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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,
2004

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




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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 þ          No o

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

The aggregate market value of our voting and
non-voting common stock held by non-affiliates is $91,851,652
based on the last reported sale price of our common stock on The
Nasdaq Stock Market on December 27, 2003. On
September 8, 2004, there were 10,636,200 shares of our
common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Companys definitive Proxy
Statement in connection with the 2004 Annual Meeting of
Stockholders are incorporated by reference into Part III of
this Form 10-K.



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MOLDFLOW CORPORATION

ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR
ENDED JUNE 30, 2004

TABLE OF CONTENTS

|                                                            |  |                                                                                                                      |      |      |    | 
|----------------------------------------------------------- |  | -------------------------------------------------------------------------------------------------------------------- | ---- | ---- | -- | 
|                                                            |  |                                                                                                                      |      | Page
|                                                            |  |                                                                                                                      |      |     
|Part I.                                                     |  |                                                                                                                      |      |      |    | 
|Item 1.                                                     |  | Business                                                                                                             |      |      | 2  | 
|Item 2.                                                     |  | Properties                                                                                                           |      |      | 9  | 
|Item 3.                                                     |  | Legal Proceedings                                                                                                    |      |      | 9  | 
|                                                           
|Part II.                                                    |  |                                                                                                                      |      |      |    | 
|Item 5.                                                     |  | Market for Registrants
    Common Equity, Related Stockholder Matters and Issuer Purchases
    of Equity Securities |      |      | 9  | 
|Item 6.                                                     |  | Selected Financial Data                                                                                              |      |      | 10 | 
|Item 7.                                                     |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                            |      |      | 11 | 
|Item 7A.                                                    |  | Quantitative and Qualitative
    Disclosures about Market Risk                                                       |      |      | 36 | 
|Item 8.                                                     |  | Financial Statements and
    Supplementary Data                                                                      |      |      | 37 | 
|Item 9.                                                     |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosures                            |      |      | 37 | 
|Item 9A.                                                    |  | Controls and Procedures                                                                                              |      |      | 37 | 
|                                                           
|Part III.                                                   |  |                                                                                                                      |      |      |    | 
|Item 10.                                                    |  | Directors and Executive
    Officers of the Registrant                                                               |      |      | 38 | 
|Item 11.                                                    |  | Executive Compensation                                                                                               |      |      | 38 | 
|Item 12.                                                    |  | Security Ownership of
    Certain Beneficial Owners and Management                                                   |      |      | 38 | 
|Item 13.                                                    |  | Certain Relationships and
    Related Transactions                                                                   |      |      | 38 | 
|Item 14.                                                    |  | Principal Accountant Fees
    and Services                                                                           |      |      | 38 | 
|                                                           
|Part IV.                                                    |  |                                                                                                                      |      |      |    | 
|Item 15.                                                    |  | Exhibits, Financial
    Statement Schedules and Reports on Form 8-K                                                  |      |      | 38 | 
|Exhibit Index                                               |  |                                                                                                                      | 39   |     
|Signatures                                                  |  |                                                                                                                      | 42   |     
|Schedule II. Valuation
    and Qualifying Accounts          |  |                                                                                                                      | 43   |     
|Consolidated Financial
    Statements                       |  |                                                                                                                      | F-1  |     
|Notes to Consolidated
    Financial Statements              |  |                                                                                                                      | F-6  |     
|Report of Independent
    Registered Public Accounting Firm |  |                                                                                                                      | F-33 |     
|EX-21.1 SUBSIDIARIES OF THE REGISTRANT                     
|EX-23.1 CONSENT OF PRICEWATERHOUSECOOPERS LLP              
|EX-31.1 CERTIFICATION OF CEO                               
|EX-31.2 CERTIFICATION OF CFO                               
|EX-32.1 CERTIFICATION OF CEO                               
|EX-32.2 CERTIFICATION OF CFO                               



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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 31. 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

Our business is focused on providing software and
hardware solutions for the optimization and automation of
plastics-focused manufacturing. We develop, market and support a
broad range of computer aided engineering software applications,
manufacturing execution software with hardware solutions and hot
runner process controllers to help manufacturers around the
world improve their design-to-manufacture process. Our solutions
enable our customers to speed their products to market, decrease
manufacturing costs, improve production through greater
reliability and quality, and reduce costly design and
manufacturing errors. Our products are complemented by our
experienced services and technical support organizations, as
well as resellers, manufacturers representatives and other
strategic partners who provide consulting and ancillary product
offerings to customers worldwide.

Historically, our core business focus has been to
provide design analysis solutions to customers in the plastic
injection molding industry through our flagship Moldflow
Plastics Insight and Moldflow Plastics Advisers analysis
software products. Today, our development efforts are focused on
creating tools that improve the entire span of product
development through manufacture for injection molded plastic
parts, including our Manufacturing Solutions products, designed
to interact more closely with the production process on the
manufacturing shop floor. 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.

Late in fiscal 2004, we reorganized our
operations into two business units, the Design Analysis
Solutions business unit and the Manufacturing Solutions business
unit, which are strategically focused along the lines of our
product groups and end-user markets. This change enhanced our
management focus on expanding the growth opportunities of each
of our product lines by creating an organizational structure in
which our growth objectives and our managements
responsibilities and incentives are more closely aligned. Prior
to that reorganization, we operated as a single business segment
with two product lines. The products now grouped in the Design
Analysis Solutions business unit have historically been the
source of the majority of the Companys revenue, and these
products represented 78% of total revenue in fiscal 2004. Our
segment financial information is reported in Note 20 of our
consolidated financial statements.

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Available Information

Our website is located at
www.moldflow.com. We make available, free of charge, in
the section captioned Investors  SEC
Filings, our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, Current Reports on Form 8-K and
amendments to those reports filed or furnished to the Securities
and Exchange Commission (SEC). Our reports filed
with the SEC are also available at the SECs website at
www.sec.gov. Information on our website is not a part of,
or incorporated by reference into, this Annual Report on
Form 10-K.

Business Acquisition

On January 23, 2004, we acquired all of the
outstanding stock of American MSI Corporation (AMSI)
for $7.2 million in cash, of which $1.1 million was
used to retire all of AMSIs outstanding debt, and the
issuance of 349,288 shares of our common stock valued at
$4.4 million on the date of acquisition. In addition, we
paid $293,000 of costs directly related to the acquisition. AMSI
was a leading solution provider of hot runner process
controllers for the injection molding industry and we have
integrated the business operations and products of AMSI into our
Manufacturing Solutions business unit. The results of
AMSIs operations have been included in our consolidated
financial statements from the date of acquisition.

Our Products

Participants in all aspects of the injection
molded plastic product creation process, including part
designers, mold designers, manufacturing engineers and machine
operators, use our products. Our products provide functionality
across a broad spectrum of the plastics design-to-manufacturing
process. We have categorized our product offerings into two
distinct groups, Design Analysis Solutions and Manufacturing
Solutions, which align with our business units. Our Design
Analysis Solutions (DAS) products help part and mold
designers and plastics engineers eliminate much of the guesswork
involved in the design of parts and molds and help them design
products that will be manufactured at lower cost and correctly
the first time, while our Manufacturing Solutions
(MS) products allow manufacturing professionals to
monitor, control and optimize their manufacturing processes and
production equipment.

Design Analysis Solutions Products

We believe our Design Analysis Solutions are the
worlds most widely used computer-aided engineering (CAE)
products in the plastics injection molding industry because they
address the broadest range of manufacturing issues and design
geometry types. Our solutions consist of a scalable set of
products with capabilities that include entry level part and
mold design validation as well as in-depth design and process
optimization, allowing users to achieve optimal time to market
and part quality at the lowest possible cost.

Moldflow
Plastics Advisers®

Our Moldflow Plastics Advisers (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. Our most
recent release of Moldflow Plastics Advisers, release 7.0, began
shipping to customers in December 2003. The MPA series consists
of three products:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Part
    AdviserTMis 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
    facilitates design collaboration by enabling the designer to
    create reports which can be instantly shared with fellow design
    team members across the Internet.

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| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Mold
    AdviserTMextends the capabilities of Part Adviser to allow users to
    create and simulate plastic flow through single cavity,
    multi-cavity and family molds. Users can optimize gate type,
    size and location as well as runner layout, size and
    cross-sectional shape. Analysis results include cycle time,
    clamp tonnage and shot size, all of which help the
    design-to-manufacturing team to size the injection molding
    machine, minimize cycle times and reduce manufacturing waste.
    Optional Mold Adviser add-on modules allow users to simulate
    more phases of the injection molding process and evaluate molded
    part performance and cooling circuit design. This product
    eliminates the need to design and build molds through trial and
    error efforts, enabling a mold designer to create molds quickly
    and efficiently.
|
| | iMPATMis 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

Moldflow
Plastics Insight®

The Moldflow Plastics Insight (MPI)
series of products contains our broadest set of predictive
capabilities for injection molding and is typically used by
highly specialized design engineers. The MPI products are
modular and are designed to address the material physics aspects
of injection molding such as plastics flow, cooling time and
warpage; as well as specialized injection molding processes such
as reactive molding, gas injection molding and microchip
encapsulation. Each module is priced individually, and many of
our customers invest in multiple modules to solve the full range
of problems they may encounter when taking a plastic part from
design to manufacture. 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. Release 5.0 of the Moldflow Plastics Insight series
began shipping to customers in August 2004.

Manufacturing Solutions Products

Our Manufacturing Solutions are made up of two
product types, manufacturing execution systems and hot runner
process controllers. Our manufacturing execution systems deliver
a complete collaborative manufacturing management
(CMM) system which automates the setup and
optimization of the injection molding process to better control
the product lifecycle process. Our hot runner process controller
products assure that plastic materials are kept in an optimal
molten state until injected into the part cavity to produce
higher yields and better part quality with reduced cycle times.

Moldflow
Plastics Xpert®

Our Moldflow Plastics Xpert (MPX)
product attaches to injection molding machines to optimize
operation and to monitor and control the manufacturing process.
MPX addresses common shop floor issues such as machine set-up,
process optimization and production part quality monitoring and
control. We designed MPX to reduce mold set-up times and to
optimize the efficiency of the part production cycle. MPX
interacts directly with the molding machines built-in
controller to provide optimized process correction. With MPX,
engineers and die-setters can consistently and systematically
set-up molds, identify a robust molding window and monitor the
molding process. MPX can be used with substantially all
injection molding machines and provides operators with a single,
intuitive user interface, reducing the need for machine-specific
operator training. In addition, MPX gives real-time feedback,
providing a mechanism for rapid manual or automatic process
adjustments. Results generated by our MPA and MPI products can
be input directly into our MPX product to reduce machine set-up
time and enhance the efficiency of the injection molding machine.

Shotscope®

The Shotscope process monitoring and analysis
system is a comprehensive product that collects critical data in
real time from injection molding machines on the factory floor,
then records, analyzes, reports and

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allows access to the information for use in
decision making. Shotscope can be used for plastic injection
molding as well as other manufacturing processes, including
blowmolding, extrusion and metal die casting operations. The
Shotscope system allows injection molders to maximize their
productivity by providing the tools necessary to schedule mold
and machine resources efficiently and also to monitor the status
and efficiency of any mold/machine combination. By monitoring
the efficiency of a given mold/machine combination, molders can
schedule jobs based on a number of criteria, including minimum
cycle times and highest production yields. Users also can define
periodic maintenance schedules for molds and machines, and,
after a pre-determined number of cycles or operating hours,
Shotscope will signal that preventative maintenance is required.
Shotscope contains a reporting mechanism that allows data
collected by and entered into the system to be communicated
across a manufacturing enterprise, so that informed decisions
can be made. Users can generate standard and custom production,
scrap, downtime, efficiency and job summary reports to maximize
productivity.


CelltrackTM

Celltrack, formerly known as MMS/Production
Monitoring, 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. Celltrack provides a
sophisticated scheduling and management system from initial
order to product delivery, as well as stock control and
preventative maintenance modules. The statistical production
control module allows users to correct problems before they
affect production. In addition, Celltrack can generate a
comprehensive set of reports for production, materials,
machinery and tools.

Altanium®

Altanium is the industrys first and only
modular, small footprint, hot runner temperature process
controller that supports from one to 384 zones. With demand for
packaging, medical devices and automotive parts surging,
extremely large, high cavitation and more complex molds are
becoming more prevalent. Altaniums unique modular design
is highly scalable, featuring a single controller design and a
variety of user interfaces that are fully compatible with any
hot runner system and any injection molding machine. The use of
hot runners in the injection molding process provides better
part quality and manufacturing speed and higher yield.

Our Customers

Our products are used by more than 8,000
customers at more than 6,000 sites in over 60 countries around
the world. No single customer accounted for more than 10% of our
revenue during fiscal 2004.

Sales and Marketing

Concurrent with the establishment of business
units focused on our Design Analysis Solutions (DAS)
and Manufacturing Solutions (MS) product groups
during the second half of fiscal 2004, we realigned our sales
and marketing efforts along these product group lines. The
transition to this new organizational structure took place
during the fourth quarter of fiscal 2004. Our DAS products are
distributed primarily through our direct sales force in North
America, Europe and Asia. Our direct sales model for these
products involves a sales associate supported by an applications
engineer with specialized knowledge of plastics engineering and
a deep technical knowledge of our software products. Together,
they conduct a thorough evaluation of potential customers
design and manufacturing processes and provide a detailed
analysis of the cost savings our products could produce in their
business. Our MS products are distributed through a hybrid sales
model which involves utilizing third-party manufacturers
representatives who work with our direct sales force and
technical team to locate and target potential sales
opportunities.

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As of June 30, 2004, our direct sales
organization consisted of a total of 40 sales associates, who
operated out of offices located in Australia, China, France,
Germany, Italy, Japan, Korea, the Netherlands, Spain, Sweden,
Taiwan, the United Kingdom and the United States. In fiscal
2004, approximately 69% of our revenues came from customers
based outside of the United States. 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.
See Note 20 and Note 21 to our consolidated financial
statements for information regarding the geographic distribution
of our revenues and our quarterly results of operations.

To augment our direct sales force and network of
manufacturers representatives, we also sell our products
through marketing and distribution arrangements with third-party
value-added resellers and software vendors. For our Design
Analysis Solutions products, we have agreements with several
design software vendors to include our products as part of an
integrated application in their solid modeling design systems.
For example, Parametric Technology Corporation incorporates our
MPA product in a module of its Pro/ ENGINEER product suite,
which they call Pro/ PLASTIC ADVISOR and Unigraphics Solutions,
Inc., 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
Autodesk Inc. and SolidWorks, a subsidiary of Dassault Systemes.
The SolidWorks reseller channel is the sole distributor of our
MoldflowXpress technology. This technology, which is fully
integrated with SolidWorks 2005, is an entry-level plastics
design validation tool that introduces SolidWorks users to the
extensive benefits of performing plastics flow analyses during
the design stage of product development. For our Manufacturing
Solutions products, we have established distribution agreements
and strategic alliances with various suppliers to the
mold-making industry.

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

Backlog

We generally ship our Design Analysis Solutions
products within 30 days of acceptance of a customer order
and execution of the appropriate license documentation. The
timing of shipments of our Manufacturing Solutions products is
dependent upon acceptance of a customer order, execution of the
appropriate license documentation, hardware availability and
customer delivery requirements, each of 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 self-service
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
services 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.

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 products.

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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. Our
proprietary material database contains information on
approximately 8,000 plastic materials. We conduct material
testing at our facilities located near Melbourne, Australia, and
in Ithaca, New York, both of which utilize 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.

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 DAS products face competition
from computer-aided design (CAD) and computer-aided
engineering (CAE) companies, materials vendors and
independent engineering consultants. Our MS products face
competition from injection molding machine manufacturers,
participants in the hot runner equipment market and industrial
automation system providers. In addition, new competitors may
become evident 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.

Research and 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. Our product development activities take place in
our 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.

In addition to our internal product development
efforts, we fund or participate in a wide assortment of external
research and development projects, often conducted by
world-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 restrictions on publishing rights in order to pursue topics
of mutual interest. A partial list of our collaborative partners
includes ENSAM (France) for shrinkage research, University of
Illinois (United States) for analysis of fiber filled parts,
University of Bradford (United Kingdom) for fiber orientation
measurement and process control, Technical University of
Eindhoven (the Netherlands) for numerical methods, and the
University of Sydney (Australia) and The National University of
Singapore for fluid mechanics.

As of June 30, 2004, our product development
staff had 69 employees, many of whom hold advanced degrees and
have industry experience in engineering, mathematics, computer
science or related disciplines. In fiscal 2004, 2003 and 2002,
our research and development expenses were $6.5 million,
$5.7 million and $6.2 million, respectively, which is
net of certain software development costs required to be
capitalized under generally accepted accounting principles.
Costs of $856,000, $669,000 and $602,000 were capitalized in
fiscal 2004, 2003 and 2002, respectively. See Note 7 to our
consolidated financial statements. Continued investment in
research and development is a key component of our strategy and
is required in order for us to remain competitive. We believe
our cadre of software developers and our worldwide development
capabilities represent a significant competitive advantage.

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Proprietary Rights

Our software products, hardware products and
trademarks, including our company name, product names and logos,
are proprietary. We engage in a regular review of our
proprietary technology to determine the optimal method of
protecting such technology. We currently own three issued United
States patents and corresponding international patents. We have
other U.S. and international patent applications pending. 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. Despite these
measures, there can be no assurance that the laws of all
relevant jurisdictions will afford adequate protection to our
products and other intellectual property.

The software industry is characterized by
frequent litigation regarding copyright, patent and other
intellectual property rights. While we have not, to date, had
any material claims of this type asserted against us, there can
be no assurance that someone will not assert such claims against
us with respect to existing or future products or other
intellectual property or that, if asserted, we would prevail in
such claims. In the event a lawsuit of this type is filed, it
could result in significant expense to us and divert the efforts
of our technical and management personnel, whether or not we
ultimately prevail.

Due to the rapid pace of innovation within our
industry, factors such as the technological and creative skills
of our personnel are as important to establishing and
maintaining a technology leadership position within the industry
as are the various legal protections surrounding our technology.
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. 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.

We believe that our products, technology and
trademarks do not infringe any existing proprietary rights of
others, although there can be no assurance that third parties
will not assert infringement claims in the future. Certain of
our products also contain technology developed and licensed from
third parties. We may likewise be susceptible to infringement
claims with respect to these third-party technologies.

Manufacturing

Our Manufacturing Solutions products include
hardware elements that are manufactured either by us at our
manufacturing site in the United States, or by a turnkey
contract manufacturer in Ireland.

Data acquisition and certain computing platform
elements of our collaborative manufacturing management products,
which include MPX, Shotscope and Celltrack, are manufactured
under arrangement with a turnkey contract manufacturer whereby
the majority of component procurement, subassembly, final
assembly and initial testing are performed by the manufacturer.
The contract manufacturer uses specified components and assembly
and test documentation created and controlled by Moldflow. The
testing of nonstandard system configurations and the shipment of
all systems to the customer are performed by our manufacturing
staff in Ireland.

Our hot runner process controller products are
manufactured at our Moorpark, California plant. The
manufacturing process at the Moorpark plant consists of system
design, configuration management, subassembly, final assembly,
system integration, quality control and shipment to the customer.

Compliance with Environmental
Provisions

Our capital expenditures, earnings and
competitive position are not materially affected by compliance
with federal, state and local environmental provisions which
have been enacted or adopted to regulate the distribution of
materials into the environment.

8



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##### Table of Contents



Employees

As of June 30, 2004, we had 291 employees,
126 of whom resided in the United States, 51 of whom resided in
Australia and 114 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 five-year lease that
expires in August 2005. This facility serves as our corporate
headquarters and personnel located at this facility include
members of our senior management team, technical support
personnel, product marketing personnel, and some finance and
administration personnel. We also lease office space in other
locations in which we do business. Our aggregate lease expenses
were $2.2 million in fiscal 2004.

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 and a
portion of our Asia Pacific sales force, 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,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities

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.

|               |  |      |       |      |  |      |       |     |  |   |      |  |  |   |      | 
|-------------- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  | - | ---- |  |  | - | ---- | 
|               |  |      |       |     
|               |  | 2004 |       | 2003
|               |  |      |       |     
|               |  | High |       | Low  |  | High |       | Low
|               |  |      |       |      |  |      |       |    
|First quarter  |  | $    | 10.15 |      |  | $    | 8.33  |     |  | $ | 7.95 |  |  | $ | 4.30 | 
|Second quarter |  | $    | 11.63 |      |  | $    | 9.50  |     |  | $ | 7.52 |  |  | $ | 4.06 | 
|Third quarter  |  | $    | 13.63 |      |  | $    | 10.15 |     |  | $ | 7.92 |  |  | $ | 6.27 | 
|Fourth quarter |  | $    | 12.57 |      |  | $    | 9.68  |     |  | $ | 9.65 |  |  | $ | 6.22 | 

On September 8, 2004, the last reported sale
price of our common stock on Nasdaq was $11.86 per share and
there were approximately 97 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.

Information regarding our equity compensation
plans required by this item is incorporated by reference to the
information appearing under the caption Equity
Compensation Plan Information in our definitive Proxy
Statement for the 2004 Annual Meeting of Stockholders.

On September 19, 2001, the Board of
Directors authorized the repurchase of up to 500,000 shares
of our outstanding common stock. To date, we have reacquired
244,165 shares for $1.4 million, at an average cost of
$5.62 per share. There were no repurchases of our common
stock during 2004.

9



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##### Table of Contents








|        |                        
|------- | -----------------------
|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, 2004, 2003 and 2002 and the balance sheet data at
June 30, 2004 and 2003 are derived from our audited
consolidated financial statements appearing elsewhere in this
document. The statement of operations data for the years ended
June 30, 2001 and 2000 and the balance sheet data at
June 30, 2002, 2001 and 2000 are derived from our audited
consolidated financial statements not included in this document.

|                                                          |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |        |        | 
|--------------------------------------------------------- | --------------------------------------------- | ------------------------------------- | ----- | ------ | ------ | ---- | ----- | ------ | ------ | ---- | ------ | ------ | ------ |  | ----- | ------ | ------ |  | ----- | ------ | ------ | 
|                                                          |                                               |                                      
|                                                          |                                               | Year Ended June 30,                  
|                                                          |                                               |                                      
|                                                          |                                               | 2004                                  |       | 2003   |        | 2002 |       | 2001   |        | 2000
|                                                          |                                               |                                       |       |        |        |      |       |        |        |     
|                                                          |                                               |                                      
|                                                          |                                               | (In thousands, except per share data)
|Statement of Operations Data:                             |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|Revenue:                                                  |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|                                                          | Product                                       |                                       | $     | 26,063 |        |      | $     | 17,259 |        |      | $      | 17,870 |        |  | $     | 24,494 |        |  | $     | 16,742 |       
|                                                          | Services                                      |                                       |       | 22,610 |        |      |       | 19,366 |        |      |        | 17,218 |        |  |       | 15,449 |        |  |       | 10,627 |       
|                                                          |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|                                                          |                                               | Total revenue                         |       |        | 48,673 |      |       |        | 36,625 |      |        |        | 35,088 |  |       |        | 39,943 |  |       |        | 27,369 | 
|                                                          |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|Costs and expenses:                                       |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|                                                          | Cost of product revenue                       |                                       |       | 5,203  |        |      |       | 2,964  |        |      |        | 2,518  |        |  |       | 1,846  |        |  |       | 785    |       
|                                                          | Cost of services revenue                      |                                       |       | 4,536  |        |      |       | 1,210  |        |      |        | 1,401  |        |  |       | 1,440  |        |  |       | 1,057  |       
|                                                          | Research and development                      |                                       |       | 6,471  |        |      |       | 5,650  |        |      |        | 6,234  |        |  |       | 6,642  |        |  |       | 4,074  |       
|                                                          | Selling and marketing                         |                                       |       | 20,009 |        |      |       | 18,638 |        |      |        | 18,134 |        |  |       | 19,396 |        |  |       | 13,495 |       
|                                                          | General and administrative                    |                                       |       | 8,548  |        |      |       | 7,242  |        |      |        | 6,660  |        |  |       | 6,095  |        |  |       | 5,018  |       
|                                                          | Litigation                                    |                                       |       |       |        |      |       |       |        |      |        |       |        |  |       |       |        |  |       | 785    |       
|                                                          | Restructuring and acquisition related charges |                                       |       | 508    |        |      |       | 405    |        |      |        | 1,272  |        |  |       |       |        |  |       | 284    |       
|                                                          | Amortization of goodwill                      |                                       |       |       |        |      |       |       |        |      |        |       |        |  |       | 1,100  |        |  |       | 206    |       
|                                                          | Amortization of acquired intangible assets    |                                       |       | 445    |        |      |       | 605    |        |      |        | 656    |        |  |       | 601    |        |  |       | 105    |       
|                                                          |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|                                                          |                                               | Total operating expenses              |       |        | 45,720 |      |       |        | 36,714 |      |        |        | 36,875 |  |       |        | 37,120 |  |       |        | 25,809 | 
|                                                          |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|Income (loss) from operations                             |                                               |                                       | 2,953 |        |        |      | (89   | )      |        |      | (1,787 | )      |        |  | 2,823 |        |        |  | 1,560 |       
|Interest income, net                                      |                                               |                                       | 1,212 |        |        |      | 1,089 |        |        |      | 1,455  |        |        |  | 2,139 |        |        |  | 427   |       
|Other income (loss), net                                  |                                               |                                       | (15   | )      |        |      | (198  | )      |        |      | 1,712  |        |        |  | 272   |        |        |  | 1,717 |       
|                                                          |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|                                                          | Income before income taxes                    |                                       |       | 4,150  |        |      |       | 802    |        |      |        | 1,380  |        |  |       | 5,234  |        |  |       | 3,704  |       
|Provision for income taxes                                |                                               |                                       | 1,522 |        |        |      | 920   |        |        |      | 600    |        |        |  | 1,726 |        |        |  | 251   |       
|                                                          |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|                                                          | Net income (loss)                             |                                       | $     | 2,628  |        |      | $     | (118   | )      |      | $      | 780    |        |  | $     | 3,508  |        |  | $     | 3,453  |       
|                                                          |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|Net income (loss) per common share:                       |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|                                                          | Basic                                         |                                       | $     | 0.26   |        |      | $     | (0.01  | )      |      | $      | 0.08   |        |  | $     | 0.36   |        |  | $     | 1.29   |       
|                                                          | Diluted                                       |                                       | $     | 0.24   |        |      | $     | (0.01  | )      |      | $      | 0.08   |        |  | $     | 0.35   |        |  | $     | 0.48   |       
|Shares used in computing net income (loss) per
    share: |                                               |                                       |       |        |        |      |       |        |        |      |        |        |        |  |       |        |        |  |       |       
|                                                          | Basic                                         |                                       |       | 10,277 |        |      |       | 10,020 |        |      |        | 10,076 |        |  |       | 9,658  |        |  |       | 2,667  |       
|                                                          | Diluted                                       |                                       |       | 10,839 |        |      |       | 10,020 |        |      |        | 10,360 |        |  |       | 10,124 |        |  |       | 7,190  |       

10



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##### Table of Contents



|                                                 |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------ |  | -------------- | ------ | ---- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                 |  |               
|                                                 |  | As of June 30,
|                                                 |  |               
|                                                 |  | 2004           |        | 2003 |  | 2002 |        | 2001 |  | 2000
|                                                 |  |                |        |      |  |      |        |      |  |     
|                                                 |  |               
|                                                 |  | (In thousands)
|Balance Sheet Data:                              |  |                |        |      |  |      |        |      |  |      |        |  |  |   |        |  |  |   |        | 
|Cash, cash equivalents and marketable securities |  | $              | 51,652 |      |  | $    | 52,140 |      |  | $    | 50,867 |  |  | $ | 45,719 |  |  | $ | 35,711 | 
|Total assets                                     |  |                | 94,358 |      |  |      | 79,477 |      |  |      | 76,013 |  |  |   | 71,455 |  |  |   | 57,323 | 
|Long-term debt, net of current portion           |  |                |       |      |  |      |       |      |  |      |       |  |  |   |       |  |  |   | 852    | 
|Stockholders equity                             |  |                | 69,579 |      |  |      | 60,649 |      |  |      | 58,640 |  |  |   | 57,593 |  |  |   | 43,778 | 






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

We begin Managements Discussion and
Analysis of Financial Condition and Results of Operations
(MD&A) with an overview of our overall strategy
and the strategy for our two business units to give the reader a
view of the goals of our business and the direction in which our
business and products are moving. This is followed by a
discussion of the Critical Accounting Policies that we believe
are important to understanding the assumptions and judgments
incorporated in our reported financial results. Following that,
beginning on page 19, we discuss our Results of Operations
for fiscal 2004 compared to fiscal 2003 and for fiscal 2003
compared to fiscal 2002. We then provide an analysis of changes
in our balance sheet and cash flows, and discuss our financial
commitments in the sections entitled Liquidity and Capital
Resources, Contractual Obligations and
Off-Balance Sheet Financing Arrangements.

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 31. 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.

Our Strategy

Our goal is to be the worlds leading
provider of software and hardware solutions for the optimization
and automation of plastics-focused manufacturing by offering
customers a broad range of solutions to improve the way they
design and produce parts and molds through powerful and robust
technology-based products and services. Our focus is to help
customers manufacture cheaper and more reliable plastic products
by increasing the effectiveness of their designs and their
manufacturing operations and improving efficiencies across the
entire design-through-manufacture process.

We believe that our key competitive strength is
our extensive domain knowledge in the fields of materials
science and characterization, numerical methods and predictive
modeling through simulation and analysis, coupled with our
expertise in packaging and delivering this knowledge to our
customers in easy-to-use software and hardware applications. We
develop software products internally and through cooperative
research relationships with a number of public and private
educational and research organizations around the world. In
addition, some of our products are developed by commercial
contractors. Because of the strong body of intellectual property
and knowledge that we have created over the course of twenty-six
years in serving the plastics design and manufacturing market,
we have become the leading provider of highly sophisticated
predictive software applications for the plastics design
engineering and manufacturing communities.

Plastics are pervasive throughout a broad range
of vertical industry applications including the automotive,
electronics, packaging, medical products and consumer goods
industries. These industries are generally large and growing.
Because the supply chains that support the design and production
of plastic parts in these industries are often fragmented and
comprised of multiple companies in various geographies around
the globe, we have developed a wide range of applications that
can be used by participants at all stages of the plastics value
chain to optimize their process and reduce their costs. Our
strategy is to deliver our deep domain

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expertise in plastics packaged in software and
system solutions that address the specific issues of the
participants in each of these stages and increase our
penetration of these industries by making our products available
through a combination of direct and independent sales
representatives, resellers and engineering consultants around
the globe.


For the design of plastic parts and molds, our
strategy is to provide products which enable analysis-driven
design, in the earliest stages of product development, by making
analysis technology more integral to the design process. In
doing so, we seek to make our technology available to a wider
audience of potential users in mainstream design markets,
including those engineers who are not specialists in plastics
design. By building upon our existing technology categories, we
bring powerful solutions which are easy to learn and use,
providing low cost of deployment and rapid return on investment.

For manufacturers of plastic parts, our strategy
is to offer a range of products which address the needs for
optimizing and automating the set-up, temperature, flow, control
and monitoring of the primary equipment and other process
elements in the manufacturing process. Our solutions include
applications which provide real-time business performance
management information that enables companies to manage their
manufacturing operations throughout the production process.
Because of our extensive knowledge of the material properties of
plastics and the physics involved in the process of converting
raw plastic to finished goods, we can assist companies to obtain
higher production yields, reduced cycle times, improved process
reliability and better part quality.

Our growth strategy derives from these strengths.
We continue to increase the business value of our design
solutions and manufacturing solutions for our customers in a
number of ways. We improve the performance and functionality of
existing products with each new release. We develop products
addressing specific vertical market needs in each of the target
market segments of our business. In the design phase, for
example, we provide applications which address the process of
microchip encapsulation, a process which is involved in the
manufacture of semiconductors. In the manufacturing phase, we
offer solutions to the die cast market, a conversion process
that is similar to the plastics manufacturing process.

Expanding our geographic coverage is a key
element of our growth strategy. We believe that the rapidly
growing economies in China and other developing countries
present significant longer-term growth opportunities for our
business. Our ability to conduct research and development at
various locations throughout the world allows us to optimize
product development and lower costs. International development,
however, also involves significant costs and challenges,
including whether we can adequately protect our intellectual
property and derive significant revenue in areas where laws
regarding intellectual property are not in place or not
effectively enforced.

A significant part of our growth strategy is
based upon building on the customer loyalty that we have
achieved and the large installed base that we have built. We
receive approximately 60% to 70% of our overall revenues from
repeat customers. We deliver product releases on a regular and
timely basis which incorporate significant functionality
improvements to ensure that our customers have access to the
latest technology developments. We focus on customer
satisfaction through programs aimed at involving our customers
in the future direction of our products, enhancing their ease of
use and user experience, and providing multiple points of
contact within the company to ensure that their needs are met.

We believe that increases in our efficiency and
productivity will allow us to increase investment in our growth
initiatives while improving our profitability. We are managing
our business with a goal to achieve annual operating margins in
the 16% to 22% target range by the second half of fiscal year
2005. This goal is based upon current generally accepted
accounting principles and makes no attempt to consider the
effect of future changes to those principles, including the
potential expensing of stock options, which would have a
material adverse effect on our operating margins. In the longer
term, we will continue to balance operating margin targets with
revenue growth opportunities.

Our uses of cash include capital expenditures to
support our operations and our product development, mergers and
acquisitions, and investments in growth initiatives. We continue
to evaluate merger and acquisition opportunities to the extent
they support our strategy and our growth objectives.

12



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Design Analysis Solutions

The Design Analysis Solutions business unit
serves the product, part and mold tooling design market. Our
strategy is to provide powerful and sophisticated solutions that
enable our customers to optimize the design of parts and molds
in order to reduce the time to market, improve the reliability
of the production process, improve part quality and lower the
cost of manufacture for parts once in production.

Our primary offerings are our Moldflow Plastics
Advisers for part and mold design optimization and our Moldflow
Plastics Insight for in-depth simulation for part and mold
design validation and optimization.

Manufacturing Solutions

The Manufacturing Solutions business unit serves
the plastics-focused discrete manufacturing sector. Our strategy
is to provide powerful integrated solutions that enable our
customers to optimize and automate the set-up of an injection
molding machine, monitor and control the injection molding
process, control the temperature and flow of plastic into the
mold and monitor and report on the process and production at
both the machine and plant-wide level. These products enable
customers to improve the reliability of their production
process, improve their production yield and efficiency and
reduce their costs of production by reducing material usage and
cycle times.

Our primary offerings are our Moldflow Plastics
Xpert for process set-up, optimization and control, our
Shotscope process monitoring and control application, our
Altanium system for temperature and process control and our
Celltrack product, formerly known as MMS/ Production Monitoring,
for monitoring and reporting on the operations across the
factory floor. Our Manufacturing Solutions products are an
integration of our internally developed Moldflow Plastics Xpert
product, with Shotscope, Celltrack and Altanium, all of which
were initially developed by companies we have acquired.

Critical Accounting Policies and Significant
Judgments and Estimates

We have prepared our consolidated financial
statements in accordance with accounting principles generally
accepted in the United States. In preparing our financial
statements, we make estimates, assumptions and judgments that
can have a significant impact on our reported revenues and
results of operations as well as on the value of certain assets
and liabilities on our balance sheet. These estimates,
assumptions and judgments about future events and their effects
on our results cannot be determined with certainty, and are made
based on our historical experience and on other assumptions that
we believe to be reasonable under the circumstances. While there
are a number of accounting policies, methods and estimates
affecting our financial statements, as described in Note 2
to our consolidated financial statements included elsewhere in
this document, we believe that our most important critical
accounting policies are with respect to the following:



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

A critical accounting policy is one that is both
material to the presentation of our financial statements and
requires us to make difficult, subjective or complex judgments
that could have a material effect on our

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financial condition and results of operations.
They may require us to make assumptions about matters that are
highly uncertain at the time of the estimate, and different
estimates that we could have used, or changes in the estimates
that are reasonably likely to occur, may have a material impact
on our financial condition or results of operations. Because the
use of estimates is inherent in the financial reporting process,
actual results could differ materially from those estimates.


Revenue
Recognition

We generate revenue from three principal
sources: license fees for packaged software products;
product fees for manufacturing management systems and hot runner
process controllers; and service fees from maintenance and
support contracts, consulting, implementation, training and
material testing services.

Packaged
Software Products and Manufacturing Management Systems

For revenue derived from license fees for
packaged software products and from product fees for
manufacturing management systems, we follow AICPA Statement of
Position (SOP) No. 97-2, Software Revenue
Recognition, as amended by SOP No. 98-9,
Modification of SOP No. 97-2 with Respect to Certain
Transactions, both of which provide guidance on applying
generally accepted accounting principles in recognizing revenue
on software transactions. We recognize revenue from sales of
software licenses upon product shipment provided that evidence
of the arrangement exists, the license fee is fixed or
determinable, and collection of the related receivable is
reasonably assured and free of contingencies.

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. We use the residual method to
recognize revenues from arrangements like these with one or more
elements to be delivered at a future date, when evidence of the
fair value of all undelivered elements exists. Under the
residual method, the fair value of the undelivered elements,
such as installation and maintenance services, is deferred and
the remaining portion of the total arrangement fee is recognized
as revenue. We determine vendor-specific objective evidence of
the fair value of undelivered services based on the prices that
are charged when the same element is sold separately to
customers. The fair value of maintenance and support services
may also be determined based on the price to be paid upon
renewal of that service in accordance with the optional renewal
terms offered contractually to a customer. If sufficient
evidence of the fair value of an undelivered element does not
exist, all revenue from the arrangement is deferred and
recognized upon delivery of that element or at the time that
fair value can be established for the undelivered element.

We recognize revenue from software maintenance
and support contracts ratably over the related contract period
and from training and other services as they are performed. Our
software products do not require significant modification or
customization. Implementation of the products is generally
routine and can be performed by the customer or other
third-party providers.

Hot Runner
Process Controllers

For revenue derived from sales of hot runner
process controllers and other hardware products with
insignificant embedded software, we apply the guidance of EITF
No. 00-21, Accounting for Revenue Arrangements with
Multiple Deliverables, and the Securities and Exchange
Commissions Staff Accounting Bulletin No. 104,
Revenue Recognition. We recognize revenue when the
product is shipped to the customer, provided that evidence of
the arrangement exists, legal title has passed to the customer,
all significant contractual obligations have been satisfied, the
arrangement fee is fixed or determinable and collection of the
related receivable is reasonably assured. Our hot runner process
controllers 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.

General

At the time of product shipment, we make an
assessment of the collectibility of the amount due from the
customer. Revenue is only recognized if we are reasonably
assured that collection will occur. In making this

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assessment, we consider customer creditworthiness
and historical payment experience. If we determine that
collectibility of a particular sale is not reasonably assured,
revenue is deferred until such time as collection becomes
reasonably assured, which generally occurs upon receipt of
payment from the customer. Also at the time of product shipment,
we assess whether the total fee payable to us for the order is
fixed or determinable and free of contingencies. In assessing
whether the consideration payable to us is fixed or
determinable, we consider the payment terms of the transaction,
including whether the terms are extended, and our collection
experience in similar transactions without making concessions,
among other factors. If the total consideration payable to us is
not fixed or determinable, revenue is recognized only as
payments become due from the customer, provided that all other
revenue recognition criteria are met.


If an arrangement includes customer acceptance
criteria, we defer all revenue from the arrangement until
acceptance is received or the acceptance period has lapsed,
unless those acceptance criteria only require that the product
perform in accordance with our standard published product
specifications. If a customers obligation to pay us is
contingent upon a future event such as installation or
acceptance, we defer all revenue from the arrangement until that
event has occurred.

A portion of our revenue is derived from sales to
resellers. We recognize revenue upon delivery of the product to
these resellers, provided that the same conditions for revenue
recognition described above are met.

Our arrangements with customers, including
resellers, do not contain any rights of product return, other
than those related to standard warranty provisions that permit
repair or replacement of defective goods. Anticipated warranty
costs are accrued upon product shipment.



| |                           
| | --------------------------
| | Asset 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 creditworthiness,
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, 2004, our accounts receivable
balance was $8.6 million, net of allowances for doubtful
accounts of $420,000.

Management writes down 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, 2004, our
inventory balance was $1.3 million.



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

We allocate the purchase price of each acquired
business to the assets acquired and liabilities assumed at their
fair value on the date of acquisition. In certain cases, we
engage third party appraisers to determine the fair value of the
assets acquired. For example, we obtained a third party fair
value appraisal for the intangible assets that were acquired in
our January 2004 purchase of American MSI Corporation. In other
cases, depending upon the size of the acquisition and the nature
of assets and liabilities acquired, management estimates the
fair value of acquired assets and liabilities based upon a
number of generally accepted valuation methodologies. For
example, for our January 2003 acquisition of Côntrole de
Processus Industriels s.a.r.l (CPI), the fair value
of the acquired developed technologies was based upon a
discounted cash flow model, the fair value of the acquired
customer base was based upon estimated replacement costs, and
the fair value assigned to non-compete agreements was based upon
the salaries of the individuals subject to such agreements and
the length of the agreement. In all cases, any excess purchase
price over the amounts allocated to the assets acquired and
liabilities assumed is recorded as goodwill.

15



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



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

Management assesses the impairment of
identifiable acquired 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 of a product line or
    operating activity 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
acquired 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.

During the first quarter of fiscal 2002, we
adopted the provisions of SFAS No. 142 Goodwill and
Other Intangible Assets. SFAS No. 142 eliminated
amortization of goodwill and introduced a two-step impairment
test model to be applied upon adoption and at least annually
thereafter. Transitional and annual impairment tests of goodwill
are to be conducted on the basis of a Companys reporting
units, as defined in SFAS No. 142. The fair value of each
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. Any resulting
impairment would be expensed immediately.

In adopting SFAS No. 142, we conducted the
required transitional impairment test as of July 1, 2001,
concluding that no impairment of the goodwill acquired in the
acquisitions prior to that date had occurred. From the date of
adoption through the date of our third quarter fiscal 2004
impairment test, we operated as a single reporting unit. To
estimate the fair value of that reporting unit, we employed a
market value approach, under which the average closing price of
our common stock, as reported on the Nasdaq National Market, was
determined for a set number of days in the third fiscal quarter.
This average closing price was deemed to be the fair value of
our stock and was then multiplied by the number of shares of
common stock outstanding to determine the Companys total
fair value. That total fair value was then compared to the
recorded carrying value of our total net assets as of the end of
our third fiscal quarter to identify potential impairments. We
did not identify any potential impairments as a result of these
tests. As a result of our reorganization into two separate
business units in late 2004, we will conduct our future goodwill
impairment assessments in the context of two reporting units.

As of June 30, 2004, our remaining goodwill
and acquired intangible assets were $20.6 million, net of
accumulated amortization of $2.1 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

16



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##### Table of Contents



estimates are reviewed and, if necessary, revised
on a quarterly basis, which may result in adjustments to
previously recorded liability accruals.


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.
In January 2004, we enacted a restructuring plan related to our
acquisition of AMSI and the reorganization of our operations
into two business units. Each of these restructuring plans
involved the recording of certain restructuring charges. See
Note 10 to our 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
allowance. To the extent we establish a valuation allowance or
increase this allowance, we must include an expense within the
income tax provision of our consolidated statement of operations.

Based upon our historical results of operations,
we believe that 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 $1.5 million as of
June 30, 2004, due to uncertainties related to our ability
to utilize some of our deferred tax assets, primarily consisting
of net operating losses. At June 30, 2004, our net deferred
tax asset balance was $166,000, net of a tax asset valuation
allowance of $1.5 million and deferred tax liabilities of
$884,000. 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 in future periods. 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 inter-company sales and a portion of our
foreign currency denominated inter-company research and
development payments with derivative financial instruments,
including currency options, zero cost collars and other
instruments. As the hedging activities are based upon our
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, 2004, hedging
instruments with fair values of $89,000 were recorded as
components of other current assets. Net unrealized gains on
these instruments of $6,000 were included as a component of
equity in accumulated other comprehensive income. See
Note 2 and Note 5 to our consolidated financial
statements.



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

We follow 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. As of
June 30, 2004, our capitalized software development costs
were $1.6 million, net of accumulated amortization of
$503,000. These costs are being amortized over the estimated
economic lives of the related software products, which range
from three to five years. See Note 7 to our consolidated
financial statements.

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##### Table of Contents



Stock Option
Accounting

We do not record compensation expense when stock
option grants are awarded to employees at exercise prices equal
to the fair market value of our common stock on the date of
grant.

Had we recorded compensation expense based on the
fair value of each stock option, our net income would have been
substantially less. In addition, if we are required to record
such compensation expense, our ability to achieve our target
operating margins will be adversely affected. The impact of
expensing employee stock awards is further described in
Note 2 to our consolidated financial statements.

Reporting
Periods

Our fiscal year end is June 30. References
to 2004, 2003 or 2002 mean the fiscal year ended June 30,
unless otherwise indicated.

Overview of Fiscal 2004 Results of
Operations

Highlights
included:



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | growth in revenues to $48.7 million in 2004
    from $36.6 million in 2003,                                         
|
| |  | an increase in earnings to income of
    $0.24 per diluted share in 2004 from a loss of
    $0.01 per share in 2003,
|
| |  | cash generated from operations of
    $6.5 million, an increase of $4.1 million from 2003,                          
|
| |  | the acquisition of American MSI Corporation in
    January 2004 for consideration of $12.0 million, and             
|
| |  | the establishment of business units focused along
    product and market lines.                                     

Summary of
fiscal 2004 operating performance:

|                                                                                                 |  |                |        |         |  |               |     |         |  |   |        |   |  |  |     |  
|------------------------------------------------------------------------------------------------ |  | -------------- | ------ | ------- |  | ------------- | --- | ------- |  | - | ------ | - |  |  | --- | -
|                                                                                                 |  | Fiscal Year    |        | As a %  |  | Fiscal Year   |     | As a % 
|                                                                                                 |  | Ended          |        | of      |  | Ended         |     | of     
|                                                                                                 |  | June 30, 2004  |        | Revenue |  | June 30, 2003 |     | Revenue
|                                                                                                 |  |                |        |         |  |               |     |        
|                                                                                                 |  |               
|                                                                                                 |  | (In thousands)
|Revenue                                                                                          |  | $              | 48,673 |         |  |               | 100 | %       |  | $ | 36,625 |   |  |  | 100 | %
|Cost of revenue                                                                                  |  |                | 9,739  |         |  |               | 20  |         |  |   | 4,174  |   |  |  | 11  |  
|Operating expenses, excluding amortization of
    acquired intangibles and restructuring charges |  |                | 35,028 |         |  |               | 72  |         |  |   | 31,530 |   |  |  | 86  |  
|Restructuring charges                                                                            |  |                | 508    |         |  |               | 1   |         |  |   | 405    |   |  |  | 1   |  
|Amortization of acquired intangible assets                                                       |  |                | 445    |         |  |               | 1   |         |  |   | 605    |   |  |  | 2   |  
|                                                                                                 |  |                |        |         |  |               |     |         |  |   |        |   |  |  |     |  
|Income (loss) from operations                                                                    |  | $              | 2,953  |         |  |               | 6   | %       |  | $ | (89    | ) |  |  |    |  
|                                                                                                 |  |                |        |         |  |               |     |         |  |   |        |   |  |  |     |  

For fiscal 2004, our primary goals were to drive
revenue growth from our products and services, while increasing
our operating efficiency to move our business model toward our
long-term operating margin objectives. We made considerable
progress towards our goals, as our income from operations
increased from approximately break-even in 2003 to
six percent of revenue in 2004.

Our total revenue was 33% higher in fiscal 2004
as compared to fiscal 2003 primarily due to strong growth in our
Design Analysis Solutions product sales coupled with the
positive effects of changes in foreign currencies, principally
driven by the strength of the Euro and Japanese yen, as well as
from revenue generated by the acquired operations of American
MSI Corporation in January 2004.

We generate revenues in the United States, Europe
and the Asia/ Australia region, in particular in Japan, Korea,
Taiwan and China. The weaker value of the U.S. dollar,
relative to other currencies, had a positive impact of $736,000
on operating results in fiscal 2004 compared to fiscal 2003. Had
exchange rates from fiscal

18



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##### Table of Contents



2003 been in effect during fiscal 2004,
translated international revenue billed in local currencies
would have been $3.0 million lower and operating expenses
would have been $2.2 million lower.


On January 23, 2004, we acquired all of the
outstanding stock of American MSI Corporation
(AMSI), a company located in Moorpark, California,
for $7.2 million in cash, of which $1.1 million was
used to retire all of AMSIs outstanding debt, and the
issuance of 349,288 shares of our common stock valued at
$4.4 million. In addition, we paid $293,000 of costs
directly related to the acquisition. The results of AMSI have
been included in our consolidated financial statements from the
date of acquisition. AMSI is a leading solution provider of hot
runner process controllers for the injection molding industry.
Hot runners are a key element of sophisticated mold systems used
in the manufacture of large components or molds with high
cavitation, typically used in industries such as automotive,
packaging and medical instruments. Hot runner process
controllers facilitate precise control of the temperature of the
molten plastic, providing optimized feedback and extensive mold
diagnostics and process data collection. AMSI was acquired to
expand the breadth of our product offerings in our Manufacturing
Solutions group and to bring additional managerial depth to the
organization.

The acquisition of American MSI gave us critical
mass in our manufacturing solutions business and allowed us to
reorganize our operations into two business units, Design
Analysis Solutions and Manufacturing Solutions, strategically
focused along the lines of our product groups and end-user
markets. This change enhanced our management focus on expanding
the growth opportunities of each of our main product lines by
creating an organizational structure in which the growth
objectives and incentives would be more closely aligned. We
believe that these organizational changes, coupled with the
enhancement and expansion of our product lines, leave us better
positioned to serve the needs of our existing and new end-user
industries. As we executed on this reorganization, we incurred
restructuring charges for severance and other termination costs
totaling $508,000 in the third quarter of fiscal 2004. The
reorganization into two business units was substantially
completed by June 30, 2004 and we do not expect to incur
any additional charges related to this action in the future.

Our operating expenses, excluding amortization of
acquired intangible assets and restructuring charges, increased
$3.5 million in fiscal 2004 but declined as a percentage of
revenue as compared to fiscal 2003. The increase is due
primarily to higher variable costs based on current sales
performance as well as costs of personnel added in our
acquisition of AMSI. Our operating margins are very sensitive to
changes in revenue, given the nature of most of our operating
expenses, which consist primarily of employee-related
expenditures, facilities costs and depreciation and amortization
expense. In future periods, employee-related expenditures would
likely increase substantially if we are required to record
compensation expense related to employee stock option grants.

In fiscal 2004, we generated $6.5 million of
cash from our operating activities as compared to
$2.4 million in the previous year. We finished the year
with $51.7 million in cash and marketable securities and no
long-term debt.

Results of Operations

In 2002, our operations were negatively impacted
by severe economic downturns in many of our major geographic and
end-user markets. Accordingly, we took actions in 2002 to resize
our business and reduce our overhead costs. In 2003 and 2004, we
have focused our management efforts on achieving growth in
revenue and improving the profitability of our business
operations.

19



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##### Table of Contents



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

|                              |                                            |                            |     |      |       |      |      |      |       |   |      |      |       |  
|----------------------------- | ------------------------------------------ | -------------------------- | --- | ---- | ----- | ---- | ---- | ---- | ----- | - | ---- | ---- | ----- | -
|                              |                                            |                           
|                              |                                            | Fiscal Year Ended June 30,
|                              |                                            |                           
|                              |                                            | 2004                       |     | 2003 |       | 2002
|                              |                                            |                            |     |      |       |     
|Revenue:                      |                                            |                            |     |      |       |      |      |      |       |   |      |     
|                              | Product                                    |                            |     | 53.5 | %     |      |      | 47.1 | %     |   |      | 50.9 | %    
|                              | Services                                   |                            |     | 46.5 |       |      |      | 52.9 |       |   |      | 49.1 |      
|                              |                                            |                            |     |      |       |      |      |      |       |   |      |     
|                              |                                            | Total revenue              |     |      | 100.0 | %    |      |      | 100.0 | % |      |      | 100.0 | %
|                              |                                            |                            |     |      |       |      |      |      |       |   |      |     
|Costs and expenses:           |                                            |                            |     |      |       |      |      |      |       |   |      |     
|                              | Cost of product revenue                    |                            |     | 10.7 | %     |      |      | 8.1  | %     |   |      | 7.2  | %    
|                              | Cost of services revenue                   |                            |     | 9.3  |       |      |      | 3.3  |       |   |      | 4.0  |      
|                              | Research and development                   |                            |     | 13.3 |       |      |      | 15.4 |       |   |      | 17.8 |      
|                              | Selling and marketing                      |                            |     | 41.1 |       |      |      | 50.9 |       |   |      | 51.7 |      
|                              | General and administrative                 |                            |     | 17.7 |       |      |      | 19.7 |       |   |      | 18.9 |      
|                              | Restructuring charges                      |                            |     | 1.0  |       |      |      | 1.1  |       |   |      | 3.6  |      
|                              | Amortization of acquired intangible assets |                            |     | 0.9  |       |      |      | 1.7  |       |   |      | 1.9  |      
|                              |                                            |                            |     |      |       |      |      |      |       |   |      |     
|                              |                                            | Total operating expenses   |     |      | 94.0  |      |      |      | 100.2 |   |      |      | 105.1 |  
|                              |                                            |                            |     |      |       |      |      |      |       |   |      |     
|Income (loss) from operations |                                            |                            | 6.0 |      |       |      | (0.2 | )    |       |   | (5.1 | )   
|Interest income, net          |                                            |                            | 2.5 |      |       |      | 3.0  |      |       |   | 4.1  |     
|Other income (loss), net      |                                            |                            | 0.0 |      |       |      | (0.6 | )    |       |   | 4.9  |     
|                              |                                            |                            |     |      |       |      |      |      |       |   |      |     
|                              | Income before income taxes                 |                            |     | 8.5  |       |      |      | 2.2  |       |   |      | 3.9  |      
|Provision for income taxes    |                                            |                            | 3.1 |      |       |      | 2.5  |      |       |   | 1.7  |     
|                              |                                            |                            |     |      |       |      |      |      |       |   |      |     
|                              | Net income (loss)                          |                            |     | 5.4  | %     |      |      | (0.3 | )%    |   |      | 2.2  | %    
|                              |                                            |                            |     |      |       |      |      |      |       |   |      |     

Revenue

We generate revenue from three principal sources:



| |   |                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------
| |  | license fees for our packaged software,                                                                                                          
|
| |  | product fees for our collaborative manufacturing
    management systems and hot runner process controllers, and                                  
|
| |  | services revenue derived from maintenance and
    support related to our products, consulting, implementation,
    training and material testing.

In fiscal 2004, total revenue increased
$12.1 million, or 33%, from $36.6 million in 2003 to
$48.7 million. On a constant currency basis, which excludes
the impact of changes in foreign exchange rates from those of
the previous year, total revenue increased approximately 24%
from fiscal 2003.

The following table sets forth our total revenue
by source for each of 2004, 2003 and 2002:

|         |          |                            |   |        |  |      |   |        |  |  |   |        | 
|-------- | -------- | -------------------------- | - | ------ |  | ---- | - | ------ |  |  | - | ------ | 
|         |          |                           
|         |          | Fiscal Year Ended June 30,
|         |          |                           
|         |          | 2004                       |   | 2003   |  | 2002
|         |          |                            |   |        |  |     
|         |          |                           
|         |          | (In thousands)            
|Revenue: |          |                            |   |        |  |      |   |        |  |  |   |       
|         | Product  |                            | $ | 26,063 |  |      | $ | 17,259 |  |  | $ | 17,870 | 
|         | Services |                            |   | 22,610 |  |      |   | 19,366 |  |  |   | 17,218 | 
|         |          |                            |   |        |  |      |   |        |  |  |   |       
|         | Total    |                            | $ | 48,673 |  |      | $ | 36,625 |  |  | $ | 35,088 | 
|         |          |                            |   |        |  |      |   |        |  |  |   |       

20



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The following table sets forth our total revenue
by geographic region for each of fiscal 2004, 2003 and 2002:

|                             |                 |                            |   |        |   |      |   |        |   |  |   |        |  
|---------------------------- | --------------- | -------------------------- | - | ------ | - | ---- | - | ------ | - |  | - | ------ | -
|                             |                 |                           
|                             |                 | Fiscal Year Ended June 30,
|                             |                 |                           
|                             |                 | 2004                       |   | 2003   |   | 2002
|                             |                 |                            |   |        |   |     
|                             |                 |                           
|                             |                 | (In thousands)            
|Revenue:                     |                 |                            |   |        |   |      |   |        |   |  |   |       
|                             | Asia/ Australia |                            | $ | 16,262 |   |      | $ | 12,403 |   |  | $ | 11,247 |  
|                             | Americas        |                            |   | 15,158 |   |      |   | 10,065 |   |  |   | 11,064 |  
|                             | Europe          |                            |   | 17,253 |   |      |   | 14,157 |   |  |   | 12,777 |  
|                             |                 |                            |   |        |   |      |   |        |   |  |   |       
|                             | Total           |                            | $ | 48,673 |   |      | $ | 36,625 |   |  | $ | 35,088 |  
|                             |                 |                            |   |        |   |      |   |        |   |  |   |       
|Percentage of total revenue: |                 |                            |   |        |   |      |   |        |   |  |   |       
|                             | Asia/ Australia |                            |   | 33     | % |      |   | 34     | % |  |   | 32     | %
|                             | Americas        |                            |   | 31     |   |      |   | 27     |   |  |   | 32     |  
|                             | Europe          |                            |   | 36     |   |      |   | 39     |   |  |   | 36     |  
|                             |                 |                            |   |        |   |      |   |        |   |  |   |       
|                             | Total           |                            |   | 100    | % |      |   | 100    | % |  |   | 100    | %
|                             |                 |                            |   |        |   |      |   |        |   |  |   |       

Product
revenue

The following table sets forth our product
revenue by product group and geography for each of 2004, 2003
and 2002:

|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |        |  
|------------------------------------ | ------------------------- | -------------- | - | ----------- | - | ------ | - | ----------- | - | ------ |  | --- | - | ---- | - | ------ | - |  | - | ------ | - |  |  | --- | -- |  | - | ------ | -
|                                     |                           |                |   |             |   |        |   |             |   |       
|                                     |                           |                |   | Increase    |   |        |   | Increase    |   |       
|                                     |                           |                |   | (Decrease)  |   |        |   | (Decrease)  |   |       
|                                     |                           |                |   | Compared    |   |        |   | Compared    |   |       
|                                     |                           |                |   | to Prior    |   |        |   | to Prior    |   |       
|                                     |                           |                |   | Fiscal Year |   |        |   | Fiscal Year |   |       
|                                     |                           | Fiscal         |   |             |   | Fiscal |   |             |   | Fiscal
|                                     |                           | 2004           |   | $           |   | %      |   | 2003        |   | $      |  | %   |   | 2002
|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |     
|                                     |                           |               
|                                     |                           | (In thousands)
|Asia/ Australia product revenue:     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|                                     | Design Analysis Solutions |                | $ | 9,340       |   |        | $ | 2,782       |   |        |  | 42  | % |      | $ | 6,558  |   |  | $ | 98     |   |  |  | 2   | %  |  | $ | 6,460  |  
|                                     | Manufacturing Solutions   |                |   | 52          |   |        |   | (117        | ) |        |  | (69 | ) |      |   | 169    |   |  |   | 48     |   |  |  | 40  |    |  |   | 121    |  
|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|                                     | Total                     |                |   | 9,392       |   |        |   | 2,665       |   |        |  | 40  |   |      |   | 6,727  |   |  |   | 146    |   |  |  | 2   |    |  |   | 6,581  |  
|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|Americas product revenue:            |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|                                     | Design Analysis Solutions |                |   | 2,117       |   |        |   | (315        | ) |        |  | (13 | ) |      |   | 2,432  |   |  |   | (659   | ) |  |  | (21 | )  |  |   | 3,091  |  
|                                     | Manufacturing Solutions   |                |   | 6,311       |   |        |   | 4,536       |   |        |  | 256 |   |      |   | 1,775  |   |  |   | 348    |   |  |  | 24  |    |  |   | 1,427  |  
|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|                                     | Total                     |                |   | 8,428       |   |        |   | 4,221       |   |        |  | 100 |   |      |   | 4,207  |   |  |   | (311   | ) |  |  | (7  | )  |  |   | 4,518  |  
|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|Europe product revenue:              |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|                                     | Design Analysis Solutions |                |   | 6,004       |   |        |   | 1,761       |   |        |  | 42  |   |      |   | 4,243  |   |  |   | (1,061 | ) |  |  | (20 | )  |  |   | 5,304  |  
|                                     | Manufacturing Solutions   |                |   | 2,239       |   |        |   | 157         |   |        |  | 8   |   |      |   | 2,082  |   |  |   | 615    |   |  |  | 42  |    |  |   | 1,467  |  
|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|                                     | Total                     |                |   | 8,243       |   |        |   | 1,918       |   |        |  | 30  |   |      |   | 6,325  |   |  |   | (446   | ) |  |  | (7  | )  |  |   | 6,771  |  
|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|Total product revenue:               |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|                                     | Design Analysis Solutions |                |   | 17,461      |   |        |   | 4,228       |   |        |  | 32  |   |      |   | 13,233 |   |  |   | (1,622 | ) |  |  | (11 | )  |  |   | 14,855 |  
|                                     | Manufacturing Solutions   |                |   | 8,602       |   |        |   | 4,576       |   |        |  | 114 |   |      |   | 4,026  |   |  |   | 1,011  |   |  |  | 34  |    |  |   | 3,015  |  
|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|                                     | Total                     |                | $ | 26,063      |   |        | $ | 8,804       |   |        |  | 51  | % |      | $ | 17,259 |   |  | $ | (611   | ) |  |  | (3  | )% |  | $ | 17,870 |  
|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|Percentage of total product revenue: |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|                                     | Design Analysis Solutions |                |   | 67          | % |        |   |             |   |        |  |     |   |      |   | 77     | % |  |   |        |   |  |  |     |    |  |   | 83     | %
|                                     | Manufacturing Solutions   |                |   | 33          |   |        |   |             |   |        |  |     |   |      |   | 23     |   |  |   |        |   |  |  |     |    |  |   | 17     |  
|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       
|                                     | Total                     |                |   | 100         | % |        |   |             |   |        |  |     |   |      |   | 100    | % |  |   |        |   |  |  |     |    |  |   | 100    | %
|                                     |                           |                |   |             |   |        |   |             |   |        |  |     |   |      |   |        |   |  |   |        |   |  |  |     |    |  |   |       

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Our product revenue includes both license fees
for our packaged software application products and product fees
for our manufacturing management systems and hot runner process
controllers. Typically, our customers pay an up-front, one-time
fee for our products. For our packaged software applications,
the amount of the fee depends upon the number and type of
software modules licensed and the number of the customers
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.
For sales of our other packaged software products, we generally
require a signed license agreement. For our manufacturing
management and hot runner process controllers, the amount of the
fee depends upon the number and type of software modules
licensed with the system, if any, and the systems hardware
components. We generally require a signed license agreement for
sales of our manufacturing management systems that have
significant application software functionality. In addition, we
receive royalty payments from developers of other software
products related to the bundling of our software with their
design software programs. We record these payments as revenue as
well, but such amounts have been immaterial to date.

In fiscal 2004, our product revenue increased by
$8.8 million, or 51%, from $17.3 million in 2003 to
$26.1 million in 2004. This increase was due, in part, to
sales of products acquired in our acquisition of American MSI
Corporation, which contributed $4.9 million of product
revenue during the fiscal year. In addition, our product revenue
grew as the result of the introduction of new products and our
extended distribution capabilities, which allowed us to reach a
broader segment of the mid-range design market.

We added approximately 425 new customers in
fiscal 2004, compared to approximately 320 and 460 new customers
in 2003 and 2002, respectively. Sales to new customers
represented 31% of total product revenue in fiscal 2004,
compared to 39% and 40% of total product revenue in 2003 and
2002, respectively. We believe that the lower percentage of
revenue from new customers in 2004 and 2003 is a result of the
introduction of new product modules in our DAS business that are
typically sold to existing customers and our strategy of
pursuing larger follow-on transactions for our MS business.

Pricing of individual products within our 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.

Design
Analysis Solutions Product Revenue

Product revenue from our Design Analysis
Solutions (DAS) increased by $4.2 million, or
32%, to $17.5 million in 2004 when compared to 2003, due
mostly to strong sales results in the Asia/ Australia region, in
particular in Japan, Korea and Taiwan, and in the Europe region,
in particular in France and Germany. We believe that this strong
sales growth is the result of a number of factors, including
economic recovery in certain of our key markets, new product
introductions that expanded our base of potential customers and
the expansion of our indirect distribution channel.

In December 2003, we released MPA version 7.0,
which introduced new complementary add-on modules to our
previous MPA product. We believe that this product release has
increased the appeal of the product to a broader base of
engineers, resulting in increased sales of this product family
in the second half of fiscal year 2004.

We experienced a decline of $1.6 million, or
11%, in our Design Analysis Solutions product revenue from 2002
to 2003. Demand for our DAS products 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, were among those
most severely impacted by prolonged economic pressures which
began during 2001. As such, in many cases, these companies
reduced their spending on capital items, including spending on
our products. We believe that the decline in DAS product
revenues during fiscal 2003 was due to lower demand for these
products as a result of the challenging economic conditions that
were affecting our major end-user and geographic markets,
including the U.S. and Europe, which resulted in decreases in
the related product revenue

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in these regions of 21% and 20%, respectively.
The decline was partially offset by a 2% increase in revenue
from our Asia/ Australia region, which included a 30% increase
in product revenue in Japan.


DAS product revenue in Japan was
$5.7 million in fiscal 2004 compared to $4.4 million
and $3.9 million in fiscal 2003 and 2002, respectively. We
believe that the increase in product revenue in Japan in both
2004 and 2003 was a result of a broadening of the market for our
products beyond our traditional customer base to include
participants in the automotive and electronics supply chains and
a result of a mild economic recovery in Japan which resulted in
higher levels of capital spending by our customers. To a lesser
extent, favorable exchange rates also contributed to the growth
of Japanese revenue.

We sold 544 seats of DAS products in fiscal
2004, compared to 476 and 790 seats of these products in
2003 and 2002, respectively.

Manufacturing
Solutions Product Revenue

Product revenue from our Manufacturing Solutions
(MS) products increased by $4.6 million, or
114%, to $8.6 million in 2004 compared to 2003, due
primarily to sales of hot runner process controllers, a product
line that was acquired in our January 2004 acquisition of AMSI.
Sales of hot runner process controllers accounted for
$4.9 million of our MS product revenue in 2004. Excluding
the sales of these products, revenues from our traditional
manufacturing process monitoring and control products decreased
by $311,000 in 2004 when compared to 2003. That decline resulted
from lower sales volumes in the United States, which we believe
was due to a combination of factors. These factors included
continued challenging economic conditions experienced by United
States-based manufacturing companies, including the plastics
industry, during fiscal 2004 and, to a lesser degree, the impact
of the reorganization of our operations into business units and
changes to sales territory assignments during the second half of
the year.

Sales of our MS products increased by
$1.0 million, or 34%, to $4.0 million in 2003 compared
to 2002. The increase in this revenue 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 sales of our
production monitoring products, which contributed revenue of
$373,000 following our January 2003 acquisition of CPI.

We sold 929 seats of our MS products in
fiscal 2004, including 345 units of our hot runner process
controllers, compared to 633 and 332 seats of MS products
in 2003 and 2002, respectively.

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. In fiscal 2004, services revenue
from the DAS business unit was $20.4 million and services
revenue from the MS business unit was $2.2 million. Prior
to fiscal 2004, services revenue was not separately tracked by
product line.

Services revenue accounted for approximately 47%
of our total revenue in 2004, compared to 53% and 49% of our
total revenue in 2003 and 2002, respectively. Revenues derived
from services increased by 17% in 2004 and by 12% in 2003. These
increases were primarily from the sale of maintenance contracts,
which was the result of growth in our installed customer base
arising from software license sales made during the reporting
period and in prior years.

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Cost of
Revenue

|                                 |          |                |       |             |  |        |       |             |  |        |     |     |   |      |       |       |  |  |     |      |   |  |   |     |   |   |       |       | 
|-------------------------------- | -------- | -------------- | ----- | ----------- |  | ------ | ----- | ----------- |  | ------ | --- | --- | - | ---- | ----- | ----- |  |  | --- | ---- | - |  | - | --- | - | - | ----- | ----- | 
|                                 |          |                |       |             |  |        |       |             |  |       
|                                 |          |                |       | Increase    |  |        |       | Increase    |  |       
|                                 |          |                |       | (Decrease)  |  |        |       | (Decrease)  |  |       
|                                 |          |                |       | Compared    |  |        |       | Compared    |  |       
|                                 |          |                |       | to Prior    |  |        |       | to Prior    |  |       
|                                 |          |                |       | Fiscal Year |  |        |       | Fiscal Year |  |       
|                                 |          | Fiscal         |       |             |  | Fiscal |       |             |  | Fiscal
|                                 |          | 2004           |       | $           |  | %      |       | 2003        |  | $      |     | %   |   | 2002
|                                 |          |                |       |             |  |        |       |             |  |        |     |     |   |     
|                                 |          |               
|                                 |          | (In thousands)
|Cost of revenue:                 |          |                |       |             |  |        |       |             |  |        |     |     |   |      |       |       |  |  |     |      |   |  |   |     |   |   |       |      
|                                 | Product  |                | $     | 5,203       |  |        | $     | 2,239       |  |        |     | 76  | % |      | $     | 2,964 |  |  |     | 446  |   |  |   | 18  | % |   | $     | 2,518 | 
|                                 | Services |                |       | 4,536       |  |        |       | 3,326       |  |        |     | 275 |   |      |       | 1,210 |  |  |     | (191 | ) |  |   | (14 | ) |   |       | 1,401 | 
|                                 |          |                |       |             |  |        |       |             |  |        |     |     |   |      |       |       |  |  |     |      |   |  |   |     |   |   |       |      
|                                 |          | $              | 9,739 |             |  | $      | 5,565 |             |  |        | 133 | %   |   | $    | 4,174 |       |  |  | 255 |      |   |  | 7 | %   |   | $ | 3,919 |      
|                                 |          |                |       |             |  |        |       |             |  |        |     |     |   |      |       |       |  |  |     |      |   |  |   |     |   |   |       |      
|As a percentage of total revenue |          |                | 20    | %           |  |        |       |             |  |        |     |     |   |      | 11    | %     |  |  |     |      |   |  |   |     |   |   | 11    | %    

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 and amortization expense related to intangible assets
acquired in our acquisition of AMSI.

Our cost of product revenue was $5.2 million
in 2004, $3.0 million in 2003 and $2.5 million in
2002. In 2004, cost of product revenue increased by 76% due
principally to a shift in the mix of our product revenue.
Product revenue for our Manufacturing Solutions products, which
have a higher cost of material than our Design Analysis
Solutions products, comprised 33% of our total product revenue
in 2004, as compared to 23% in 2003 and 17% in 2002. Further, in
2004, the mix of products sold within our Manufacturing
Solutions product line included hot runner process controller
products, acquired in our January 2004 acquisition of AMSI,
which have a higher cost of material than other products in this
product line. In 2003, the cost of product revenue included a
$179,000 charge to write-off certain inventory in connection
with our March 2003 restructuring plan. In addition,
amortization expense arising from capitalized software
development costs was $286,000 in 2004, compared to $146,000 in
2003 and $71,000 in 2002, a result of the increase in our
capitalized software development costs.



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

Our cost of services revenue was
$4.5 million in 2004, $1.2 million in 2003 and
$1.4 million in 2002. The significant increase in these
expenses from 2003 to 2004 was due primarily to the impact of an
organizational change and redirection of our technical sales
staff from research and development and sales functions to our
post-sales and implementation groups, the costs of which are
included in cost of services revenue. The decrease from 2002 to
2003 was primarily a result of reduced compensation and facility
costs resulting from our April 2002 restructuring plan.

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| |                         
| | ------------------------
| | Research and Development

|                                 |  |                |       |              |  |   |     |              |  |   |    |   |  |             |       |   |  |   |      |   |  |  |    |    |  |   |       |  
|-------------------------------- |  | -------------- | ----- | ------------ |  | - | --- | ------------ |  | - | -- | - |  | ----------- | ----- | - |  | - | ---- | - |  |  | -- | -- |  | - | ----- | -
|                                 |  |                |       |              |  |   |     |              |  |  
|                                 |  |                |       | Increase     |  |   |     | Increase     |  |  
|                                 |  |                |       | (Decrease)   |  |   |     | (Decrease)   |  |  
|                                 |  |                |       | Compared to  |  |   |     | Compared to  |  |  
|                                 |  |                |       | Prior Fiscal |  |   |     | Prior Fiscal |  |  
|                                 |  |                |       | Year         |  |   |     | Year         |  |  
|                                 |  |                |       |              |  |   |     |              |  |  
|                                 |  | Fiscal 2004    |       | $            |  | % |     | Fiscal 2003  |  | $ |    | % |  | Fiscal 2002
|                                 |  |                |       |              |  |   |     |              |  |   |    |   |  |            
|                                 |  |               
|                                 |  | (In thousands)
|Research and development         |  | $              | 6,471 |              |  | $ | 821 |              |  |   | 15 | % |  | $           | 5,650 |   |  | $ | (584 | ) |  |  | (9 | )% |  | $ | 6,234 |  
|As a percentage of total revenue |  |                | 13    | %            |  |   |     |              |  |   |    |   |  |             | 15    | % |  |   |      |   |  |  |    |    |  |   | 18    | %

We employ a 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 increased.
Accordingly, the amount of capitalized research and development
costs has also increased.

In accordance with SFAS No. 86,
research and development costs of $856,000, $669,000 and
$602,000 were capitalized in 2004, 2003 and 2002, respectively.
All such capitalized costs are being amortized to cost of
product revenue over the estimated economic life of the related
products, which ranges from three to five years. We expect to
incur additional capitalizable software development costs of
similar amounts in fiscal 2005 with the planned releases of
several product enhancements.

Our research and development expenses were
$6.5 million in 2004, $5.7 million in 2003 and
$6.2 million in 2002, excluding amounts incurred and
capitalized for software development. The increase in 2004 was
primarily attributable to increased compensation expense, which
resulted from the combination of several factors, including the
impact of changes in foreign currency exchange rates, our annual
salary increases that took effect in October 2003, and
development staff added in our January 2004 acquisition of AMSI,
offset in part by an increase of $187,000 in the amount of
capitalized software development costs and the redirection of
some members of our technical staff to post-sales and
implementation groups. The decrease from 2002 to 2003 was
attributable to a $67,000 increase in the amount of capitalized
software costs and the elimination of 12 technical positions as
a result of our April 2002 restructuring, which reduced our
compensation and headcount related expenses.



| |                      
| | ---------------------
| | Selling and Marketing

|                                 |  |                |        |              |  |   |       |              |  |   |   |   |  |             |        |   |  |   |     |  |  |  |   |   |  |   |        |  
|-------------------------------- |  | -------------- | ------ | ------------ |  | - | ----- | ------------ |  | - | - | - |  | ----------- | ------ | - |  | - | --- |  |  |  | - | - |  | - | ------ | -
|                                 |  |                |        |              |  |   |       |              |  |  
|                                 |  |                |        | Increase     |  |   |       | Increase     |  |  
|                                 |  |                |        | (Decrease)   |  |   |       | (Decrease)   |  |  
|                                 |  |                |        | Compared to  |  |   |       | Compared to  |  |  
|                                 |  |                |        | Prior Fiscal |  |   |       | Prior Fiscal |  |  
|                                 |  |                |        | Year         |  |   |       | Year         |  |  
|                                 |  |                |        |              |  |   |       |              |  |  
|                                 |  | Fiscal 2004    |        | $            |  | % |       | Fiscal 2003  |  | $ |   | % |  | Fiscal 2002
|                                 |  |                |        |              |  |   |       |              |  |   |   |   |  |            
|                                 |  |               
|                                 |  | (In thousands)
|Selling and marketing            |  | $              | 20,009 |              |  | $ | 1,371 |              |  |   | 7 | % |  | $           | 18,638 |   |  | $ | 504 |  |  |  | 3 | % |  | $ | 18,134 |  
|As a percentage of total revenue |  |                | 41     | %            |  |   |       |              |  |   |   |   |  |             | 51     | % |  |   |     |  |  |  |   |   |  |   | 52     | %

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

Our selling and marketing expenses were
$20.0 million in 2004, $18.6 million in 2003 and
$18.1 million in 2002. The increase from 2003 to 2004 was
primarily a result of a $2.6 million increase in employee

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compensation costs and third-party incentive
payments related to increased sales and annual salary
adjustments, salaries and commissions related to personnel added
as a result of the AMSI acquisition, additional travel expenses
of $312,000, and spending for marketing promotional activities.
These increases were offset, in part, by the impact of our
redirection in 2004 of sales resources to customer support and
implementation activities, the cost of which is included in cost
of services revenue. This organizational change reduced our
selling and marketing expenses by $1.3 million as compared
to 2003 and increased cost of services revenue by a
corresponding amount.


The increase in expense 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.



| |                           
| | --------------------------
| | General and Administrative

|                                 |  |                |       |              |  |   |       |              |  |   |    |   |  |             |       |   |  |   |     |  |  |  |   |   |  |   |       |  
|-------------------------------- |  | -------------- | ----- | ------------ |  | - | ----- | ------------ |  | - | -- | - |  | ----------- | ----- | - |  | - | --- |  |  |  | - | - |  | - | ----- | -
|                                 |  |                |       |              |  |   |       |              |  |  
|                                 |  |                |       | Increase     |  |   |       | Increase     |  |  
|                                 |  |                |       | (Decrease)   |  |   |       | (Decrease)   |  |  
|                                 |  |                |       | Compared to  |  |   |       | Compared to  |  |  
|                                 |  |                |       | Prior Fiscal |  |   |       | Prior Fiscal |  |  
|                                 |  |                |       | Year         |  |   |       | Year         |  |  
|                                 |  |                |       |              |  |   |       |              |  |  
|                                 |  | Fiscal 2004    |       | $            |  | % |       | Fiscal 2003  |  | $ |    | % |  | Fiscal 2002
|                                 |  |                |       |              |  |   |       |              |  |   |    |   |  |            
|                                 |  |               
|                                 |  | (In thousands)
|General and administrative       |  | $              | 8,548 |              |  | $ | 1,306 |              |  |   | 18 | % |  | $           | 7,242 |   |  | $ | 582 |  |  |  | 9 | % |  | $ | 6,660 |  
|As a percentage of total revenue |  |                | 18    | %            |  |   |       |              |  |   |    |   |  |             | 20    | % |  |   |     |  |  |  |   |   |  |   | 19    | %

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

Our general and administrative expenses were
$8.5 million in 2004, $7.2 million in 2003 and
$6.7 million in 2002. In 2004, the increase in general and
administrative expenses was due to increased compensation
expense, including approximately $191,000 in costs related to
personnel added as a result of the AMSI acquisition, changes in
foreign currency exchange rates, and an increase of $647,000 in
professional service fees, including the cost of audit, tax,
Sarbanes-Oxley compliance and preparation costs, and other
compliance and accounting services. In light of the more highly
regulated financial reporting environment, we expect these costs
to increase in fiscal 2005 as we continue to comply with these
requirements.

In 2003, the expense increase was a result of
higher compensation costs and escalating professional service
fees, including the cost of our audit, tax planning and
compliance and other accounting services.



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

|                                 |  |                |     |              |  |   |     |              |  |   |    |   |  |             |     |   |  |   |      |   |  |  |     |    |  |   |       |  
|-------------------------------- |  | -------------- | --- | ------------ |  | - | --- | ------------ |  | - | -- | - |  | ----------- | --- | - |  | - | ---- | - |  |  | --- | -- |  | - | ----- | -
|                                 |  |                |     |              |  |   |     |              |  |  
|                                 |  |                |     | Increase     |  |   |     | Increase     |  |  
|                                 |  |                |     | (Decrease)   |  |   |     | (Decrease)   |  |  
|                                 |  |                |     | Compared to  |  |   |     | Compared to  |  |  
|                                 |  |                |     | Prior Fiscal |  |   |     | Prior Fiscal |  |  
|                                 |  |                |     | Year         |  |   |     | Year         |  |  
|                                 |  |                |     |              |  |   |     |              |  |  
|                                 |  | Fiscal 2004    |     | $            |  | % |     | Fiscal 2003  |  | $ |    | % |  | Fiscal 2002
|                                 |  |                |     |              |  |   |     |              |  |   |    |   |  |            
|                                 |  |               
|                                 |  | (In thousands)
|Restructuring charges            |  | $              | 508 |              |  | $ | 103 |              |  |   | 25 | % |  | $           | 405 |   |  | $ | (867 | ) |  |  | (68 | )% |  | $ | 1,272 |  
|As a percentage of total revenue |  |                | 1   | %            |  |   |     |              |  |   |    |   |  |             | 1   | % |  |   |      |   |  |  |     |    |  |   | 4     | %

In 2004, we enacted a corporate restructuring
plan related to our January 2004 acquisition of AMSI that
included the termination of three employees from sales and
management positions in the United States and Italy.

In 2003, we incurred a $405,000 charge 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 included the
involuntary termination of four technical employees, a reduction
of space at a

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leased facility, and the write-off of inventory,
other assets and certain intangible assets that 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 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 10 to our
consolidated financial statements.



| |                                               
| | ----------------------------------------------
| | Amortization of Acquired Intangible
    Assets

|                                           |  |                |     |              |  |   |      |              |  |   |     |    |  |             |     |   |  |   |     |   |  |  |    |    |  |   |     |  
|------------------------------------------ |  | -------------- | --- | ------------ |  | - | ---- | ------------ |  | - | --- | -- |  | ----------- | --- | - |  | - | --- | - |  |  | -- | -- |  | - | --- | -
|                                           |  |                |     |              |  |   |      |              |  |  
|                                           |  |                |     | Increase     |  |   |      | Increase     |  |  
|                                           |  |                |     | (Decrease)   |  |   |      | (Decrease)   |  |  
|                                           |  |                |     | Compared to  |  |   |      | Compared to  |  |  
|                                           |  |                |     | Prior Fiscal |  |   |      | Prior Fiscal |  |  
|                                           |  |                |     | Year         |  |   |      | Year         |  |  
|                                           |  |                |     |              |  |   |      |              |  |  
|                                           |  | Fiscal 2004    |     | $            |  | % |      | Fiscal 2003  |  | $ |     | %  |  | Fiscal 2002
|                                           |  |                |     |              |  |   |      |              |  |   |     |    |  |            
|                                           |  |               
|                                           |  | (In thousands)
|Amortization of acquired intangible assets |  | $              | 445 |              |  | $ | (160 | )            |  |   | (26 | )% |  | $           | 605 |   |  | $ | (51 | ) |  |  | (8 | )% |  | $ | 656 |  
|As a percentage of total revenue           |  |                | 1   | %            |  |   |      |              |  |   |     |    |  |             | 2   | % |  |   |     |   |  |  |    |    |  |   | 2   | %

These costs represent the amortization of
intangible assets, other than goodwill, recorded in connection
with our acquisitions. Those assets include developed
technology, customer base, customer order backlog and
non-compete agreements, which are amortized over their economic
lives, ranging from six months to seven years.

Amortization of other acquired intangible assets
was $445,000 in 2004, $605,000 in 2003 and $656,000 in 2002. The
reduction in amortization expense in 2004 from 2003 reflects the
completion of amortization of intangible assets acquired in the
2000 acquisition of Advanced CAE Technology, Inc.
(C-Mold) and the 2001 acquisition of Branden
Technologies upon reaching the end of their estimated useful
lives. 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.



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

Our interest income was $1.2 million in
2004, $1.1 million in 2003 and $1.5 million in 2002.
In 2004 and 2003, 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.

Our other income (loss) was a loss of $15,000 in
2004, a loss of $198,000 in 2003 and a gain of $1.7 million
in 2002. In 2004 and 2003, the losses were the result of hedging
activities, and were offset in whole by favorable foreign
exchange effects realized in our operations during the periods.
During 2002, we

27



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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 Advanced CAE
Technology, Inc. (C-Mold).




| |                           
| | --------------------------
| | Provision for Income Taxes

Our effective income tax rate was 37% on pre-tax
income of $4.2 million for 2004, 115% on pre-tax income of
$802,000 for 2003 and 44% on pre-tax income of $1.4 million
for 2002. The difference between the U.S. federal statutory
income tax rate of 34% and the effective tax rate provision of
37% in 2004 was due primarily to operating losses in the
U.S. that could not be benefited, non-deductible
acquisition related amortization costs and taxes payable in
certain foreign jurisdictions at rates which differ from the
U.S. statutory federal income tax rate. In 2003 and 2002,
we incurred income taxes payable 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 similar result could occur
in future periods due to the globally distributed nature of our
operations and certain fixed income amounts in those
jurisdictions.

Our future effective tax rate may be materially
impacted by the amount of income taxes associated with our
foreign earnings, which are taxed at rates different from the
U.S. federal statutory rate, as well as the timing and
extent of the realization of deferred tax assets, changes in the
tax law and potential acquisitions. Further, we believe that our
tax rate may fluctuate within a fiscal year, including from
quarter to quarter, due to potential items arising from discrete
events, including settlements of claims, acquisitions of other
companies or other similar events. We currently believe that our
fiscal 2005 effective tax rate will be in the range of 31% to
33%, subject to any material changes in these factors.

We have established a valuation allowance against
net deferred tax assets, consisting principally of net operating
loss carryforwards in certain jurisdictions including the United
States, because we believe that it is more likely than not that
the tax assets in those jurisdictions will not be realized prior
to their expiration. At June 30, 2004, we had total net
deferred tax assets of $166,000, net of a tax asset valuation
allowance of $1.5 million and deferred tax liabilities of
$884,000. Realization of our net deferred tax assets is
dependent on our ability to generate future taxable income in
the related tax jurisdictions. We believe that sufficient
taxable income will be earned in the future to realize these
assets.



| |                      
| | ---------------------
| | Business Combinations

Over the past three fiscal years, we acquired new
technology or supplemented our technology by purchasing
businesses focused in specific markets or industries. During
this time period, we acquired the following businesses:

|             |  |                                   |  |                                                                                                                                                                                                                                                                                                                                                                                    
|------------ |  | --------------------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Date         |  | Company                           |  | Details                                                                                                                                                                                                                                                                                                                                                                            
|             |  |                                   |  |                                                                                                                                                                                                                                                                                                                                                                                    
|January 2004 |  | American MSI Corporation          |  | The acquisition of American MSI Corporation
    provided us advanced hot runner process controller products that
    assure that materials are kept in an optimal state until
    injected into the part cavity during the manufacturing process.
    This acquisition has been integrated into our Manufacturing
    Solutions business unit.                                     
|January 2003 |  | Côntrole de Processus Industriels |  | The acquisition of the ongoing operations and
    certain assets of Côntrole de Processus Industriels brought
    us a product that monitors production equipment in a plastics
    manufacturing factory, providing real-time data capture and
    monitoring in a networked environment. This acquisition has been
    integrated into our Manufacturing Solutions business unit.

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Liquidity and Capital Resources

|                                                                  |  |                            |         |      |  |      |         |   |  |   |        |  
|----------------------------------------------------------------- |  | -------------------------- | ------- | ---- |  | ---- | ------- | - |  | - | ------ | -
|                                                                  |  |                           
|                                                                  |  | Fiscal Year Ended June 30,
|                                                                  |  |                           
|                                                                  |  | 2004                       |         | 2003 |  | 2002
|                                                                  |  |                            |         |      |  |     
|                                                                  |  |                           
|                                                                  |  | (In thousands)            
|Cash provided by operating activities                             |  | $                          | 6,467   |      |  | $    | 2,384   |   |  | $ | 4,961  |  
|Cash provided by (used in) investing activities                   |  |                            | (10,827 | )    |  |      | (13,398 | ) |  |   | 8,836  |  
|Cash provided by (used in) financing activities                   |  |                            | 1,226   |      |  |      | (524    | ) |  |   | (55    | )
|Effect of exchange rate changes on cash and cash
    equivalents  |  |                            | 801     |      |  |      | 2,224   |   |  |   | 923    |  
|                                                                  |  |                            |         |      |  |      |         |   |  |   |        |  
|Net increase (decrease) in cash and cash
    equivalents          |  |                            | (2,333  | )    |  |      | (9,314  | ) |  |   | 14,665 |  
|Cash and cash equivalents, beginning of year                      |  |                            | 38,320  |      |  |      | 47,634  |   |  |   | 32,969 |  
|                                                                  |  |                            |         |      |  |      |         |   |  |   |        |  
|Cash and cash equivalents, end of year                            |  | $                          | 35,987  |      |  | $    | 38,320  |   |  | $ | 47,634 |  
|                                                                  |  |                            |         |      |  |      |         |   |  |   |        |  
|Marketable securities, end of year                                |  | $                          | 15,665  |      |  | $    | 13,820  |   |  | $ | 3,233  |  
|                                                                  |  |                            |         |      |  |      |         |   |  |   |        |  
|Cash, cash equivalents and marketable securities,
    end of year |  | $                          | 51,652  |      |  | $    | 52,140  |   |  | $ | 50,867 |  
|                                                                  |  |                            |         |      |  |      |         |   |  |   |        |  

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, 2004,
our primary sources of liquidity consisted of our total cash and
cash equivalents balance of $36.0 million, our marketable
securities balance of $15.7 million and our credit
facilities. In January 2004, we renewed our primary
$5.0 million unsecured working capital credit facility. 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, 2004. 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, 2004, we had
employed $443,000 of available borrowings through outstanding
foreign exchange contracts and letters of credit. The remaining
available borrowings were $4.6 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, 2004, we had no outstanding
debt.

At June 30, 2004, our marketable securities
consisted of corporate bonds and U.S. government securities
with maturities at date of purchase in excess of three months.
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, 2004, we were in
compliance with this internal policy.

Net cash provided by operating activities was
$6.5 million in 2004, $2.4 million in 2003 and
$5.0 million in 2002. The increase in cash generated from
operations in 2004 compared to 2003 was primarily the result of
our increased earnings after the effect of non-cash expenses,
such as depreciation and amortization. In addition, our base of
customers under maintenance and support contracts has increased.
As most of these contracts are prepaid at the start of the
contract period, we experienced an increase in deferred revenue
and cash. Also, increases in accounts payable, accrued expenses
and other long-term liabilities contributed to the increase in
cash provided by operations. In both 2002 and 2003, 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 the sale of land and
certain other property in Australia, a net gain of $504,000 on
the 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.

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Investing activities consumed $10.8 million
of cash in 2004. During the year, we used $7.1 million of
cash to acquire AMSI, net of cash acquired and including direct
acquisition costs. In addition, we invested $1.8 million,
net, of our cash in marketable securities, we used
$1.0 million to purchase fixed assets, and $856,000 of
costs were capitalized related to the development of software
products. Investing activities used cash of $13.4 million
in 2003, primarily from the net 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 cash
and cash equivalents by $9.1 million. Also, we used cash of
$1.1 million to purchase fixed assets and we capitalized
$602,000 of costs related to the development of software
products.

Net cash of $1.2 million was provided by
financing activities in 2004. This cash was generated by
exercises of stock options and proceeds received for common
stock under our Employee Stock Purchase Plan. Net cash of
$524,000 and $55,000 was used in financing activities in 2003
and 2002, respectively. In both years, the amount of cash used
to reacquire shares of our outstanding common stock was
partially offset by proceeds received from stock option
exercises, purchases of stock under our Employee Stock Purchase
Plan and repayment of notes receivable from stockholders.

We are authorized to repurchase up to 500,000
shares of our common stock. We did not purchase any such shares
in 2004.

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. Capital
expenditure requirements for fiscal 2005 are expected to be
approximately $2.0 million, primarily for the purchase of
fixed assets. We also expect to continue to capitalize costs
related to our software development activities in an amount
similar to or less than fiscal 2004. Long term cash
requirements, other than normal operating expenses, are
anticipated for the continued development of new products,
financing anticipated growth and the possible acquisition of
businesses, software products or technologies complementary to
our business. 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.

Contractual Obligations

The following table summarizes our significant
financial contractual obligations at June 30, 2004 and the
effect such obligations are expected to have on our liquidity
and cash flows in future periods. This table excludes amounts
already recorded on our balance sheet as current liabilities at
June 30, 2004.

|                            |       |                        |       |        |  |           |       |           |  |         |       |       |  |   |       |       |  |   |       |       | 
|--------------------------- | ----- | ---------------------- | ----- | ------ |  | --------- | ----- | --------- |  | ------- | ----- | ----- |  | - | ----- | ----- |  | - | ----- | ----- | 
|                            |       |                       
|                            |       | Payments Due by Period
|                            |       |                       
|                            |       |                        |       | Less   |  |           |       | More     
|                            |       |                        |       | Than   |  |           |       | Than     
|                            |       | Total                  |       | 1 Year |  | 1-3 Years |       | 3-5 Years |  | 5 Years
|                            |       |                        |       |        |  |           |       |           |  |        
|                            |       |                       
|                            |       | (In thousands)        
|Operating lease obligations |       | $                      | 7,230 |        |  | $         | 2,317 |           |  | $       | 2,519 |       |  | $ | 1,212 |       |  | $ | 1,182 |      
|Purchase obligations(1)     |       |                        | 1,780 |        |  |           | 1,525 |           |  |         | 255   |       |  |   |      |       |  |   |      |      
|                            |       |                        |       |        |  |           |       |           |  |         |       |       |  |   |       |       |  |   |       |      
|                            | Total |                        | $     | 9,010  |  |           | $     | 3,842     |  |         | $     | 2,774 |  |   | $     | 1,212 |  |   | $     | 1,182 | 
|                            |       |                        |       |        |  |           |       |           |  |         |       |       |  |   |       |       |  |   |       |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | For the purposes of this table, contractual
    obligations for purchase of goods or services are defined as
    agreements that are enforceable and legally binding and that
    specify all significant terms, including: fixed or minimum
    quantities to be purchased; fixed, minimum or variable price
    provisions; and the approximate timing of the transaction.

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Off-Balance Sheet Financing
Arrangements

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

Recent Accounting Pronouncements

We believe that there are no recent accounting
pronouncements that will have a significant impact on our
results of operations or financial position that have not been
previously disclosed.

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. We do not believe that our
revenue and results of operations will be significantly impacted
by inflation in future periods.

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.

Our
business model is changing as we further develop and exploit our
Manufacturing Solutions products, and our recent reorganization
of our sales, marketing and support staff along business unit
lines may result in disruption in our sales.

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. We recently
completed the acquisition of AMSI, a provider of hot runner
process controllers, with products focused solely on the
manufacturing market. In connection with this acquisition, we
reorganized our business into two strategically focused business
units, one focused on Design Analysis Solutions products and one
on Manufacturing Solutions products. This change in
organizational structure may lead to further disruption in our
business operations, as we have split our direct sales force
into product-specific sales forces, each of which will be
reporting directly to the responsible business unit leader. 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 provide additional functionality or
services, which may delay the recognition of revenue. Further,
our acquisition of AMSI may delay the development and completion
of our Manufacturing Solutions products as we seek to integrate
newly acquired technology into our product platform. Our
Manufacturing Solutions business unit is managed by the former
chief executive officer and sole stockholder of AMSI and our
ability to successfully integrate and further develop the AMSI
business will be dependent on our ability to retain this
employee.



| |                                                                                                          
| | ---------------------------------------------------------------------------------------------------------
| | A 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 experienced severe
economic declines which significantly and adversely affected our
business in fiscal 2002 and 2003. While general economic trends
have improved in some geographic markets, continuation of this
general economic slowdown, particularly in the discrete
manufacturing industry, could materially and adversely affect us
by decreasing our revenue as compared to prior years, or by
lowering our revenue growth.

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| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | We are dependent on third parties such as
    resellers and distributors to distribute a substantial portion
    of our Manufacturing Solutions products.

Following the acquisition of AMSI, we now
distribute a substantial portion of our Manufacturing Solutions
products through a network of independent, regional channel
partners. In addition, we are adding more channel partners in
geographically dispersed locations in order to sell our products
to new customers. The channel partners sell our products to new
and existing customers, expand installations within their
existing customer base, offer consulting services and provide
the first line of technical support. Consequently, we are highly
dependent on the efforts of the channel partners. Difficulties
in ongoing relationships with channel partners, such as delays
in collecting accounts receivable, failure to meet performance
criteria or to promote our products as aggressively as we
expect, and differences in the handling of customer
relationships could adversely affect our performance.
Additionally, the loss of any major channel partner for any
reason, including a channel partners decision to sell
competing products rather than our products, could have a
material adverse effect on us. Moreover, our future success will
depend substantially on the ability and willingness of our
channel partners to continue to dedicate the resources necessary
to promote our products and to support a larger installed base
of our products following our acquisition of AMSI. If the
channel partners are unable or unwilling to do so, we may be
unable to achieve revenue growth with respect to the products
sold primarily through this channel.



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 because sales of our Manufacturing Solutions products
    and our services will result in lower gross margins and may
    result in a longer selling cycle, which effect may be more
    significant following the acquisition of AMSI, which will result
    in a higher percentage of sales coming from our Manufacturing
    Solutions products as compared to our Design Analysis Solutions
    products,
|
| |  | 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,                                                                                                                                                                                                                        
|
| |  | introductions of new services or enhancements by
    us and our competitors and changes in our and our
    competitors pricing policies,                                                                                                                                                                                                                                                                                                                               
|
| |  | our increased use of third parties such as
    distributors and resellers which may lessen the control we have
    over revenue and earnings during any particular period,                                                                                                                                                                                                                                                                                              
|
| |  | 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 losses in other tax jurisdictions,                                                                                                                                                                  
|
| |  | fluctuations in our tax rate from quarter to
    quarter due to the impact of discrete events, including the
    settlement of claims, the acquisition of other companies or
    other events,                                                                                                                                                                                                                                                                          
|
| |  | currency and exchange rate 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

32



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##### Table of Contents



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.



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our recent acquisition of AMSI and any
    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.

In January 2004 we acquired American MSI
Corporation, a privately held company specializing in
development and sale of hot runner process controllers for the
plastics processing industry. Further, 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 including AMSI, 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 will have to devote a
significant amount of time, management and financial resources
to do so. Even with this investment of management and financial
resources, the acquisition of AMSI or another business 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 fails to meet our expectations could cause our
business and financial condition to be materially and adversely
affected. In addition, acquisitions can involve non-recurring
charges and amortization of significant amounts of acquired
identifiable intangible assets that could adversely affect our
results of operations.



| |                                                                                        
| | ---------------------------------------------------------------------------------------
| | The reorganization of our sales force may
    lead to disruption in our sales activity.

Late in fiscal 2004, we made certain changes to
our overall business by creating two separate business units
focused on our two product lines. Along with this change, we
reorganized our worldwide sales force.

33



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##### Table of Contents



These changes may result in a decrease in sales
productivity which would lead to a decrease in revenue in one or
both of our business units. Future restructurings of the sales
force could result in further transition issues and could
adversely impact our revenue and financial condition.




| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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
worldwide 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 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 software piracy, particularly
    in certain countries in Asia, may result in lost revenue in
    those countries or to customers with worldwide
    operations, and
|
| |  | the cost of enforcing 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
revenue is 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,

34



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##### 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 manufacture 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
    or manufacturing 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.
Our manufacturing operations are performed in the United States
and Ireland, using both in-house and contract manufacturing
facilities. 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 or
manufacturing facilities could severely disrupt our operations.



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



| |                                                                         
| | ------------------------------------------------------------------------
| | We make estimates in determining our
    worldwide income tax provision.

We make significant estimates in determining our
worldwide income tax provision. These estimates are subject to
many transactions, calculations and proceedings where the
ultimate tax outcome is uncertain. These proceedings currently
include customary inquiry activities by various taxing
authorities. Although we believe that our estimates are
reasonable, the final outcome of tax matters and proceedings
could be different than the estimates reflected in the
historical income tax provision and accruals. Such differences
could have a material impact on income tax expense and net
income in the period in which such determination is made.

35



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##### Table of Contents





| |                                                                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we are required to expense options
    granted under our employee stock plans as compensation, our net
    income and earnings per share would be significantly
    reduced.

In the past, we have used stock options as a key
component of our employee compensation packages. We believe that
stock options provide an incentive to our employees to maximize
long-term shareholder value and can encourage valued employees
to remain with the Company. Certain proposals related to
accounting for the grant of an employee stock option as an
expense have been issued for comment by the Financial Accounting
Standards Board. If such proposals are implemented, our net
income and earnings per share will be negatively impacted.



| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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,                                                                                                                                                                                       
|
| |  | downward revisions in securities analysts
    estimates or changes in general market conditions,                                                                                                                                                                                                                 
|
| |  | changes in our senior management personnel,                                                                                                                                                                                                                                                                       
|
| |  | distribution or sale of shares of our common
    stock by insiders or affiliated persons, including the shares
    received by the selling stockholder in connection with the
    acquisition of AMSI, a portion of which have been registered for
    resale on Form S-3 and could therefore be sold at any time,
|
| |  | 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 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 and our invested
cash balances. During 2004, our consolidated cash balances were
impacted favorably by the strengthening of foreign currencies
relative to the U.S. dollar, particularly with respect to
the Australian dollar. At June 30, 2004, we had
$24.0 million of cash and cash equivalents invested in
foreign currency accounts. Our consolidated cash position will
continue to be impacted by changes in foreign currency exchange
rates. 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

36



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##### Table of Contents



Condition and Results of Operations 
Critical Accounting Policies and Significant Judgments and
Estimates  Hedge Accounting.


Our invested cash balances are subject to
interest rate risk and, as a result, changes in interest rates
from time to time may affect our operating results. We invest
our excess cash balances in highly liquid, interest bearing
instruments, including government and corporate bonds. At
June 30, 2004, the fair value and principal amounts of our
bond portfolio amounted to $15.7 million, with a yield to
maturity of 1.65%. Our investments are limited to high grade
corporate debt securities, government issued debt, municipal
debt securities, money market funds and similar high quality
instruments. In a declining interest rate environment, we would
experience a decrease in interest income. The opposite holds
true in a rising interest rate environment. Since January 2001,
the United States Federal Reserve and European Central Bank have
significantly decreased certain benchmark interest rates, which
has led to a general decline in market interest rates. This
decline in market interest rates has resulted in a significant
decrease in our interest income over the past three years.
Our interest income will continue to fluctuate based upon
changes in market interest rates and levels of cash available
for investment. We do not use derivative financial instruments
in our investment portfolio to manage interest rate risk.
However, given the relatively short maturities and
investment-grade quality of our marketable securities portfolio,
a sharp rise in interest rates should not have a material
adverse effect on the fair value of these instruments. These
instruments potentially expose us to credit risk; however, we
place our investments in instruments that meet high credit
quality standards, as specified in our investment policy
guidelines. However, those guidelines limit the amount of credit
exposure to any one issue, issuer or type of instrument.

In addition, our accounts receivable from our
customers expose us to credit risk. We believe that such credit
risk is limited due to the large number of customers comprising
our accounts receivable 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 9. | Changes in and Disagreements with
    Accountants on Accounting and Financial
    Disclosures

None.





|         |                        
|-------- | -----------------------
|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 Executive Officer and Chief Financial
Officer have concluded that they believe that, as of
June 30, 2004, 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.

37



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##### Table of Contents





PART III






|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Directors.Incorporated herein by reference is the information appearing
under the captions Information Regarding Directors
and Information Regarding the Board of Directors and Its
Committees in our definitive Proxy Statement for the 2004
Annual Meeting of Stockholders.

Executive Officers.Incorporated herein by reference is the information appearing
under the caption Executive Officers in our
definitive Proxy Statement for the 2004 Annual Meeting of
Stockholders.

Section 16(a) Beneficial Ownership
Reporting Compliance.Incorporated
herein by reference is the information appearing under the
caption Information Regarding Moldflow Stock
Ownership  Section 16(a) Beneficial Ownership
Reporting Compliance in our definitive Proxy Statement for
the 2004 Annual Meeting of Stockholders.

Code of Ethics.Incorporated herein by reference is the information appearing
under the caption Code of Ethics in our definitive
Proxy Statement for the 2004 Annual Meeting of Stockholders.





|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

Incorporated herein by reference is the
information appearing under the caption Executive
Compensation in our definitive Proxy Statement for the
2004 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 our definitive Proxy
Statement for the 2004 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 our definitive
Proxy Statement for the 2004 Annual Meeting of Stockholders.





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

Incorporated by reference is the information
appearing under the caption Independent Registered Public
Accounting Firm in our definitive Proxy Statement for the
2004 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.

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 |  |          | 43 | 

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.

38



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##### Table of Contents






EXHIBIT INDEX

|        |     |       |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|------- | --- | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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. (Previously filed as an exhibit to the
    Companys Registration Statement on Form S-1 (File
    No. 333-95289) and incorporated by reference thereto.)                                                                                       
|        | 2.  | 2     |  | Agreement and Plan of Merger by and among
    Moldflow Corp., MF Merger Sub I, Inc., American MSI
    Corp., the Timothy and Deborah Triplett Family Trust,
    Timothy L. Triplett and Deborah A. Triplett, dated
    January 23, 2004. (Previously filed as an exhibit to the
    Companys Quarterly Report on Form 10-Q for the fiscal
    quarter ended December 27, 2003 filed with the Securities
    and Exchange Commission on February 10, 2004 and
    incorporated by reference thereto.)
|        | 3.  | 1     |  | Third Amended and Restated Certificate of
    Incorporation of the Registrant. (Previously filed as an exhibit
    to the Companys Quarterly Report on Form 10-Q for the
    fiscal quarter ended April 1, 2000 filed with the
    Securities and Exchange Commission on May 12, 2000 and
    incorporated by reference thereto.)                                                                                                                                                                   
|        | 3.  | 2     |  | Second Amended and Restated By-laws of the
    Registrant. (Previously filed as an exhibit to the
    Companys Quarterly Report on Form 10-Q for the fiscal
    quarter ended April 1, 2000 filed with the Securities and
    Exchange Commission on May 12, 2000 and incorporated by
    reference thereto.)                                                                                                                                                                                       
|        | 3.  | 3     |  | Certificate of Amendment of Third Amended and
    Restated Certificate of Incorporation. (Previously filed as an
    exhibit to the Companys Annual Report on Form 10-K
    for the fiscal year ended June 30, 2002 filed with the
    Securities and Exchange Commission on September 19, 2002
    and incorporated by reference thereto.)                                                                                                                                                         
|        | 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. (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 and incorporated by reference thereto.)                                                                                  
|        | 4.  | 1     |  | Shareholder Rights Agreement, dated as of
    January 29, 2003, between Moldflow Corporation and
    EquiServe Trust Company, as Rights Agent. (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 and incorporated by reference thereto.)                                                                                                                                         
|        | 10. | 19    |  | Moldflow Corporation 2000 Stock Option and
    Incentive Plan, as amended. (Previously filed as an exhibit to
    the Companys Quarterly Report on Form 10-Q for the
    fiscal quarter ended December 28, 2002 filed with the
    Securities and Exchange Commission on February 7, 2003 and
    incorporated by reference thereto.)                                                                                                                                                               
|        | 10. | 20    |  | Form of Incentive Stock Option Agreement under
    the Moldflow Corporation 2000 Stock Option and Incentive Plan.
    (Previously filed as an exhibit to the Companys
    Registration Statement on Form S-1 (File
    No. 333-95289) and incorporated by reference thereto.)                                                                                                                                                                                                                       
|        | 10. | 21    |  | Form of Non-Qualified Stock Option Agreement for
    Company Employees under the Moldflow Corporation 2000 Stock
    Option and Incentive Plan. (Previously filed as an exhibit to
    the Companys Registration Statement on Form S-1 (File
    No. 333-95289) and incorporated by reference thereto.)                                                                                                                                                                                             
|        | 10. | 22    |  | Moldflow Corporation Employee Stock Purchase
    Plan. (Previously filed as an exhibit to the Companys
    Registration Statement on Form S-1 (File
    No. 333-95289) and incorporated by reference thereto.)                                                                                                                                                                                                                                                                                      
|        | 10. | 23    |  | Moldflow Corporation 1997 Equity Incentive Plan.
    (Previously filed as an exhibit to the Companys
    Registration Statement on Form S-1 (File
    No. 333-95289) and incorporated by reference thereto.)                                                                                                                                                                                                                                                                                        
|        | 10. | 32    |  | Form of Director Indemnification Agreement to be
    entered into between the Registrant and each non-employee
    director. (Previously filed as an exhibit to the Companys
    Registration Statement on Form S-1 (File
    No. 333-95289) and incorporated by reference thereto.)**                                                                                                                                                                                                              

39



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##### Table of Contents



|        |     |       |  |                                                                                                                                                                                                                                                                                                                                                                                          
|------- | --- | ----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |      
|No.     |     | Title
|        |     |      
|        | 10. | 33    |  | Form of Non-Qualified Stock Option Agreement for
    Non-Employee Directors under the Moldflow Corporation 2000 Stock
    Option and Incentive Plan. (Previously filed as an exhibit to
    the Companys Registration Statement on Form S-1
    (File No. 333-95289) and incorporated by reference
    thereto.)**                                                                      
|        | 10. | 34    |  | Lease, dated as of June 16, 2000 by and
    between Wayland Business Center, LLC, as Landlord and Moldflow
    Corporation as Tenant. (Previously filed as an exhibit to the
    Companys Annual Report on Form 10-K for the fiscal
    year ended June 30, 2000 filed with the Securities and
    Exchange Commission on September 22, 2000 and incorporated
    by reference thereto.)
|        | 10. | 36    |  | Loan Agreement as of November 13, 2001
    between Silicon Valley Bank and Moldflow Corporation.
    (Previously filed as an exhibit to the Companys Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    December 29, 2001 filed with the Securities and Exchange
    Commission on February 11, 2002 and incorporated by
    reference thereto.)                        
|        | 10. | 37    |  | Letter Agreement between Moldflow Corporation and
    Marc Dulude dated as of July 2, 2002.** (Previously filed
    as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the fiscal quarter ended December 28,
    2002 filed with the Securities and Exchange Commission on
    February 7, 2003 and incorporated by reference thereto.)                                
|        | 10. | 38    |  | Employment Agreement, dated August 16, 2002,
    between the Registrant and Suzanne E. Rogers MacCormack.**
    (Previously filed as an exhibit to the Companys Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    December 28, 2002 filed with the Securities and Exchange
    Commission on February 7, 2003 and incorporated by
    reference thereto.)              
|        | 10. | 39    |  | Employment Agreement, dated August 16, 2002,
    between the Registrant and Kenneth R. Welch.** (Previously
    filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the fiscal quarter ended December 28,
    2002 filed with the Securities and Exchange Commission on
    February 7, 2003 and incorporated by reference thereto.)                              
|        | 10. | 40    |  | Employment Agreement, dated January 23,
    2004, between the Registrant and Timothy Triplett.** (Previously
    filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the fiscal quarter ended December 27,
    2003 filed with the Securities and Exchange Commission on
    February 10, 2004 and incorporated by reference thereto.)                            
|        | 10. | 41    |  | Employment Agreement, dated August 16, 2002,
    between the Registrant and A. Roland Thomas.** (Previously
    filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q for the fiscal quarter ended December 28,
    2002 filed with the Securities and Exchange Commission on
    February 7, 2003 and incorporated by reference thereto.)                              
|        | 10. | 42    |  | Loan Modification Agreement, dated as of
    June 11, 2002, between Silicon Valley Bank and Moldflow.
    (Previously filed as an exhibit to the Companys Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    December 28, 2002 filed with the Securities and Exchange
    Commission on February 7, 2003 and incorporated by
    reference thereto.)                    
|        | 10. | 43    |  | Loan Modification Agreement, dated as of
    June 26, 2002, between Silicon Valley Bank and Moldflow.
    (Previously filed as an exhibit to the Companys Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    December 28, 2002 filed with the Securities and Exchange
    Commission on February 7, 2003 and incorporated by
    reference thereto.)                    
|        | 10. | 44    |  | Loan Modification Agreement, dated as of
    December 6, 2002, between Silicon Valley Bank and Moldflow.
    (Previously filed as an exhibit to the Companys Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    December 28, 2002 filed with the Securities and Exchange
    Commission on February 7, 2003 and incorporated by
    reference thereto.)                 
|        | 10. | 45    |  | Employment Agreement, dated November 1,
    2002, between the Registrant and Ian M. Pendlebury.**
    (Previously filed as an exhibit to the Companys Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    December 28, 2002 filed with the Securities and Exchange
    Commission on February 7, 2003 and incorporated by
    reference thereto.)                        
|        | 10. | 46    |  | Employment Agreement, dated October 31,
    2002, between the Registrant and Peter K. Kennedy.**
    (Previously filed as an exhibit to the Companys Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    December 28, 2002 filed with the Securities and Exchange
    Commission on February 7, 2003 and incorporated by
    reference thereto.)                         

40



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|        |     |       |  |                                                                                                                                                                                                                                                                                                                                                                     
|------- | --- | ----- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |     |      
|No.     |     | Title
|        |     |      
|        | 10. | 47    |  | Employment Agreement, dated November 12,
    2002, between the Registrant and Lori M. Henderson. **
    (Previously filed as an exhibit to the Companys Quarterly
    Report on Form 10-Q for the fiscal quarter ended
    December 28, 2002 filed with the Securities and Exchange
    Commission on February 7, 2003 and incorporated by
    reference thereto.) 
|        | 10. | 48    |  | Third Amendment to the Moldflow Corporation 2000
    Stock Option and Incentive Plan. (Previously filed as an exhibit
    to the Companys Quarterly Report on Form 10-Q for the
    fiscal quarter ended December 27, 2003 filed with the
    Securities and Exchange Commission on February 10, 2004 and
    incorporated by reference thereto.)                  
|        | 10. | 49    |  | Loan Modification Agreement, dated
    January 15, 2004, between Silicon Valley Bank and
    Registrant (Previously filed as an exhibit to the Companys
    Quarterly Report on Form 10-Q for the fiscal quarter ended
    December 27, 2003 filed with the Securities and Exchange
    Commission on February 10, 2004 and incorporated by
    reference thereto.)
|        | 21. | 1     |  | Subsidiaries of the Registrant. (Filed herewith.)                                                                                                                                                                                                                                                                                                                   
|        | 23. | 1     |  | Consent of PricewaterhouseCoopers LLP. (Filed
    herewith.)                                                                                                                                                                                                                                                                                                        
|        | 31. | 1     |  | Certification of Chief Executive Officer. (Filed
    herewith.)                                                                                                                                                                                                                                                                                                     
|        | 31. | 2     |  | Certification of Chief Financial Officer. (Filed
    herewith.)                                                                                                                                                                                                                                                                                                     
|        | 32. | 1     |  | Section 1350 Certification of Chief
    Executive Officer.(1) (Filed herewith.)                                                                                                                                                                                                                                                                                     
|        | 32. | 2     |  | Section 1350 Certification of Chief
    Financial Officer.(1) (Filed herewith.)                                                                                                                                                                                                                                                                                     



---



|    |                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|**  | 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.                                                                                                                                                                                
|   
|(1) | 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

Current Report on Form 8-K furnished on
April 22, 2004 attaching the press release reporting the
Companys financial results for its fiscal quarter and nine
months ended March 27, 2004.

Current Report on Form 8-K furnished on
August 3, 2004 attaching the press release reporting the
Companys financial results for its fiscal quarter and
fiscal year ended June 30, 2004.

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.

41



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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 10, 2004

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 10, 2004
|                         
|/s/ SUZANNE E. MACCORMACK |  | Executive Vice President and
    Chief Financial Officer
    (Principal Financial Officer and
    Principal Accounting Officer) |  | September 10, 2004
|                         
|/s/ MARC J.L. DULUDE      |  | Director                                                                                                                        |  | September 10, 2004
|                         
|/s/ ROGER E. BROOKS       |  | Director                                                                                                                        |  | September 10, 2004
|                         
|/s/ FRANK W. HAYDU III    |  | Director                                                                                                                        |  | September 10, 2004
|                         
|/s/ ROBERT J. LEPOFSKY    |  | Director                                                                                                                        |  | September 10, 2004
|                         
|/s/ ROBERT P. SCHECHTER   |  | Director                                                                                                                        |  | September 10, 2004

42



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##### Table of Contents






SCHEDULE II



|             |                                  
|------------ | ---------------------------------
|Schedule II. | Valuation and Qualifying Accounts

|                                  |                                        |           |   |                |  |            |   |         |     |  |   |        |      |  |   |       | 
|--------------------------------- | -------------------------------------- | --------- | - | -------------- |  | ---------- | - | ------- | --- |  | - | ------ | ---- |  | - | ----- | 
|                                  |                                        | Beginning |   |                |  |            |   | Ending 
|Item                              |                                        | Balance   |   | Additions      |  | Deductions |   | Balance
|                                  |                                        |           |   |                |  |            |   |        
|                                  |                                        |           |   |                |  |           
|                                  |                                        |           |   | (In thousands) |  |           
|For the year ended June 30, 2004: |                                        |           |   |                |  |            |   |         |     |  |   |        |      |  |   |      
|                                  | Allowance for doubtful accounts        |           | $ | 347            |  |            | $ | 139     | (a) |  | $ | (66    | )(b) |  | $ | 420   | 
|                                  | Deferred tax asset valuation allowance |           |   | 789            |  |            |   | 852     | (a) |  |   | (127   | )(c) |  |   | 1,514 | 
|For the year ended June 30, 2003: |                                        |           |   |                |  |            |   |         |     |  |   |        |      |  |   |      
|                                  | Allowance for doubtful accounts        |           |   | 315            |  |            |   | 92      | (a) |  |   | (60    | )(b) |  |   | 347   | 
|                                  | 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   | 
|                                  | Deferred tax asset valuation allowance |           |   | 4,496          |  |            |   | 511     | (a) |  |   | (4,637 | )(c) |  |   | 370   | 



---



|    |                                                                              
|--- | -----------------------------------------------------------------------------
|(a) | Additional provisions 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.

43



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INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS

|                                                                                                    |  |  |      | 
|--------------------------------------------------------------------------------------------------- |  |  | ---- | 
|Consolidated Balance Sheet at June 30, 2004
    and 2003                                            |  |  | F-2  | 
|Consolidated Statement of Operations for the
    years ended June 30, 2004, 2003 and 2002           |  |  | F-3  | 
|Consolidated Statement of Stockholders
    Equity for the years ended June 30, 2004, 2003 and 2002 |  |  | F-4  | 
|Consolidated Statement of Cash Flows for the
    years ended June 30, 2004, 2003 and 2002           |  |  | F-5  | 
|Notes to Consolidated Financial Statements                                                          |  |  | F-6  | 
|Report of Independent Registered Public
    Accounting Firm                                         |  |  | F-33 | 

F-1



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##### Table of Contents



MOLDFLOW CORPORATION

CONSOLIDATED BALANCE SHEET

|                                                                    |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |        |        | 
|------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | ------ | ------ | ------ |  | ----- | ------ | ------ | 
|                                                                    |                                                                                                                                                                                                                                        |                                           
|                                                                    |                                                                                                                                                                                                                                        | June 30,                                  
|                                                                    |                                                                                                                                                                                                                                        |                                           
|                                                                    |                                                                                                                                                                                                                                        | 2004                                       |        | 2003  
|                                                                    |                                                                                                                                                                                                                                        |                                            |        |       
|                                                                    |                                                                                                                                                                                                                                        |                                           
|                                                                    |                                                                                                                                                                                                                                        | (In thousands, except                     
|                                                                    |                                                                                                                                                                                                                                        | share and per share                       
|                                                                    |                                                                                                                                                                                                                                        | data)                                     
|ASSETS                                                             
|Current assets:                                                     |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|                                                                    | Cash and cash equivalents                                                                                                                                                                                                              |                                            | $      | 35,987 |        |  | $     | 38,320 |       
|                                                                    | Marketable securities                                                                                                                                                                                                                  |                                            |        | 15,665 |        |  |       | 13,820 |       
|                                                                    | Accounts receivable, net of allowance for
    doubtful accounts of $420 and $347 at June 30, 2004 and
    2003, respectively                                                                                                           |                                            |        | 8,578  |        |  |       | 6,147  |       
|                                                                    | Inventories                                                                                                                                                                                                                            |                                            |        | 1,246  |        |  |       | 313    |       
|                                                                    | Prepaid expenses                                                                                                                                                                                                                       |                                            |        | 3,442  |        |  |       | 2,189  |       
|                                                                    | Other current assets                                                                                                                                                                                                                   |                                            |        | 2,063  |        |  |       | 2,509  |       
|                                                                    |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|                                                                    |                                                                                                                                                                                                                                        | Total current assets                       |        |        | 66,981 |  |       |        | 63,298 | 
|Fixed assets, net                                                   |                                                                                                                                                                                                                                        |                                            | 3,502  |        |        |  | 3,528 |       
|Acquired intangible assets, net                                     |                                                                                                                                                                                                                                        |                                            | 1,986  |        |        |  | 685   |       
|Goodwill                                                            |                                                                                                                                                                                                                                        |                                            | 18,625 |        |        |  | 9,670 |       
|Other assets                                                        |                                                                                                                                                                                                                                        |                                            | 3,264  |        |        |  | 2,296 |       
|                                                                    |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|                                                                    | Total assets                                                                                                                                                                                                                           |                                            | $      | 94,358 |        |  | $     | 79,477 |       
|                                                                    |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|                                                                   
|LIABILITIES AND STOCKHOLDERS
    EQUITY                           
|Current liabilities:                                                |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|                                                                    | Accounts payable                                                                                                                                                                                                                       |                                            | $      | 3,251  |        |  | $     | 1,684  |       
|                                                                    | Accrued expenses                                                                                                                                                                                                                       |                                            |        | 9,653  |        |  |       | 7,439  |       
|                                                                    | Deferred revenue                                                                                                                                                                                                                       |                                            |        | 10,013 |        |  |       | 8,551  |       
|                                                                    |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|                                                                    |                                                                                                                                                                                                                                        | Total current liabilities                  |        |        | 22,917 |  |       |        | 17,674 | 
|Deferred revenue                                                    |                                                                                                                                                                                                                                        |                                            | 605    |        |        |  | 513   |       
|Other long-term liabilities                                         |                                                                                                                                                                                                                                        |                                            | 1,257  |        |        |  | 641   |       
|                                                                    |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|                                                                    | Total liabilities                                                                                                                                                                                                                      |                                            |        | 24,779 |        |  |       | 18,828 |       
|                                                                    |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|Contingencies, commitments and guarantor
    arrangements (Note 19) |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|Stockholders equity:                                               |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|                                                                    | Preferred stock, $0.01 par value;
    5,000,000 shares authorized at June 30, 2004 and 2003;
    no shares issued and outstanding at June 30, 2004 and 2003                                                                            |                                            |        |       |        |  |       |       |       
|                                                                    | Common stock, $0.01 par value;
    40,000,000 shares authorized at June 30, 2004 and
    2003; 10,619,432 shares issued and outstanding at
    June 30, 2004; 10,217,299 shares issued and 10,031,882
    outstanding at June 30, 2003 |                                            |        | 106    |        |  |       | 102    |       
|                                                                    | Additional paid-in capital                                                                                                                                                                                                             |                                            |        | 67,554 |        |  |       | 62,867 |       
|                                                                    | Treasury stock, at cost; no shares at
    June 30, 2004 and 185,417 shares at June 30, 2003                                                                                                                                            |                                            |        |       |        |  |       | (926   | )     
|                                                                    | Accumulated deficit                                                                                                                                                                                                                    |                                            |        | (1,462 | )      |  |       | (4,090 | )     
|                                                                    | Accumulated other comprehensive income                                                                                                                                                                                                 |                                            |        | 3,381  |        |  |       | 2,696  |       
|                                                                    |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|                                                                    |                                                                                                                                                                                                                                        | Total stockholders equity                 |        |        | 69,579 |  |       |        | 60,649 | 
|                                                                    |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       
|                                                                    |                                                                                                                                                                                                                                        | Total liabilities and stockholders equity |        | $      | 94,358 |  |       | $      | 79,477 | 
|                                                                    |                                                                                                                                                                                                                                        |                                            |        |        |        |  |       |       

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,       
|                                                                 |                                            |                           
|                                                                 |                                            | 2004                       |       | 2003   |        | 2002
|                                                                 |                                            |                            |       |        |        |     
|                                                                 |                                            |                           
|                                                                 |                                            | (In thousands, except     
|                                                                 |                                            | per share data)           
|Revenue:                                                         |                                            |                            |       |        |        |      |       |        |        |   |        |       
|                                                                 | Product                                    |                            | $     | 26,063 |        |      | $     | 17,259 |        |   | $      | 17,870 |       
|                                                                 | Services                                   |                            |       | 22,610 |        |      |       | 19,366 |        |   |        | 17,218 |       
|                                                                 |                                            |                            |       |        |        |      |       |        |        |   |        |       
|                                                                 |                                            | Total revenue              |       |        | 48,673 |      |       |        | 36,625 |   |        |        | 35,088 | 
|                                                                 |                                            |                            |       |        |        |      |       |        |        |   |        |       
|Costs and expenses:                                              |                                            |                            |       |        |        |      |       |        |        |   |        |       
|                                                                 | Cost of product revenue                    |                            |       | 5,203  |        |      |       | 2,964  |        |   |        | 2,518  |       
|                                                                 | Cost of services revenue                   |                            |       | 4,536  |        |      |       | 1,210  |        |   |        | 1,401  |       
|                                                                 | Research and development                   |                            |       | 6,471  |        |      |       | 5,650  |        |   |        | 6,234  |       
|                                                                 | Selling and marketing                      |                            |       | 20,009 |        |      |       | 18,638 |        |   |        | 18,134 |       
|                                                                 | General and administrative                 |                            |       | 8,548  |        |      |       | 7,242  |        |   |        | 6,660  |       
|                                                                 | Restructuring charges                      |                            |       | 508    |        |      |       | 405    |        |   |        | 1,272  |       
|                                                                 | Amortization of acquired intangible assets |                            |       | 445    |        |      |       | 605    |        |   |        | 656    |       
|                                                                 |                                            |                            |       |        |        |      |       |        |        |   |        |       
|                                                                 |                                            | Total operating expenses   |       |        | 45,720 |      |       |        | 36,714 |   |        |        | 36,875 | 
|                                                                 |                                            |                            |       |        |        |      |       |        |        |   |        |       
|Income (loss) from operations                                    |                                            |                            | 2,953 |        |        |      | (89   | )      |        |   | (1,787 | )     
|Interest income                                                  |                                            |                            | 1,248 |        |        |      | 1,106 |        |        |   | 1,464  |       
|Interest expense                                                 |                                            |                            | (36   | )      |        |      | (17   | )      |        |   | (9     | )     
|Other income (loss), net                                         |                                            |                            | (15   | )      |        |      | (198  | )      |        |   | 1,712  |       
|                                                                 |                                            |                            |       |        |        |      |       |        |        |   |        |       
|                                                                 |                                            | Income before income taxes |       |        | 4,150  |      |       |        | 802    |   |        |        | 1,380  | 
|Provision for income taxes                                       |                                            |                            | 1,522 |        |        |      | 920   |        |        |   | 600    |       
|                                                                 |                                            |                            |       |        |        |      |       |        |        |   |        |       
|                                                                 |                                            | Net income (loss)          |       | $      | 2,628  |      |       | $      | (118   | ) |        | $      | 780    | 
|                                                                 |                                            |                            |       |        |        |      |       |        |        |   |        |       
|Net income (loss) per common share:                              |                                            |                            |       |        |        |      |       |        |        |   |        |       
|                                                                 | Basic                                      |                            | $     | 0.26   |        |      | $     | (0.01  | )      |   | $      | 0.08   |       
|                                                                 | Diluted                                    |                            | $     | 0.24   |        |      | $     | (0.01  | )      |   | $      | 0.08   |       
|Shares used in computing net income (loss) per
    common share: |                                            |                            |       |        |        |      |       |        |        |   |        |       
|                                                                 | Basic                                      |                            |       | 10,277 |        |      |       | 10,020 |        |   |        | 10,076 |       
|                                                                 | Diluted                                    |                            |       | 10,839 |        |      |       | 10,020 |        |   |        | 10,360 |       

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

|                                                                                 |                                                                      |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       |       |   |   |        |       |   |  |   |       |  
|-------------------------------------------------------------------------------- | -------------------------------------------------------------------- | --------------------------------- | ---------- | ---------- |  | -------------- | --- | -------- |  | ---------- | ------ | ------------ |  | ------------ | -------- | ------------- |  | ------------- | ---- | ------------- |  | ------ | --- | - |  | - | --- | - |  | - | ------ | ----- | - | - | ----- | ----- | - | - | ------ | ----- | - |  | - | ----- | -
|                                                                                 |                                                                      |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |              
|                                                                                 |                                                                      | Common Stock                      |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |              
|                                                                                 |                                                                      |                                   |            |            |  |                |     |          |  | Notes      |        |              |  | Accumulated  |          |               |  |              
|                                                                                 |                                                                      |                                   |            | Additional |  | Treasury Stock |     | Deferred |  | Receivable |        |              |  | Other        |          | Total         |  |              
|                                                                                 |                                                                      | Shares                            |            | Par        |  | Paid-In        |     |          |  | Stock      |        | from         |  | Accumulated  |          | Comprehensive |  | Stockholders |      | Comprehensive
|                                                                                 |                                                                      | Issued                            |            | Value      |  | Capital        |     | Shares   |  | Cost       |        | Compensation |  | Stockholders |          | Deficit       |  | Income (Loss) |      | Equity        |  | Income
|                                                                                 |                                                                      |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |               |  |       
|                                                                                 |                                                                      |                                  
|                                                                                 |                                                                      | (In thousands, except share data)
|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 |       |   |  |   |      
|Issuance of common stock in connection with the
    acquisition of AMSI (Note 3) |                                                                      |                                   | 202,424    |            |  |                | 2   |          |  |            | 3,644  |              |  |              | 146,864  |               |  |               | 745  |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       |       |   |   | 4,391  |       |   |  |   |      
|Exercise of stock options                                                        |                                                                      |                                   | 199,709    |            |  |                | 2   |          |  |            | 963    |              |  |              |          |               |  |               |      |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       |       |   |   | 965    |       |   |  |   |      
|Issuance of stock under employee stock purchase
    plan                         |                                                                      |                                   |            |            |  |                |     |          |  |            | 80     |              |  |              | 38,553   |               |  |               | 181  |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       |       |   |   | 261    |       |   |  |   |      
|Comprehensive income:                                                            |                                                                      |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       |       |   |   |        |       |   |  |   |      
|                                                                                 | Net income                                                           |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |               |  |        |     |   |  |   |     |   |  |   |        | 2,628 |   |   |       |       |   |   |        | 2,628 |   |  | $ | 2,628 |  
|                                                                                 | Change in unrealized losses on investments, net
    of taxes         |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       | (607  | ) |   |        | (607  | ) |  |   | (607  | )
|                                                                                 | Change in unrealized losses on hedging
    instruments, net of taxes |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       | (19   | ) |   |        | (19   | ) |  |   | (19   | )
|                                                                                 | Foreign currency translation adjustment                              |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       | 1,311 |   |   |        | 1,311 |   |  |   | 1,311 |  
|                                                                                 |                                                                      |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       |       |   |   |        |       |   |  |   |      
|                                                                                 | Comprehensive income                                                 |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       |       |   |   |        |       |   |  | $ | 3,313 |  
|                                                                                 |                                                                      |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       |       |   |   |        |       |   |  |   |      
|Balance at June 30, 2004                                                         |                                                                      |                                   | 10,619,432 |            |  | $              | 106 |          |  | $          | 67,554 |              |  |              |         |               |  | $             |     |               |  | $      |    |   |  | $ |    |   |  | $ | (1,462 | )     |   | $ | 3,381 |       |   | $ | 69,579 |       |   |  |   |      
|                                                                                 |                                                                      |                                   |            |            |  |                |     |          |  |            |        |              |  |              |          |               |  |               |      |               |  |        |     |   |  |   |     |   |  |   |        |       |   |   |       |       |   |   |        |       |   |  |   |      

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

F-4



---



##### Table of Contents



MOLDFLOW CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

|                                                                 |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |        |       |       |  
|---------------------------------------------------------------- | -------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ----------------------------------------------------------- | ------- | ----- | ------- | ------ | ------- | ----- | ------- | ------ | ------ | ----- | ----- | -
|                                                                 |                                                                                              |                                                                                 
|                                                                 |                                                                                              | Year Ended June 30,                                                             
|                                                                 |                                                                                              |                                                                                 
|                                                                 |                                                                                              | 2004                                                                             |                                                             | 2003    |       | 2002   
|                                                                 |                                                                                              |                                                                                  |                                                             |         |       |        
|                                                                 |                                                                                              |                                                                                 
|                                                                 |                                                                                              | (In thousands)                                                                  
|Cash flows from operating
    activities:                        |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|                                                                 | Net income (loss)                                                                            |                                                                                  | $                                                           | 2,628   |       |         | $      | (118    | )     |         | $      | 780    |      
|                                                                 | Adjustments to reconcile net income (loss) to net
    cash provided by operating activities: |                                                                                  |                                                             |         |       |         |        |         |       |         |        |        |      
|                                                                 |                                                                                              | Depreciation of fixed assets                                                     |                                                             |         | 1,428 |         |        |         | 1,429 |         |        |        | 1,308 |      
|                                                                 |                                                                                              | Amortization of acquired intangible assets                                       |                                                             |         | 505   |         |        |         | 605   |         |        |        | 656   |      
|                                                                 |                                                                                              | Amortization of capitalized software development
    costs                       |                                                             |         | 286   |         |        |         | 146   |         |        |        | 71    |      
|                                                                 |                                                                                              | Provisions for doubtful accounts                                                 |                                                             |         | 139   |         |        |         | 92    |         |        |        | 211   |      
|                                                                 |                                                                                              | Foreign exchange (gains) losses                                                  |                                                             |         | 1     |         |        |         | 160   |         |        |        | (206  | )    
|                                                                 |                                                                                              | Write-off of assets due to restructuring
    activities                          |                                                             |         |      |         |        |         | 471   |         |        |        |      |      
|                                                                 |                                                                                              | Gain on sale of investment in unaffiliated company                               |                                                             |         |      |         |        |         |      |         |        |        | (504  | )    
|                                                                 |                                                                                              | Gain on disposals of fixed assets                                                |                                                             |         |      |         |        |         |      |         |        |        | (622  | )    
|                                                                 |                                                                                              | Other non-cash charges or expenses                                               |                                                             |         | 13    |         |        |         | 78    |         |        |        | 94    |      
|                                                                 |                                                                                              | Changes in operating assets and liabilities, net
    of effects of acquisitions: |                                                             |         |       |         |        |         |       |         |        |        |       |      
|                                                                 |                                                                                              |                                                                                  | Accounts receivable                                         |         |       | (621    | )      |         |       | 47      |        |        |       | 1,705 |  
|                                                                 |                                                                                              |                                                                                  | Inventories, prepaid expenses, and other current
    assets |         |       | (16     | )      |         |       | (882    | )      |        |       | (78   | )
|                                                                 |                                                                                              |                                                                                  | Other assets                                                |         |       | (156    | )      |         |       | (157    | )      |        |       | (341  | )
|                                                                 |                                                                                              |                                                                                  | Accounts payable                                            |         |       | 649     |        |         |       | 399     |        |        |       | 38    |  
|                                                                 |                                                                                              |                                                                                  | Accrued expenses and other long-term liabilities            |         |       | 638     |        |         |       | (583    | )      |        |       | 870   |  
|                                                                 |                                                                                              |                                                                                  | Deferred revenue                                            |         |       | 973     |        |         |       | 697     |        |        |       | 979   |  
|                                                                 |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|                                                                 |                                                                                              |                                                                                  | Net cash provided by operating activities                   |         |       | 6,467   |        |         |       | 2,384   |        |        |       | 4,961 |  
|                                                                 |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|Cash flows from investing
    activities:                        |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|                                                                 | Purchases of fixed assets                                                                    |                                                                                  |                                                             | (1,035  | )     |         |        | (1,240  | )     |         |        | (1,143 | )    
|                                                                 | Capitalization of software development costs                                                 |                                                                                  |                                                             | (856    | )     |         |        | (669    | )     |         |        | (602   | )    
|                                                                 | Proceeds from fixed asset disposals                                                          |                                                                                  |                                                             |        |       |         |        |        |       |         |        | 931    |      
|                                                                 | Purchases of marketable securities                                                           |                                                                                  |                                                             | (11,105 | )     |         |        | (14,822 | )     |         |        |       |      
|                                                                 | Sales of marketable securities                                                               |                                                                                  |                                                             | 9,260   |       |         |        | 4,235   |       |         |        | 9,085  |      
|                                                                 | Acquisition of AMSI, net of cash acquired                                                    |                                                                                  |                                                             | (7,091  | )     |         |        |        |       |         |        |       |      
|                                                                 | Acquisition of CPI                                                                           |                                                                                  |                                                             |        |       |         |        | (902    | )     |         |        |       |      
|                                                                 | Proceeds from sale of investment in unaffiliated
    company                                 |                                                                                  |                                                             |        |       |         |        |        |       |         |        | 565    |      
|                                                                 |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|                                                                 |                                                                                              |                                                                                  | Net cash provided by (used in) investing
    activities     |         |       | (10,827 | )      |         |       | (13,398 | )      |        |       | 8,836 |  
|                                                                 |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|Cash flows from financing
    activities:                        |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|                                                                 | Proceeds from issuance of common stock                                                       |                                                                                  |                                                             | 1,226   |       |         |        | 356     |       |         |        | 399    |      
|                                                                 | Purchase of treasury stock                                                                   |                                                                                  |                                                             |        |       |         |        | (909    | )     |         |        | (464   | )    
|                                                                 | Collection of notes receivable from stockholders                                             |                                                                                  |                                                             |        |       |         |        | 29      |       |         |        | 10     |      
|                                                                 |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|                                                                 |                                                                                              |                                                                                  | Net cash provided by (used in) financing
    activities     |         |       | 1,226   |        |         |       | (524    | )      |        |       | (55   | )
|                                                                 |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|Effect of exchange rate changes on cash and cash
    equivalents |                                                                                              |                                                                                  | 801                                                         |         |       |         | 2,224  |         |       |         | 923    |       
|                                                                 |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|Net increase (decrease) in cash and cash
    equivalents         |                                                                                              |                                                                                  | (2,333                                                      | )       |       |         | (9,314 | )       |       |         | 14,665 |       
|Cash and cash equivalents, beginning of year                     |                                                                                              |                                                                                  | 38,320                                                      |         |       |         | 47,634 |         |       |         | 32,969 |       
|                                                                 |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|Cash and cash equivalents, end of year                           |                                                                                              | $                                                                                | 35,987                                                      |         |       | $       | 38,320 |         |       | $       | 47,634 |       
|                                                                 |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|Supplemental disclosure of cash flow
    information:            |                                                                                              |                                                                                  |                                                             |         |       |         |        |         |       |         |        |       
|                                                                 | Cash paid during the year for income taxes                                                   |                                                                                  | $                                                           | 1,233   |       |         | $      | 2,814   |       |         | $      | 930    |      

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

F-5



---



##### Table of Contents



MOLDFLOW CORPORATION




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS



|   |                                                 
|-- | ------------------------------------------------
|1. | Basis of Presentation and Nature of
    Business

Moldflow Corporation (Moldflow or the
Company) designs, develops, manufactures and markets
computer software applications and hardware for the design,
engineering and manufacture of injection-molded plastic parts
and, as such, revenues are derived primarily from the plastics
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 its
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). On January 23, 2004, the Company
acquired all of the outstanding shares of American MSI
Corporation (AMSI). These business combinations were
accounted for using the purchase method of accounting.
Accordingly, these consolidated financial statements include the
results of operations of C-Mold, Branden, CPI and AMSI from the
dates of their respective acquisition (Note 3).

The Companys fiscal year end is
June 30. References to 2004, 2003 or 2002 mean the fiscal
year ended June 30, unless otherwise indicated.

Certain prior year balance sheet amounts have
been reclassified to conform with the fiscal 2004 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. The
Company has no special purpose entities.

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
$1,000, ($160,000) and $206,000 for the years ended
June 30, 2004, 2003 and 2002, respectively.

Cash and Cash Equivalents

All highly liquid investments with an original
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,
2004, 33%, 23%, 14%, 14%, and 4% of the Companys cash and
cash equivalents were invested in money market and investment
accounts of five separate financial institutions; the remaining
12% of cash and cash equivalents were held in various operating
bank accounts. At June 30, 2003, 30%, 27%, 21% and 14% of
the Companys cash and cash equivalents were invested in
money market, deposit and investment accounts of four separate
financial institutions; the remaining 8% were held in various
operating bank accounts.

F-6



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MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Marketable Securities

At June 30, 2004 and 2003, the
Companys marketable securities consisted of debt
securities with maturities at the date of purchase in excess of
three months. At June 30, 2004, marketable securities
included $11.1 million of corporate bonds and
$4.6 million of U.S. government bonds. At
June 30, 2003, marketable securities included
$13.8 million of corporate bonds. 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. As of
June 30, 2004 and 2003, the unrealized gains (losses) on
these marketable securities were ($58,000) and $9,500, net of
related tax effects, respectively.

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
creditworthiness, 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, 2004 and
2003, the Company was in compliance with this policy.

Fair Value of Financial Instruments

The Companys financial instruments consist
of primarily cash and cash equivalents, marketable securities,
accounts receivable, hedging instruments and accounts payable.
The carrying amounts of these instruments at June 30, 2004
and 2003 approximated their fair values.

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 twelve 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
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 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. The
assessment of hedge effectiveness is 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. At that

F-7



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MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

time and prospectively, any gain or loss on the
instrument is recognized in current earnings as a component of
other income and expense.

Inventories

Inventories 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 carrying value. There
were no such write-downs in fiscal 2004. In the years ended
June 30, 2003 and 2002, write-downs of $179,000 and
$138,000, respectively, were recorded.

Fixed Assets

Fixed assets, excluding buildings, are recorded
at cost and are depreciated using the straight-line method over
their estimated useful lives. The Companys building has
been recorded at cost and is being depreciated over its
estimated useful life using the diminishing value method.
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.

Goodwill and Acquired Intangible
Assets

Goodwill represents the excess of cost over the
fair value of the net assets acquired in the purchases of
Advanced CAE Technology, Inc. (C-Mold), Branden
Technologies, CPI and AMSI (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 acquired intangible assets at,
and subsequent to, the date of acquisition. Under these
standards, goodwill is no longer amortized. As a result, the
Company stopped amortizing its goodwill as of July 1, 2001.
Goodwill is assessed for impairment at least annually, on a
reporting unit basis, or more frequently when events and
circumstances occur indicating that the recorded goodwill may be
impaired. If the book value of a reporting unit exceeds its fair
value, the implied fair value of goodwill is compared with the
carrying amount of goodwill. If the carrying amount of goodwill
exceeds the implied fair value, an impairment loss is recorded
in an amount equal to that excess.

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

|                       |  |             |       | 
|---------------------- |  | ----------- | ----- | 
|                       |  | Estimated  
|                       |  | Useful Life
|                       |  | (Years)    
|                       |  |            
|Customer base          |  |             | 3.5-7 | 
|Developed technology   |  |             | 4-7   | 
|Non-compete agreements |  |             | 1-5   | 
|Customer order backlog |  |             | 0.5   | 

Long-Lived Assets

The Company periodically evaluates its long-lived
assets, which include fixed assets and acquired intangible
assets, for events and circumstances that indicate a potential
impairment in accordance with SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets. The Company reviews long-lived assets for
impairment whenever events or changes in business circumstances
indicate that the carrying

F-8



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

amount of the assets may not be fully recoverable
or that the useful lives of these assets are no longer
appropriate. Each impairment test is based on a comparison of
the estimated undiscounted cash flows to the recorded value of
the asset. If impairment is indicated, the asset is written down
to its estimated fair value based on a discounted cash flow
analysis.

Revenue Recognition

Revenue is derived from three principal sources:
license fees for packaged software products; product fees for
manufacturing management systems and hot runner process
controllers; and service fees from maintenance and support
contracts, consulting, implementation, training and material
testing services.



| |                                                                    
| | -------------------------------------------------------------------
| | Packaged Software Products and
    Manufacturing Management Systems

For revenue derived from license fees for
packaged software products and from product fees for
manufacturing management systems, the Company follows AICPA
Statement of Position (SOP) No. 97-2,
Software Revenue Recognition, as amended by SOP
No. 98-9, Modification of SOP No. 97-2 with
Respect to Certain Transactions, 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 arrangement exists, the
license fee is fixed or determinable, and collection of the
related receivable is reasonably assured and free of
contingencies.

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. The Company uses the
residual method to recognize revenues from arrangements like
these with one or more elements to be delivered at a future
date, when evidence of the fair value of all undelivered
elements exists. Under the residual method, the fair value of
the undelivered elements, such as installation and maintenance
services, is deferred and the remaining portion of the total
arrangement fee is recognized as revenue. The Company determines
vendor-specific objective evidence of the fair value of
undelivered services based on the prices that are charged when
the same element is sold separately to customers. The fair value
of maintenance and support services may also be determined based
on the price to be paid upon renewal of that service in
accordance with the optional renewal terms offered contractually
to a customer. If sufficient evidence of the fair value of an
undelivered element does not exist, all revenue from the
arrangement is deferred and recognized upon delivery of that
element or at the time that fair value can be established for
the undelivered element.

The Company recognizes revenue from software
maintenance and support contracts ratably over the related
contract period and from training and other services as they are
performed. The Companys software products do not require
significant modification or customization. Implementation of the
products is generally routine and can be performed by the
customer or other third-party providers.



| |                                   
| | ----------------------------------
| | Hot Runner Process
    Controllers

For revenue derived from sales of hot runner
process controllers and other hardware products with
insignificant embedded software, the Company applies the
guidance of EITF No. 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables, and the
Securities and Exchange Commissionss Staff Accounting
Bulletin No. 104, Revenue Recognition. The
Company recognizes revenue when the product is shipped to the
customer, provided that evidence of the arrangement exists,
legal title has passed to the customer, all significant
contractual obligations have been satisfied, the arrangement fee
is fixed or determinable and collection of the related
receivable is reasonably assured. The Companys hot runner
process controllers 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.

F-9



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |        
| | -------
| | General

If an arrangement includes customer acceptance
criteria, the Company defers all revenue from the arrangement
until acceptance is received or the acceptance period has
lapsed, unless those acceptance criteria only require that the
product perform in accordance with the Companys standard
published product specifications. If a customers
obligation to pay the Company is contingent upon a future event
such as installation or acceptance, the Company defers all
revenue from the arrangement until that event has occurred.

A portion of the Companys revenue is
derived from sales to resellers. The Company recognizes revenue
upon delivery of the product to these resellers, provided that
the same conditions for revenue recognition described above are
met.

The Companys arrangements with customers,
including resellers, do not contain any rights of product
return, other than those related to standard warranty provisions
that permit repair or replacement of defective goods.
Anticipated warranty costs are accrued upon product shipment.

Deferred revenue at each balance sheet date
consists of deferred product revenue and deferred service
revenue. Deferred product revenue is comprised of amounts that
have been invoiced to customers upon delivery of a product, but
are not yet recognizable as revenue because one or more of the
conditions for revenue recognition have not been met. Deferred
service revenue represents amounts invoiced to customers for
maintenance and support contracts, which are recognized ratably
over the term of the arrangements, or for implementation or
training services that have not yet been provided.

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 are capitalized
thereafter until the product is available for general release to
customers. Subsequently, the costs are amortized to cost of
product revenue over the estimated economic life of the product.

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. Advertising expenses for the years ended June 30,
2004, 2003 and 2002 were $1.2 million, $1.1 million
and $1.1 million, respectively.

Income Taxes

The Companys provision for income taxes is
comprised of a current and a deferred income tax provision. The
current income tax provision is calculated as the estimated
taxes payable or refundable for the current year. The deferred
income tax provision is calculated for the estimated future tax
effects attributable to temporary differences and carryforwards
using expected enacted rates in effect in the years during which
the differences are expected to reverse. Valuation allowances
are provided if, based on the weight of available evidence, it
is more likely than not that some or all of the deferred tax
assets will not be realized.

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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 15). All stock-based awards to non-employees are
accounted for at their fair value in accordance with
SFAS No. 123.

Had compensation cost been determined based on
the fair value at the grant dates for awards in 2004, 2003 and
2002 consistent with the provisions of SFAS No. 123,
the Companys net income (loss) would have been the pro
forma amounts indicated below.

|                                    |                                                                                                                                 |                        |   |        |   |      |   |        |   |  |   |        |  
|----------------------------------- | ------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | - | ------ | - | ---- | - | ------ | - |  | - | ------ | -
|                                    |                                                                                                                                 |                       
|                                    |                                                                                                                                 | Year Ended June 30,   
|                                    |                                                                                                                                 |                       
|                                    |                                                                                                                                 | 2004                   |   | 2003   |   | 2002
|                                    |                                                                                                                                 |                        |   |        |   |     
|                                    |                                                                                                                                 |                       
|                                    |                                                                                                                                 | (In thousands,        
|                                    |                                                                                                                                 | except per share data)
|Net income (loss):                  |                                                                                                                                 |                        |   |        |   |      |   |        |   |  |   |       
|                                    | As reported                                                                                                                     |                        | $ | 2,628  |   |      | $ | (118   | ) |  | $ | 780    |  
|                                    | Less: stock-based employee compensation expense
    determined under the fair value based method, net of related tax
    effect |                        |   | (4,438 | ) |      |   | (4,765 | ) |  |   | (5,699 | )
|                                    |                                                                                                                                 |                        |   |        |   |      |   |        |   |  |   |       
|                                    | Pro forma                                                                                                                       |                        | $ | (1,810 | ) |      | $ | (4,883 | ) |  | $ | (4,919 | )
|                                    |                                                                                                                                 |                        |   |        |   |      |   |        |   |  |   |       
|Net income (loss) per common share: |                                                                                                                                 |                        |   |        |   |      |   |        |   |  |   |       
|                                    | Basic  As reported                                                                                                             |                        | $ | 0.26   |   |      | $ | (0.01  | ) |  | $ | 0.08   |  
|                                    | Basic  Pro forma                                                                                                               |                        | $ | (0.18  | ) |      | $ | (0.49  | ) |  | $ | (0.49  | )
|                                    | Diluted  As reported                                                                                                           |                        | $ | 0.24   |   |      | $ | (0.01  | ) |  | $ | 0.08   |  
|                                    | Diluted  Pro forma                                                                                                             |                        | $ | (0.18  | ) |      | $ | (0.49  | ) |  | $ | (0.49  | )

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,
|                                |  |                    
|                                |  | 2004                |      | 2003 |  | 2002
|                                |  |                     |      |      |  |     
|Dividend yield                  |  |                     |     |      |  |      |     |   |  |  |     |  
|Volatility                      |  |                     | 88.8 | %    |  |      | 69.8 | % |  |  | 73.9 | %
|Risk-free interest rate         |  |                     | 3.1  | %    |  |      | 3.0  | % |  |  | 4.5  | %
|Expected option life (in years) |  |                     | 4.7  |      |  |      | 4.7  |   |  |  | 4.4  |  

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. Diluted earnings per common
share is computed by dividing net income (loss) by the
weighted-average number of common shares outstanding 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 16).

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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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, 2004, accumulated other
comprehensive income was comprised of $3.4 million of
cumulative foreign currency translation adjustments, $48,000 of
unrealized losses on marketable securities, and $6,000 of
unrealized gains on hedging instruments. At June 30, 2003,
accumulated other comprehensive income was comprised of
$2.7 million of cumulative foreign currency translation
adjustments, $10,000 of unrealized gains on marketable
securities, and $27,000 of unrealized gains on hedging
instruments. The individual components of comprehensive income
are reflected in the consolidated statement of
stockholders equity for each of the years presented.

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 November 2002, the Financial Accounting
Standards Board (FASB) Emerging Issues Task Force
(EITF) reached a consensus on EITF Issue
No. 00-21, Revenue Arrangements with Multiple
Deliverables. EITF Issue No. 00-21 provides guidance
on how to account for arrangements that involve the delivery or
performance of multiple products, services and/or rights to use
assets. The provisions of EITF Issue No. 00-21 apply to
revenue arrangements entered into in fiscal periods beginning
after June 15, 2003. The adoption of EITF Issue
No. 00-21 did not have a significant impact on the
Companys financial position, results of operations or cash
flows.

In January 2003, FASB issued Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities, which clarifies the
application of Accounting Research Bulletin
(ARB) No. 51, Consolidated Financial
Statements, relating to consolidation of certain entities.
FIN 46 requires identification of the Companys
participation in variable interest entities (VIE),
which are defined as entities with a level of invested equity
that is not sufficient to fund future activities to permit them
to operate on a stand alone basis, or whose equity holders lack
certain characteristics of a controlling financial interest. For
entities identified as a VIE, FIN 46 sets forth a model to
evaluate potential consolidation based on an assessment of which
party to the VIE, if any, bears a majority of the exposure to
its expected losses, or stands to gain from a majority of its
expected returns. In December 2003, the FASB issued a revised
FIN 46 (FIN 46R) to defer the effective
date and provide further clarification on the interpretation.
FIN 46R was effective for public companies in the quarter
ended March 31, 2004. The adoption of FIN 46 did not
have a significant impact on the Companys financial
position, results of operations or cash flows.

In April 2003, the FASB issued
SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities.
SFAS No. 149 amends and clarifies accounting for
derivative instruments including certain derivative instruments
embedded in other contracts and hedging activities under
SFAS No. 133. It was effective for contracts entered
into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption
of this standard did not have a significant impact on the
Companys financial position, results of operations or cash
flows.

In August 2003, the EITF reached a consensus on
Issue No. 03-05, Applicability of AICPA Statement of
Position 97-2 to Non-Software Deliverables in an Arrangement
Containing More-Than-Incidental

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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Software. In its consensus, the EITF
confirmed that in a revenue arrangement that contains software
that is more than incidental to the products or services as a
whole, only the software and software-related elements are
included within the scope of SOP 97-2. Software-related
elements include software-related products and services such as
those listed in paragraph 9 of SOP 97-2 as well as
other deliverables for which the software is essential to their
functionality. The adoption of EITF 03-05 did not have a
significant impact on the Companys financial position,
results of operations or cash flows.

In December 2003, the Securities and Exchange
Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition.
SAB No. 104 revises or rescinds portions of the
interpretative guidance included in Topic 13 of the codification
of staff accounting bulletins in order to make this interpretive
guidance consistent with current authoritative accounting
guidance and SEC rules and regulations. The adoption of SAB
No. 104 did not have a significant impact on the
Companys financial position, results of operations or cash
flows.

In March 2004, the EITF reached a consensus on
EITF No. 03-06, Participating Securities and the
Two-Class Method under FASB Statement No. 128,
Earnings per Share. EITF No. 03-06 addresses a number
of questions regarding the computation of earnings per share by
companies that have issued securities other than common stock
that contractually entitle the holder to participate in
dividends and earnings of the company when, and if, it declares
dividends on its common stock. The issue also provides further
guidance in applying the two-class method of calculating
earnings per share. It clarifies what constitutes a
participating security and how to apply the two-class method of
computing earnings per share once it is determined that a
security is participating, including how to allocate
undistributed earnings to such a security. The consensus reached
on EITF No. 03-06 is effective for fiscal periods beginning
after March 31, 2004. Prior period earnings per share
amounts are required to be restated to ensure comparability year
over year. The adoption of EITF No. 03-06 did not have a
significant impact on the Companys financial position,
results of operations or cash flows.



|   |             
|-- | ------------
|3. | Acquisitions

American MSI Corporation

On January 23, 2004, the Company acquired
all of the outstanding stock of American MSI Corporation
(AMSI), located in Moorpark, California, in exchange
for $7.2 million in cash, of which $1.1 million was
used to retire all of AMSIs outstanding debt, and
349,288 shares of the Companys common stock, valued
at $4.4 million for accounting purposes or $12.57 per
share. Of the shares issued, 146,864 were issued from the
Companys existing treasury shares. In addition, the
Company paid $293,000 of costs directly related to the
acquisition. The Company believes the acquisition of AMSI will
expand the breadth of the Companys product offerings for
the injection molding shop floor, add managerial depth to the
organization and create opportunities for increased sales of the
Companys traditional manufacturing products. For these
reasons, the purchase price exceeded the fair value of net
tangible and intangible assets, resulting in goodwill. The
results of AMSI have been included in the Companys
consolidated financial statements from the date of acquisition.

The purchase price was allocated to the assets
acquired and liabilities assumed based on their estimated fair
values as of the date of the acquisition. Certain of the
acquired assets were intangible in nature, including the
acquired customer base, developed technology, non-compete
agreements and backlog of customer orders, the fair values of
which were determined by a third-party appraiser using generally
accepted valuation methodologies. The excess of the total
purchase price over the amounts allocated to the assets acquired
and liabilities assumed was recorded as goodwill.

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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On the date of acquisition, the purchase price
was allocated as follows (in thousands):

|                                   |                       |   |        |        | 
|---------------------------------- | --------------------- | - | ------ | ------ | 
|Cash and cash equivalents          |                       | $ | 439    |       
|Accounts receivable                |                       |   | 1,557  |       
|Inventories                        |                       |   | 867    |       
|Other current assets               |                       |   | 44     |       
|Fixed assets                       |                       |   | 213    |       
|Customer base                      |                       |   | 560    |       
|Developed technology               |                       |   | 1,000  |       
|Non-compete agreements             |                       |   | 200    |       
|Backlog of customer orders         |                       |   | 40     |       
|Long-term deferred tax assets      |                       |   | 656    |       
|Goodwill                           |                       |   | 9,032  |       
|                                   |                       |   |        |       
|                                   | Total assets acquired |   |        | 14,608 | 
|Current liabilities                |                       |   | (1,966 | )     
|Long-term deferred tax liabilities |                       |   | (720   | )     
|                                   |                       |   |        |       
|                                   |                       | $ | 11,922 |       
|                                   |                       |   |        |       

The estimated useful lives of the acquired
customer base, developed technology, non-compete agreements and
backlog are 7 years, 7 years, 5 years and
6 months, respectively. No portion of the goodwill or
acquired intangible assets is expected to be deductible for tax
purposes.

The following summarized unaudited pro forma
consolidated results of operations of the Company reflect the
effect of the AMSI 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 at the
beginning of the periods presented and should not be construed
as representative of future results.

|                                    |         |                      |        |      |  |   |        |       |  
|----------------------------------- | ------- | -------------------- | ------ | ---- |  | - | ------ | ----- | -
|                                    |         |                     
|                                    |         | Year Ended June 30, 
|                                    |         |                     
|                                    |         | 2004                 |        | 2003
|                                    |         |                      |        |     
|                                    |         |                     
|                                    |         | (In thousands except
|                                    |         | per share data)     
|Revenue                             |         | $                    | 53,586 |      |  | $ | 46,571 |      
|Net income (loss)                   |         |                      | 2,689  |      |  |   | (723   | )    
|Net income (loss) per common share: |         |                      |        |      |  |   |        |      
|                                    | Basic   |                      | $      | 0.26 |  |   | $      | (0.07 | )
|                                    | Diluted |                      | $      | 0.24 |  |   | $      | (0.07 | )

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 results of CPI have
been included in the Companys consolidated financial
statements since the date of the acquisition.

The purchase price was 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

F-14



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 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  |  
|                            |  |   |      |  

The estimated useful lives of the acquired
customer base and non-compete covenants are 3.5 years and
one year, respectively. No portion of the goodwill or
acquired intangible assets is expected to be deductible for tax
purposes. A portion of the goodwill and acquired intangible
assets is recorded in the accounts of the Companys French
subsidiary and, as such, is subject to translation at the
exchange 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 at the
beginning of the periods presented and should not be construed
as representative of future results.

|                                    |         |                      |        |       |   |   |        |      | 
|----------------------------------- | ------- | -------------------- | ------ | ----- | - | - | ------ | ---- | 
|                                    |         |                     
|                                    |         | 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 Acquired Intangible
    Assets

During the first quarter of fiscal 2002, the
Company adopted the provisions of SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS
No. 142 eliminated amortization of goodwill and introduced
a two-step impairment test model to be applied upon adoption and
at least annually thereafter. Transitional and annual impairment
tests of goodwill are to be conducted on the basis of a
Companys reporting units, as defined in SFAS No. 142.
The fair value of each 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. Any resulting impairment would be expensed immediately.

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. From the date of adoption through fiscal 2004, the
Company operated as a single reporting unit. To estimate the
fair value of that reporting unit, the Company employed a market

F-15



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

value approach, under which the Companys
total fair value was determined by multiplying the fair market
value of the Companys common stock for a set number of
days in its third fiscal quarter by the number of shares of
common stock outstanding. The resulting fair value of the
Company was then compared to the recorded carrying value of the
Companys total net assets as of the end of its third
fiscal quarter to identify potential impairments. The Company
did not identify any potential impairments of its goodwill as of
the third quarters of fiscal 2004, 2003 and 2002.

The following table describes changes to goodwill:

|                                              |                  |                     |        |       |  |   |       |     | 
|--------------------------------------------- | ---------------- | ------------------- | ------ | ----- |  | - | ----- | --- | 
|                                              |                  |                    
|                                              |                  | Year Ended June 30,
|                                              |                  |                    
|                                              |                  | 2004                |        | 2003 
|                                              |                  |                     |        |      
|                                              |                  |                    
|                                              |                  | (In thousands)     
|Beginning balance                             |                  | $                   | 9,670  |       |  | $ | 8,790 |    
|Additions:                                    |                  |                     |        |       |  |   |       |    
|                                              | AMSI acquisition |                     |        | 9,032 |  |   |       |    | 
|                                              | CPI acquisition  |                     |        |      |  |   |       | 843 | 
|Foreign exchange impact and other adjustments |                  |                     | (77    | )     |  |   | 37    |    
|                                              |                  |                     |        |       |  |   |       |    
|Ending balance                                |                  | $                   | 18,625 |       |  | $ | 9,670 |    
|                                              |                  |                     |        |       |  |   |       |    

The components of acquired intangible assets are
as follows (in thousands):

|                            |                        |               |       |               |  |          |        |          |   |              |       |          |  |             |       |       |  |   |        |      |   |   |     |     |  |  |  |           | 
|--------------------------- | ---------------------- | ------------- | ----- | ------------- |  | -------- | ------ | -------- | - | ------------ | ----- | -------- |  | ----------- | ----- | ----- |  | - | ------ | ---- | - | - | --- | --- |  |  |  | --------- | 
|                            |                        |               |       |               |  |         
|                            |                        | June 30, 2004 |       | June 30, 2003 |  |         
|                            |                        |               |       |               |  |         
|                            |                        | Gross         |       |               |  | Net      |        | Gross    |   |              |       | Net      |  | Weighted-  
|                            |                        | Carrying      |       | Accumulated   |  | Carrying |        | Carrying |   | Accumulated  |       | Carrying |  | Average    
|                            |                        | Amount        |       | Amortization  |  | Amount   |        | Amount   |   | Amortization |       | Amount   |  | Useful Life
|                            |                        |               |       |               |  |          |        |          |   |              |       |          |  |            
|Acquired intangible assets: |                        |               |       |               |  |          |        |          |   |              |       |          |  |             |       |       |  |   |        |      |   |   |     |     |  |  |  |          
|                            | Customer base          |               | $     | 987           |  |          | $      | (226     | ) |              | $     | 761      |  |             | $     | 421   |  |   | $      | (116 | ) |   | $   | 305 |  |  |  | 6.7 years | 
|                            | Developed technology   |               |       | 1,675         |  |          |        | (724     | ) |              |       | 951      |  |             |       | 675   |  |   |        | (533 | ) |   |     | 142 |  |  |  | 5.8 years | 
|                            | Customer order backlog |               |       | 40            |  |          |        | (33      | ) |              |       | 7        |  |             |       |      |  |   |        |     |   |   |     |    |  |  |  | 0.5 years | 
|                            | Non-compete agreements |               |       | 1,411         |  |          |        | (1,144   | ) |              |       | 267      |  |             |       | 1,205 |  |   |        | (967 | ) |   |     | 238 |  |  |  | 3.5 years | 
|                            |                        |               |       |               |  |          |        |          |   |              |       |          |  |             |       |       |  |   |        |      |   |   |     |     |  |  |  |          
|                            |                        | $             | 4,113 |               |  | $        | (2,127 | )        |   | $            | 1,986 |          |  | $           | 2,301 |       |  | $ | (1,616 | )    |   | $ | 685 |     |  |  |  |          
|                            |                        |               |       |               |  |          |        |          |   |              |       |          |  |             |       |       |  |   |        |      |   |   |     |     |  |  |  |          

All of the Companys acquired intangible
assets are subject to amortization over their estimated useful
lives. No residual value is estimated for these intangible
assets. Acquired intangible asset amortization for the fiscal
years ended June 30, 2004, 2003 and 2002 was $505,000,
$605,000 and $656,000, respectively. A portion of the fiscal
2004 expense was included as a component of cost of product
revenue in the consolidated statement of operations.

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 10). A charge
of $217,000 was recorded to write-off the net carrying value of
this developed technology.

F-16



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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

|                     |  |                |       | 
|-------------------- |  | -------------- | ----- | 
|                     |  | Estimated     
|                     |  | Amortization  
|Year Ending June 30, |  | Expense       
|                     |  |               
|                     |  | (In thousands)
|2005                 |  |                | 462   | 
|2006                 |  |                | 313   | 
|2007                 |  |                | 314   | 
|2008                 |  |                | 298   | 
|2009                 |  |                | 246   | 
|Thereafter           |  |                | 353   | 
|                     |  |                |       | 
|                     |  | $              | 1,986 | 
|                     |  |                |       | 



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

At June 30, 2004, currency options and
collars designated as hedging instruments with notional amounts
of $884,000 and $4.5 million to exchange Euros and Japanese
yen, respectively, for U.S. dollars were outstanding. The
fair values of these instruments, as derived from dealer
quotations, were recorded as components of other current assets
or other current liabilities, depending on their valuation. At
June 30, 2004, instruments with fair values of $89,000 were
recorded as components of other current assets. Net unrealized
gains on these instruments of $6,000 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, 2004, losses of
$139,000 were recorded as components of other income and expense
on the effective portion of options that were settled.

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,
respectively, for U.S. dollars 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. 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.

The Company held no derivatives during fiscal
2004, 2003 or 2002 for non-hedging purposes.



|   |            
|-- | -----------
|6. | Inventories

Inventories consisted of the following:

|               |  |                |       |      |  |   |     | 
|-------------- |  | -------------- | ----- | ---- |  | - | --- | 
|               |  |               
|               |  | June 30,      
|               |  |               
|               |  | 2004           |       | 2003
|               |  |                |       |     
|               |  |               
|               |  | (In thousands)
|Raw materials  |  | $              | 708   |      |  | $ |    | 
|Finished goods |  |                | 538   |      |  |   | 313 | 
|               |  |                |       |      |  |   |     | 
|               |  | $              | 1,246 |      |  | $ | 313 | 
|               |  |                |       |      |  |   |     | 

F-17



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                           
|-- | --------------------------
|7. | 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 the product is available for general release to customers.
Eligible development costs of $856,000, $669,000 and $602,000
were capitalized in fiscal 2004, 2003 and 2002, respectively.
All such costs have been included in other non-current assets in
the Companys consolidated balance sheet and are being
amortized to cost of product revenue over their estimated useful
lives, which ranges from three to five years. Related
amortization expense for fiscal years 2004, 2003 and 2002 was
$286,000, $146,000 and $71,000, respectively, and has been
included as a component of cost of product revenue in the
Companys consolidated statement of operations.

Capitalized software development costs consisted
of the following:

|                                |  |                |       |      |  |   |       |  
|------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | -
|                                |  |               
|                                |  | June 30,      
|                                |  |               
|                                |  | 2004           |       | 2003
|                                |  |                |       |     
|                                |  |               
|                                |  | (In thousands)
|Gross carrying amount           |  | $              | 2,127 |      |  | $ | 1,271 |  
|Less  accumulated amortization |  |                | (503  | )    |  |   | (217  | )
|                                |  |                |       |      |  |   |       |  
|Net carrying amount             |  | $              | 1,624 |      |  | $ | 1,054 |  
|                                |  |                |       |      |  |   |       |  



|   |             
|-- | ------------
|8. | Fixed Assets

Fixed assets consisted of the following:

|                                                     |  |             |      |                |  |      |        |   |  |   |        |  
|---------------------------------------------------- |  | ----------- | ---- | -------------- |  | ---- | ------ | - |  | - | ------ | -
|                                                     |  |             |      |               
|                                                     |  | Estimated   |      | June 30,      
|                                                     |  | Useful Life |      |               
|                                                     |  | (Years)     |      | 2004           |  | 2003
|                                                     |  |             |      |                |  |     
|                                                     |  |             |      |               
|                                                     |  |             |      | (In thousands)
|Land                                                 |  |             |     |                |  | $    | 248    |   |  | $ | 239    |  
|Buildings                                            |  |             | 30   |                |  |      | 1,477  |   |  |   | 1,414  |  
|Equipment                                            |  |             | 5-7  |                |  |      | 1,342  |   |  |   | 1,150  |  
|Computer equipment                                   |  |             | 3-5  |                |  |      | 5,140  |   |  |   | 4,932  |  
|Furniture and fixtures                               |  |             | 7-10 |                |  |      | 806    |   |  |   | 728    |  
|Computers and equipment under capital leases         |  |             | 3-7  |                |  |      | 582    |   |  |   | 562    |  
|Software                                             |  |             | 3-5  |                |  |      | 512    |   |  |   | 334    |  
|Other                                                |  |             | 3-10 |                |  |      | 582    |   |  |   | 454    |  
|                                                     |  |             |      |                |  |      |        |   |  |   |        |  
|                                                     |  |             |      |                |  |      | 10,689 |   |  |   | 9,813  |  
|Less  accumulated depreciation and
    amortization |  |             |      |                |  |      | (7,187 | ) |  |   | (6,285 | )
|                                                     |  |             |      |                |  |      |        |   |  |   |        |  
|                                                     |  |             |      |                |  | $    | 3,502  |   |  | $ | 3,528  |  
|                                                     |  |             |      |                |  |      |        |   |  |   |        |  

Depreciation expense, including amortization of
assets under capital leases, was $1.4 million,
$1.4 million and $1.3 million for the years ended
June 30, 2004, 2003 and 2002, respectively. Accumulated
amortization for assets held under capital leases was $561,000,
$533,000 and $442,000 at June 30, 2004, 2003 and 2002,
respectively.

F-18



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|   |                 
|-- | ----------------
|9. | Accrued Expenses

Accrued expenses included the following accruals
and other current liabilities:

|                                                   |  |                |       |      |  |   |       | 
|-------------------------------------------------- |  | -------------- | ----- | ---- |  | - | ----- | 
|                                                   |  |               
|                                                   |  | June 30,      
|                                                   |  |               
|                                                   |  | 2004           |       | 2003
|                                                   |  |                |       |     
|                                                   |  |               
|                                                   |  | (In thousands)
|Employee wages, commissions and other compensation |  | $              | 2,175 |      |  | $ | 1,423 | 
|Employee leave costs                               |  |                | 1,673 |      |  |   | 1,343 | 
|Employee retirement costs                          |  |                | 556   |      |  |   | 362   | 
|Professional fees                                  |  |                | 1,059 |      |  |   | 906   | 
|Taxes and withholding                              |  |                | 2,475 |      |  |   | 2,071 | 
|Restructuring costs                                |  |                | 310   |      |  |   | 128   | 
|Warranty                                           |  |                | 254   |      |  |   | 42    | 
|Other                                              |  |                | 1,151 |      |  |   | 1,164 | 
|                                                   |  |                |       |      |  |   |       | 
|                                                   |  | $              | 9,653 |      |  | $ | 7,439 | 
|                                                   |  |                |       |      |  |   |       | 



|    |                    
|--- | -------------------
|10. | Restructuring Plans

January 2004 Plan

In January 2004, the Company initiated a
corporate restructuring plan (the January 2004 plan)
related to its January 2004 acquisition of AMSI (Note 3).
The January 2004 plan included the termination of three
employees from sales and management positions in the United
States and Italy. As a result of the January 2004 plan, the
Company recorded charges and related accruals of $508,000 in its
third fiscal quarter of 2004. These charges were recorded as
restructuring costs in the Companys consolidated statement
of operations. All significant activities under the January 2004
plan were completed as of March 27, 2004.

The following table presents the restructuring
charges incurred, cash paid to settle the related obligations
and the remaining liability included in accrued expenses in the
Companys consolidated balance sheet:

|                                    |  |                |      |  
|----------------------------------- |  | -------------- | ---- | -
|                                    |  | Employee      
|                                    |  | Severance     
|                                    |  | Costs         
|                                    |  |               
|                                    |  | (In thousands)
|Restructuring charge in fiscal 2004 |  | $              | 508  |  
|Cash payments                       |  |                | (303 | )
|                                    |  |                |      |  
|Balance at June 30, 2004            |  | $              | 205  |  
|                                    |  |                |      |  

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

F-19



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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 charges and related accruals of $584,000. Of this
charge, $179,000 was 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 charges incurred
by category of expenditure, and related restructuring costs
included in accrued expenses in the Companys consolidated
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 in fiscal 2003 |  | $                | 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  |  
|Cash payments                       |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |       |  |   | (31 | ) |  |   |    |   |  |   |    |   |  |   | (31 | )
|                                    |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Balance at June 30, 2004            |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |       |  | $ |    |   |  | $ |    |   |  | $ |    |   |  | $ |    |  
|                                    |  |                  |     |                                 |  |              |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  

April 2002 Plan

In April 2002, the Company initiated 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 charges and related accruals in fiscal 2002 of
$1.3 million. The remaining accrual balances as of
June 30, 2004 relate to long-term contractual obligations
from facility commitments that will be paid over five 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  |  
|Cash payments                                 |  |           |     |                |  |       | (103 | )     |  |   |      |   |  |   | (103 | )
|Foreign exchange impact and other adjustments |  |           |     |                |  |       | 53   |       |  |   |      |   |  |   | 53   |  
|                                              |  |           |     |                |  |       |      |       |  |   |      |   |  |   |      |  
|Balance at June 30, 2004                      |  | $         |    |                |  | $     | 546  |       |  | $ |     |   |  | $ | 546  |  
|                                              |  |           |     |                |  |       |      |       |  |   |      |   |  |   |      |  

F-20



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |                  
|--- | -----------------
|11. | Credit Facilities

In January 2004, the Company completed the
renewal of its unsecured $5.0 million working capital
credit facility with a domestic bank. The terms of the facility,
which expires December 2, 2004, are substantially the same
as those of the previous facility. 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. Loans against the facility bear interest
at the banks prime rate. The facility includes certain
restrictive covenants, all of which the Company was in
compliance with as of June 30, 2004. These covenants
include certain liquidity and profitability measures and
restrictions that limit the ability of the Company to merge,
acquire or sell certain assets without prior approval from the
bank. As of June 30, 2004, the Company had employed
$443,000 of the available borrowing base through outstanding
foreign exchange contracts and letters of credit. These advances
do not incur interest charges. As of June 30, 2004 and
2003, there were no loans advanced against the facility. As of
June 30, 2004, the remaining available borrowing base was
$4.6 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, 2004 and 2003.

Certain subsidiaries of the Company have
established other credit facilities, totaling $219,000 at
June 30, 2004, with two separate financial institutions for
general working capital requirements and foreign exchange
facilities. 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
$103,000 term deposit and the assets of an Australian subsidiary
of the Company. There were no advances against these facilities
as of June 30, 2004 and 2003.



|    |                
|--- | ---------------
|12. | Preferred Stock

At June 30, 2004, there were no shares of
preferred stock issued or outstanding.



|    |             
|--- | ------------
|13. | Common Stock

Each share of common stock entitles the holder to
one vote on all matters submitted to a vote of the
Companys stockholders. Common stockholders are entitled to
dividends when and if declared by the Board of Directors.

On July 1, 1998, the Company issued
551,287 shares of its common stock to certain officers and
senior managers of the Company for a cash purchase price of
$198,000. In connection with this issuance, the employees
entered into Stock Restriction Agreements that contain
restrictions on the sale of the shares by the employees and loan
agreements evidenced by promissory notes bearing interest at
5.77% and maturing on June 30, 2003. The shares purchased
by the employees under the Stock Restriction Agreements vested
on varying schedules through fiscal 2003. Promissory note
repayments to the Company were $29,000 and $10,000 during fiscal
2003 and 2002 respectively. As of June 30, 2004, no shares
were subject to restriction and all promissory note obligations
have been repaid.

On January 23, 2004, the Company issued
349,288 shares of its common stock in conjunction with its
acquisition of AMSI (Note 3), of which 146,864 shares
were issued from the Companys treasury stock
(Note 14). The Company received no cash proceeds for this
issuance.

At June 30, 2004, the Company had
4,218,216 shares of its common stock reserved for issuance
under its stock option and stock purchase plans. Of these,
80,427 shares were added during fiscal 2004 pursuant to a
provision in the Companys 2000 Stock Option and Incentive
Plan that automatically increases the number of

F-21



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.



|    |               
|--- | --------------
|14. | 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. Through January 2004, 97,301 of these
reacquired shares were reissued under the Companys
employee stock purchase plan. On January 23, 2004, the
remaining 146,864 reacquired shares were reissued in connection
with the acquisition of AMSI (Note 3). As of June 30,
2004, there was no treasury stock remaining.



|    |            
|--- | -----------
|15. | 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.

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 new determinable
measurement date. Deferred compensation of $77,000 was recorded
in accordance with APB No. 25, and was amortized as
compensation expense over the related vesting period. Related
compensation expense of $9,000 and $20,000 was recorded during
the years ended June 30, 2003 and 2002, 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, 2004, 2003 and
2002.

F-22



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

A summary of the status of the Companys
stock options as of June 30, 2004, 2003 and 2002, and
changes during the years then ended, is presented below:

|                                                                   |  |        |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |   |           |   |  |   |       | 
|------------------------------------------------------------------ |  | ------ | --------- | -------- |  | ------ | ----- | -------- |  | ------ | --------- | -------- |  | - | ----- |  |  | - | --------- | - |  | - | ----- | 
|                                                                   |  |        |           |          |  |       
|                                                                   |  | 2004   |           | 2003     |  | 2002  
|                                                                   |  |        |           |          |  |       
|                                                                   |  |        |           | Weighted |  |        |       | Weighted |  |        |           | Weighted
|                                                                   |  |        |           | Average  |  |        |       | Average  |  |        |           | Average 
|                                                                   |  |        |           | Exercise |  |        |       | Exercise |  |        |           | Exercise
|                                                                   |  | Shares |           | Price    |  | Shares |       | Price    |  | Shares |           | Price   
|                                                                   |  |        |           |          |  |        |       |          |  |        |           |         
|Outstanding at beginning of year                                   |  |        | 2,433,206 |          |  | $      | 9.33  |          |  |        | 1,618,975 |          |  | $ | 12.23 |  |  |   | 1,116,460 |   |  | $ | 12.07 | 
|Granted                                                            |  |        | 557,180   |          |  |        | 10.34 |          |  |        | 1,134,350 |          |  |   | 4.79  |  |  |   | 663,050   |   |  |   | 12.79 | 
|Exercised                                                          |  |        | (199,709  | )        |  |        | 4.83  |          |  |        | (71,124   | )        |  |   | 0.95  |  |  |   | (23,276   | ) |  |   | 1.97  | 
|Canceled                                                           |  |        | (156,520  | )        |  |        | 11.25 |          |  |        | (248,995  | )        |  |   | 9.92  |  |  |   | (137,259  | ) |  |   | 15.36 | 
|                                                                   |  |        |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |   |           |   |  |   |       | 
|Outstanding at end of year                                         |  |        | 2,634,157 |          |  | $      | 9.77  |          |  |        | 2,433,206 |          |  | $ | 9.33  |  |  |   | 1,618,975 |   |  | $ | 12.23 | 
|                                                                   |  |        |           |          |  |        |       |          |  |        |           |          |  |   |       |  |  |   |           |   |  |   |       | 
|Options exercisable at end of year                                 |  |        | 1,423,647 |          |  |        |       |          |  |        | 864,084   |          |  |   |       |  |  |   | 564,791   |   |  |   |       | 
|Weighted average fair value of options granted
    during the year |  | $      | 7.09      |          |  |        |       |          |  | $      | 2.79      |          |  |   |       |  |  | $ | 7.74      |   |  |   |       | 
|Options available for future grant                                 |  |        | 1,205,683 |          |  |        |       |          |  |        | 1,538,108 |          |  |   |       |  |  |   | 1,017,961 |   |  |   |       | 

The following table summarizes information about
stock options outstanding at June 30, 2004:

|               |  |             |           |          |  |              |       |             |  |          |     |  |  |  |           |  |  |   |       | 
|-------------- |  | ----------- | --------- | -------- |  | ------------ | ----- | ----------- |  | -------- | --- |  |  |  | --------- |  |  | - | ----- | 
|               |  |             |           |          |  | Weighted     |       |             |  |         
|               |  |             |           | Weighted |  | Average      |       |             |  | Weighted
|               |  |             |           | Average  |  | Remaining    |       |             |  | Average 
|               |  | Shares      |           | Exercise |  | Contractual  |       | Shares      |  | Exercise
|Exercise Price |  | Outstanding |           | Price    |  | Life (Years) |       | Exercisable |  | Price   
|               |  |             |           |          |  |              |       |             |  |         
|$0.36-$5.00    |  |             | 982,534   |          |  | $            | 4.29  |             |  |          | 3.0 |  |  |  | 526,990   |  |  | $ | 4.01  | 
|$5.01-$10.00   |  |             | 527,320   |          |  |              | 8.96  |             |  |          | 4.2 |  |  |  | 121,097   |  |  |   | 6.78  | 
|$10.01-$15.00  |  |             | 706,478   |          |  |              | 12.52 |             |  |          | 3.1 |  |  |  | 412,748   |  |  |   | 12.74 | 
|$15.01-$20.00  |  |             | 310,725   |          |  |              | 17.61 |             |  |          | 3.9 |  |  |  | 278,814   |  |  |   | 17.49 | 
|$20.01-$25.00  |  |             | 80,000    |          |  |              | 21.79 |             |  |          | 4.3 |  |  |  | 61,173    |  |  |   | 21.81 | 
|$25.01-$30.00  |  |             | 27,100    |          |  |              | 26.41 |             |  |          | 3.1 |  |  |  | 22,825    |  |  |   | 26.43 | 
|               |  |             |           |          |  |              |       |             |  |          |     |  |  |  |           |  |  |   |       | 
|$0.36-$30.00   |  |             | 2,634,157 |          |  | $            | 9.77  |             |  |          | 3.4 |  |  |  | 1,423,647 |  |  | $ | 10.54 | 
|               |  |             |           |          |  |              |       |             |  |          |     |  |  |  |           |  |  |   |       | 

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.

F-23



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table displays the shares issued
under the ESPP for the last three fiscal years:

|                                         |  |        |        |       |  |   |       | 
|---------------------------------------- |  | ------ | ------ | ----- |  | - | ----- | 
|                                         |  | Shares |        | Share
|Issuances in fiscal 2002, 2003 and 2004: |  | Issued |        | Price
|                                         |  |        |        |      
|July 6, 2001                             |  |        | 28,136 |       |  | $ | 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  | 
|January 5, 2004                          |  |        | 16,575 |       |  | $ | 7.51  | 

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.



|    |                                   
|--- | ----------------------------------
|16. | Net Income (Loss) per Common Share

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

|                                                                                           |                                  |                        |        |      |  |      |        |   |  |   |        |     | 
|------------------------------------------------------------------------------------------ | -------------------------------- | ---------------------- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | --- | 
|                                                                                           |                                  |                       
|                                                                                           |                                  | Year Ended June 30,   
|                                                                                           |                                  |                       
|                                                                                           |                                  | 2004                   |        | 2003 |  | 2002
|                                                                                           |                                  |                        |        |      |  |     
|                                                                                           |                                  |                       
|                                                                                           |                                  | (In thousands,        
|                                                                                           |                                  | except per share data)
|Net income (loss)                                                                          |                                  | $                      | 2,628  |      |  | $    | (118   | ) |  | $ | 780    |    
|                                                                                           |                                  |                        |        |      |  |      |        |   |  |   |        |    
|Weighted average shares used in computing net
    income (loss) per common share  basic   |                                  |                        | 10,277 |      |  |      | 10,020 |   |  |   | 10,076 |    
|Effect of dilutive securities:                                                             |                                  |                        |        |      |  |      |        |   |  |   |        |    
|                                                                                           | Unvested restricted stock        |                        |        |     |  |      |        |  |  |   |        | 14  | 
|                                                                                           | Stock options and warrants       |                        |        | 562  |  |      |        |  |  |   |        | 270 | 
|                                                                                           |                                  |                        |        |      |  |      |        |   |  |   |        |    
|                                                                                           | Dilutive potential common shares |                        |        | 562  |  |      |        |  |  |   |        | 284 | 
|                                                                                           |                                  |                        |        |      |  |      |        |   |  |   |        |    
|Weighted average shares used in computing net
    income (loss) per common share  diluted |                                  |                        | 10,839 |      |  |      | 10,020 |   |  |   | 10,360 |    
|                                                                                           |                                  |                        |        |      |  |      |        |   |  |   |        |    
|Net income (loss) per common share 
    basic                                             |                                  | $                      | 0.26   |      |  | $    | (0.01  | ) |  | $ | 0.08   |    
|Net income (loss) per common share 
    diluted                                           |                                  | $                      | 0.24   |      |  | $    | (0.01  | ) |  | $ | 0.08   |    

F-24



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Options to purchase 1,027,000 shares of
common stock were outstanding for the year ended June 30,
2004 but were not included in the calculation of diluted net
income per common share because the option exercise prices were
greater than the average market price of the Companys
common stock during that period.

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 net income (loss) per common
share, as their inclusion would be antidilutive.



|    |             
|--- | ------------
|17. | Income Taxes

Income before income taxes consisted of the
following:

|               |                            |                     |        |       |  |      |        |     |  |   |       |       | 
|-------------- | -------------------------- | ------------------- | ------ | ----- |  | ---- | ------ | --- |  | - | ----- | ----- | 
|               |                            |                    
|               |                            | Year Ended June 30,
|               |                            |                    
|               |                            | 2004                |        | 2003  |  | 2002
|               |                            |                     |        |       |  |     
|               |                            |                    
|               |                            | (In thousands)     
|Domestic loss  |                            | $                   | (1,642 | )     |  | $    | (3,026 | )   |  | $ | (443  | )    
|Foreign income |                            |                     | 5,792  |       |  |      | 3,828  |     |  |   | 1,823 |      
|               |                            |                     |        |       |  |      |        |     |  |   |       |      
|               | Income before income taxes |                     | $      | 4,150 |  |      | $      | 802 |  |   | $     | 1,380 | 
|               |                            |                     |        |       |  |      |        |     |  |   |       |      

The provision for income taxes consisted of the
following:

|          |                |                     |       |       |  |      |     |       |   |   |     |       |  
|--------- | -------------- | ------------------- | ----- | ----- |  | ---- | --- | ----- | - | - | --- | ----- | -
|          |                |                    
|          |                | Year Ended June 30,
|          |                |                    
|          |                | 2004                |       | 2003  |  | 2002
|          |                |                     |       |       |  |     
|          |                |                    
|          |                | (In thousands)     
|Current:  |                |                     |       |       |  |      |     |       |   |   |     |      
|          | Federal        |                     | $     | 118   |  |      | $   | (495  | ) |   | $   | 83    |  
|          | State          |                     |       | 156   |  |      |     | 113   |   |   |     | 92    |  
|          | Foreign        |                     |       | 998   |  |      |     | 1,430 |   |   |     | 1,076 |  
|          |                |                     |       |       |  |      |     |       |   |   |     |      
|          | Total current  |                     |       | 1,272 |  |      |     | 1,048 |   |   |     | 1,251 |  
|          |                |                     |       |       |  |      |     |       |   |   |     |      
|Deferred: |                |                     |       |       |  |      |     |       |   |   |     |      
|          | Federal        |                     |       | 75    |  |      |     | (71   | ) |   |     | 53    |  
|          | State          |                     |       | 15    |  |      |     | 10    |   |   |     | (10   | )
|          | Foreign        |                     |       | 160   |  |      |     | (67   | ) |   |     | (694  | )
|          |                |                     |       |       |  |      |     |       |   |   |     |      
|          | Total deferred |                     |       | 250   |  |      |     | (128  | ) |   |     | (651  | )
|          |                |                     |       |       |  |      |     |       |   |   |     |      
|          |                | $                   | 1,522 |       |  | $    | 920 |       |   | $ | 600 |      
|          |                |                     |       |       |  |      |     |       |   |   |     |      

F-25



---



##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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,
|                                           |  |                    
|                                           |  | 2004                |       | 2003 |  | 2002
|                                           |  |                     |       |      |  |     
|                                           |  |                    
|                                           |  | (In thousands)     
|Statutory federal rate of 34%              |  | $                   | 1,411 |      |  | $    | 273 |   |  | $ | 469    |  
|State income taxes, net of federal benefit |  |                     | 156   |      |  |      | 81  |   |  |   | 54     |  
|Permanent differences                      |  |                     | (9    | )    |  |      | (31 | ) |  |   | 13     |  
|Change in valuation allowance              |  |                     | 372   |      |  |      | 419 |   |  |   | (4,126 | )
|Foreign tax rate differential              |  |                     | (404  | )    |  |      | 248 |   |  |   | 4,188  |  
|Other                                      |  |                     | (4    | )    |  |      | (70 | ) |  |   | 2      |  
|                                           |  |                     |       |      |  |      |     |   |  |   |        |  
|                                           |  | $                   | 1,522 |      |  | $    | 920 |   |  | $ | 600    |  
|                                           |  |                     |       |      |  |      |     |   |  |   |        |  

The deferred tax assets and liabilities consist
of the following:

|                         |                                                          |                           |      |        |       |  |     |      |       | 
|------------------------ | -------------------------------------------------------- | ------------------------- | ---- | ------ | ----- |  | --- | ---- | ----- | 
|                         |                                                          |                          
|                         |                                                          | June 30,                 
|                         |                                                          |                          
|                         |                                                          | 2004                      |      | 2003  
|                         |                                                          |                           |      |       
|                         |                                                          |                          
|                         |                                                          | (In thousands)           
|Deferred tax assets:     |                                                          |                           |      |        |       |  |     |     
|                         | Net operating loss carryforwards                         |                           | $    | 935    |       |  | $   | 674  |      
|                         | Foreign tax credit                                       |                           |      | 526    |       |  |     | 135  |      
|                         | Accrued expenses not yet deductible for tax
    purposes |                           |      | 1,038  |       |  |     | 414  |      
|                         | Other                                                    |                           |      | 65     |       |  |     | 67   |      
|                         |                                                          |                           |      |        |       |  |     |     
|                         |                                                          | Gross deferred tax assets |      |        | 2,564 |  |     |      | 1,290 | 
|                         | Deferred tax asset valuation allowance                   |                           |      | (1,514 | )     |  |     | (789 | )    
|                         |                                                          |                           |      |        |       |  |     |     
|                         |                                                          | Total deferred tax assets |      |        | 1,050 |  |     |      | 501   | 
|Deferred tax liabilities |                                                          |                           | (884 | )      |       |  | (84 | )   
|                         |                                                          |                           |      |        |       |  |     |     
|                         |                                                          | Net deferred tax asset    |      | $      | 166   |  |     | $    | 417   | 
|                         |                                                          |                           |      |        |       |  |     |     

At June 30, 2004, the Company had available
net operating loss carryforwards for U.S. federal income tax
purposes of approximately $1.2 million which will expire in
2024 and foreign net operating loss carryforwards of
$1.4 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
$1.5 million and $789,000 at June 30, 2004 and 2003,
respectively. Management believes that the net deferred tax
asset represents its 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.

At June 30, 2004, the Company had not
provided for U.S. deferred income taxes or foreign
withholding taxes on $10.6 million of its undistributed
earnings for non-U.S. subsidiaries as management intends to
reinvest these earnings.

F-26



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|    |              
|--- | -------------
|18. | 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 $295,000,
$278,000 and $544,000 to the 401(k) Plan in the years ended
June 30, 2004, 2003 and 2002, 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 $251,000,
$194,000 and $167,000 to the Superannuation Plan in the years
ended June 30, 2004, 2003 and 2002, respectively.



|    |                                                          
|--- | ---------------------------------------------------------
|19. | Contingencies, Commitments and Guarantor
    Arrangements

The following is a summary of agreements and
provisions the Company has determined are within the scope of
Financial Accounting Standards Board Interpretation
(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.

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 indemnities to various lessors in connection with
facility leases; indemnities to customers related to performance
of services subcontracted to other providers; indemnities to
vendors that guarantee expenses incurred by employees of the
Company and 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. 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, 2004.

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 to two years from the date of shipment or any
longer period that may be required by local

F-27



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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,
|                                           |  |                    
|                                           |  | 2004                |     | 2003 |  | 2002
|                                           |  |                     |     |      |  |     
|                                           |  |                    
|                                           |  | (In thousands)     
|Beginning balance                          |  | $                   | 42  |      |  | $    | 13 |   |  | $ | 5   |  
|Additional accruals                        |  |                     | 72  |      |  |      | 31 |   |  |   | 35  |  
|Liabilities assumed in acquisition of AMSI |  |                     | 189 |      |  |      |   |   |  |   |    |  
|Settlements made                           |  |                     | (49 | )    |  |      | (2 | ) |  |   | (27 | )
|                                           |  |                     |     |      |  |      |    |   |  |   |     |  
|Ending balance                             |  | $                   | 254 |      |  | $    | 42 |   |  | $ | 13  |  
|                                           |  |                     |     |      |  |      |    |   |  |   |     |  

Lease Commitments

The Company leases certain of its office space,
autos and equipment under noncancelable operating leases, which
expire at various dates through 2012. At June 30, 2004 and
2003, the Company had no outstanding capital lease obligations.
Future minimum operating lease commitments at June 30, 2004
are as follows:

|                     |  |                |       | 
|-------------------- |  | -------------- | ----- | 
|                     |  | Operating     
|Year Ending June 30, |  | Leases        
|                     |  |               
|                     |  | (In thousands)
|2005                 |  | $              | 2,317 | 
|2006                 |  |                | 1,642 | 
|2007                 |  |                | 877   | 
|2008                 |  |                | 608   | 
|2009                 |  |                | 604   | 
|Thereafter           |  |                | 1,182 | 
|                     |  |                |       | 
|                     |  | $              | 7,230 | 
|                     |  |                |       | 

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 at that time. Excluding the
remaining balance of this accrual, which is included in other
long-term liabilities, future minimum operating lease
commitments at June 30, 2004 would be $6.6 million.

Total rent expense under these operating leases
was $2.2 million, $2.2 million and $2.1 million,
excluding lease termination costs associated with restructuring,
for the years ended June 30, 2004, 2003 and 2002,
respectively.

F-28



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Purchase Commitments

The Company has various contractual obligations
for the purchase of goods or services that are enforceable and
legally binding on the part of the Company. At June 30,
2004, future purchase commitments are as follows:

|                     |  |                |       | 
|-------------------- |  | -------------- | ----- | 
|                     |  | Purchase      
|Year Ending June 30, |  | Commitments   
|                     |  |               
|                     |  | (In thousands)
|2005                 |  | $              | 1,525 | 
|2006                 |  |                | 255   | 
|                     |  |                |       | 
|                     |  | $              | 1,780 | 
|                     |  |                |       | 



|    |                                   
|--- | ----------------------------------
|20. | Segment and Geographic Information



| |                    
| | -------------------
| | Segment Information

The Company operates in one industry
segment  computer software and hardware products for
the plastics part and mold design and manufacturing industry.
Until the end of fiscal 2004, the Company was managed and
operated as one business unit with two product lines. A single
management team that reported to the chief operating decision
maker comprehensively managed the entire business. The Company
did not accumulate discrete financial information with respect
to the separate product lines, except for revenue information.

In its third fiscal quarter of fiscal 2004, the
Company announced a plan to reorganize into two separate
business units: the Design Analysis Solutions unit and the
Manufacturing Solutions unit. The reorganization was
substantially complete at the end of fiscal 2004, resulting in
two reportable segments as defined by SFAS No. 131,
Disclosure about Segments of an Enterprise and Related
Information. Under this revised organizational structure,
there are significant functions, and therefore costs, that are
considered corporate expenses and are not allocated to the
reportable segments for the purposes of assessing performance
and making operating decisions. These unallocated corporate
expenses include certain marketing, development, general and
administrative and restructuring costs. Allocated expenses
include direct costs associated with selling, supporting,
developing and marketing the products and services sold by each
reporting unit, as well as amortization of acquired intangible
assets and, in fiscal 2003, restructuring charges totaling
$405,000. Further, prior to fiscal 2004, the Company did not
separately track service revenues by product line. Accordingly,
management has estimated the amount of service revenues
attributed to each business unit for fiscal 2002 and 2003. The
basis of allocation of all such revenues, costs and expenses
includes significant judgment and estimation. The basis of
allocation for fiscal 2005 may differ from than that
employed for the periods presented as the delineation of
resources between the two business units becomes more clearly
defined over the course of the fiscal year.

The following table summarizes information about
the Companys reportable segments for fiscal 2004.
Segment data for fiscal 2002 and 2003 is also presented on a
basis consistent with the 2004 data and changed business unit
structure. Asset information by reportable segment is not
reported as the Company does not accumulate such information
internally. The accounting policies of the reporting units are
the same as those

F-29



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

described in Note 2 to these consolidated
financial statements. The Company had no customers from which it
derived more than 10% of the total revenue of either
reporting unit for the fiscal years presented.

|                                           |                                     |                     |   |         |   |      |   |         |   |  |   |         |  
|------------------------------------------ | ----------------------------------- | ------------------- | - | ------- | - | ---- | - | ------- | - |  | - | ------- | -
|                                           |                                     |                    
|                                           |                                     | Year Ended June 30,
|                                           |                                     |                    
|                                           |                                     | 2004                |   | 2003    |   | 2002
|                                           |                                     |                     |   |         |   |     
|                                           |                                     |                    
|                                           |                                     | (In thousands)     
|Revenue:                                   |                                     |                     |   |         |   |      |   |         |   |  |   |        
|Product revenue:                           |                                     |                     |   |         |   |      |   |         |   |  |   |        
|                                           | Design Analysis Solutions           |                     | $ | 17,461  |   |      | $ | 13,233  |   |  | $ | 14,855  |  
|                                           | Manufacturing Solutions             |                     |   | 8,602   |   |      |   | 4,026   |   |  |   | 3,015   |  
|                                           |                                     |                     |   |         |   |      |   |         |   |  |   |        
|                                           | Total product revenue               |                     |   | 26,063  |   |      |   | 17,259  |   |  |   | 17,870  |  
|                                           |                                     |                     |   |         |   |      |   |         |   |  |   |        
|Services revenue:                          |                                     |                     |   |         |   |      |   |         |   |  |   |        
|                                           | Design Analysis Solutions           |                     |   | 20,449  |   |      |   | 18,937  |   |  |   | 17,060  |  
|                                           | Manufacturing Solutions             |                     |   | 2,161   |   |      |   | 429     |   |  |   | 158     |  
|                                           |                                     |                     |   |         |   |      |   |         |   |  |   |        
|                                           | Total services revenue              |                     |   | 22,610  |   |      |   | 19,366  |   |  |   | 17,218  |  
|                                           |                                     |                     |   |         |   |      |   |         |   |  |   |        
|Total revenue:                             |                                     |                     |   |         |   |      |   |         |   |  |   |        
|                                           | Design Analysis Solutions           |                     |   | 37,910  |   |      |   | 32,170  |   |  |   | 31,915  |  
|                                           | Manufacturing Solutions             |                     |   | 10,763  |   |      |   | 4,455   |   |  |   | 3,173   |  
|                                           |                                     |                     |   |         |   |      |   |         |   |  |   |        
|                                           | Total revenue                       |                     | $ | 48,673  |   |      | $ | 36,625  |   |  | $ | 35,088  |  
|                                           |                                     |                     |   |         |   |      |   |         |   |  |   |        
|Costs and expenses:                        |                                     |                     |   |         |   |      |   |         |   |  |   |        
|                                           | Design Analysis Solutions           |                     | $ | 20,177  |   |      | $ | 17,686  |   |  | $ | 19,212  |  
|                                           | Manufacturing Solutions             |                     |   | 13,740  |   |      |   | 9,001   |   |  |   | 7,053   |  
|                                           | Unallocated                         |                     |   | 11,803  |   |      |   | 10,027  |   |  |   | 10,610  |  
|                                           |                                     |                     |   |         |   |      |   |         |   |  |   |        
|                                           | Total costs and expenses            |                     |   | 45,720  |   |      |   | 36,714  |   |  |   | 36,875  |  
|                                           |                                     |                     |   |         |   |      |   |         |   |  |   |        
|Segment income (loss) from
    operations: |                                     |                     |   |         |   |      |   |         |   |  |   |        
|                                           | Design Analysis Solutions           |                     |   | 17,733  |   |      |   | 14,484  |   |  |   | 12,703  |  
|                                           | Manufacturing Solutions             |                     |   | (2,977  | ) |      |   | (4,546  | ) |  |   | (3,880  | )
|                                           | Unallocated                         |                     |   | (11,803 | ) |      |   | (10,027 | ) |  |   | (10,610 | )
|                                           |                                     |                     |   |         |   |      |   |         |   |  |   |        
|                                           | Total income (loss) from operations |                     | $ | 2,953   |   |      | $ | (89     | ) |  | $ | (1,787  | )
|                                           |                                     |                     |   |         |   |      |   |         |   |  |   |        

Geographic Information

The Company licenses and sells 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,

F-30



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

the United States, France and the United Kingdom.
Geographic information regarding the Companys operations
was as follows:

|                                     |                                    |                            |   |        |        |      |   |        |        |  |   |        |        | 
|------------------------------------ | ---------------------------------- | -------------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                                     |                                    |                           
|                                     |                                    | Fiscal Year Ended June 30,
|                                     |                                    |                           
|                                     |                                    | 2004                       |   | 2003   |        | 2002
|                                     |                                    |                            |   |        |        |     
|                                     |                                    |                           
|                                     |                                    | (In thousands)            
|Revenue from unaffiliated customers: |                                    |                            |   |        |        |      |   |        |        |  |   |       
|Asia/Australia:                      |                                    |                            |   |        |        |      |   |        |        |  |   |       
|                                     | Design Analysis Solutions products |                            | $ | 9,340  |        |      | $ | 6,558  |        |  | $ | 6,460  |       
|                                     | Manufacturing Solutions products   |                            |   | 52     |        |      |   | 169    |        |  |   | 121    |       
|                                     | Services                           |                            |   | 6,870  |        |      |   | 5,676  |        |  |   | 4,666  |       
|                                     |                                    |                            |   |        |        |      |   |        |        |  |   |       
|                                     |                                    | Total Asia/ Australia      |   |        | 16,262 |      |   |        | 12,403 |  |   |        | 11,247 | 
|                                     |                                    |                            |   |        |        |      |   |        |        |  |   |       
|Americas:                            |                                    |                            |   |        |        |      |   |        |        |  |   |       
|                                     | Design Analysis Solutions products |                            |   | 2,117  |        |      |   | 2,432  |        |  |   | 3,091  |       
|                                     | Manufacturing Solutions products   |                            |   | 6,311  |        |      |   | 1,775  |        |  |   | 1,427  |       
|                                     | Services                           |                            |   | 6,730  |        |      |   | 5,858  |        |  |   | 6,546  |       
|                                     |                                    |                            |   |        |        |      |   |        |        |  |   |       
|                                     |                                    | Total Americas             |   |        | 15,158 |      |   |        | 10,065 |  |   |        | 11,064 | 
|                                     |                                    |                            |   |        |        |      |   |        |        |  |   |       
|Europe:                              |                                    |                            |   |        |        |      |   |        |        |  |   |       
|                                     | Design Analysis Solutions products |                            |   | 6,004  |        |      |   | 4,243  |        |  |   | 5,304  |       
|                                     | Manufacturing Solutions products   |                            |   | 2,239  |        |      |   | 2,082  |        |  |   | 1,467  |       
|                                     | Services                           |                            |   | 9,010  |        |      |   | 7,832  |        |  |   | 6,006  |       
|                                     |                                    |                            |   |        |        |      |   |        |        |  |   |       
|                                     |                                    | Total Europe               |   |        | 17,253 |      |   |        | 14,157 |  |   |        | 12,777 | 
|                                     |                                    |                            |   |        |        |      |   |        |        |  |   |       
|Consolidated:                        |                                    |                            |   |        |        |      |   |        |        |  |   |       
|                                     | Design Analysis Solutions products |                            |   | 17,461 |        |      |   | 13,233 |        |  |   | 14,855 |       
|                                     | Manufacturing Solutions products   |                            |   | 8,602  |        |      |   | 4,026  |        |  |   | 3,015  |       
|                                     | Services                           |                            |   | 22,610 |        |      |   | 19,366 |        |  |   | 17,218 |       
|                                     |                                    |                            |   |        |        |      |   |        |        |  |   |       
|                                     |                                    | Total consolidated         |   | $      | 48,673 |      |   | $      | 36,625 |  |   | $      | 35,088 | 
|                                     |                                    |                            |   |        |        |      |   |        |        |  |   |       

Prior to fiscal 2004, services revenue was not
separately tracked by segment. In the year ended June 30,
2004, Design Analysis Solutions service revenue in Asia/
Australia, the Americas and Europe was $6.9 million,
$5.5 million and $8.1 million, respectively. In the
year ended June 30, 2004, Manufacturing Solutions service
revenue in Asia/ Australia, the Americas and Europe was $20,000,
$1.2 million and $928,000, respectively.

Revenue from unaffiliated customers in Japan was
$10.7 million (22% of total revenue), $8.5 million
(23% of total revenue) and $7.2 million (21% of total
revenue) in fiscal 2004, 2003 and 2002, respectively.
Substantially all of the revenue in the Americas region is
derived from the United States.

|                   |                 |                    |   |       |       |  |   |       |       | 
|------------------ | --------------- | ------------------ | - | ----- | ----- |  | - | ----- | ----- | 
|                   |                 |                   
|                   |                 | June 30,          
|                   |                 |                   
|                   |                 | 2004               |   | 2003 
|                   |                 |                    |   |      
|                   |                 |                   
|                   |                 | (In thousands)    
|Fixed assets, net: |                 |                    |   |       |       |  |   |      
|                   | Asia/ Australia |                    | $ | 1,675 |       |  | $ | 1,734 |      
|                   | Americas        |                    |   | 1,262 |       |  |   | 1,221 |      
|                   | Europe          |                    |   | 565   |       |  |   | 573   |      
|                   |                 |                    |   |       |       |  |   |      
|                   |                 | Total consolidated |   | $     | 3,502 |  |   | $     | 3,528 | 
|                   |                 |                    |   |       |       |  |   |      

F-31



---



##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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



|    |                                                         
|--- | --------------------------------------------------------
|21. | 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, 2004.
During the fiscal year, the Company follows a schedule in which
each interim quarterly period ends on the Saturday of the
thirteenth 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 operations for those periods and have been prepared
on the same basis as the audited consolidated financial
statements.

|                                    |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |          |       |  |     |       |       |  |      |       |       |  |     |       |       |  |     |       |       | 
|----------------------------------- | ------------------------------------------ | ------------------------ | ----- | -------- | ------ | -------- | --- | -------- | ------ | -------- | --- | -------- | ------ | -------- | --- | -------- | ----- |  | --- | ----- | ----- |  | ---- | ----- | ----- |  | --- | ----- | ----- |  | --- | ----- | ----- | 
|                                    |                                            |                         
|                                    |                                            | Quarter Ended           
|                                    |                                            |                         
|                                    |                                            | June 30,                 |       | Mar. 27, |        | Dec. 27, |     | Sep. 27, |        | June 30, |     | Mar. 29, |        | Dec. 28, |     | Sep. 28,
|                                    |                                            | 2004                     |       | 2004     |        | 2003     |     | 2003     |        | 2003     |     | 2003     |        | 2002     |     | 2002    
|                                    |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |         
|                                    |                                            |                         
|                                    |                                            | (In thousands)          
|Revenue:                            |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |          |       |  |     |       |       |  |      |       |       |  |     |       |       |  |     |      
|                                    | Product                                    |                          | $     | 9,022    |        |          | $   | 7,574    |        |          | $   | 5,113    |        |          | $   | 4,354    |       |  | $   | 4,768 |       |  | $    | 4,579 |       |  | $   | 4,216 |       |  | $   | 3,696 |      
|                                    | Services                                   |                          |       | 6,219    |        |          |     | 5,716    |        |          |     | 5,518    |        |          |     | 5,157    |       |  |     | 5,157 |       |  |      | 4,894 |       |  |     | 4,710 |       |  |     | 4,605 |      
|                                    |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |          |       |  |     |       |       |  |      |       |       |  |     |       |       |  |     |      
|                                    |                                            | Total revenue            |       |          | 15,241 |          |     |          | 13,290 |          |     |          | 10,631 |          |     |          | 9,511 |  |     |       | 9,925 |  |      |       | 9,473 |  |     |       | 8,926 |  |     |       | 8,301 | 
|                                    |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |          |       |  |     |       |       |  |      |       |       |  |     |       |       |  |     |      
|Costs and expenses:                 |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |          |       |  |     |       |       |  |      |       |       |  |     |       |       |  |     |      
|                                    | Cost of product revenue                    |                          |       | 2,182    |        |          |     | 1,778    |        |          |     | 605      |        |          |     | 638      |       |  |     | 800   |       |  |      | 829   |       |  |     | 674   |       |  |     | 661   |      
|                                    | Cost of services revenue                   |                          |       | 1,516    |        |          |     | 1,457    |        |          |     | 934      |        |          |     | 629      |       |  |     | 324   |       |  |      | 323   |       |  |     | 283   |       |  |     | 280   |      
|                                    | Research and development                   |                          |       | 1,648    |        |          |     | 1,695    |        |          |     | 1,535    |        |          |     | 1,593    |       |  |     | 1,309 |       |  |      | 1,567 |       |  |     | 1,319 |       |  |     | 1,455 |      
|                                    | Selling and marketing                      |                          |       | 6,087    |        |          |     | 5,038    |        |          |     | 4,698    |        |          |     | 4,186    |       |  |     | 5,232 |       |  |      | 4,778 |       |  |     | 4,463 |       |  |     | 4,165 |      
|                                    | General and administrative                 |                          |       | 2,329    |        |          |     | 2,188    |        |          |     | 2,117    |        |          |     | 1,914    |       |  |     | 1,912 |       |  |      | 1,878 |       |  |     | 1,802 |       |  |     | 1,650 |      
|                                    | Restructuring charges                      |                          |       |         |        |          |     | 508      |        |          |     |         |        |          |     |         |       |  |     | (33   | )     |  |      | 438   |       |  |     |      |       |  |     |      |      
|                                    | Amortization of acquired intangible assets |                          |       | 98       |        |          |     | 126      |        |          |     | 110      |        |          |     | 111      |       |  |     | 111   |       |  |      | 176   |       |  |     | 159   |       |  |     | 159   |      
|                                    |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |          |       |  |     |       |       |  |      |       |       |  |     |       |       |  |     |      
|                                    |                                            | Total operating expenses |       |          | 13,860 |          |     |          | 12,790 |          |     |          | 9,999  |          |     |          | 9,071 |  |     |       | 9,655 |  |      |       | 9,989 |  |     |       | 8,700 |  |     |       | 8,370 | 
|                                    |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |          |       |  |     |       |       |  |      |       |       |  |     |       |       |  |     |      
|Income (loss) from operations       |                                            |                          | 1,381 |          |        |          | 500 |          |        |          | 632 |          |        |          | 440 |          |       |  | 270 |       |       |  | (516 | )     |       |  | 226 |       |       |  | (69 | )    
|Interest income, net                |                                            |                          | 333   |          |        |          | 321 |          |        |          | 290 |          |        |          | 268 |          |       |  | 255 |       |       |  | 263  |       |       |  | 284 |       |       |  | 287 |      
|Other income (loss), net            |                                            |                          | 37    |          |        |          | (18 | )        |        |          | 9   |          |        |          | (43 | )        |       |  | (30 | )     |       |  | (106 | )     |       |  | (84 | )     |       |  | 22  |      
|                                    |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |          |       |  |     |       |       |  |      |       |       |  |     |       |       |  |     |      
|                                    | Income (loss) before income taxes          |                          |       | 1,751    |        |          |     | 803      |        |          |     | 931      |        |          |     | 665      |       |  |     | 495   |       |  |      | (359  | )     |  |     | 426   |       |  |     | 240   |      
|Provision for income taxes          |                                            |                          | 644   |          |        |          | 294 |          |        |          | 336 |          |        |          | 248 |          |       |  | 245 |       |       |  | 225  |       |       |  | 225 |       |       |  | 225 |      
|                                    |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |          |       |  |     |       |       |  |      |       |       |  |     |       |       |  |     |      
|                                    | Net income (loss)                          |                          | $     | 1,107    |        |          | $   | 509      |        |          | $   | 595      |        |          | $   | 417      |       |  | $   | 250   |       |  | $    | (584  | )     |  | $   | 201   |       |  | $   | 15    |      
|                                    |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |          |       |  |     |       |       |  |      |       |       |  |     |       |       |  |     |      
|Net income (loss) per common share: |                                            |                          |       |          |        |          |     |          |        |          |     |          |        |          |     |          |       |  |     |       |       |  |      |       |       |  |     |       |       |  |     |      
|                                    | Basic                                      |                          | $     | 0.11     |        |          | $   | 0.05     |        |          | $   | 0.06     |        |          | $   | 0.04     |       |  | $   | 0.02  |       |  | $    | (0.06 | )     |  | $   | 0.02  |       |  | $   |      |      
|                                    | Diluted                                    |                          | $     | 0.10     |        |          | $   | 0.05     |        |          | $   | 0.06     |        |          | $   | 0.04     |       |  | $   | 0.02  |       |  | $    | (0.06 | )     |  | $   | 0.02  |       |  | $   |      |      

F-32



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##### Table of Contents






REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

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) 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,
2004 and 2003, and the results of their operations and their
cash flows for each of the three years in the period ended
June 30, 2004 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) 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 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 the standards of the Public Company Accounting
Oversight Board (United States). Those standards 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

September 9, 2004


F-33



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##### Table of Contents



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.