are the same as those of the 1997 Plan, described
above.

On November 19, 2002, the stockholders of
the Company approved an amendment to the 2000 Plan authorizing
the Company to issue up to an additional 1,500,000 shares of
common stock pursuant to various stock incentive awards under
the 2000 Plan.

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 was amortized over the
related vesting period. Related compensation expense of $9,000,
$20,000 and $19,000 was recorded during the years ended
June 30, 2003, 2002 and 2001, respectively.

Except for the options noted above, no other
compensation cost has been recognized for employee stock-based
compensation for the years ended June 30, 2003, 2002 and
2001.

A summary of the status of the Companys
stock options as of June 30, 2003, 2002 and 2001, and
changes during the years then ended, is presented below:

|                                                                   |  |        |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |   |           |   |  |   |       | 
|------------------------------------------------------------------ |  | ------ | --------- | -------- |  | ------ | ----- | -------- |  | ------ | --------- | -------- |  | - | ----- |  |  | - | --------- | - |  | - | ----- | 
|                                                                   |  |        |           |          |  |       
|                                                                   |  | 2003   |           | 2002     |  | 2001  
|                                                                   |  |        |           |          |  |       
|                                                                   |  |        |           | Weighted |  |        |       | Weighted |  |        |           | Weighted
|                                                                   |  |        |           | Average  |  |        |       | Average  |  |        |           | Average 
|                                                                   |  |        |           | Exercise |  |        |       | Exercise |  |        |           | Exercise
|                                                                   |  | Shares |           | Price    |  | Shares |       | Price    |  | Shares |           | Price   
|                                                                   |  |        |           |          |  |        |       |          |  |        |           |         
|Outstanding at beginning of year                                   |  |        | 1,618,975 |          |  | $      | 12.23 |          |  |        | 1,116,460 |          |  | $ | 12.07 |  |  |   | 863,604   |   |  | $ | 8.22  | 
|Granted                                                            |  |        | 1,134,350 |          |  |        | 4.79  |          |  |        | 663,050   |          |  |   | 12.79 |  |  |   | 378,712   |   |  |   | 19.72 | 
|Exercised                                                          |  |        | (71,124   | )        |  |        | 0.95  |          |  |        | (23,276   | )        |  |   | 1.97  |  |  |   | (60,445   | ) |  |   | 1.48  | 
|Canceled                                                           |  |        | (248,995  | )        |  |        | 9.92  |          |  |        | (137,259  | )        |  |   | 15.36 |  |  |   | (65,411   | ) |  |   | 15.35 | 
|                                                                   |  |        |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |   |           |   |  |   |       | 
|Outstanding at end of year                                         |  |        | 2,433,206 |          |  | $      | 9.33  |          |  |        | 1,618,975 |          |  | $ | 12.23 |  |  |   | 1,116,460 |   |  | $ | 12.07 | 
|                                                                   |  |        |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |   |           |   |  |   |       | 
|Options exercisable at end of year                                 |  |        | 864,084   |          |  |        |       |          |  |        | 564,791   |          |  |   |       |  |  |   | 321,450   |   |  |   |       | 
|Weighted average fair value of options granted
    during the year |  | $      | 2.79      |          |  |        |       |          |  | $      | 7.74      |          |  |   |       |  |  | $ | 16.64     |   |  |   |       | 
|Options available for future grant                                 |  |        | 1,538,108 |          |  |        |       |          |  |        | 1,017,961 |          |  |   |       |  |  |   | 1,545,266 |   |  |   |       | 

The following table summarizes information about
stock options outstanding at June 30, 2003:

|               |  |             |           |          |  |              |       |             |  |          |     |  |  |  |         |  |  |   |       | 
|-------------- |  | ----------- | --------- | -------- |  | ------------ | ----- | ----------- |  | -------- | --- |  |  |  | ------- |  |  | - | ----- | 
|               |  |             |           |          |  | Weighted     |       |             |  |         
|               |  |             |           | Weighted |  | Average      |       |             |  | Weighted
|               |  |             |           | Average  |  | Remaining    |       |             |  | Average 
|               |  | Shares      |           | Exercise |  | Contractual  |       | Shares      |  | Exercise
|Exercise Price |  | Outstanding |           | Price    |  | Life (Years) |       | Exercisable |  | Price   
|               |  |             |           |          |  |              |       |             |  |         
|$0.36-$5.00    |  |             | 1,161,575 |          |  | $            | 4.25  |             |  |          | 4.0 |  |  |  | 185,581 |  |  | $ | 2.32  | 
|$5.01-$10.00   |  |             | 219,424   |          |  |              | 6.82  |             |  |          | 5.2 |  |  |  | 138,097 |  |  |   | 6.34  | 
|$10.01-$15.00  |  |             | 600,370   |          |  |              | 12.73 |             |  |          | 3.4 |  |  |  | 267,817 |  |  |   | 12.66 | 
|$15.01-$20.00  |  |             | 329,937   |          |  |              | 17.64 |             |  |          | 5.1 |  |  |  | 211,364 |  |  |   | 17.45 | 
|$20.01-$25.00  |  |             | 94,300    |          |  |              | 21.84 |             |  |          | 5.3 |  |  |  | 46,800  |  |  |   | 21.87 | 
|$25.01-$30.00  |  |             | 27,600    |          |  |              | 26.38 |             |  |          | 5.6 |  |  |  | 14,425  |  |  |   | 26.39 | 
|               |  |             |           |          |  |              |       |             |  |          |     |  |  |  |         |  |  |   |       | 
|$0.36-$30.00   |  |             | 2,433,206 |          |  | $            | 9.33  |             |  |          | 4.2 |  |  |  | 864,084 |  |  | $ | 11.33 | 
|               |  |             |           |          |  |              |       |             |  |          |     |  |  |  |         |  |  |   |       | 

F-21



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Employee Stock Purchase Plan

On January 20, 2000, the Board of Directors
approved the Moldflow Corporation Employee Stock Purchase Plan
(the ESPP) with an authorization of up to 500,000
shares of common stock. The ESPP is open to all eligible
employees of the Company. Under the ESPP, 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.

The following table displays the shares issued
under the Employee Stock Purchase Plan:

|                    |  |        |         |       |  |   |       | 
|------------------- |  | ------ | ------- | ----- |  | - | ----- | 
|                    |  | Shares |         | Share
|Date Issued         |  | Issued |         | Price
|                    |  |        |         |      
|January 2, 2001     |  |        | 10,825  |       |  | $ | 13.60 | 
|July 6, 2001        |  |        | 13,498  |       |  | $ | 13.10 | 
|January 2, 2002     |  |        | 14,638  |       |  | $ | 12.07 | 
|July 1, 2002        |  |        | 22,737  |       |  | $ | 6.70  | 
|January 2, 2003     |  |        | 21,373  |       |  | $ | 6.38  | 
|July 3, 2003        |  |        | 21,978  |       |  | $ | 6.19  | 
|                    |  |        |         |       |  |   |       | 
|Total shares issued |  |        | 105,049 |       |  |   |       | 
|                    |  |        |         |       |  |   |       | 

Shareholder Rights Plan

On January 29, 2003, the Board of Directors
adopted a Shareholder Rights Plan and declared a dividend
distribution of one preferred stock purchase right (a
Right) for each outstanding share of the
Companys common stock to shareholders of record as of the
close of business on January 30, 2003. Initially, these
rights will not be exercisable and will trade with the shares of
the Companys common stock. Each share of common stock
newly issued after that date also will carry with it one Right.
Under the Shareholder Rights Plan, a Right generally will become
exercisable if a person becomes an acquiring person
by acquiring 15% or more of the common stock of the Company or
if a person commences a tender offer that could result in that
person owning 15% or more of the common stock of the Company. If
a person becomes an acquiring person, each holder of
a Right (other than the acquiring person) would be entitled to
purchase, at the then-current exercise price, such number of
shares of preferred stock which are equivalent to shares of the
Companys common stock having a value of twice the exercise
price of the Right. If the Company is acquired in a merger or
other business combination transaction after any such event,
each holder of a Right would then be entitled to purchase, at
the then-current exercise price, shares of the acquiring
companys common stock having a value of twice the exercise
price of the Right.

F-22



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                                   
|--- | ----------------------------------
|15. | Net Income (Loss) per Common Share

The following table displays the calculation of
net income (loss) per common share:

|                                                                                           |                                  |                        |        |      |  |      |        |     |  |   |        |     | 
|------------------------------------------------------------------------------------------ | -------------------------------- | ---------------------- | ------ | ---- |  | ---- | ------ | --- |  | - | ------ | --- | 
|                                                                                           |                                  |                       
|                                                                                           |                                  | Year Ended June 30,   
|                                                                                           |                                  |                       
|                                                                                           |                                  | 2003                   |        | 2002 |  | 2001
|                                                                                           |                                  |                        |        |      |  |     
|                                                                                           |                                  |                       
|                                                                                           |                                  | (In thousands,        
|                                                                                           |                                  | except per share data)
|Net income (loss)                                                                          |                                  | $                      | (118   | )    |  | $    | 780    |     |  | $ | 3,508  |    
|                                                                                           |                                  |                        |        |      |  |      |        |     |  |   |        |    
|Weighted average shares used in computing net
    income (loss) per common share  basic   |                                  |                        | 10,020 |      |  |      | 10,076 |     |  |   | 9,658  |    
|Effect of dilutive securities:                                                             |                                  |                        |        |      |  |      |        |     |  |   |        |    
|                                                                                           | Unvested restricted stock        |                        |        |     |  |      |        | 14  |  |   |        | 64  | 
|                                                                                           | Stock options and warrants       |                        |        |     |  |      |        | 270 |  |   |        | 402 | 
|                                                                                           |                                  |                        |        |      |  |      |        |     |  |   |        |    
|                                                                                           | Dilutive potential common shares |                        |        |     |  |      |        | 284 |  |   |        | 466 | 
|                                                                                           |                                  |                        |        |      |  |      |        |     |  |   |        |    
|Weighted average shares used in computing net
    income (loss) per common share  diluted |                                  |                        | 10,020 |      |  |      | 10,360 |     |  |   | 10,124 |    
|                                                                                           |                                  |                        |        |      |  |      |        |     |  |   |        |    
|Net income (loss) per common share 
    basic                                             |                                  | $                      | (0.01  | )    |  | $    | 0.08   |     |  | $ | 0.36   |    
|Net income (loss) per common share 
    diluted                                           |                                  | $                      | (0.01  | )    |  | $    | 0.08   |     |  | $ | 0.35   |    

Options to purchase 1,466,000 and 1,349,000
shares of common stock were outstanding for the years ended
June 30, 2003 and 2002, respectively, but were not included
in the calculation of diluted net income (loss) per common
share, as their inclusion would be antidilutive.



|    |             
|--- | ------------
|16. | Income Taxes

Income before income taxes consists of the
following:

|                       |                            |                     |        |      |  |      |       |       |  |   |       |       | 
|---------------------- | -------------------------- | ------------------- | ------ | ---- |  | ---- | ----- | ----- |  | - | ----- | ----- | 
|                       |                            |                    
|                       |                            | Year Ended June 30,
|                       |                            |                    
|                       |                            | 2003                |        | 2002 |  | 2001
|                       |                            |                     |        |      |  |     
|                       |                            |                    
|                       |                            | (In thousands)     
|Domestic income (loss) |                            | $                   | (3,026 | )    |  | $    | (443  | )     |  | $ | 461   |      
|Foreign income         |                            |                     | 3,828  |      |  |      | 1,823 |       |  |   | 4,773 |      
|                       |                            |                     |        |      |  |      |       |       |  |   |       |      
|                       | Income before income taxes |                     | $      | 802  |  |      | $     | 1,380 |  |   | $     | 5,234 | 
|                       |                            |                     |        |      |  |      |       |       |  |   |       |      

F-23



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The provision for income taxes consists of the
following:

|          |                |                     |     |       |   |      |     |       |   |   |       |       | 
|--------- | -------------- | ------------------- | --- | ----- | - | ---- | --- | ----- | - | - | ----- | ----- | 
|          |                |                    
|          |                | Year Ended June 30,
|          |                |                    
|          |                | 2003                |     | 2002  |   | 2001
|          |                |                     |     |       |   |     
|          |                |                    
|          |                | (In thousands)     
|Current:  |                |                     |     |       |   |      |     |       |   |   |       |      
|          | Federal        |                     | $   | (495  | ) |      | $   | 83    |   |   | $     | 30    | 
|          | State          |                     |     | 113   |   |      |     | 92    |   |   |       | 161   | 
|          | Foreign        |                     |     | 1,430 |   |      |     | 1,076 |   |   |       | 1,306 | 
|          |                |                     |     |       |   |      |     |       |   |   |       |      
|          | Total current  |                     |     | 1,048 |   |      |     | 1,251 |   |   |       | 1,497 | 
|          |                |                     |     |       |   |      |     |       |   |   |       |      
|Deferred: |                |                     |     |       |   |      |     |       |   |   |       |      
|          | Federal        |                     |     | (71   | ) |      |     | 53    |   |   |       |      | 
|          | State          |                     |     | 10    |   |      |     | (10   | ) |   |       |      | 
|          | Foreign        |                     |     | (67   | ) |      |     | (694  | ) |   |       | 229   | 
|          |                |                     |     |       |   |      |     |       |   |   |       |      
|          | Total deferred |                     |     | (128  | ) |      |     | (651  | ) |   |       | 229   | 
|          |                |                     |     |       |   |      |     |       |   |   |       |      
|          |                | $                   | 920 |       |   | $    | 600 |       |   | $ | 1,726 |      
|          |                |                     |     |       |   |      |     |       |   |   |       |      

The reconciliation of the provision for income
taxes computed at the U.S. federal statutory tax rate to the
actual provision is as follows:

|                                           |  |                     |     |      |  |      |        |   |  |   |        |  
|------------------------------------------ |  | ------------------- | --- | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                           |  |                    
|                                           |  | Year Ended June 30,
|                                           |  |                    
|                                           |  | 2003                |     | 2002 |  | 2001
|                                           |  |                     |     |      |  |     
|                                           |  |                    
|                                           |  | (In thousands)     
|Statutory federal rate of 34%              |  | $                   | 273 |      |  | $    | 469    |   |  | $ | 1,779  |  
|State income taxes, net of federal benefit |  |                     | 81  |      |  |      | 54     |   |  |   | 107    |  
|Permanent differences                      |  |                     | (31 | )    |  |      | 13     |   |  |   | 960    |  
|Change in valuation allowance              |  |                     | 419 |      |  |      | (4,126 | ) |  |   | (2,051 | )
|Foreign tax rate differential              |  |                     | 248 |      |  |      | 4,188  |   |  |   | 898    |  
|Other                                      |  |                     | (70 | )    |  |      | 2      |   |  |   | 33     |  
|                                           |  |                     |     |      |  |      |        |   |  |   |        |  
|                                           |  | $                   | 920 |      |  | $    | 600    |   |  | $ | 1,726  |  
|                                           |  |                     |     |      |  |      |        |   |  |   |        |  

F-24



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The deferred tax assets and liabilities consist
of the following:

|                         |                                                  |                           |     |      |       |  |      |      |     | 
|------------------------ | ------------------------------------------------ | ------------------------- | --- | ---- | ----- |  | ---- | ---- | --- | 
|                         |                                                  |                          
|                         |                                                  | June 30,                 
|                         |                                                  |                          
|                         |                                                  | 2003                      |     | 2002
|                         |                                                  |                           |     |     
|                         |                                                  |                          
|                         |                                                  | (In thousands)           
|Deferred tax assets:     |                                                  |                           |     |      |       |  |      |     
|                         | Net operating loss carryforwards                 |                           | $   | 674  |       |  | $    | 558  |    
|                         | Foreign tax credit                               |                           |     | 135  |       |  |      | 52   |    
|                         | Accrued expenses not deductible for tax purposes |                           |     | 414  |       |  |      | 355  |    
|                         | Other                                            |                           |     | 67   |       |  |      |     |    
|                         |                                                  |                           |     |      |       |  |      |     
|                         |                                                  | Gross deferred tax assets |     |      | 1,290 |  |      |      | 965 | 
|                         | Deferred tax asset valuation allowance           |                           |     | (789 | )     |  |      | (370 | )  
|                         |                                                  |                           |     |      |       |  |      |     
|                         |                                                  | Total deferred tax assets |     |      | 501   |  |      |      | 595 | 
|Deferred tax liabilities |                                                  |                           | (84 | )    |       |  | (301 | )   
|                         |                                                  |                           |     |      |       |  |      |     
|                         |                                                  | Net deferred tax asset    |     | $    | 417   |  |      | $    | 294 | 
|                         |                                                  |                           |     |      |       |  |      |     

At June 30, 2003, the Company had available
foreign net operating loss carryforwards of approximately
$2.2 million, which have varying expiration dates.

Under generally accepted accounting principles,
the benefit associated with future deductible differences and
credits 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 portion of the Companys deferred
tax assets will not be realized. Accordingly, the Company has
recorded a valuation allowance of $789,000 and $370,000 at
June 30, 2003 and 2002, 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.

17.     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 $278,000, $544,000 and $451,000 to the 401(k) Plan
in the years ended June 30, 2003, 2002 and 2001,
respectively.

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 $194,000,
$167,000 and $146,000 to the Superannuation Plan in the years
ended June 30, 2003, 2002 and 2001, respectively.

F-25



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

18.     Contingencies,
Commitments and Guarantor Arrangements

In November 2002, the Financial Accounting
Standards Board (FASB) issued FIN No. 45
Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of
Others an interpretation of FASB Statements No. 5, 57, and
107 and rescission of FASB Interpretation No. 34. The
Interpretation requires that a guarantor recognize, at the
inception of a guarantee, a liability for the fair value of the
obligation undertaken by issuing the guarantee. The
Interpretation also requires additional disclosures to be made
by a guarantor in its interim and annual financial statements
about its obligations under certain guarantees it has issued.
The accounting requirements for the initial recognition of
guarantees became applicable on a prospective basis for
guarantees issued or modified after December 31, 2002. The
disclosure requirements are effective for all guarantees
outstanding, regardless of when they were issued or modified as
of December 15, 2002. The adoption of FIN No. 45 did
not have a material effect on the Companys consolidated
financial statements.

In the normal course of business, the Company has
indemnified third parties and has commitments and guarantees
under which it may be required to make payments in certain
circumstances. These indemnities, commitments and guarantees
include: its indemnities to various lessors in connection with
facility leases; indemnities to customers related to
intellectual property and performance of services subcontracted
to other providers; indemnities to vendors that guarantee
expenses incurred by employees of the Company; indemnities and
guarantees to financial institutions related to sales of the
Companys equity securities and performance under credit
facilities of the Companys subsidiaries; and indemnities
to directors and officers of the Company to the maximum extent
permitted under the laws of the State of Delaware. The duration
of these indemnities, commitments and guarantees varies, and in
certain cases, is indefinite. The majority of these indemnities,
commitments and guarantees do not provide for any limitation of
the maximum potential future payments the Company could be
obligated to make. The Company has never incurred material costs
to settle claims or defend lawsuits related to these
indemnities, commitments and guarantees. As a result, the
estimated fair value of these agreements is minimal.
Accordingly, no liabilities have been recorded for these
agreements as of June 30, 2003.

The Company generally warrants that its products
will perform in all material respects in accordance with its
standard published specifications in effect at the time of
delivery of the products to the customer for a period of
90 days from the date of shipment or any longer period that
may be required by local law. The Company records a liability
based upon its history of claims against the contractual
warranty provisions. The following table describes changes to
the warranty provision:

|                    |  |                     |    |      |  |      |     |   |  |   |   | 
|------------------- |  | ------------------- | -- | ---- |  | ---- | --- | - |  | - | - | 
|                    |  |                    
|                    |  | Year Ended June 30,
|                    |  |                    
|                    |  | 2003                |    | 2002 |  | 2001
|                    |  |                     |    |      |  |     
|                    |  |                    
|                    |  | (In thousands)     
|Beginning balance   |  | $                   | 13 |      |  | $    | 5   |   |  | $ |  | 
|Additional accruals |  |                     | 31 |      |  |      | 35  |   |  |   | 5 | 
|Settlements made    |  |                     | (2 | )    |  |      | (27 | ) |  |   |  | 
|                    |  |                     |    |      |  |      |     |   |  |   |   | 
|Ending balance      |  | $                   | 42 |      |  | $    | 13  |   |  | $ | 5 | 
|                    |  |                     |    |      |  |      |     |   |  |   |   | 

F-26



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Lease Commitments

The Company leases certain of its office space
under noncancelable operating leases, which expire at various
dates through 2012. At June 30, 2003, the Company had no
outstanding capital lease obligations. Future minimum operating
lease commitments at June 30, 2003 are as follows:

|                     |  |                |       | 
|-------------------- |  | -------------- | ----- | 
|                     |  | Operating     
|Year Ending June 30, |  | Leases        
|                     |  |               
|                     |  | (In thousands)
|2004                 |  | $              | 2,282 | 
|2005                 |  |                | 1,686 | 
|2006                 |  |                | 823   | 
|2007                 |  |                | 553   | 
|2008                 |  |                | 531   | 
|Thereafter           |  |                | 1,304 | 
|                     |  |                |       | 
|                     |  | $              | 7,179 | 
|                     |  |                |       | 

Future minimum operating lease commitments
include the full cash commitment for a leased facility in the
United Kingdom. The Companys April 2002 restructuring plan
included a reduction in the use of this facility, resulting in a
nonrecurring charge of $606,000. Excluding the balance of this
amount, which is included in other long-term liabilities, future
minimum operating lease commitments at June 30, 2003 would
be $6.6 million.

Total rent expense under these operating leases
was $2.2 million, $2.1 million and $1.9 million,
excluding lease termination costs associated with restructuring,
for the years ended June 30, 2003, 2002 and 2001,
respectively.

19.     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 research and development
centers are located in Australia, the United States, France and
the United Kingdom.

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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Geographic information regarding the
Companys operations was as follows:

|                                     |          |                      |   |        |        |      |   |        |        |  |   |        |        | 
|------------------------------------ | -------- | -------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                     |          |                     
|                                     |          | Year Ended June 30, 
|                                     |          |                     
|                                     |          | 2003                 |   | 2002   |        | 2001
|                                     |          |                      |   |        |        |     
|                                     |          |                     
|                                     |          | (In thousands)      
|Revenue from unaffiliated customers: |          |                      |   |        |        |      |   |        |        |  |   |       
|Asia/Australia:                      |          |                      |   |        |        |      |   |        |        |  |   |       
|                                     | Product  |                      | $ | 6,727  |        |      | $ | 6,581  |        |  | $ | 8,828  |       
|                                     | Services |                      |   | 5,676  |        |      |   | 4,666  |        |  |   | 4,206  |       
|                                     |          |                      |   |        |        |      |   |        |        |  |   |       
|                                     |          | Total Asia/Australia |   |        | 12,403 |      |   |        | 11,247 |  |   |        | 13,034 | 
|                                     |          |                      |   |        |        |      |   |        |        |  |   |       
|Americas:                            |          |                      |   |        |        |      |   |        |        |  |   |       
|                                     | Product  |                      |   | 4,207  |        |      |   | 4,518  |        |  |   | 7,122  |       
|                                     | Services |                      |   | 5,858  |        |      |   | 6,546  |        |  |   | 6,164  |       
|                                     |          |                      |   |        |        |      |   |        |        |  |   |       
|                                     |          | Total Americas       |   |        | 10,065 |      |   |        | 11,064 |  |   |        | 13,286 | 
|                                     |          |                      |   |        |        |      |   |        |        |  |   |       
|Europe:                              |          |                      |   |        |        |      |   |        |        |  |   |       
|                                     | Product  |                      |   | 6,325  |        |      |   | 6,771  |        |  |   | 8,544  |       
|                                     | Services |                      |   | 7,832  |        |      |   | 6,006  |        |  |   | 5,079  |       
|                                     |          |                      |   |        |        |      |   |        |        |  |   |       
|                                     |          | Total Europe         |   |        | 14,157 |      |   |        | 12,777 |  |   |        | 13,623 | 
|                                     |          |                      |   |        |        |      |   |        |        |  |   |       
|Consolidated:                        |          |                      |   |        |        |      |   |        |        |  |   |       
|                                     | Product  |                      |   | 17,259 |        |      |   | 17,870 |        |  |   | 24,494 |       
|                                     | Services |                      |   | 19,366 |        |      |   | 17,218 |        |  |   | 15,449 |       
|                                     |          |                      |   |        |        |      |   |        |        |  |   |       
|                                     |          | Total consolidated   |   | $      | 36,625 |      |   | $      | 35,088 |  |   | $      | 39,943 | 
|                                     |          |                      |   |        |        |      |   |        |        |  |   |       

Revenue from unaffiliated customers in Japan was
$8.5 million (23% of total revenue), $7.2 million (21%
of total revenue) and $8.5 million (21% of total revenue)
in fiscal 2003, 2002 and 2001, respectively. Substantially all
of the revenue in the Americas region is derived from the United
States.

|                   |                |                    |   |       |       |  |   |       |       | 
|------------------ | -------------- | ------------------ | - | ----- | ----- |  | - | ----- | ----- | 
|                   |                |                   
|                   |                | June 30,          
|                   |                |                   
|                   |                | 2003               |   | 2002 
|                   |                |                    |   |      
|                   |                |                   
|                   |                | (In thousands)    
|Fixed assets, net: |                |                    |   |       |       |  |   |      
|                   | Asia/Australia |                    | $ | 1,734 |       |  | $ | 1,707 |      
|                   | Americas       |                    |   | 1,512 |       |  |   | 1,562 |      
|                   | Europe         |                    |   | 645   |       |  |   | 524   |      
|                   |                |                    |   |       |       |  |   |      
|                   |                | Total consolidated |   | $     | 3,891 |  |   | $     | 3,793 | 
|                   |                |                    |   |       |       |  |   |      

All of the net fixed assets included in the
Americas are located in the United States.

20.     Selected
Quarterly Results of Operations (Unaudited)

The following table sets forth the unaudited
quarterly consolidated statement of operations data for each of
the eight quarters in the period ended June 30, 2003.
During the fiscal year, the Company follows a schedule in which
each interim quarterly period ends on the Saturday of the
thirteenth full week of the reporting period. In the opinion of
management, the unaudited financial results include all
adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of the Companys
results of

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MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

operations for those periods and have been
prepared on the same basis as the audited consolidated financial
statements.

|                                     |                                         |                          |     |          |       |          |      |          |       |          |     |          |       |          |     |          |       |  |        |        |       |  |     |       |       |  |       |       |       |  |      |       |       | 
|------------------------------------ | --------------------------------------- | ------------------------ | --- | -------- | ----- | -------- | ---- | -------- | ----- | -------- | --- | -------- | ----- | -------- | --- | -------- | ----- |  | ------ | ------ | ----- |  | --- | ----- | ----- |  | ----- | ----- | ----- |  | ---- | ----- | ----- | 
|                                     |                                         |                         
|                                     |                                         | Quarter Ended           
|                                     |                                         |                         
|                                     |                                         | June 30,                 |     | Mar. 29, |       | Dec. 28, |      | Sep. 28, |       | June 30, |     | Mar. 30, |       | Dec. 29, |     | Sep. 29,
|                                     |                                         | 2003                     |     | 2003     |       | 2002     |      | 2002     |       | 2002     |     | 2002     |       | 2001     |     | 2001    
|                                     |                                         |                          |     |          |       |          |      |          |       |          |     |          |       |          |     |         
|                                     |                                         |                         
|                                     |                                         | (In thousands)          
|Revenue:                             |                                         |                          |     |          |       |          |      |          |       |          |     |          |       |          |     |          |       |  |        |        |       |  |     |       |       |  |       |       |       |  |      |      
|                                     | Product                                 |                          | $   | 4,768    |       |          | $    | 4,579    |       |          | $   | 4,216    |       |          | $   | 3,696    |       |  | $      | 3,937  |       |  | $   | 5,003 |       |  | $     | 4,923 |       |  | $    | 4,007 |      
|                                     | Services                                |                          |     | 5,157    |       |          |      | 4,894    |       |          |     | 4,710    |       |          |     | 4,605    |       |  |        | 4,366  |       |  |     | 4,442 |       |  |       | 4,245 |       |  |      | 4,165 |      
|                                     |                                         |                          |     |          |       |          |      |          |       |          |     |          |       |          |     |          |       |  |        |        |       |  |     |       |       |  |       |       |       |  |      |      
|                                     |                                         | Total revenue            |     |          | 9,925 |          |      |          | 9,473 |          |     |          | 8,926 |          |     |          | 8,301 |  |        |        | 8,303 |  |     |       | 9,445 |  |       |       | 9,168 |  |      |       | 8,172 | 
|                                     |                                         |                          |     |          |       |          |      |          |       |          |     |          |       |          |     |          |       |  |        |        |       |  |     |       |       |  |       |       |       |  |      |      
|Costs and expenses:                  |                                         |                          |     |          |       |          |      |          |       |          |     |          |       |          |     |          |       |  |        |        |       |  |     |       |       |  |       |       |       |  |      |      
|                                     | Cost of product revenue                 |                          |     | 800      |       |          |      | 829      |       |          |     | 674      |       |          |     | 661      |       |  |        | 607    |       |  |     | 605   |       |  |       | 736   |       |  |      | 570   |      
|                                     | Cost of services revenue                |                          |     | 324      |       |          |      | 323      |       |          |     | 283      |       |          |     | 280      |       |  |        | 412    |       |  |     | 346   |       |  |       | 324   |       |  |      | 319   |      
|                                     | Research and development                |                          |     | 1,309    |       |          |      | 1,567    |       |          |     | 1,319    |       |          |     | 1,455    |       |  |        | 1,640  |       |  |     | 1,765 |       |  |       | 1,464 |       |  |      | 1,365 |      
|                                     | Selling and marketing                   |                          |     | 5,232    |       |          |      | 4,778    |       |          |     | 4,463    |       |          |     | 4,165    |       |  |        | 4,276  |       |  |     | 4,651 |       |  |       | 4,723 |       |  |      | 4,484 |      
|                                     | General and administrative              |                          |     | 1,912    |       |          |      | 1,878    |       |          |     | 1,802    |       |          |     | 1,650    |       |  |        | 1,614  |       |  |     | 1,630 |       |  |       | 1,819 |       |  |      | 1,597 |      
|                                     | Restructuring charges                   |                          |     | (33      | )     |          |      | 438      |       |          |     |         |       |          |     |         |       |  |        | 1,272  |       |  |     |      |       |  |       |      |       |  |      |      |      
|                                     | Amortization of other intangible assets |                          |     | 111      |       |          |      | 176      |       |          |     | 159      |       |          |     | 159      |       |  |        | 164    |       |  |     | 164   |       |  |       | 164   |       |  |      | 164   |      
|                                     |                                         |                          |     |          |       |          |      |          |       |          |     |          |       |          |     |          |       |  |        |        |       |  |     |       |       |  |       |       |       |  |      |      
|                                     |                                         | Total operating expenses |     |          | 9,655 |          |      |          | 9,989 |          |     |          | 8,700 |          |     |          | 8,370 |  |        |        | 9,985 |  |     |       | 9,161 |  |       |       | 9,230 |  |      |       | 8,499 | 
|                                     |                                         |                          |     |          |       |          |      |          |       |          |     |          |       |          |     |          |       |  |        |        |       |  |     |       |       |  |       |       |       |  |      |      
|Income (loss) from operations        |                                         |                          | 270 |          |       |          | (516 | )        |       |          | 226 |          |       |          | (69 | )        |       |  | (1,682 | )      |       |  | 284 |       |       |  | (62   | )     |       |  | (327 | )    
|Interest income, net                 |                                         |                          | 255 |          |       |          | 263  |          |       |          | 284 |          |       |          | 287 |          |       |  | 312    |        |       |  | 288 |       |       |  | 353   |       |       |  | 502  |      
|Other income, net                    |                                         |                          | (30 | )        |       |          | (106 | )        |       |          | (84 | )        |       |          | 22  |          |       |  | 317    |        |       |  | 178 |       |       |  | 1,193 |       |       |  | 24   |      
|                                     |                                         |                          |     |          |       |          |      |          |       |          |     |          |       |          |     |          |       |  |        |        |       |  |     |       |       |  |       |       |       |  |      |      
|                                     | Income (loss) before income taxes       |                          |     | 495      |       |          |      | (359     | )     |          |     | 426      |       |          |     | 240      |       |  |        | (1,053 | )     |  |     | 750   |       |  |       | 1,484 |       |  |      | 199   |      
|Provision (benefit) for income taxes |                                         |                          | 245 |          |       |          | 225  |          |       |          | 225 |          |       |          | 225 |          |       |  | (204   | )      |       |  | 248 |       |       |  | 490   |       |       |  | 66   |      
|                                     |                                         |                          |     |          |       |          |      |          |       |          |     |          |       |          |     |          |       |  |        |        |       |  |     |       |       |  |       |       |       |  |      |      
|                                     | Net income (loss)                       |                          | $   | 250      |       |          | $    | (584     | )     |          | $   | 201      |       |          | $   | 15       |       |  | $      | (849   | )     |  | $   | 502   |       |  | $     | 994   |       |  | $    | 133   |      
|                                     |                                         |                          |     |          |       |          |      |          |       |          |     |          |       |          |     |          |       |  |        |        |       |  |     |       |       |  |       |       |       |  |      |      

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REPORT OF INDEPENDENT AUDITORS

To the Board of Directors and Stockholders

of Moldflow Corporation:


In our opinion, the consolidated financial
statements listed in the index appearing under
Item 15(a)(1) on page 34 of this Annual Report on
Form 10-K present fairly, in all material respects, the
financial position of Moldflow Corporation and its subsidiaries
at June 30, 2003 and 2002, and the results of their
operations and their cash flows for each of the three years in
the period ended June 30, 2003 in conformity with
accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement
schedule listed in the index appearing under Item 15(a)(2)
on page 34 of this Annual Report on Form 10-K presents
fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated
financial statements. These financial statements and the
financial statement schedule are the responsibility of the
Companys management; our responsibility is to express an
opinion on these financial statements and the financial
statement schedule based on our audits. We conducted our audits
of these statements in accordance with auditing standards
generally accepted in the United States of America, 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 our opinion.

PRICEWATERHOUSECOOPERS LLP

Boston, Massachusetts

August 1, 2003


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EXHIBIT INDEX

|        |      |       |  |                                                           
|------- | ---- | ----- |  | ----------------------------------------------------------
|Exhibit |      |      
|No.     |      | Title
|        |      |      
|        | 21.1 |       |  | Subsidiaries of the Registrant.                           
|        | 23.1 |       |  | Consent of PricewaterhouseCoopers LLP.                    
|        | 31.1 |       |  | Certification of Chief Executive Officer.                 
|        | 31.2 |       |  | Certification of Chief Financial Officer.                 
|        | 32.1 |       |  | Section 1350 Certification of Chief
    Executive Officer.
|        | 32.2 |       |  | Section 1350 Certification of Chief
    Financial Officer.