MOLDFLOW CORP - 10-K Annual Report

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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, 2002
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 (I.R.S. Employer
incorporation or organization) 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 Securities registered pursuant to
Section 12(b) of the Act: Section 12(g) of the Act:
NONE COMMON STOCK, $0.01 PAR VALUE PER SHARE
(Title of Class)

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Indicate by check mark whether the registrant has (i) filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (ii) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K, or any
amendment to this Form 10-K. Yes / / No /X/

The aggregate market value of our voting stock held by non-affiliates was
$39,836,018 on September 13, 2002 based on the last reported sale price of our
common stock on The Nasdaq Stock Market on that day. There were
10,164,354 shares of our common stock outstanding on that day.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's definitive Proxy Statement in connection with the
2002 Annual Meeting of Stockholders are incorporated by reference into Parts II
and III of this Form 10-K.

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MOLDFLOW CORPORATION

ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 2002

TABLE OF CONTENTS

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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 29.
READERS SHOULD NOT PLACE UNDUE RELIANCE ON OUR FORWARD-LOOKING STATEMENTS, AND
WE ASSUME NO OBLIGATION AND DO NOT INTEND TO UPDATE ANY FORWARD-LOOKING
STATEMENTS.

REFERENCES TO "WE," "US," "OUR" AND SIMILAR PRONOUNS REFER TO MOLDFLOW
CORPORATION AND ITS CONSOLIDATED SUBSIDIARIES.

PART I

ITEM 1. BUSINESS

OVERVIEW

We believe we are the world's leading developer of software solutions that
enhance the design, analysis and manufacture of injection molded plastic parts.
Products that make extensive use of plastic parts include automobiles, cellular
telephones, personal digital assistants, pagers, televisions, cameras, medical
instruments, toys and personal computers. The commercial success of each of
these products often relies heavily upon reducing the time to bring new products
to market, reducing engineering and manufacturing costs and improving product
quality and design.

Participants in all aspects of the injection molded plastic parts
manufacturing process, including part designers, mold designers, manufacturing
engineers and machine operators, use our products. These products enable our
customers to speed their products to market, decrease manufacturing costs and
reduce costly design and manufacturing errors by:

- determining the degree to which the injection molding process will
constrain part design,

- predicting the amount a plastic part will shrink or warp during
production,

- determining the rigidity of the part after molding,

- optimizing production conditions such as machine temperatures, injection
speeds, cooling times and the locations in a mold to inject the plastic to
balance quality and production speed,

- allow part designers to compare material choices,

- identifying and providing optimized solutions for adverse variations
during production,

- recording costs associated with molding a specific part,

- scheduling, monitoring and reporting plant floor molding operations, and

- providing features which facilitate collaboration over shared media, such
as the Internet.

We offer two product groups which provide functionality across a broad
spectrum of the plastics design to manufacturing process. Our Design
Optimization Solutions, which include our Moldflow

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Plastics Advisers ("MPA") and Moldflow Plastics Insight ("MPI") products, help
part and mold designers and plastics engineers design products that will be
manufactured correctly the first time, while our Manufacturing Solutions
products, Moldflow Plastics Xpert ("MPX"), Shotscope and EZ-Track, allow
manufacturing professionals to monitor, control and optimize their process on
the shop floor.

Our products are used by more than 4,700 customers at more than 5,300 sites
in over 60 countries around the world. We sell our products primarily through
our direct sales force in North America, Europe and Asia and, to a lesser
extent, through developers of other design software products and distributors in
defined geographic regions. Representative customers include Microsoft,
DaimlerChrysler, Apple Computer, Baxter International, BMW, duPont, Fuji Xerox,
Hewlett-Packard, Lego, Motorola, Nokia and Samsung. We have distribution
arrangements with PTC, Electronic Data Systems ("EDS"), CoCreate and resellers
of products from SolidWorks, a subsidiary of Dassault Systemes, and Autodesk.

Our development efforts are focused on creating tools that improve the
entire span of product development through manufacture for injection molded
plastic parts to enable our customers to enhance their competitiveness and
reduce their costs. We believe we have the widest and most advanced range of
software solutions and proprietary technology to address the problems that arise
in each phase of the process of designing and manufacturing injection molded
plastic parts.

We reincorporated from Australia to Delaware in 1997 and we have grown our
business in part by acquiring two companies with complementary product lines.
See Note 3 to the Consolidated Financial Statements. We are engaged in one
reportable industry segment-the development, marketing and support of software
products for the plastic design and manufacturing industry. Segment financial
information is reported in Note 19 of the Notes to the Consolidated Financial
Statements.

INDUSTRY BACKGROUND

INJECTION MOLDED PLASTICS INDUSTRY

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

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

The use of plastics also continues to increase in traditional industries
such as the automotive industry in large part due to improvements in the
injection molding process. Automobile manufacturers frequently find that plastic
parts provide the same or superior functionality at a lower cost than other
alternatives and permit a single part to replace multiple parts. Reducing the
number of parts decreases assembly costs and simplifies the overall product
development process. In addition to cost savings and enhanced part performance,
the use of plastics in the automobile industry can yield improvements in other
important design criteria such as fuel economy due to the weight savings
achieved by using

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plastics instead of other heavier structural materials. An industry association
recently reported that the automotive industry has increased its use of plastics
from an average of 60 pounds per vehicle in 1970 to over 360 pounds per vehicle.

INJECTION MOLDING PROCESS

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

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

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

- PART DESIGN--A design engineer, who typically does not specialize in the
design of plastic parts, creates the initial design of the end product,
including the plastic components. These design engineers face difficult
plastic-related decisions which often fall outside of their area of
specialization, including: selecting a plastic material, estimating the
strength and rigidity of the part, designing the part with shapes and
thicknesses that can be readily produced using injection molding and
completing each of the steps in a cost efficient manner.

- MOLD DESIGN--After the part has been designed, typically a second engineer
designs the mold into which injection molding machines can fill and pack
the selected plastic material to create the part. Designing a mold
requires the engineer to estimate many important variables, including the
amount the plastic part will warp or shrink and the optimal locations for
injecting plastic into the mold. The cost of a mold can vary from as
little as a few thousand dollars to more than one million dollars.

- PRODUCTION SET-UP--After the mold has been designed and built, the mold is
fastened into an injection molding machine. A machine operator then
adjusts several machine settings, such as machine temperature, injection
speed and cooling time until the machine produces acceptable parts. In
many instances, once acceptable parts are made with some frequency, the
operator makes little or no effort to improve the machine's set-up to
optimize speed or minimize failure rates.

- PRODUCTION AND PROCESS MONITORING--In most instances, once commercial
production begins, machine operators monitor the injection molding
machine's performance, which will vary over time. This variation can be
caused by operating conditions which shift as a result of factors such as
temperature fluctuations and lot-to-lot variations in the raw plastic
material, or a process which is too sensitive to these normal
environmental changes.

Traditionally, these steps have been carried out through a trial-and-error
process which requires a significant amount of guesswork throughout. As a
result, the design and development process has been

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inherently inefficient. An incorrect guess at any step of this process may
produce suboptimal parts or require that portions or all of the process be
repeated, delaying production and increasing costs.

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

ABSENCE OF COMPREHENSIVE SOFTWARE SOLUTIONS FOR THE INJECTION MOLDED
PLASTICS INDUSTRY

Although many industries have embraced software tools to improve their
product design and production processes, we believe that a substantial portion
of companies designing and manufacturing injection molded plastic parts continue
to employ a trial-and-error process at many of the steps in the design to
manufacture process. We believe this condition exists primarily because of the
limited availability of an integrated and comprehensive set of software tools
capable of addressing many of the complex and unique issues involved in
designing injection molded plastic parts and their molds and then manufacturing
those parts. In addition, we believe the majority of the injection molding
machines currently in use worldwide are being operated without adequate process
and production control tools which are specific to the plastics industry, yet
broad enough to encompass other functions on the shop floor. We believe that the
proper use of such tools would allow manufacturers to analyze and improve the
efficiency of their production.

THE MOLDFLOW SOLUTION

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

OUR PRODUCTS

We offer software solutions for all phases of designing and manufacturing
injection molded plastic parts. We have categorized our product offerings into
two distinct groups, Design Optimization Solutions and Manufacturing Solutions.
Design Optimizations Solutions include the Moldflow Plastics Advisers ("MPA")
series for part design and high-level mold design which is available on a
perpetual license basis and portions of which are available on an ASP model, and
the Moldflow Plastics Insight ("MPI") series for more in-depth part and mold
design. Manufacturing Solutions include the Moldflow Plastics Xpert ("MPX") for
production set-up, production monitoring and process control, Shotscope for
process monitoring and EZ-Track for plant-wide production monitoring. In
addition, we created and support plasticszone.com, which we believe to be the
world's first e-business site designed for predictive engineering for injection
molded plastics. Our products employ complex and proprietary mathematical
concepts. For example, our MPA and MPI products employ our patented Dual Domain
technology,

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which permits users to conduct complex plastic flow simulations using solid
model data generated by their design modeling software. As a result, users can
eliminate the otherwise necessary, time-consuming and error-prone step of
creating a unique mathematical representation to be used solely for simulating
plastics flows. Our products run on the most widely used computing platforms and
operating systems, including various versions of Windows and UNIX.

MOLDFLOW PLASTICS ADVISERS

Our MPA series provides part and mold designers with applications that
permit them to quickly check the ultimate manufacturability of their designs at
an early stage in the design process. We have designed MPA to input its results
directly into MPX to enhance the efficiency of molding machine set-up. The MPA
series consists of three products:

PART ADVISER is a user-friendly application which enables product designers
without expertise in designing plastic parts to address key manufacturing
concerns in the preliminary design stage. Part Adviser offers practical
advice for the broad range of problems it identifies without the need to
consult with engineers who specialize in plastic part design. Part designers
are able to receive rapid feedback on the extent to which a number of
factors, including modifications such as part geometry, material selection
or plastic fill locations affect the manufacturability of a plastic part. In
addition, Part Adviser permits the designer to create reports which can be
instantly shared with fellow design team members across the Internet.

MOLD ADVISER extends the capabilities of Part Adviser to permit the mold
designer to layout and analyze an optimal mold. This product eliminates the
need to design and build molds through trial-and-error, enabling a mold
designer to create molds quickly and efficiently.

IMPA is a fully functional, application service provider ("ASP") version of
our Part Adviser product. We introduced IMPA to provide access to our Part
Adviser product on a pay-per-use basis. Customers download IMPA onto their
desktop, laptop or home computers and are then able to perform plastic flow
analyses. IMPA creates a unique digital fingerprint that is exchanged at
plasticszone.com for an authorization key that allows the user to perform
unlimited analyses on a single model geometry. This patent-pending ASP model
allows the customer to pay a usage fee for each separate geometric
configuration, while protecting the privacy of a part's design and
eliminating bandwidth constraints by avoiding transmission of large
proprietary data files over a public network.

MOLDFLOW PLASTICS INSIGHT

The MPI series contains our broadest set of predictive capabilities for
injection molding for use by highly specialized design engineers. The MPI series
assists design engineers in determining the optimal combination of part
geometry, material choice, mold design and processing parameters to produce
quality finished products. MPI allows the optimization of the variables which
remain in the mold designer's control to adjust. For instance, a mold designer
often receives a part design and is not permitted to make changes to the design,
but rather must create a mold design and a set of operating conditions best
suited for the part as designed. MPI may also be used in connection with a
completed mold which was poorly designed and is producing defective parts at an
unacceptable rate. In these cases, MPI can be used to find the best possible
operating conditions for the mold-part combination to minimize the defects or it
can be used to identify the changes necessary in the mold to improve part
yields. The results generated by our MPI products can be input directly into our
MPX product to reduce machine set-up time.

All applications in the MPI series use an integrated environment which
permits users to easily import all of the most commonly used types of
computer-generated models, select and compare material grades, prepare models
for analysis, sequence a series of analysis jobs, undertake advanced

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analysis post-processing and use Internet-based capabilities to enhance
collaboration with team members. In these applications, we believe that we offer
the broadest integration with existing computer-aided design products in the
plastics software industry.

MPI/FLOW predicts the flow and subsequent packing of plastics at the start
of the injection molding cycle to enable users to optimize locations for
plastic filling and processing conditions, assess possible part defects and
automatically determine the dimensions for a balanced feed system for the
plastic material.

MPI/COOL is used to design cooling circuits and a mold block around a part
to optimize mold design by adjusting the size and locations of the cooling
circuits. Because many warpage problems result from improper cooling design,
using MPI/Cool for mold designs enhances ultimate product quality. MPI/Cool
also enables all of the benefits of mold cooling analysis to be applied to
gas injection molded parts.

MPI/WARP and MPI/SHRINK predict and identify the cause and amount of warpage
and shrinkage in plastic parts.

MPI/FUSION allows users to work directly from three-dimensional solid models
to perform detailed calculations. Based upon the same patented technology at
the core of the MPA series of products, MPI/Fusion permits more rapid
investigation into the characteristics of the plastic parts and molds being
analyzed.

MPI/FLOW3D uses a fully three-dimensional meshing and solving technology to
analyze thick plastic parts. The majority of the MPI modules are focused on
the broadest class of plastic parts, those that are termed "thin wall."
There are plastic parts, however, that are very thick or have widely varying
thicknesses throughout. Until the development of MPI/Flow3D, creators of
these types of products had no commercially viable product alternative to
investigate the filling process to produce better parts and molds.

MPI/STRESS predicts the structural integrity of plastic components under
stress to quickly predict whether initial concept designs meet desired
structural requirements and whether the part will permanently deform if put
under load. The stress analysis calculates the amount of force which will
cause buckling and predicts the final buckled shape.

MPI/FIBER utilizes sophisticated visualization tools to provide insight into
the part's properties by allowing the user to see how fiber alignment varies
throughout the part's layers. Plastics are often filled with various forms
and quantities of fibers to tailor the material's operating characteristics,
such as resistance to bending. The fiber analysis also predicts the effects
of fiber orientation. The effects of plastic flow on fiber orientation have
a significant impact on the mechanical and structural properties of fiber
filled plastic injection molded parts.

MPI/OPTIM automatically determines the optimum processing conditions to be
set for a specific part on an injection molding machine to produce a part of
acceptable quality. These results may be used as input variables for MPX to
ensure molding machine set-up is as quick and efficient as possible. The
results may also be used in isolation, as an input to assist the operator in
finding the best settings for a specific machine to produce the desired
parts.

MPI/GAS provides predictive capabilities for the gas injection molding
process. The gas injection molding process is very similar to the injection
molding process described earlier but the machine produces an injection of
air, timed within the filling phase to follow the injection of plastic, to
produce wider, but hollow, channels within the part. These channels add
structural rigidity to the end product that is often desirable for large
parts such as television casings and lawn furniture.

MPI/CO-INJECTION provides an invaluable tool for simulating the sequential
co-injection process, where a skin material is injected first, followed by
the injection of a different core material. Users

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can view the advancement of the materials in the cavity and see the dynamic,
changing relationship between skin and core materials as filling progresses.

MPI/INJECTION COMPRESSION simulates all major process control methods for a
total evaluation of candidate materials, part design, mold design and
process conditions. Users can simulate processes where polymer injection and
mold compression occur simultaneously or sequentially.

MPI/REACTIVE MOLDING allows users to simulate a variety of thermoset molding
processes including reaction injection molding (RIM), structural reaction
injection molding (SRIM), and thermoset and rubber injection molding.
Thermosets are a type of plastic which are used for products that must
withstand high temperatures without alteration of their physical properties
and are used for a variety of applications including integrated circuit
microchip encapsulation, automotive headlamp housings, engine valve covers
and other automotive engine components, and circuit breakers.

MPI/MICROCHIP ENCAPSULATION extends the capabilities of MPI/Reactive Molding
to simulate the encapsulation of semiconductor chips with reactive resins.
The encapsulation process facilitates heat dissipation, and enables
electrical interconnection of the chips.

MIP/UNDERFILL ENCAPSULATION is an optional add-on module that extends the
capabilities of MPI/ Reactive Molding to simulate the pressurized underfill
encapsulation process.

MOLDFLOW PLASTICS XPERT

Our MPX product attaches to injection molding machines 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.
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. We designed MPX to reduce mold set-up times
and to optimize the efficiency of the part production cycle. Our MPX product
consists of three integrated modules:

SETUP XPERT enables systematic mold set-up from starting points generated by
MPA, MPI or operator inputs, independent of operator and location. Setup
Xpert optimizes the molding cycle and maximizes the usage of machine
capabilities without requiring the operator to have in-depth knowledge of
the individual machine. Setup Xpert quickly sets up and optimizes each
machine, while ensuring that each operator uses the same set-up procedures.

OPTIMIZATION XPERT establishes a defined range of operating conditions
within which acceptable quality parts will be produced. Optimization Xpert
can reduce to a few minutes an optimization task that previously took
several hours or was not performed. The identification of a defined range of
operating conditions is one of the key steps in being able to determine what
operating conditions can be used by the machine to prevent scrap and machine
downtime.

PRODUCTION XPERT graphically monitors variables specific to the injection
molding process and automatically evaluates the quality of the production
process. In addition, Production Xpert spots problems and either provides
suggestions on how to correct the process or makes the necessary changes.

MOLDFLOW SHOTSCOPE

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

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records, analyzes, reports and allows access to the information for use in
decision making. Shotscope can be used for both plastic injection molding 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 maintains and displays Statistical Process Control ("SPC") data in
a variety of formats, including trend charts, X-bar and R charts, histograms and
scatter diagrams. This information provides molders with the knowledge that
their processes are in control, and, should they go out of control, Shotscope
can alert to an out-of-control condition and divert suspect-quality parts.
Furthermore, because the Shotscope system can measure and archive up to 50
process parameters (such as pressures, temperatures, times, etc.), the
processing "fingerprint" for any part can be stored and retrieved at any time in
the future. This functionality is extremely important to manufacturers concerned
with the potential failure of a molded part in its end-use application, for
example, medical devices.

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.

MOLDFLOW EZ-TRACK

Moldflow EZ-Track provides real-time, plant-wide production monitoring and
reporting. EZ-Track can be attached to injection molding machines and virtually
any cyclic manufacturing equipment and machinery, such as ultrasonic welders,
assembly machines, and packaging equipment.

The EZ-Track system monitors key production statistics such as machine
status, downtime, scrap, raw material, labor activity and materials moved, and
tracks lot numbers. The EZ-Track system provides a comprehensive job scheduler
that permits visual "drag and drop" job scheduling using Gantt chart displays.
The scheduler checks for mold conflicts and machine feasibility, continuously
updates estimates of job completion times based on actual cycle time, downtime,
rejects and cavitation and visually flags delays. The scheduler can also be
integrated with ERP systems to connect plant floor operations to the rest of the
business enterprise.

The EZ-Track system includes the EZ-Track input/output unit which interfaces
directly to a single machine. It is a small, self-contained instrument that
provides data acquisition, alarms and a full user interface for manual entry and
display. Sixteen high-speed digital input channels are provided for timing,
counting, and production rates as well as eight digital output channels to
activate alarms, divert parts and exert other types of control.

EZ-Track offers a complete set of comprehensive reports including job
summaries, machine performance, plant status, scrap, downtime, labor, material
and tool use. Graphical styles for effective report illustration include pie
charts, Pareto charts, trend charts and tabular charts. EZ-Track aggregates,
sorts, and filters data by job, machine, employee, tools, material and time
periods. Reports are accessible from any Internet or corporate intranet browser.

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OUR CUSTOMERS

Our products are used at more than 5,300 user sites in more than 4,700
companies, which are located in over 60 countries spanning the globe. No single
customer accounted for more than 10% of our revenue for fiscal 2002.
Representative customers in various industries include:

AUTOMOTIVE

DaimlerChrysler
BMW AG
DENSO Corporation
Ford Motor Company
Hyundai Business Group
Valeo SA
Volkswagen AG

TOYS

Microsoft Corporation
Hasbro, Inc.
The Lego Group
Mattel, Inc.

ELECTRONICS

Apple Computer Inc.
The Framatome Group
Fuji Xerox Co., Ltd.
Hewlett-Packard Company
Motorola, Inc.
Nokia Corporation
Siemens AG

MATERIAL SUPPLIERS

Bayer AG
The Dow Chemical Company
Eastman Chemical Company
E. I. duPont de Nemours and Company
GE Plastics
M. A. Hanna Company

MEDICAL

Bausch and Lomb
Baxter International, Inc.
Becton Dickinson and Company

OTHER/MULTIPLE INDUSTRIES

Fisher & Paykel Industries Limited
LG Group
Minnesota Mining and Manufacturing (3M)
Montblanc-Simplo GmbH
Perlos Oyj
Samsung Group

SALES AND MARKETING

We distribute our products and services primarily through our direct sales
organization. As of June 30, 2002, our direct sales organization consisted of
37 sales associates, who operated out of offices located in Australia, China,
France, Germany, Italy, Japan, Korea, the Netherlands, Singapore, Spain, Sweden,
Taiwan, the United Kingdom and the United States. Our direct sales model
involves pairing a sales associate and applications engineer to form a sales
team. These teams work together to conduct a thorough evaluation of potential
customers' design and manufacturing processes and provide the potential
customers with a detailed analysis of the cost savings our products could
produce in a selected aspect of their business. See Note 19 to the Consolidated
Financial Statements for information regarding the geographic distribution of
our results of operations.

To supplement the efforts of our direct sales organization, we also sell our
products through marketing and distribution arrangements with several design
software vendors as an integrated application on their solid modeling design
systems. For example, PTC incorporates our MPA product in a module of its
Pro/ENGINEER product, which they call Pro/PLASTIC ADVISOR and Electronic Data
Systems ("EDS") sells our MPA product as well as several modules contained
within our MPI family of products. Several distributors of SolidWorks
Corporation, a subsidiary of Dassault Systemes S.A., distribute our MPA product
and Autodesk, Inc. has designated us a partner, which gives us access to
Autodesk's distribution channel to sell our MPA product. We have established a
broad network of distributors to provide worldwide sales coverage to complement
our direct sales organization. Sales of our products may be subject to seasonal
variations, particularly in our first fiscal quarter in many of the markets in
which we sell our products.

9

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

BACKLOG

We generally ship our products within 30 days of acceptance of an order and
execution of the appropriate license documentation.

CUSTOMER SUPPORT AND OTHER SERVICES

CUSTOMER SUPPORT AND TRAINING

We provide customer training on our products and technical support to our
customers, which they may access 24 hours a day. Our customers may access
customer support either through our telephone hotline or our website. In
addition, our product development staff is available to solve more complex
problems that our customer support personnel are unable to solve quickly. We
provide implementation assistance to our Manufacturing Solutions customers to
assist them in realizing the full capability of our products. We have an
established curriculum of training courses provided by us or by our partners,
leading to certification in the use of our products.

CONSULTING SERVICES

In addition to traditional customer support services, we also provide
consulting services to customers who lack employees with the expertise necessary
to take advantage of the full capability of our products. We employ design
engineers who use our products on behalf of our customers to optimize their part
design and production processes. We view providing consulting services as
complementary to our core business of selling sophisticated software solutions.
Accordingly, we provide consulting services typically in cases where we believe
that providing these services will help build relationships with future
customers for our software products.

MATERIAL TESTING SERVICES

Our material testing group provides testing services to our customers who
are seeking accurate, reliable material data on new or existing grades of
polymers, measured under a wide range of practical molding conditions. We have
established a database containing information on more than 7,500 plastic
materials. We conduct this testing at our facilities located near Melbourne,
Australia, and in Ithaca, New York, which are equipped with state-of-the-art
equipment, including injection molding machines. The research and testing
conducted at these facilities provides essential data for our full line of
software applications.

PRODUCT DEVELOPMENT

Our product development strategy focuses on ongoing development and
innovation of new technologies to increase our customers' productivity and
provide solutions that our customers can integrate into their existing computing
platforms. We plan to extend our leadership position in plastics simulation
technology by continuing to make significant investments in research and
development and to maintain our market share by rapidly creating and delivering
new product releases to our customers. We intend to take advantage of current
and future technology trends, including the Internet, to ensure our customers
are able to gain incremental competitive advantage in their respective
industries.

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

10

To enhance our product development efforts, we fund or participate in a wide
assortment of external research and development projects, often being conducted
by the world's leading experts in their fields. In many cases, through these
projects we gain access to fundamental research with comprehensive
experimentation results. Often the centers agree to restricted publishing rights
in order to pursue topics of mutual interest. A partial list of our
collaborative partners includes ENSAM (France) for shrinkage, Cranfield
University (United Kingdom) for analysis of fiber filled parts, University of
Bradford (United Kingdom) for fiber orientation measurement and process control,
Technical University of Eindhoven (Netherlands) for numerical methods,
University of Sydney (Australia) for fluid mechanics and Nanyang Technological
University of Singapore for optimization.

As of June 30, 2002, our product development staff had 69 employees, most of
whom hold advanced degrees and have industry experience in engineering,
mathematics, computer science or related disciplines. We seek to recruit highly
skilled employees, and our ability to attract and retain such employees will be
a principal factor in our success in maintaining our leading technological
position. We believe that such investments in research and development are
required in order for us to remain competitive and we believe our cadre of
software developers and our worldwide development capabilities represent a
significant competitive advantage. In fiscal 2000, 2001 and 2002 our research
and development expenses were $4.1 million, $6.6 million and $6.2 million,
respectively, net of capitalized software development costs. In addition, in
fiscal 2002, the Company had $602,000 in research and development costs that
were capitalized during the fiscal year. See Note 6 to the Consolidated
Financial Statements.

COMPETITION

The markets into which our products are sold are highly competitive. We
compete with many companies engaged in selling software solutions to companies
involved in product development and manufacturing. Our Design Optimization
Solutions products face competition from computer-aided design (CAD) and
computer-aided engineering (CAE) companies, materials vendors and independent
engineering consultants. Our Manufacturing Solutions products face competition
from injection molding manufacturers and industrial automation system providers.
In addition, new competitors may arise as we introduce new products into the
marketplace.

The entrance of new competitors would be likely to intensify competition in
all or a portion of the markets in which we compete. Some of our current and
possible future competitors have greater financial, technical, marketing and
other resources than we do, and some have well-established relationships with
our current and potential customers. Competitors may form alliances and rapidly
acquire significant market share. Moreover, competition may increase as a result
of software industry consolidation.

We believe that the principal competitive factors affecting our markets
include:

- speed of innovation,

- ease of use,

- flexibility,

- quality,

- ease of integration into or communication with enterprise engineering
applications, such as computer-aided design systems or enterprise resource
planning systems,

- performance and functionality,

- price and cost of ownership,

- customer service and support,

- company reputation and financial viability, and

11

- effectiveness of sales and marketing efforts.

We believe that we compete effectively on these factors.

TECHNOLOGY AND PROPRIETARY RIGHTS

Our proprietary technology primarily applies general mathematical models
describing the behavior of plastics as fluids under conditions of heat and
pressure to the real world environment of polymers processing. In addition, our
proprietary technology includes understanding of plastic material behavior and
the injection molding process. We believe that our broad range of proven
numerical methods represents considerable intellectual property and that these
trade secrets are difficult to reproduce. We currently own all of the core
technology used in our products and license only assorted peripheral software
that facilitates the operation of our products' core functions. Our success
depends to a significant degree upon our ability to develop proprietary products
and technologies.

We engage in a regular review of our proprietary technology to determine the
optimal method of protecting such technology. We currently own two issued United
States patents and corresponding international patents. We have other U.S. and
international patent applications pending. These patents cover a relatively
small portion of our overall portfolio of intellectual property. We view these
patents as one important way of protecting our key intellectual property that
may not be protected by the use of other methods. We intend to continue to file
patent applications as we develop new products and technologies.

The patent position of companies like ours are generally uncertain and
involve complex legal and factual questions. Furthermore, even if patents are
licensed or issued to us, others may design around the patented technologies. In
addition, we could incur substantial litigation costs if we are required to
initiate patent litigation to enforce our patent rights, and the outcome of any
patent litigation is uncertain. Our patent position may be impaired by the
following:

- our pending patent applications may not result in issued patents,

- the claims of patents which are issued may not provide meaningful
protection,

- we may not develop additional proprietary technologies that are
patentable,

- patents licensed or issued to us may not provide a basis for commercially
viable products or may not provide us with competitive advantages and may
be challenged by third parties, or

- patents of others may have an adverse effect on our ability to do
business.

We rely on a combination of trade secrets, copyright and trademark laws,
license agreements, nondisclosure and other contractual provisions and technical
measures to protect the unpatented proprietary technology contained in our
products. We distribute our software under software license agreements that
typically grant customers non-exclusive, non-transferable licenses to use our
products. These agreements usually restrict use of the licensed software to our
customer's internal operations on designated computers at specified sites unless
the customer obtains a site license for the software, and are subject to terms
and conditions prohibiting unauthorized reproduction or transfer of the
software. For certain software, such as the MPA series, we rely primarily on
"click-wrapped" licenses that are not signed by licensees and therefore may be
unenforceable under the laws of some jurisdictions. Further, software security
measures are employed in our products to prevent unauthorized use of our
software.

We also seek to protect the source code of our software through trade secret
and copyright law. We have obtained or applied for United States federal
trademark protection on various trademarks and logos. We have also applied for
or obtained trademark registrations of these key marks in a number of foreign
jurisdictions and are in the process of seeking trademark registrations in other
foreign countries.

We require our employees and consultants to sign a confidentiality and
non-competition agreement. Under these agreements, our employees agree not to
disclose trade secrets or confidential

12

information and agree not to engage in or be connected with any business that is
competitive with our business while employed by us, and in some cases for
specified periods thereafter. Within these agreements, employees also agree that
any products or technology they create during the term of their employment are
our property.

Despite these precautions, misappropriation of our technology may occur.
Further, patent, trademark, copyright and trade secret protection may not be
available for our products in every country.

The software development industry is characterized by rapid technological
change. Therefore, we believe that factors such as the technological and
creative skills of our personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are more
important to establishing and maintaining a technology leadership position than
the various legal protections of our technology which may be available.

We seek to monitor the public records in order to become aware of any
potentially conflicting proprietary rights. To date, we have not received any
notification that any specific product of ours infringes on the proprietary
rights of third parties; however, we are generally aware of other issued patents
in similar technological areas. We can not assure you that third parties will
not claim such infringement by us or our licensors with respect to current or
future products. We expect that software product developers will increasingly be
subject to such claims as the number of products and competitors in our market
segment grows and the product functionality in different market segments
overlaps. In addition, patents on software and business methods are becoming
more common and we expect that more patents will issue in our technical field.
Any such claims, with or without merit, could be time-consuming, result in
costly litigation, cause product shipment delays or require us to enter into
royalty or licensing agreements. Moreover, such royalty or licensing agreements,
if required, may not be on terms acceptable to us.

We integrate third-party software into our products. This software may not
continue to be available on commercially reasonable terms. If we cannot maintain
licenses to this third-party software, distribution of our products could be
delayed until equivalent software could be developed or licensed and integrated
into our products. This could cause delays in our product sales and development
efforts.

EMPLOYEES

As of June 30, 2002, we had 246 employees, 92 of whom resided in the United
States, 51 of whom resided in Australia, 14 of whom resided in the United
Kingdom and 89 of whom resided in other countries. We believe that our
relationship with our employees is good.

ITEM 2. PROPERTIES

We operate out of four primary facilities. We lease 22,694 square feet of
office space located in Wayland, Massachusetts pursuant to a 5-year lease that
expires in August 2005. This facility serves as our corporate headquarters and
personnel located at this facility include most members of our senior management
team, technical support personnel, product marketing personnel, some development
personnel, and some finance and administration personnel.

We own an 18,100 square foot office building set on approximately 9 acres in
the Kilsyth suburb of Melbourne, Australia. Personnel located at our Melbourne
facility include members of our software development and research team, some of
our materials testing personnel, a portion of our Asia Pacific sales force and
administrative staff. In March 2001, we leased a newly constructed 18,400 square
foot building in Ithaca, New York pursuant to a 10-year lease that expires March
2012. Our Ithaca operations moved into this building in April 2002. Personnel
located at our Ithaca facility include members of our software development and
research team, some of our materials testing personnel, and administrative
personnel. We also lease a 6,000 square foot office and laboratory building in

13

Wilsonville, Oregon, pursuant to a 4-year lease that expires in December 2004.
Personnel located at our Wilsonville facility include members of our product
development and customer support team.

We also lease office space in the other countries in which we do business.
Our aggregate lease expenses were $2.1 million in fiscal 2002, which excludes
lease termination charges that were included in our restructuring charge.

ITEM 3. LEGAL PROCEEDINGS

From time to time, we may be involved in various claims and legal
proceedings arising in the ordinary course of business. We are not currently a
party to any such claims or proceedings which, if decided adversely to us, would
either individually or in the aggregate have a material adverse effect on our
business, financial condition or results of operations.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock began trading on the Nasdaq National Market ("Nasdaq") on
March 28, 2000 under the symbol "MFLO". The following table sets forth the
quarterly high and low sales prices per share reported on Nasdaq for our last
two fiscal years.

On September 17, 2002, the last reported sale price of the common stock on
Nasdaq was $4.80 per share. On September 17, 2002, there were 84 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.

The effective date of the Securities Act registration statement for which
the use of proceeds information is being disclosed is March 27, 2000, and the
Commission file number assigned to the registration statement is 333-95289. The
use of proceeds of our initial public offering has not changed from that
reported in our quarterly report on Form 10-Q for the period ended March 30,
2002.

Incorporated herein by reference is the information appearing under the
caption "Equity Compensation Plan Information" in the Company's definitive Proxy
Statement for its 2002 Annual Meeting to Stockholders.

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, 2000, 2001 and 2002 and the balance sheet data at June 30,
2001 and 2002 are derived from our audited consolidated financial statements
appearing elsewhere in this document. The statement of operations data for the
years ended June 30, 1998 and 1999 and the balance sheet data at June 30, 1998,
1999 and 2000 are derived from our audited consolidated financial statements not
included in this document.

The computation of basic and diluted net income per common share has been
adjusted retroactively for all periods presented to reflect the redesignation of
our common and preferred stock

14

in March 1998. As a result of the treatment of this redesignation, we had no
common stock outstanding prior to June 30, 1998 for purposes of computing net
income per common share. Accordingly, basic net income per common share was zero
for the year ended June 30, 1998.

15

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

FORWARD-LOOKING STATEMENTS

This portion of our Annual Report contains forward-looking statements.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties, and actual results may differ materially from those discussed as
a result of various factors, including those factors described in "Risk Factors
and Important Factors That May Affect Future Results" beginning on page 29.
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.

BUSINESS OVERVIEW

Our primary business is the development, sale and support of software
applications for the design and manufacture of injection molded plastic parts.
We develop software products internally and through cooperative research
relationships with a number of public and private educational and research
organizations around the world. We categorize our products into two groups. Our
Design Optimization products allow a product designer or engineer to simulate
the manufacture of a plastic part to determine the optimal part design and
part/mold combination. Our Design Optimization Solutions include our Moldflow
Plastics Insight ("MPI") series for in-depth mold design and our Moldflow
Plastics Advisers ("MPA") series for part design and high level mold design. Our
Manufacturing Solutions products allow plant engineers and managers to maintain
and optimize manufacturing conditions throughout the manufacturing process. Our
Manufacturing Solutions include three products. Our Moldflow Plastics Xpert
("MPX") series for production set-up and production monitoring was introduced in
fiscal 1999. In fiscal 2001, two additional products were launched under the
Moldflow brand, Shotscope and EZ-Track. Shotscope, the sole product of Branden
Technologies, a company we acquired in March 2001, is a shop floor product that
monitors, analyzes and assists in the scheduling of injection molding production
processes. EZ-Track provides real-time, plant-wide production monitoring and
reporting.

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

On April 13, 2000, the Company acquired all of the outstanding shares of
Advanced CAE Technology, Inc., which formerly conducted business as "C-Mold." On
March 28, 2001, the Company acquired all of the outstanding shares of Branden
Technologies, Inc. ("Branden"). These business combinations were accounted for
using the purchase method of accounting. Accordingly, our consolidated financial
statements include the financial position and results of operations of C-Mold
and Branden from the dates of their respective acquisition. See Note 3 to the
Consolidated Financial Statements.

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

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

16

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

- revenue recognition,

- valuation allowances,

- acquisition accounting,

- impairment of intangible assets, goodwill and other long-lived assets, and

- hedge accounting.

REVENUE RECOGNITION

We derive revenue from the licensing of computer software products and from
services consisting of maintenance and support, consulting, material testing and
training. We follow AICPA Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," as amended by SOP No. 98-9, "Modification of SOP No. 97-2,
Software Revenue Recognition, with Respect to Certain Transactions" ("SOP
98-9"), both of which provide guidance on applying generally accepted accounting
principles in recognizing revenue on software transactions.

We recognize revenue from sales of software licenses upon product shipment
provided that evidence of the purchase commitment exists, the license fee is
fixed or determinable, management deems that collection is reasonably assured
and all other revenue recognition criteria of SOP 97-2 are met. Our software
products do not require significant modification or customization and
installation of the products is generally routine and requires insignificant
effort. We recognize revenue from maintenance and support contracts ratably over
the related contract period and from training and other services as they are
performed.

Maintenance and support contracts are often entered into at the same time as
the sale of software licenses. In accordance with SOP 97-2, we consider these
multiple elements of a single arrangement. Payment for this arrangement is
typically received up-front, and the total fee is then allocated ratably to
these elements based upon vendor-specific objective evidence of fair value
("VSOE") for each, which is determined based upon the prices charged to
customers when these elements are sold separately; the revenue allocated to each
is then recognized as described above for these elements.

When VSOE does not exist for all of the delivered elements of an
arrangement, but does exist for the undelivered elements, we employ the
"residual method" of accounting for revenue recognition, as defined by SOP 98-9.
The residual method requires that the portion of the total arrangement fee
attributable to the undelivered elements, as indicated by VSOE, is deferred and
subsequently recognized in accordance with SOP 97-2. The difference between the
total arrangement fee and the amount deferred for the undelivered elements is
recognized as revenue related to the delivered elements, if all other revenue
recognition criteria of SOP 97-2 are met. VSOE for the undelivered elements is
determined based on the prices charged to customers when these elements are sold
separately, typically from the renewal of the annual maintenance and support
contracts.

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

VALUATION ALLOWANCES

Management must estimate the amount of our accounts receivable which may be
uncollectible due to the inability of our customers to make payments. We review
the composition of accounts receivable and analyze historical bad debts,
customer concentrations, customer credit-worthiness, current economic

17

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 our customers deteriorates after entering into a revenue
arrangement resulting in an impairment of their ability to make payments beyond
that estimated by management, additional allowances may be required. As of
June 30, 2002, our accounts receivable balance was $5.9 million, net of
allowances for doubtful accounts of $315,000.

Management writes down its inventory for estimated obsolescence or
unmarketable inventory equal to the difference between the cost of inventory and
the estimated market value based upon assumptions about future demand and market
conditions. If actual demand and market conditions are less favorable than those
assumed by management, additional inventory write-downs may be required. As of
June 30, 2002, our inventory balance was $705,000 after write-downs for
obsolete, missing and excess stock of $138,000 during fiscal 2002.

Management records a valuation allowance to reduce our deferred tax assets
to the amount that is more likely than not to be realized. Based upon our
historical results of operations, it is more likely than not that a portion of
our deferred tax assets will not be realized. Management believes that the net
deferred tax asset represents the 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. As of June 30, 2002, the
balance of our deferred tax assets was $595,000, net of a valuation allowance of
$370,000.

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

ACQUISITION ACCOUNTING

On April 13, 2000, we acquired all of the outstanding shares of C-Mold and
on March 28, 2001, we acquired all of the outstanding shares of Branden. These
business combinations were accounted for using the purchase method of
accounting. Accordingly, our consolidated financial statements include the
financial position and results of operations of C-Mold and Branden from the
dates of their respective acquisition. See Note 3 to the Consolidated Financial
Statements.

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

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

18

IMPAIRMENT OF INTANGIBLE ASSETS, GOODWILL AND OTHER LONG-LIVED ASSETS

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

- significant underperformance relative to projected future operating
results,

- significant changes in the manner of our use of the acquired assets or the
strategy for our overall business, and

- significant negative industry or economic trends.

When we determine that the carrying value of intangible assets, goodwill and
other long-lived assets may not be recoverable based upon the existence of one
or more of the above indicators of potential impairment, we assess whether an
impairment has occurred. Our assessment of intangible assets, other long-lived
assets and, prior to July 1, 2001, goodwill is based on whether net book value
of the assets exceeds related projected undiscounted cash flows from these
assets, considering a number of factors including past operating results,
budgets, economic projections, market trends and product development cycles.
Potential impairment of goodwill after July 1, 2001 is evaluated in accordance
with SFAS No. 142.

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

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

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

In May 2002, we settled several claims outstanding against an escrow account
established in our acquisition of C-Mold. This settlement resulted in our
receipt of $470,000 of cash and recognition of $446,000, net, of non-recurring
gains. Included in this net amount, among other things, was the write-off of
$61,000 of intangible assets related to certain non-compete agreements which we
considered

19

impaired after the settlement. As of June 30, 2002, our remaining goodwill and
intangible assets were $10.1 million, net of accumulated amortization of
$2.7 million.

HEDGE ACCOUNTING

We hedge a portion of our forecasted foreign currency denominated
intercompany sales and a portion of our foreign currency denominated
intercompany research and development payments with derivative financial
instruments, including currency options, zero cost collars and other
instruments. As the hedging activities are based upon forecasts, a significant
amount of judgment and estimation is required in assessing the appropriateness
of hedge accounting for the instruments. If these judgments or estimates are
incorrect, or if the hedging transactions are not highly effective in offsetting
the changes in cash flows of the hedged items, amounts currently recorded as
unrealized gains and losses may be realized in our earnings. At June 30, 2002,
hedging instruments with fair values of $379,000 and $637,000 were recorded as
components of other current assets and accrued expenses, respectively. Net
unrealized losses on these instruments of $279,000 were included as a component
of equity in accumulated other comprehensive income. See Note 2 and Note 5 to
the Consolidated Financial Statements.

RESULTS OF OPERATIONS

We generate revenue from two principal sources:

- license fees for our packaged software products, and

- services revenue derived from maintenance and support services related to
our software products, consulting, training and material testing.

SOFTWARE LICENSES REVENUE. Typically, our customers pay an up-front,
one-time fee for a perpetual license of our software products. The amount of the
fee depends upon the number and type of software modules purchased and the
number of the customers' employees or other users who can access the software
product simultaneously. Our MPA product is subject to the terms of a "click-
wrapped" software license agreement that is included as part of each customer's
installation process. Revenue for our IMPA product is earned on a pay-per-use
basis and, to date, has not been significant. For sales of our MPI, MPX,
Shotscope and EZ-Track products, we generally require a signed license
agreement. In addition, we receive royalty payments from developers of other
software products related to the bundling of our software with their design
software programs.

SERVICES REVENUE. We also derive revenue from maintenance and support
contracts, which 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 services, training of customers' employees and
material testing services.

We recognize our software licenses revenue and our services revenue as
described in "Critical Accounting Policies and Significant Judgments and
Estimates-Revenue Recognition."

COST OF SOFTWARE LICENSES REVENUE. Cost of software licenses revenue
consists primarily of the costs associated with compact discs and related
packaging material, duplication and shipping costs, hardware components for our
Manufacturing Solutions products 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 software programs. Product royalties are
expensed when the related obligation arises, which is generally upon the license
of our products, and are included in cost of software licenses revenue. Also
included in cost of software licenses revenue in fiscal 2002 is amortization
expense related to capitalized software development costs.

20

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
services.

RESEARCH AND DEVELOPMENT. We employ a development staff to enhance our
existing products and to develop new ones. Product development expenditures,
which include salaries, benefits, travel and facilities costs, are generally
charged to operations as incurred. Statement of Financial Accounting Standards
("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. Software development costs eligible
for capitalization prior to the first quarter of fiscal 2002 were not
significant. We established technological feasibility of MPI 3.0 in the first
quarter of fiscal 2002 and released the product commercially in November 2001.
In accordance with SFAS No. 86, research and development costs of $602,000 were
capitalized related to MPI 3.0. These development costs are being amortized to
cost of software licenses revenue over the estimated economic life of the
product.

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

GENERAL AND ADMINISTRATIVE. General and administrative expenses include
compensation, routine legal, audit and other costs of our executive management,
finance, information technology, human resources and administrative support
activities.

LITIGATION. Our litigation expenses consisted of legal costs incurred to
pursue our claims against C-Mold regarding theft of our trade secrets and to
defend against related counterclaims. Upon the closing of our acquisition of
C-Mold in April 2000, all related claims were dismissed. As a result, we have
not incurred and anticipate that we will not incur any further significant
litigation costs related to this matter.

NONRECURRING CHARGES. In fiscal 2002, we incurred nonrecurring charges
related to actions we took to restructure our business. Included in these
charges were costs incurred to terminate leases on certain facilities in the
United States and Europe, severance costs related to the involuntary termination
of 37 employees and professional fees arising from legal, accounting and tax
services. In fiscal 2000, we incurred nonrecurring charges to terminate a lease
on a facility and to immediately expense costs of purchased in-process research
and development in connection with our acquisition of C-Mold.

AMORTIZATION OF GOODWILL. These costs represent the amortization of
goodwill recorded in connection with our acquisitions. During the first quarter
of fiscal 2002, we adopted the provisions of SFAS No. 141, "Business
Combinations" and SFAS No. 142, "Goodwill and Other Intangible Assets." These
standards, among other things, eliminate the amortization of goodwill. As such,
we ceased amortization of goodwill at the beginning of fiscal 2002.

AMORTIZATION OF OTHER INTANGIBLE ASSETS. These costs represent the
amortization of other intangible assets recorded in connection with our
acquisitions. These assets include developed technology, customer base,
protective covenants and, in fiscal 2000 and 2001, assembled workforce. See
Note 4 to the Consolidated Financial Statements.

INTEREST INCOME (EXPENSE), NET. Interest income (expense), net includes our
cost of borrowings, including interest cost incurred on our working capital
lines of credit and stockholder loans, net of interest income earned on invested
cash balances.

21

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

PROVISION FOR INCOME TAXES. Our provision for income taxes includes
federal, state and foreign taxes on our income in the countries in which we do
business. Our income taxes during prior periods, in particular fiscal 1999 and
2000, have been significantly reduced by the use of our net operating loss
carryforwards.

Our fiscal year end is June 30. References to 2000, 2001 or 2002 mean the
fiscal year ended June 30, unless otherwise indicated. During the fiscal year,
we follow a schedule in which each interim quarterly period ends on the Saturday
of the thirteenth full week of the reporting period.

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

22

COMPARISON OF FISCAL YEARS 2000, 2001 AND 2002

REVENUE

The following table sets forth our total revenue by geographic region for
each of fiscal 2000, 2001 and 2002:

SOFTWARE LICENSES REVENUE. In fiscal 2002, software licenses revenue
decreased by $6.6 million, or 27%, from $24.5 million to $17.9 million. The
following table sets forth our software licenses revenue by product group for
each of 2000, 2001 and 2002:

The decrease in software licenses revenue in fiscal 2002 was a result of the
continued economic slowdown experienced in the markets we address, particularly
with respect to our Design Optimization solutions. Demand for our products is
largely driven by the demand for the end products of our customers. The
industries in which many of our key customers operate, including the consumer
products, telecommunications and electronics industries have been among those
most severely impacted by the prolonged economic pressures experienced globally
throughout fiscal 2002. As such, these companies have typically reduced their
spending on capital items including spending on our products.

The overall decline in software licenses revenues was partially offset by
increased sales of our Manufacturing Solutions products. Software licenses
revenues from our Manufacturing Solutions products increased $1.2 million, or
68%, in fiscal 2002, from $1.8 million to $3.0 million. This increase is
primarily attributable to the impact of our acquisition of Branden in
March 2001.

During fiscal 2002, regional sales of software licenses have fluctuated with
no clearly discernible pattern. We experienced a lengthening of customer sales
cycles in most geographic regions during the year and we saw notable weakness in
our Americas region in our fourth fiscal quarter, where many of our customers
expressed intention to delay purchases until signs of an economic recovery
became more

23

apparent. Further, throughout the year, we experienced difficulty in predicting
the timing of when customers would purchase our software products. We expect
that our software licenses revenue could continue to be subject to fluctuation
from quarter to quarter in the coming year as many of the industries we serve
have not yet experienced a sustained economic recovery.

The following table sets forth our software licenses revenue by geographic
region for each quarter of fiscal 2002:

In fiscal 2001, software licenses revenue increased by $7.8 million, or 46%,
from $16.7 million to $24.5 million. The main factors contributing to this
growth included our April 2000 acquisition of C-Mold, the introduction of new
products and new modules for existing product lines and the increase in our
direct sales coverage, whereby we added new sales offices in all regions and
increased the number of sales representatives from 38 as of June 30, 2000 to 48
at June 30, 2001.

We added approximately 460 new customers in fiscal 2002, compared to
approximately 600 new customers in fiscal 2001. Sales to new customers
represented 40% of total software license revenues in fiscal 2002, compared to
44% of total software license revenues in fiscal 2001. We sold 790 seats of
Design Optimization products and 332 seats of Manufacturing Solutions products
in fiscal 2002, compared to 1,089 seats of Design Optimization products and 130
seats of Manufacturing Solutions products in fiscal 2001. Due to our
acquisitions, comparison of these items to fiscal 2000 is not meaningful.
Pricing of individual products within these product families can vary greatly,
and the mix of products sold during a given period can significantly impact our
average selling price per seat. As such, we do not believe that an average
selling price per seat provides a meaningful measure of our business.

SERVICES REVENUE. Services revenue has a lower gross profit margin than
licenses revenue and accounted for approximately 39% of our total revenue in
2000 and 2001 and 49% in 2002. Revenue from services increased by 45% from the
prior year in 2001, from $10.6 million to $15.4 million, and by 12% in 2002,
from $15.4 million to $17.2 million. These increases were primarily in the sale
of maintenance contracts, which was the result of historical growth in our
customer base arising from software license sales.

COSTS AND EXPENSES

COST OF SOFTWARE LICENSES REVENUE. Our cost of software licenses revenue
was $2.5 million in 2002, $1.8 million in 2001 and $785,000 in 2000. The
increases are due to the increased sales of our Manufacturing Solutions
products, which have a higher cost of materials than our Design Solutions
products, and an increase in personnel related costs. In addition, fiscal 2002
includes amortization expense of $71,000 arising from capitalized software
development costs.

COST OF SERVICES REVENUE. Our cost of services revenue was $1.4 million in
2002 and 2001 and $1.1 million in 2000. The increase from 2000 to 2001 was
mainly due to increased headcount in technical support and material testing
activities. There were no significant changes from 2001 to 2002.

RESEARCH AND DEVELOPMENT. Our research and development expenses were
$6.2 million in 2002, $6.6 million in 2001 and $4.1 million in 2000. The
decrease from 2001 to 2002 was attributable to the

24

capitalization of $602,000 of development costs pursuant to the provisions of
SFAS No. 86 and, to a lesser extent, the elimination of 12 technical positions
in April 2002 as a part of the restructuring. The increase from 2000 to 2001 was
attributable to increased personnel costs and travel expenses, primarily related
to the addition of research and development personnel as a result of our
acquisition of C-Mold in April 2000. To a lesser extent, the increase in 2001
also was due to personnel added from our March 2001 acquisition of Branden.

SELLING AND MARKETING. Our selling and marketing expenses were
$18.1 million in 2002, $19.4 million in 2001 and $13.5 million in 2000. The
decrease in 2002 was due to reduced sales commission expense in light of the
decline in revenue and, to a lesser extent, the elimination of 17 positions in
April 2002 as a part of the restructuring. The increase in 2001 was principally
due to headcount additions and an increase in promotional activities to support
new releases of our software products, including telemarketing and international
advertising programs.

GENERAL AND ADMINISTRATIVE. Our general and administrative expenses were
$6.7 million in 2002, $6.1 million in 2001 and $5.0 million in 2000. These
increases were a result of escalating professional service fees, including the
cost of our audit, tax planning and compliance and other accounting services. In
addition, we hired additional corporate staff in 2001 and incurred costs related
to becoming a public company including a full year of expense related to
Director's and Officers insurance premiums. The expense for these premiums
increased $222,000 in fiscal 2002, or 126% from 2001. In fiscal 2002, these
increases were partially offset by the elimination of 8 administrative positions
in April 2002 as part of the restructuring.

LITIGATION. Litigation expenses were $785,000 in 2000 and consisted of
legal costs to pursue our claims against C-Mold regarding theft of our trade
secrets and to defend against counterclaims. The litigation was suspended during
the third quarter of fiscal 2000 and, upon the closing of our acquisition of
C-Mold, all related claims were dismissed.

NONRECURRING CHARGES. In fiscal 2002, we incurred a $1.3 million
nonrecurring charge related to a corporate 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
functions. The largest component of the charge, $606,000, was related to a 40%
reduction in the utilization of our leased space in the United Kingdom. Other
components of the charge included $66,000 of lease termination costs for
facilities in the United States and France, $52,000 of lease termination costs
for equipment and automobiles and $166,000 of professional fees for tax and
legal consultation. See Note 9 to the Consolidated Financial Statements.

In fiscal 2000, we incurred nonrecurring charges of $284,000 in connection
with our acquisition of C-Mold, to immediately expense purchased in-process
research and development and for lease termination costs. In the opinion of
management, the purchased in-process research and development had not yet
reached technological feasibility and had no alternative future use.
Consequently, our nonrecurring charges included $214,000 to write off such
in-process research and development costs during the fourth quarter of 2000.

AMORTIZATION OF GOODWILL. Amortization of goodwill was zero in 2002,
$1.1 million in 2001 and $206,000 in 2000. Amortization expense in 2001 included
a full year of amortization of goodwill acquired in the C-Mold purchase and one
quarter of amortization of goodwill acquired in the Branden purchase. Goodwill
amortization ceased upon our adoption of SFAS No. 141 and SFAS No. 142 on
July 1, 2001. See Note 4 to the Consolidated Financial Statements.

AMORTIZATION OF OTHER INTANGIBLE ASSETS. Amortization of other intangible
assets was $656,000 in 2002, $601,000 in 2001 and $105,000 in 2000. On July 1,
2001, we reclassified the carrying value of our

25

acquired assembled workforce to goodwill, in accordance with SFAS No. 141 and
SFAS No. 142. The amortization expense for fiscal 2002 reflects the net impact
of eliminating the amortization of this assembled workforce and adding a full
year of amortization of intangible assets acquired in the Branden purchase.
Amortization expense in 2001 included a full year of amortization of other
intangible assets acquired in the C-Mold purchase and one quarter of
amortization of other intangible assets acquired in the Branden purchase.

OTHER INCOME AND EXPENSES

INTEREST INCOME (EXPENSE), NET. Our interest income was $1.5 million in
2002, $2.1 million in 2001 and $427,000 in 2000. Our interest is earned on
investment of our cash balances which include the unused portion of the proceeds
of our public offerings of common stock in March and December 2000. In 2002, we
earned lower income on our investments due to the declining interest rate
environment, as reinvestments of maturities were at lower rates than in 2001.

OTHER INCOME (LOSS), NET. Other income (loss), net includes realized and
unrealized gains and losses arising from translation of foreign currency
denominated asset and liability balances, recognized gains and losses on our
foreign currency hedging instruments, and other non-operating income and expense
items. During 2002, we realized a net gain of $625,000 on the sale of land and
other property in Australia, a net gain of $504,000 gain on the sale of our
remaining minority investment in an Indian software company and other income of
$446,000 arising from our settlement of several claims against an escrow account
established at the time of our acquisition of C-Mold. During 2000, we realized a
gain of $1.7 million on the sale of a portion of our minority investment in a
software company in connection with that company's initial public offering in
India.

PROVISION FOR INCOME TAXES. Our effective income tax rate was 44% for 2002,
33% for 2001 and 7% for 2000. The higher effective tax rate in 2002 was due to
the impact of declining revenues and earnings in relation to certain fixed tax
expenses. The effective tax rates in 2000 and 2001 were lower than the 34%
statutory rate primarily as a result of the use of net operating loss
carryforwards.

LIQUIDITY AND CAPITAL RESOURCES

Historically, we have financed our operations and met our capital
expenditure requirements primarily through sales of our capital stock,
stockholder loans, funds generated from operations and borrowings from lending
institutions. In March 2000, we completed our initial public offering of common
stock, raising $36.9 million, net of offering costs. In December 2000, we
completed a second offering of common stock, raising $12.8 million, net of
offering costs. As of June 30, 2002, our primary sources of liquidity consisted
of our total cash and cash equivalents balance of $47.6 million, our marketable
securities balance of $3.2 million and our credit facilities described below.

In fiscal 2002, we restructured our primary working capital credit facility,
resulting in an available credit facility of $5.0 million with a domestic bank.
The available borrowing base of the facility is subject to a calculation which
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 certain restrictive covenants, all of which we were
in compliance with at June 30, 2002. These covenants include certain 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, 2002, we had employed $2.2 million of available borrowings through
outstanding foreign exchange contracts and letters of credit. The remaining
available borrowings were $2.8 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, 2002, we had no outstanding
debt. See Note 10 to the Consolidated Financial Statements.

26

At June 30, 2002, our marketable securities consisted of corporate bonds
with maturities in excess of three months but less than one year. At June 30,
2001, marketable securities also included shares of a publically traded Indian
software company. These shares represented a minority interest in the company
and were sold in December 2001 for cash proceeds of $565,000. 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, 2002, we were in compliance with this policy.

Net cash provided by operating activities was $4.9 million in 2002, $6.2
million in 2001 and $1.4 million in 2000. Cash was provided by operations in
2002 as a result of net income (adjusted for non-cash items and certain other
net gains), decreases in accounts receivable and increases in accounts payable,
accrued expenses and deferred maintenance and support contract revenue,
partially offset by increases in inventories, prepaid expenses and other current
and non-current assets. In 2002, net income was impacted by $979,000 of net
non-cash charges and certain other net gains. We realized net gains of $622,000
on our sale of land and certain other property in Australia, a net gain of
$504,000 on our sale of our investment in the aforementioned Indian software
company and net foreign exchange gains of $206,000. Non-cash charges included
$1.9 million of depreciation and amortization, additional provisions for
doubtful accounts and other smaller non-cash charges. Cash was provided by
operations in 2001 as a result of increased net income (adjusted for non-cash
items and certain other net gains and losses), deferred maintenance and support
contract revenue and accrued expenses, partially offset by increased accounts
receivable, other current and non-current assets and decreases to accounts
payable. In 2001, net income was impacted by $3.1 million of non-cash charges,
primarily arising from depreciation and amortization, and net foreign exchange
gains of $298,000. Cash was provided by operations in 2000 as a result of
increased net income (adjusted for non-cash items and certain other net gains
and losses) and accrued expenses, partially offset by increases to accounts
receivable, current and non-current assets and decreases to accounts payable. In
2000, net income included $1.2 million of depreciation and amortization and a
$1.7 million net gain on the sale of a portion of our minority investment in the
Indian software company.

Investing activities provided cash of $8.8 million in 2002. Net cash used in
investing activities was $11.8 million in 2001 and $11.9 million in 2000. In
2002, cash of $1.7 million was used to purchase fixed assets. Cash was provided
by our sale of land and certain other property in Australia and our sale of our
investment in the Indian software company. Also, marketable securities matured
or were otherwise converted into cash equivalents increasing our balance of cash
and cash equivalents by $9.1 million. In 2001, in addition to the purchase of
fixed assets, $3.7 million, net of cash acquired, was used to purchase Branden
and $7.3 million was invested in marketable securities, net of proceeds from
maturities and sales of similar instruments. Also in 2001, $1.5 million of
proceeds were received on the sale of certain facilities. In 2000, cash was used
for purchases of property and equipment, primarily for computers, networking and
materials laboratory test equipment to support our global product development
activities, and to enable worldwide data communications. In 2000, in addition to
the purchase of fixed assets, $7.9 million, net of cash acquired, was used to
purchase C-Mold and $5.0 million was invested in marketable securities. Also in
2000, $1.8 million was provided by the sale of a portion of our minority
investment in the Indian software company.

Net cash of $55,000 was used in financing activities in 2002. Net cash
provided by financing activities was $12.3 million in 2001 and $35.9 million in
2000. In 2002, we used $464,000 to reacquire 50,000 shares of our outstanding
common stock. This 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. Additionally, in September
2002, we used $916,000 to reacquire 194,165 shares of our common stock. In 2001,
$13.0 million was provided by a second public offering of

27

our common stock, stock option exercises and purchases of stock under our
Employee Stock Purchase Plan. In 2001, we repaid in full our outstanding
long-term debt obligations. In 2000, $36.9 million of cash was provided by the
initial public offering of our common stock. Also in 2000, $1.0 million of cash
was paid under bank note and capital lease obligations, net of new bank
borrowings.

We believe that our current cash, cash equivalents, marketable securities
and available lines of credit will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for at least the next twelve
months following the date of this Annual Report. On a long-term basis or to
complete acquisitions in the short term, we may require additional external
financing through credit facilities, sales of additional equity or other
financing vehicles. There can be no assurance that such financing can be
obtained on favorable terms, if at all.

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

As of June 30, 2002, our outstanding obligations for operating lease
commitments were as follows (in thousands):

RECENT ACCOUNTING PRONOUNCEMENTS

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The objectives of SFAS No. 144 are
to address significant issues relating to the implementation of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and to develop a single accounting model, based on the
framework established in SFAS No. 121, for long-lived assets to be disposed of
by sale, whether previously held and used or newly acquired. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and, generally, its provisions are to be applied
prospectively. Management is currently determining what effect, if any, SFAS
No. 144 will have on its financial position and results of operations.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and replaces
Emerging Issues Task Force (EIFT) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This Statement is
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. Management is currently determining
what effect, if any, SFAS No. 146 will have on its financial position and
results of operations.

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.

28

RISK FACTORS AND IMPORTANT FACTORS THAT MAY AFFECT FUTURE RESULTS

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

THE EXISTING GENERAL ECONOMIC SLOWDOWN, PARTICULARLY IN OUR END MARKETS, MAY
CONTINUE TO IMPACT OUR RESULTS.

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

OUR QUARTERLY OPERATING RESULTS ARE SUBJECT TO SIGNIFICANT FLUCTUATIONS AND,
AS A RESULT, PERIOD-TO-PERIOD COMPARISONS OF OUR RESULTS OF OPERATIONS ARE NOT
NECESSARILY MEANINGFUL AND SHOULD NOT BE RELIED UPON AS INDICATORS OF FUTURE
PERFORMANCE.

We have experienced significant fluctuations in our results of operations on
a quarterly basis. For instance, our total revenue in the fourth quarter of
fiscal 2002 was $8.3 million as compared with total revenue of $9.4 million in
the immediately preceding quarter. Further, we have historically experienced
lower, a slight decline, or no growth in revenue in our first fiscal quarter as
compared with the preceding quarter as a result of seasonal factors, which
decrease demand for our products in this quarter. We expect to continue to
experience significant fluctuations in our future quarterly results of
operations due to a variety of factors, many of which are outside of our
control, including:

- seasonal slowdowns, in particular, in our first fiscal quarter, in many of
the markets in which we sell our products,

- changes in the mix of products and services we provide as sales of our
Manufacturing Solutions products and our services will result in lower
gross margins and a longer selling cycle,

- the timing and magnitude of capital expenditures, including costs relating
to the expansion of our operations and infrastructure,

- introductions of new services or enhancements by us and our competitors
and changes in our and our competitors' pricing policies,

- currency fluctuations, and

- timing and integration of acquisitions.

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

29

IF WE EXPERIENCE DELAYS IN INTRODUCING NEW PRODUCTS OR IF OUR EXISTING OR
NEW PRODUCTS DO NOT ACHIEVE MARKET ACCEPTANCE, WE MAY LOSE REVENUE.

Our industry is characterized by:

- rapid technological advances,

- evolving industry standards,

- changes in end-user requirements,

- intense competition,

- technically complex products,

- frequent new product introductions, and

- evolving offerings by product manufacturers.

We believe our future success will depend, in part, on our ability to
anticipate or adapt to these factors and to offer on a timely basis products
that meet customer demands. For example, the introduction of new products and
services embodying new technologies and the emergence of new industry standards
can render our existing products obsolete. The development of new or enhanced
products is a complex and uncertain process, requiring the anticipation of
technological and market trends. We may experience design, manufacturing,
marketing and other difficulties that could delay or prevent our development,
introduction or marketing of new products and enhancements and result in
unexpected expenses.

Our growth and profitability also will depend upon our ability to expand the
use and market penetration of our existing product lines as well as new products
we introduce. Market acceptance of our products will depend in part on our
ability to demonstrate the cost-effectiveness, ease of use and technological
advantages of our products over competing products.

FUTURE ACQUISITIONS AND STRATEGIC RELATIONSHIPS MAY RESULT IN LOST REVENUE
CAUSED BY BUSINESS DISRUPTIONS AND MISSED OPPORTUNITIES CAUSED BY THE
DISTRACTION OF OUR MANAGEMENT.

Integrating the businesses of C-Mold and Branden Technologies required time
and focus by our management team. We may engage in other acquisitions and
strategic relationships in the future. We may not be able to identify suitable
acquisition candidates, and, if we do identify suitable candidates, we may not
be able to make such acquisitions on commercially acceptable terms or at all. If
we acquire another company, we will only receive the anticipated benefits if we
successfully integrate the acquired business into our existing business in a
timely and non-disruptive manner. We may have to devote a significant amount of
time and management and financial resources to do so. Even with this investment
of management and financial resources, an acquisition may not produce the
revenues, earnings or business synergies that we anticipated. If we fail to
integrate the acquired business effectively or if key employees of that business
leave, the anticipated benefits of the acquisition would be jeopardized. The
time, capital, management and other resources spent on an acquisition that
failed to meet our expectations could cause our business and financial condition
to be materially and adversely affected. In addition, acquisitions can involve
non-recurring charges and amortization of significant amounts of acquired
identifiable intangible assets that could adversely affect our results of
operations.

IF WE BECOME SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WE COULD
INCUR SIGNIFICANT EXPENSES AND WE COULD BE PREVENTED FROM OFFERING SPECIFIC
PRODUCTS OR SERVICES.

Our products include proprietary intellectual property. We may become
subject to claims that we infringe on the proprietary rights of others. In the
United States and elsewhere, a significant number of software and business
method patents have been issued over the past decade and the holders of these

30

patents have been actively seeking out potential infringers. In addition, our
Manufacturing Solutions products require interaction with an injection molding
machine, the use and technology of which are subject to a wide variety of
world-wide patents and other intellectual property protection. If any element of
our products or services violates third-party proprietary rights, we might not
be able to obtain licenses on commercially reasonable terms to continue offering
our products or services without substantial re-engineering and any effort to
undertake such re-engineering might not be successful. In addition, any claim of
infringement could cause us to incur substantial costs defending against the
claim, even if the claim is invalid, and could distract our management from our
business. Any judgment against us could require us to pay substantial damages
and could also include an injunction or other court order that could prevent us
from offering our products and services.

WE MAY LOSE SALES TO COMPETITORS IF WE ARE UNABLE TO PROTECT IMPORTANT
INTELLECTUAL PROPERTY.

Our ability to compete effectively against other companies in our industry
will depend, in part, on our ability to protect our proprietary rights in our
technology. We may be unable to maintain the proprietary nature of our
technology. While we have attempted to safeguard and maintain our proprietary
rights, we do not know whether we have been or will be completely successful in
doing so.

We face the following risks in protecting our intellectual property:

- we cannot be certain that our pending United States and foreign patent
applications will result in issued patents or that the claims allowed are
or will be sufficiently broad to protect our technology,

- third parties may design around our patented technologies or seek to
challenge or invalidate our patented technologies,

- 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, and

- foreign countries, including some of those in which we do business, may
reduce or limit the protection of our intellectual property rights.

OUR FINANCIAL CONDITION OR RESULTS OF OPERATIONS MAY BE ADVERSELY AFFECTED
BY INTERNATIONAL BUSINESS RISKS.

The majority of our employees, including sales, support and research and
development personnel, are located outside of the United States. Similarly, the
majority of our revenues are derived from customers outside the United States
and certain intellectual property is owned by subsidiary companies located
outside the United States. Conducting business outside of the United States is
subject to numerous risks, including:

- decreased liquidity resulting from longer accounts receivable collection
cycles typical of foreign countries,

- decreased revenue on foreign sales resulting from possible foreign
currency exchange and conversion issues,

- lower productivity resulting from difficulties managing our sales, support
and research and development operations across many countries,

- decreased earnings based on changes in tax regulations in foreign
jurisdictions,

- lost revenue resulting from difficulties associated with enforcing
agreements and collecting receivables through foreign legal systems,

31

- lost revenue resulting from the imposition by foreign governments of trade
protection measures, and

- higher cost of sales resulting from import or export licensing
requirements.

WE HAVE MORE LIMITED FINANCIAL AND OTHER RESOURCES THAN MANY OF OUR
COMPETITORS AND POTENTIAL COMPETITORS AND MAY BE UNABLE TO COMPETE SUCCESSFULLY
AGAINST THEM.

We operate in a highly competitive environment and may not be able to
successfully compete. Companies in our industry and entities in similar
industries could decide to focus on the development of software solutions for
the design, analysis and manufacturing of injection molded plastic parts. Many
of these entities have substantially greater financial, research and
development, manufacturing and marketing resources than we do. Increased
competition may result in price reductions, reduced profitability and loss of
market share.

DISRUPTION OF OPERATIONS AT OUR DEVELOPMENT FACILITIES COULD INTERFERE WITH
OUR PRODUCT DEVELOPMENT AND PRODUCTION CYCLES.

A significant portion of our computer equipment, source code and personnel,
including critical resources dedicated to research and development, are
presently located at operating facilities in Australia, the United States and
the United Kingdom. The occurrence of a natural disaster or other unanticipated
catastrophe at any of these facilities could cause interruptions in our
operations and services. Extensive or multiple interruptions in our operations
at our development facilities could severely disrupt our product development.

OUR MANUFACTURING SOLUTIONS PRODUCTS MAY LEAD TO PRODUCT LIABILITY CLAIMS
AGAINST US.

Our Manufacturing Solutions products are installed directly on our
customers' injection molding machines and, in certain cases, automatically
adjust the operation of these machines. As a result, it is possible that our
customers may claim that our product interfered with the proper operation of
their machines and may seek reimbursement for consequential and other damages
from us. Although we expressly disclaim any liability for consequential or other
damages in connection with our sale of these products, this disclaimer may not
protect us from claims for damages from our customers and these claims may
adversely affect our relationships with our customers or our reputation
generally. In addition, our insurance coverage limits may not be adequate to
protect us against any product liability claims that arise. This insurance is
expensive and may not be available on acceptable terms, or at all.

OUR STOCK PRICE IS HIGHLY VOLATILE AND OUR STOCK PRICE COULD EXPERIENCE
SUBSTANTIAL DECLINES AND OUR MANAGEMENT'S ATTENTION MAY BE DIVERTED FROM MORE
PRODUCTIVE TASKS.

The stock market has experienced extreme price and volume fluctuations. In
addition, the per share price of our common stock has experienced significant
volatility in the past twelve months. 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 Moldflow stock by insiders or affiliated
persons,

- technological innovations by competitors or in competing technologies,

- a decrease in the demand for our common stock,

32

- 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
and the United States. We sell our products globally through our direct sales
force and indirect distributor channels. As a result, our financial results are
affected by factors such as changes in foreign currency exchange rates,
political climate and weak economic conditions in foreign markets. In the
future, we expect to increase our international operations in our existing
markets and in geographic locations where we do not have any operations now.

We collect amounts representing a substantial portion of our revenues and
pay amounts representing a substantial portion of our operating expenses in
foreign currencies. As a result, changes in currency exchange rates from time to
time may affect our operating results. We engage in hedging transactions
designed to reduce our exposure to changes in currency exchange rates. We cannot
assure you, however, that any efforts we make to hedge our exposure to currency
exchange rate changes will be successful. For a more detailed description of our
hedging activities, see "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations--Critical Accounting Policies and
Significant Judgments and Estimates--Hedge Accounting."

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

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

33

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS. Incorporated herein by reference is the information appearing
under the caption "Information Regarding Directors" in the Company's definitive
Proxy Statement for its 2002 Annual Meeting of Stockholders.

EXECUTIVE OFFICERS. Incorporated herein by reference is the information
appearing under the caption "Executive Officers" in the Company's definitive
Proxy Statement for its 2002 Annual Meeting of Stockholders.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated herein by reference is the information appearing under the
caption "Executive Compensation" in the Company's definitive Proxy Statement for
its 2002 Annual Meeting of Stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated herein by reference is the information appearing under the
caption "Information Regarding Moldflow Stock Ownership" in the Company's
definitive Proxy Statement for its 2002 Annual Meeting of Stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated herein by reference is the information appearing under the
caption "Certain Relationships and Related Transactions" in the Company's
definitive Proxy Statement for its 2002 Annual Meeting of Stockholders.

ITEM 14. CONTROLS AND PROCEDURES

None.

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:

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, such
statement is identified.

34

EXHIBITS

- ------------------------

+ Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-95289) and incorporated by reference thereto.

++ Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q filed with the Securities and Exchange Commission on February 11, 2002
and incorporated by reference thereto.

* Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on May 12, 2000
and incorporated by reference thereto.

** Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 15(c) of this report.

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

15(b) REPORTS ON FORM 8-K

Report on Form 8-K filed on June 11, 2002 regarding the appointment of
A. Roland Thomas as President and Chief Executive Officer and the resignation of
Marc Dulude from those positions on June 5, 2002.

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.

37

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. ROGERS MACCORMACK
-----------------------------------------
Suzanne E. Rogers MacCormack
EXECUTIVE VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER

Date: September 19, 2002

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.

38

CERTIFICATIONS

I, Suzanne E. Rogers MacCormack, certify that:

1. I have reviewed this annual report on Form 10-K of Moldflow Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report.

/s/ SUZANNE E. ROGERS MACCORMACK Executive Vice President September 19, 2002
-------------------------------------- and Chief Financial
Suzanne E. Rogers MacCormack Officer
(Principal Financial
Officer and Principal
Accounting Officer)

I, A. Roland Thomas, certify that:

1. I have reviewed this annual report on Form 10-K of Moldflow Corporation;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
annual report.

/s/ A. ROLAND THOMAS President, Chief September 19, 2002
-------------------------------------- Executive
A. Roland Thomas Officer and Director
(Principal Executive
Officer)

39

SCHEDULE II

SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS OF MOLDFLOW CORPORATION

- ------------------------

(a) Additional provisions, acquired balances and foreign currency translation
effects.

(b) Specific write-offs, recoveries and foreign currency translation effects.

(c) Utilization of net operating losses, reductions in other deferred tax assets
and foreign currency translation effects.

40

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Balance Sheet at June 30, 2001 and 2002........ F-2

Consolidated Statement of Income for the years ended
June 30, 2000, 2001 and 2002.............................. F-3

Consolidated Statement of Stockholders' Equity for the years
ended June 30, 2000, 2001 and 2002........................ F-4

Consolidated Statement of Cash Flows for the years ended
June 30, 2000, 2001 and 2002.............................. F-5

Notes to Consolidated Financial Statements.................. F-6

Report of Independent Accountants........................... F-30

F-1

MOLDFLOW CORPORATION

CONSOLIDATED BALANCE SHEET

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

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

F-2

MOLDFLOW CORPORATION

CONSOLIDATED STATEMENT OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)

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

F-3

MOLDFLOW CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

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

F-4

MOLDFLOW CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(IN THOUSANDS)

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

F-5

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. BASIS OF PRESENTATION AND NATURE OF BUSINESS

Moldflow Corporation (the "Company") was formed to design, develop,
manufacture and market computer software applications for the design,
engineering and manufacture of injection molded plastic parts and, as such,
revenues are derived from the plastic design and manufacturing industry. The
Company sells its products primarily to customers in the United States, Europe,
Asia and Australia.

On April 13, 2000, the Company completed an acquisition of Advanced CAE
Technology, Inc., which formerly conducted business as "C-Mold" (Note 3). On
March 28, 2001, the Company acquired all of the outstanding shares of Branden
Technologies, Inc. (Note 3). These business combinations were accounted for
using the purchase method of accounting. Accordingly, these financial statements
include the financial position and results of operations of C-Mold and Branden
from the dates of their respective acquisition.

The Company's fiscal year end is June 30. References to 2000, 2001 or 2002
mean the fiscal year ended June 30, unless otherwise indicated.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of the Company
and all of its wholly-owned subsidiaries. All intercompany balances and
transactions have been eliminated in the consolidated financial statements.

FOREIGN CURRENCY TRANSLATION

Assets and liabilities of international subsidiaries, whose functional
currency is the local currency, are translated at the rates in effect at the
balance sheet date. Statement of income 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 were $17,000, $298,000 and
$206,000 for the years ended June 30, 2000, 2001 and 2002, respectively.

CASH AND CASH EQUIVALENTS

All highly liquid investments purchased with a maturity of three months or
less are considered to be cash equivalents. The Company invests excess cash
primarily in overnight investments and money market accounts of major financial
institutions. Accordingly, these investments are subject to minimal credit and
market risk and are reported at amortized cost, which approximates fair value.
At June 30, 2002, 38%, 32%, 12% and 12%, respectively, of the Company's cash and
cash equivalents were invested in money market and investment accounts of four
separate financial institutions. The remaining 4% of the Company's cash and cash
equivalents were held in various operating bank accounts of its subsidiaries.

MARKETABLE SECURITIES

At June 30, 2002, the Company's marketable securities consisted of corporate
bonds with maturities in excess of three months but less than one year. These
investments are classified as available-for-sale and are reported at fair value,
with unrealized gains and losses included in

F-6

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
accumulated other comprehensive income, net of the related tax effect. At
June 30, 2001, marketable securities also included shares of a publically traded
Indian software company. These shares represented a minority interest in the
company and were sold in December 2001 for cash proceeds of $565,000. The
realized gain on the sale of these shares of $504,000, net of related selling
expenses, was included as a component of other income and expense.

As of June 30, 2001 and 2002, the unrealized gains (losses) on these
marketable securities were $328,000, net of the related tax provision of
$39,000, and $(5,000), net of related tax benefit of $3,000, respectively.

ACCOUNTS RECEIVABLE, CONCENTRATION OF CREDIT RISK AND SIGNIFICANT CUSTOMERS

Financial instruments which potentially expose the Company to concentrations
of credit risk include accounts receivable and marketable securities. The
Company's customer base consists of a large number of geographically dispersed
customers. The Company maintains reserves for potential credit losses on
accounts receivable. Management reviews the composition of accounts receivable
and analyzes historical bad debts, customer concentrations, customer credit
worthiness, current economic trends and changes in customer payment patterns to
evaluate the adequacy of these reserves. Reserves are recorded primarily on a
specific identification basis. To date, such losses, in the aggregate, have not
exceeded management expectations.

The Company invests its excess cash in financial instruments with high
credit quality in accordance with its investment policy, as approved by the
board of directors. The primary objective of this policy is the preservation of
the Company's capital. Investments are limited to high grade corporate debt
securities, government issued debt, municipal debt securities, money market
funds, and similar high quality instruments. The policy establishes maturity
limits, liquidity requirements and concentration limits. At June 30, 2002, the
Company was in compliance with this policy.

Revenue of $2.3 million (8% of total revenue), $2.5 million (6% of total
revenue) and $958,000 (3% of total revenue) was attributable to one customer in
fiscal 2000, 2001 and 2002, respectively. At June 30, 2001 and 2002, accounts
receivable from that customer were $353,000 (5% of total accounts receivable)
and $401,000 (7% of total accounts receivable), respectively.

FAIR VALUE OF FINANCIAL INSTRUMENTS

At June 30, 2002, the Company's financial instruments consisted of cash and
cash equivalents, marketable securities, accounts receivable and accounts
payable. The carrying amounts of these instruments at June 30, 2002 approximate
their fair values.

INVENTORIES

Inventories are predominantly finished goods and are stated at the lower of
cost, using the first-in, first-out method, or market value. The Company writes
down its inventory for estimated obsolescence or unmarketable inventory equal to
the difference between the market value of the items based upon assumptions of
future demand and market conditions and their cost. These write-downs for the
year ended June 30, 2002, were $138,000.

F-7

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FIXED ASSETS

Fixed assets are recorded at cost and are depreciated using the
straight-line method over their estimated useful lives. Maintenance and repair
costs are charged to expense as incurred; improvements are capitalized. Upon
retirement or sale, the cost of the asset disposed of and the related
accumulated depreciation are removed from the accounts with any resulting gain
or loss credited or charged to other income.

HEDGING

The Company hedges a portion of its forecasted foreign currency denominated
intercompany sales and a portion of its foreign currency denominated
intercompany research and development payments over a period of up to fifteen
months using currency options, zero cost collars and other combinations of
options that constitute net purchased options. These derivatives have been
designated as cash-flow hedges and, as such, the effective portion of the change
in their fair value is recorded as a component of accumulated other
comprehensive income until the underlying forecasted transaction impacts
earnings or is considered probable of not occurring. Once the underlying
forecasted transaction is realized or is considered probable of not occurring,
the appropriate gain or loss from the derivative is reclassified from other
accumulated comprehensive income to current earnings as a component of other
income and expense. At the inception of the hedge transaction and at least on a
quarterly basis, the Company assesses whether the derivatives that are used in
hedging transactions are highly effective in offsetting the changes in cash
flows of the hedged items.

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

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

If the Company determines that a forecasted transaction is no longer
probable of occurring or probable of not occurring or that the hedging
instrument is no longer highly effective, the Company discontinues hedge
accounting for the ineffective portion of the hedging instrument, and any
unrealized gain or loss on the contract is recognized in current earnings as a
component of other income and expenses.

GOODWILL AND INTANGIBLE ASSETS

Goodwill represents the excess of cost over the fair value of the net assets
acquired in the purchases of C-Mold and Branden Technologies (Note 3). During
fiscal 2002, the Company adopted

F-8

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 141,
"Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets"
(Note 4). Among other things, these standards address the accounting and
reporting for goodwill and other intangible assets at and subsequent to the date
of acquisition. Under these standards, goodwill is no longer amortized and, as
such, the Company stopped amortizing its goodwill as of July 1, 2001.

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

As of June 30, 2002 the carrying value of goodwill and other intangible
assets was $10.1 million, net of accumulated amortization of $2.7 million.

IMPAIRMENT OF INTANGIBLE ASSETS, GOODWILL AND OTHER LONG-LIVED ASSETS

The Company evaluates intangible assets, goodwill and other long-lived
assets for impairment, at least on an annual basis and whenever events or
changes in circumstances indicate that the carrying value may not be recoverable
from its estimated future cash flows. Recoverability of intangible assets, other
long-lived assets and, prior to July 1, 2001, goodwill is measured by comparing
their net book value to the related projected undiscounted cash flows from these
assets, considering a number of factors including past operating results,
budgets, economic projections, market trends and product development cycles. If
the net book value of the asset exceeds the related undiscounted cash flows, the
asset is considered impaired, and a second test is performed to measure the
amount of impairment loss. Potential impairment of goodwill after July 1, 2001
is evaluated in accordance with SFAS No. 142 (Note 4).

REVENUE RECOGNITION

Revenue is derived from the licensing of computer software products and from
services consisting of maintenance and support, consulting, material testing and
training. The Company follows AICPA Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," as amended by SOP No. 98-9, "Modification of SOP
No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions"
("SOP 98-9"), both of which provide guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions.

In June 1998, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." SAB 101 summarizes the SEC's views in applying generally accepted
accounting principles to selected revenue recognition issues in financial
statements. The Company adopted SAB 101 in its fourth quarter of fiscal 2001,
without having a material impact on its financial position or its results from
operations.

F-9

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company recognizes revenue from sales of software licenses upon product
shipment provided that evidence of the purchase commitment exists, the license
fee is fixed or determinable, collection is reasonably assured and all other
revenue recognition criteria of SOP 97-2 are met. The Company's software
products do not require significant modification or customization. Installation
of the products is generally routine and requires insignificant effort. The
Company recognizes revenue from maintenance and support contracts ratably over
the related contract period and from training and other services as they are
performed.

Maintenance and support contracts are often entered into at the same time as
the sale of software licenses. In accordance with SOP 97-2, the Company
considers these multiple elements of a single arrangement. Payment for this
arrangement is typically received up-front, and the total fee is then allocated
ratably to these elements based upon vendor-specific objective evidence of fair
value ("VSOE") for each, which is determined based upon the prices charged to
customers when these elements are sold separately; the revenue allocated to each
is then recognized as described above for these elements.

When VSOE does not exist for all of the delivered elements of an arrangement
but does exist for the undelivered elements, the Company employs the "residual
method" of accounting for revenue recognition, as defined by SOP 98-9. The
residual method requires that the portion of the total arrangement fee
attributable to the undelivered elements, as indicated by VSOE, is deferred and
subsequently recognized in accordance with SOP 97-2. The difference between the
total arrangement fee and the amount deferred for the undelivered elements is
recognized as revenue related to the delivered elements, if all other revenue
recognition criteria of SOP 97-2 are met. VSOE for the undelivered elements is
determined based on the prices charged to customers when these elements are sold
separately, typically from the renewal of the annual maintenance and support
contracts.

SOFTWARE DEVELOPMENT COSTS

Costs associated with the research and development of the Company's products
are expensed as incurred. Costs associated with the development of computer
software are expensed prior to establishing technological feasibility, as
defined by SFAS No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed," and capitalized thereafter until
commercial release of the software products. Subsequently, the costs are
amortized to cost of software licenses revenue over the estimated economic life
of the product.

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." Such costs eligible for capitalization
have not been significant to date.

ADVERTISING COSTS

The Company expenses the cost of advertising as incurred or, as appropriate,
the first time the advertising takes place. Advertising costs for the years
ended June 30, 2000, 2001 and 2002 were $714,000, $936,000 and $1.1 million,
respectively.

F-10

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 options issued to employees in fixed amounts to the
extent that the fixed exercise prices are less than the fair market value of the
Company's common stock at the date of grant. The Company follows the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation"
(Note 14). All stock-based awards to non-employees are accounted for at their
fair value in accordance with SFAS No. 123.

NET INCOME PER COMMON SHARE

Basic earnings per common share is computed by dividing net income by the
weighted-average number of common shares outstanding plus the weighted average
effect of vested restricted stock. Diluted earnings per common share is computed
by dividing net income 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 15).

COMPREHENSIVE INCOME

Comprehensive income is comprised of net income and other comprehensive
income. Other comprehensive income includes certain changes in equity that are
excluded from net income. At June 30, 2002, accumulated other comprehensive
income was comprised of cumulative foreign currency translation adjustments and
unrealized gains and losses on marketable securities and hedging instruments.
The individual components of comprehensive income are reflected in the
consolidated statement of stockholders' equity for the years ended June 30,
2000, 2001 and 2002.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

In October 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." The objectives of SFAS No. 144 are
to address significant issues relating to the implementation of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," and to develop a single accounting model, based on the
framework established in SFAS No. 121, for long-lived assets to be disposed of
by sale, whether previously held and used or newly acquired. SFAS No. 144 is
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and, generally, its provisions are to be applied
prospectively. Management does not believe SFAS No. 144 will have a material
impact on its financial position and results of operations.

F-11

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." This Statement addresses financial accounting
and reporting for costs associated with exit or disposal activities and replaces
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." This Statement is
effective for exit or disposal activities that are initiated after December 31,
2002, with early application encouraged. Management is currently determining
what effect, if any, SFAS No. 146 will have on its financial position and
results of operations.

3. ACQUISITIONS

ADVANCED CAE TECHNOLOGY, INC.

On April 13, 2000, the Company acquired Advanced CAE Technology, Inc., which
formerly conducted business as C-Mold, for $11.3 million in cash. The
acquisition was accounted for using the purchase method of accounting, and the
results of C-Mold have been included in the Company's consolidated financial
statements since the date of acquisition. Accordingly, the purchase price has
been allocated to the assets acquired and liabilities assumed at their fair
values on the date of the acquisition, based on management's estimates and, with
respect to the identifiable intangible assets, an independent professional
appraisal. The excess of the purchase price over the amounts allocated to the
assets acquired and liabilities assumed was recorded as goodwill. The purchase
price was allocated as follows (in thousands):

Current assets.............................................. $ 4,685
Property and equipment...................................... 1,884
Assembled workforce......................................... 832
Developed technology........................................ 655
Non-compete covenants....................................... 611
In-process research and development......................... 214
Other long term assets...................................... 199
Current liabilities......................................... (3,780)
Non-current liabilities..................................... (881)
Goodwill.................................................... 6,834
-------
$11,253
=======

In the opinion of management, the purchased in-process research and
development had not yet reached technological feasibility and had no alternative
future use. Consequently, a nonrecurring charge of $214,000 was recognized
during the fourth quarter of fiscal 2000 to expense the value of the acquired
in-process research and development. The value assigned was determined by
identifying research projects that were in-process as of the date of acquisition
for which technological feasibility had not yet been established. To determine
the fair value of the acquired in-process research and development, the Company
considered the stage of completion, the costs incurred and the costs to
complete, and the contribution of existing core technology, estimating the
resulting net future cash flows from the products under development, discounted
to their net present value.

F-12

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

3. ACQUISITIONS (CONTINUED)
In November 2000, the Company sold its facility in Louisville, Kentucky,
which had been acquired as part of the Company's purchase of C-Mold, for
proceeds of $1.2 million. As such, the realized gain of $123,000 was recorded as
a reduction to goodwill. In connection with the sale, the Company retired the
outstanding mortgage debt on the property, which was $604,000. In March 2001,
the Company sold a facility in Taiwan that had also been acquired as part of the
acquisition of C-Mold, for proceeds of $417,000. The loss of $39,000 realized on
this sale has been recorded as an increase to goodwill. Also, during the year
ended June 30, 2001, certain other preacquisition contingencies were resolved
that resulted in a $363,000 increase in the consideration paid for C-Mold, which
was recorded as an increase to goodwill.

BRANDEN TECHNOLOGIES, INC.

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

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

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

4. GOODWILL AND INTANGIBLE ASSETS

During the first quarter of fiscal 2002, the Company adopted the provisions
of SFAS No. 141, "Business Combinations" and SFAS No. 142 "Goodwill and Other
Intangible Assets." SFAS No. 141 establishes the purchase method as the only
acceptable methodology for accounting for a business combination. In addition,
SFAS No. 141 provides guidance for allocating the cost of an acquired entity,
including the recognition and identification of goodwill and other intangible
assets. Under SFAS No. 141, an assembled workforce does not meet the criteria
for recognition as an intangible asset that is separable from goodwill. As such,
at July 1, 2001, the Company reclassified to goodwill the carrying value of its
previously identified assembled workforces that were recognized in the Company's

F-13

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. GOODWILL AND INTANGIBLE ASSETS (CONTINUED)
acquisitions of C-Mold and Branden Technologies (Note 3). As a result of this
reclassification, the gross carrying value of goodwill increased by $786,000 to
$10.4 million.

SFAS No. 142 addresses accounting and reporting for goodwill and other
intangible assets at and subsequent to the date of acquisition. SFAS No. 142
provides guidance in determining the useful life of intangible assets, stating
that some intangible assets may have an indefinite useful life to a company.
SFAS No. 142 also eliminates amortization of goodwill and introduces a two-step
impairment test model to be applied upon adoption and annually thereafter. In
adopting SFAS No. 142, the Company conducted the required transitional
impairment test as of July 1, 2001, concluding that no impairment of the
goodwill acquired in the acquisitions of C-Mold and Branden Technologies had
occurred. The Company ceased the amortization of goodwill as of July 1, 2001 and
reviewed the intangible assets acquired in the aforementioned transactions,
concluding that no change need be made to the previously estimated useful lives
of those items.

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

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

The Company conducted the required annual impairment test, and concluded
that no impairment had occurred.

F-14

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. GOODWILL AND INTANGIBLE ASSETS (CONTINUED)
The following table reflects the unaudited adjusted net income of the
Company, giving effect to SFAS No. 142 as if it were adopted on July 1, 1999:

All of the Company's acquired intangible assets, except for goodwill, are
subject to amortization over their estimated useful lives. Intangible assets
include customer base, developed technologies and non-compete agreements. No
significant residual value is estimated for the intangible assets. Intangible
asset amortization for the fiscal years ended June 30, 2000, 2001 and 2002 was
$105,000, $601,000 and $656,000, respectively. The components of intangible
assets are as follows (in thousands):

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

As of June 30, 2002, the Company believes there are no additional impairment
losses of its intangible assets, goodwill and other long-lived assets. However,
no assurances can be given that future evaluations of intangible assets,
goodwill and other long-lived assets will not result in changes as a result of
future impairment.

F-15

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. GOODWILL AND INTANGIBLE ASSETS (CONTINUED)
Expected future estimated annual amortization expense of intangible assets
is as follows:

5. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES

In fiscal 2001, the Company initiated a hedging program designed to reduce
the exposure to changes in currency exchange rates.

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

At June 30, 2001, currency options and collars designated as hedging
instruments with notional amounts of $14.5 million, $13.1 million and
$4.9 million to exchange Euros, Japanese yen and Australian dollars for U.S.
dollars, respectively, were outstanding. The fair value of the outstanding
options as of June 30, 2001 was $378,000, which was included in other current
assets. Unrealized gains on these instruments were $143,000 at June 30, 2001.
During the year ended June 30, 2001, a net loss of $5,000 related to these
hedging activities was recorded as a component of other income and expense. The
charge represented recognition of the ineffective portion of the Company's
outstanding options of $289,000, offset by gains of $284,000 from the effective
portion of hedges that were settled during the period.

The Company held no derivatives during the years ending June 30, 2000, 2001
and 2002 for non-hedging purposes.

F-16

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. SOFTWARE DEVELOPMENT COSTS

Costs associated with the research and development of the Company's products
are expensed as incurred. Costs associated with the development of computer
software are expensed prior to establishing technological feasibility, as
defined by SFAS No. 86, "Accounting for the Costs of Computer Software to be
Sold, Leased, or Otherwise Marketed," and capitalized thereafter until
commercial release of the software products. Software development costs eligible
for capitalization prior to the first quarter of fiscal 2002 were not
significant. The Company established technological feasibility of Moldflow
Plastics Insight version 3.0 ("MPI 3.0") in the first quarter of fiscal 2002 and
released the product commercially in November 2001. In accordance with SFAS
No. 86, research and development costs of $602,000 were capitalized during the
year ended June 30, 2002. These development costs are included in fixed assets
and are being amortized to cost of software licenses revenue over the estimated
economic life of the product of five years. Accumulated amortization of
capitalized software development costs was $71,000 at June 30, 2002.

7. FIXED ASSETS

Fixed assets consist of the following (in thousands):

Depreciation expense, including amortization of assets under capital leases,
was $929,000, $1.2 million, and $1.3 million for the years ended June 30, 2000,
2001 and 2002, respectively. Accumulated amortization for assets held under
capital leases was $575,000, $587,000 and $442,000 at June 30, 2000, 2001 and
2002, respectively.

In fiscal 2001, the Company sold two facilities with a total net carrying
value of $1.5 million that were acquired in the purchase of C-Mold (Note 3),
resulting in a net gain of $84,000. Also in fiscal 2001, $916,000 of fully
depreciated assets were removed from service and retired.

In November 2001, the Company sold a portion of its land and certain other
property near Melbourne, Australia for cash proceeds of $930,000. The realized
gain on the sale of $625,000, net of related selling expenses, has been included
as a component of other income and expense.

F-17

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

9. RESTRUCTURING PLAN

On April 19, 2002, the Company's Board of Directors approved a corporate
restructuring plan. The plan included the involuntary termination of 37
employees, closing certain leased offices and reducing the size of other leased
offices. Management currently anticipates that the facility closures and
activities to which all these charges relate will be substantially completed
within one year of the respective Board approval date.

As a result of the restructuring plan, the Company recorded pre-tax charges
of $1.3 million ($720,000 after tax or $0.07 per diluted share). The following
table presents the pre-tax charges, incurred by category of expenditure, and
related restructuring reserve accruals included in accrued expenses and other
long-term liabilities in the Company's consolidated balance sheet:

As part of the Company's restructuring plan, management identified surplus
facilities for closure or reduction. Included in this was a significant
reduction in size of a leased facility in the United Kingdom. In relation to
this reduction, a charge of $606,000 was recorded, representing 40% of the
Company's remaining seven-year lease obligation. Lease termination costs for
other office closures and other equipment leases were $118,000. The write-downs
of fixed assets associated with the administrative facility closings were not
significant. As of July 31, 2002, five leased locations have been closed.

Employee severance costs consist of severance pay for 37 employees and
health care continuation costs for certain of those employees, all of whom were
terminated before June 30, 2002. Included in

F-18

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. RESTRUCTURING PLAN (CONTINUED)
that amount were 12 technical positions, 17 sales and marketing positions and
8 administrative positions.

Other restructuring costs included various professional, legal and tax fees
of $162,000 and travel costs of $4,000.

10. CREDIT FACILITIES

In fiscal 2002, the Company completed the restructuring of its existing
working capital credit facility, establishing a new, unsecured $5.0 million
facility with a domestic bank. The available borrowing base of the facility is
subject to a calculation which is based upon eligible accounts receivable.
Advances may be in the form of loans, letters of credit, foreign exchange
contracts of other cash management lines. Loans against the facility bear
interest at the bank's prime rate (4.75% at June 30, 2002). The facility
includes certain restrictive covenants, all of which the Company was in
compliance with as of June 30, 2002. These covenants include certain liquidity
and profitability measures and restrictions that limit the ability of the
Company to merge, acquire or sell assets without prior approval from the bank.
As of June 30, 2002, the Company had employed $2.2 million of the available
borrowing base through outstanding foreign exchange contracts and letters of
credit. As of June 30, 2002, there were no loans advanced against the facility
and the remaining available borrowing base was $2.8 million.

Certain subsidiaries of the Company have established credit facilities with
two separate financial institutions for the purposes of establishing foreign
exchange contracts. Advances against these facilities bear interest at the
institutions' published rates, plus 2% per annum (10% at June 30, 2002). 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, 2002.

Certain subsidiaries of the Company have established other credit facilities
with two separate financial institutions for general working capital
requirements and foreign exchange contracts. Advances against these facilities
bear interest at the institutions' published rates, plus 1.5% per annum (10.1%
at June 30, 2002). Advances against these facilities are secured by a $130,000
term deposit and the assets of a subsidiary of the Company. There were no
advances against these facilities as of June 30, 2002.

11. PREFERRED STOCK

On March 27, 2000, in conjunction with the Company's initial public offering
of common shares, all shares of convertible preferred stock were automatically
converted into common stock in accordance with the terms of their conversion
rights.

On January 20, 2000, the Board of Directors approved an amendment to the
Company's certificate of incorporation increasing the number of authorized
shares of preferred stock to 5,000,000, with a par value of $0.01 per share.
This increase became effective on March 31, 2000.

At June 30, 2002, there were no shares of preferred stock issued or
outstanding.

F-19

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. COMMON STOCK

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

On July 1, 1998, the Company issued 551,287 shares of its common stock to
certain officers and senior managers of the Company for a cash purchase price of
$198,000. In connection with this issuance, the employees entered into Stock
Restriction Agreements that contain restrictions on the sale of the shares by
the employees and loan agreements evidenced by promissory notes bearing interest
at 5.77% and maturing on June 30, 2003. The shares purchased by the employees
under the Stock Restriction Agreements vest on varying schedules through fiscal
year 2003. Promissory note repayments to the Company were $190,000 and $10,000
during fiscal years 2001 and 2002, respectively. As of June 30, 2002, 6,726
shares were subject to restriction.

On March 31, 2000, the Company completed an initial public offering of
common stock, which resulted in the issuance of 3,000,000 shares of common
stock. Proceeds to the Company, net of the underwriting discount and costs of
the offering, were $34.7 million. Additionally, effective March 31, 2000, the
number of authorized shares of common stock of the Company was increased to
60,000,000 and was subsequently reduced to 40,000,000 in fiscal 2002.

On April 13, 2000, the underwriters of the Company's initial public offering
exercised their option to purchase an additional 450,000 shares of common stock,
of which 181,656 shares were issued by the Company. The proceeds to the Company,
net of the underwriting discount, were $2.2 million.

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

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

At June 30, 2002 the Company had 3,097,975 shares of its common stock
reserved for issuance under the Company's 1997 Equity Incentive Plan, 2000 Stock
Option and Incentive Plan and Employee Stock Purchase Plan. Of these, 10,282
shares were added during fiscal 2002 pursuant to a provision in the Company's
2000 Stock Option and Incentive Plan that automatically increases the number of
shares available for grant by 20% of the total number of shares of common stock
issued during each six month period ending June 30 and December 31.

13. TREASURY STOCK

On September 19, 2001, the Board of Directors authorized the Company to
repurchase up to 500,000 shares of its outstanding common stock, pursuant to
which the Company has reacquired 50,000 shares for $464,000, at an average cost
of $9.28 per share. During fiscal 2002, 14,638 of these shares were reissued
under the Company's Employee Stock Purchase Plan.

F-20

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK PLANS

STOCK OPTION PLAN

In August 1997, the Company adopted the 1997 Equity Incentive Plan (the
"1997 Plan") which provides for the grant of incentive stock options,
non-qualified stock options, stock awards and stock purchase rights for the
purchase of up to 931,303 shares of the Company's common stock by officers,
employees, consultants and directors of the Company. In April 1999, the number
of shares available under the 1997 Plan was increased to 1,537,158 shares. The
Board of Directors is responsible for administration of the 1997 Plan. The Board
determines the term of each option, the option exercise price, the number of
shares for which each option is granted and the rate at which each option is
exercisable. Incentive stock options may be granted to any officer or employee
at an exercise price per share of not less than the fair value per common share
on the date of the grant (not less than 110% of fair value in the case of
holders of more than 10% of the Company's voting stock) and with a term not to
exceed ten years from the date of the grant (five years for incentive stock
options granted to holders of more than 10% of the Company's voting stock).
Non-qualified stock options may be granted to any officer, employee, consultant
or director at an exercise price per share of not less than the par value per
share. The Company will not issue any more shares under the 1997 Plan.

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.

In January 1999 an amendment was made to certain employee stock options
which resulted in a determinable measurement date. Deferred compensation of
$77,000 was recorded, in accordance with APB No. 25, and is being amortized over
the related vesting period. Related compensation expense of $20,000, $19,000 and
$20,000 was recorded during the years ended June 30, 2000, 2001 and 2002,
respectively.

During fiscal 2000, the Company granted options to purchase 1,042 shares of
its common stock at an exercise price below the then fair market value of the
Company's stock, as determined by the Board of Directors. In addition, the
Company granted a fully vested option to purchase 521 shares of its common stock
to a consultant. The Company recorded compensation expense of $12,000 in fiscal
2000 relating to these two option grants. During fiscal 2001, the Company
granted a fully vested option to purchase 312 shares of its common stock to a
consultant, for which the Company recorded compensation expense of $5,000.

Except for the options noted above, no other compensation cost has been
recognized for employee stock-based compensation for the years ended June 30,
2000, 2001 and 2002. Had compensation cost been determined based on the fair
value at the grant dates for awards in 2000, 2001 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. Because options vest over several years and
additional option

F-21

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK PLANS (CONTINUED)
grants are expected to be made in future years, the pro forma results are not
representative of the pro forma results for future years.

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:

A summary of the status of the Company's stock options as of June 30, 2000,
2001 and 2002, and changes during the years then ended, is presented below:

F-22

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

14. STOCK PLANS (CONTINUED)

The following table summarizes information about stock options outstanding
at June 30, 2002:

EMPLOYEE STOCK PURCHASE PLAN

On January 20, 2000, the Board of Directors approved the Moldflow
Corporation Employee Stock Purchase Plan (the "ESPP") with an authorization of
up to 500,000 shares of common stock. The ESPP is open to all eligible employees
of the Company. Under the ESPP, each employee may elect to have up to 10% of his
or her base salary withheld and applied toward the purchase of shares within
each six-month offering period. The purchase price per share is determined based
on 85% of the lower of the fair market value of the stock on the first or the
last day of each offering period.

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

F-23

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. NET INCOME PER COMMON SHARE

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

Options to purchase 712,000 and 1,349,000 shares of common stock were
outstanding for the years ended June 30, 2001 and 2002, respectively, but were
not included in the calculation of diluted net income per common share, as their
inclusion would be antidilutive.

16. INCOME TAXES

Income before income taxes consists of the following (in thousands):

F-24

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. INCOME TAXES (CONTINUED)
The provision for income taxes consists of the following (in thousands):

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

The deferred tax assets and liabilities consist of the following (in
thousands):

F-25

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

16. INCOME TAXES (CONTINUED)
At June 30, 2002, the Company had available foreign net operating loss
carryforwards of approximately $2.3 million. These carryforwards do not expire
and are available indefinitely.

Under generally accepted accounting principles, the benefit associated with
future deductible differences is recognized if it is more likely than not that
the benefit will be realized. Management believes that, based on the Company's
historical results of operations, it is more likely than not that a portion of
the Company's deferred tax assets will not be realized. Accordingly, the Company
has recorded a valuation allowance of $4.5 million and $370,000 at June 30, 2001
and 2002, respectively. Management believes that the net deferred tax asset
represents management's best estimate, based upon the weight of available
evidence, of the deferred tax asset that will be realized. If such evidence were
to change, based upon near-term operating results and longer-term projections,
the amount of the valuation allowance recorded against the gross deferred tax
asset may be decreased or increased.

17. BENEFIT PLANS

401(K) SAVINGS PLAN

The Company has established a retirement savings plan under Section 401(k)
of the U.S. Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers
substantially all U.S. based employees of the Company who meet minimum age and
service requirements, and allows participants to defer a portion of their annual
compensation on a pre-tax basis. Matching contributions to the 401(k) Plan may
be made at the discretion of the Company. The Company contributed $227,000,
$451,000 and $544,000 to the 401(k) Plan in the years ended June 30, 2000, 2001
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 $187,000, $146,000 and $167,000 to the Superannuation Plan in the
years ended June 30, 2000, 2001 and 2002, respectively.

18. COMMITMENTS AND CONTINGENCIES

LEASE COMMITMENTS

The Company leases certain of its office space under noncancelable operating
leases, which expire at various dates through 2009. At June 30, 2002, the
Company had no outstanding capital lease obligations. Future minimum operating
lease commitments at June 30, 2002 are as follows (in thousands):

F-26

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum operating lease commitments include the full cash commitment
for a leased facility in the United Kingdom. The Company's restructuring plan
included a reduction in the use of this facility, resulting in a nonrecurring
charge of $606,000. Excluding this amount, which is included in other long-term
liabilities, future minimum operating lease commitments at June 30, 2002 would
be $9.0 million.

Total rent expense under these operating leases was $837,000, $1.9 million
and $2.1 million, excluding lease termination costs associated with
restructuring, for the years ended June 30, 2000, 2001 and 2002, respectively.

LITIGATION

On February 17, 1999, the Company filed suit against a former employee and
the individual's then current employer, C-Mold, seeking immediate and permanent
injunctive relief in connection with the theft and misappropriation of the
Company's proprietary trade secrets. The complaint sought permanent injunction
against the defendants, actual, consequential and punitive damages, and recovery
of all legal costs. During fiscal 2000, the Company incurred legal expenses of
$785,000, during the prosecution of this litigation. These expenses have been
included in litigation expenses in the consolidated statement of income.

On April 13, 2000, in connection with the Company's acquisition of C-Mold,
this litigation was dismissed by the agreement of all parties.

19. SEGMENT AND GEOGRAPHIC INFORMATION

The Company is engaged in one reportable industry segment: the development,
marketing and support of software products for the plastic design and
manufacturing industry.

The Company licenses its products to customers throughout the world. Sales
and marketing operations outside the United States are conducted principally
through the Company's foreign sales subsidiaries in Europe and Asia.

The Company's research and development centers are located in Australia, the
United States and the United Kingdom.

F-27

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

19. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
Geographic information regarding the Company's operations was as follows:

Revenue from unaffiliated customers in Japan was $5.2 million (19% of total
revenue), $8.5 million (21% of total revenue) and $7.2 million (21% of total
revenue) in fiscal 2000, 2001 and 2002, respectively. Substantially all of the
revenue in the Americas region is derived from the United States.

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

20. SUBSEQUENT EVENTS

On July 1, 2002, 22,737 shares were purchased by employees under the
Employee Stock Purchase Plan at a share price of $6.70.

On July 2, 2002, the Company entered into an agreement with a former officer
of the Company. Under the terms of the agreement, the Company will pay up to
$132,000 to the former officer in exchange for future consulting and advisory
services. Payments under the agreement will be made until no later than
December 6, 2002.

F-28

MOLDFLOW CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. SUBSEQUENT EVENTS (CONTINUED)
On September 11 and 12, 2002, the Company reacquired a total of
194,165 shares of its outstanding common stock at an average cost of $4.72 per
share.

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, 2002. In the opinion of management, the unaudited financial results
include all adjustments, consisting only of normal recurring adjustments,
necessary for the fair presentation of our results of operations for those
periods and have been prepared on the same basis as the audited consolidated
financial statements. The results of operations for any quarter are not
necessarily indicative of the results of operations for any future period.

F-29

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Moldflow Corporation:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 15(a)(1) on page 34 of this Annual Report on Form 10-K
present fairly, in all material respects, the financial position of Moldflow
Corporation and its subsidiaries at June 30, 2002 and 2001, and the results of
their operations and their cash flows for each of the three years in the period
ended June 30, 2002 in conformity with accounting principles generally accepted
in the United States of America. In addition, in our opinion, the financial
statement schedule listed in the index appearing under Item 15(a)(2) on page 34
of this Annual Report on Form 10-K presents fairly, in all material respects,
the information set forth therein when read in conjunction with the related
consolidated financial statements. These financial statements and the financial
statement schedule are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements and the
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Boston, Massachusetts
July 31, 2002, except for
the last paragraph of Note 20
as to which the date is September 12, 2002

F-30

MFLO-AR-01

EXHIBIT INDEX