<Page>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
---------------
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended: JUNE 30, 2001
Commission File Number: 000-30027
------------------------
MOLDFLOW CORPORATION
(Exact name of registrant as specified in its charter)
<Table>
DELAWARE 04-3406763
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</Table>
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)
<Table>
Securities registered pursuant to Securities registered pursuant to
Section 12(b) of the Act: Section 12(g) of the Act:
NONE COMMON STOCK, $.01 PAR VALUE PER SHARE
(Title of Class)
</Table>
------------------------
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
$63,141,062 on September 19, 2001 based on the last reported sale price of our
common stock on The Nasdaq Stock Market on that day. There were
10,114,060 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
2001 Annual Meeting of Stockholders are incorporated by reference into Part III
of this Form 10-K.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<Page>
MOLDFLOW CORPORATION
ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JUNE 30, 2001
TABLE OF CONTENTS
<Table>
<Caption>
PAGE
--------
PART I.
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 14
PART II.
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 14
Item 6. Selected Financial Data..................................... 14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 28
Item 8. Financial Statements and Supplementary Data................. 28
PART III.
Item 10. Directors and Executive Officers of the Registrant.......... 29
Item 11. Executive Compensation...................................... 29
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 29
Item 13. Certain Relationships and Related Transactions.............. 29
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 29
Exhibit Index............................................... 30
Signatures.................................................. 33
Schedule II................................................. 34
APPENDIX A
Consolidated Financial Statements........................... F-1
Notes to Consolidated Financial Statements.................. F-6
Report of Independent Accountants........................... F-26
</Table>
i
<Page>
PART I
THIS ANNUAL REPORT ON FORM 10-K CONTAINS FORWARD-LOOKING STATEMENTS WITHIN
THE MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND 21E OF
THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. YOU CAN IDENTIFY THESE
STATEMENTS BY FORWARD-LOOKING WORDS SUCH AS "MAY," "WILL," "EXPECT,"
"ANTICIPATE," "BELIEVE," "ESTIMATE," AND "CONTINUE" OR SIMILAR WORDS. YOU SHOULD
READ STATEMENTS THAT CONTAIN THESE WORDS CAREFULLY BECAUSE THEY DISCUSS OUR
FUTURE EXPECTATIONS, CONTAIN PROJECTIONS OF OUR FUTURE RESULTS OF OPERATIONS OR
OF OUR FINANCIAL CONDITION, OR STATE OTHER "FORWARD-LOOKING" INFORMATION. WE
BELIEVE THAT IT IS IMPORTANT TO COMMUNICATE OUR FUTURE EXPECTATIONS TO OUR
INVESTORS. HOWEVER, THERE MAY BE EVENTS IN THE FUTURE THAT WE ARE NOT ABLE TO
ACCURATELY PREDICT OR CONTROL AND THAT MAY CAUSE OUR ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE EXPECTATIONS WE DESCRIBE IN OUR FORWARD-LOOKING STATEMENTS.
INVESTORS ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTIES, AND ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE DISCUSSED AS
A RESULT OF VARIOUS FACTORS, INCLUDING THOSE FACTORS DESCRIBED IN "RISK FACTORS
AND IMPORTANT FACTORS THAT MAY AFFECT FUTURE RESULTS" BEGINNING ON PAGE 24.
READERS SHOULD NOT PLACE UNDUE RELIANCE ON OUR FORWARD-LOOKING STATEMENTS, AND
THE COMPANY ASSUMES NO OBLIGATION AND DOES NOT INTEND TO UPDATE ANY
FORWARD-LOOKING STATEMENTS.
ITEM 1. BUSINESS
OVERVIEW
We believe we are the world's leading developer of software solutions that
enhance the design, analysis and manufacture of injection molded plastic parts.
Common consumer products that make extensive use of plastic parts include
cellular telephones, personal digital assistants, pagers, automobiles,
televisions, cameras, toys and personal computers. The commercial success of
each of these products often relies heavily upon reducing the time to bring new
products to market, reducing engineering and manufacturing costs, and improving
product quality and design.
Participants in all aspects of the injection molded plastic parts
manufacturing process, including part designers, mold designers, manufacturing
engineers and machine operators, use our products. Our products enable our
customers to speed their products to market, decrease manufacturing costs and
reduce costly design and manufacturing errors by:
- assisting part designers in the selection of a plastic material,
- determining the strength, rigidity and ease of manufacturing of a given
part design,
- predicting the amount a plastic part will shrink or warp during
production,
- optimizing production conditions such as machine temperatures, injection
speeds, cooling times and the locations in a mold to inject the plastic,
- identifying and providing optimized solutions for adverse variations
during production,
- providing features which facilitate collaboration over shared media, such
as the Internet, and
- scheduling, monitoring and reporting plant floor molding operations.
Prior to 1997, we offered a single product line, Moldflow Plastics Insight
("MPI"), which was designed to be used by highly specialized engineers
conducting in-depth plastics simulation. Today we offer five products which
operate across a broad segment of the plastics design to manufacturing process.
Our Design Optimization Solutions, Moldflow Plastics Advisers ("MPA") and MPI,
help part and mold designers and plastics engineers design products that will
manufacture correctly the first time while our Manufacturing Solutions, Moldflow
Plastics Xpert ("MPX"), EZ-Track and Shotscope, allow manufacturing
professionals to monitor, control and optimize their process on the shop floor.
Our products are used by more than 4,100 customers at more than 4,500 sites
in over 55 countries around the world. We sell our products primarily through
our direct sales force in North America, Europe and Asia and, to a lesser
extent, through original equipment manufacturers and distributors in
1
<Page>
defined geographic regions. Representative customers include Baxter
International, BMW, DuPont, Fuji Xerox, Hewlett-Packard, Lego, Motorola, Nokia
and Samsung. We have distribution arrangements with PTC, Structural Dynamics
Research Corporation ("SDRC"), 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 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.
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. Common consumer products that make extensive use of
plastic parts include cellular telephones, personal digital assistants, pagers,
automobiles, televisions, cameras, toys and personal computers. The commercial
success of each of these products often relies heavily upon reducing the time to
bring new products to market, reducing engineering and manufacturing costs, and
improving product quality and design.
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. For instance, industry trade journals have reported that
DaimlerChrysler predicts that the 75-100 metal parts currently used on a typical
car's body structure could be replaced by 6-12 plastic parts on future cars. 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
plastics instead of other heavier structural materials. For example, industry
trade journals have reported that DaimlerChrysler has recently produced a new
hardtop for its Jeep Wrangler model which uses plastics on external components
and weighs 23 pounds less than its current production hard top.
INJECTION MOLDING PROCESS
The dominant method for producing plastic parts with complex shapes is
injection molding. We believe that in 1999 up to 750,000 injection molding
machines were in operation on a worldwide basis.
2
<Page>
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, it also
must account for shrinkage and warpage of the plastic material as it cools and
is ejected. Problems can arise in this process 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 or require several attempts to remachine the
mold.
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, lays out 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 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--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 plastic raw material.
Traditionally, these steps have been carried out through a trial-and-error
process which requires a significant amount of guesswork throughout. As a
result, the design and development process has been inherently inefficient. An
incorrect guess at any step of this process may produce suboptimal parts or
require that portions or all of the process be repeated, delaying production and
increasing costs.
The inefficiencies and resulting cost increases occurring in this process
are further exacerbated when companies outsource one or more of these steps.
Many companies have set up supply chains to match expertise and cost structures
to each step of this process and take advantage of available networks to
establish "design anywhere, build anywhere" collaborations with suppliers and
between divisions across their company. The part design, mold design and
production steps often occur in geographically separated facilities. As a
result, the iterative process of designing a plastic part is frequently hindered
by having to coordinate this process across multiple locations and time zones.
3
<Page>
ABSENCE OF 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 in the injection molded plastics industry continue to employ a
trial-and-error process at most steps of the design and development process. We
believe this condition exists today primarily because of the limited
availability of specific software tools capable of addressing many of the
complex and unique issues involved in designing injection molded plastic parts
and their molds. In addition, we believe the majority of the injection molding
machines currently in use worldwide and are being operated without integrated
software tools which can 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 permit 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 mold design.
Manufacturing Solutions include Moldflow Plastics Xpert ("MPX") series 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, 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
4
<Page>
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 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 unlimited analyses on
a single model geometry to then be performed. 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 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.
5
<Page>
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 strength or 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 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/TSETS provides tools to simulate the major thermoset molding processes.
Thermoset materials are a type of plastic which are used for products that
must withstand higher temperatures without alteration in their material
properties. Because other plastics may deform when exposed to high
temperatures, thermoset materials are used for a variety of plastic parts
such as chip holders in integrated circuits, distributor caps and other
automotive engine components and electrical outlets.
C-MOLD 2000 ("CM2K"), formerly a C-Mold product, provides an easy-to-use
environment which enables the simulation of a wide variety of complex
molding processes, including the encapsulation of semiconductors. Selected
technologies from the CM2K product will be integrated into MPI version 3.0
which we plan to release during our fiscal year 2002.
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-
6
<Page>
setters can consistently and systematically set-up molds, identify a robust
molding window and monitor the 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 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.
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 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.
7
<Page>
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.) for every shot
monitored, 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.
PLASTICSZONE.COM
Plasticszone.com is a business and productivity website for professionals
working with injection molded plastics. Plasticszone.com currently consists of
five activity zones:
SIMULATION ZONE offers access to our IMPA product, the Internet version of
our Moldflow Part Adviser product that enables users to conduct plastics
flow analysis on a pay-per-use basis.
MATERIALS ZONE provides a materials calculator that allows users to
determine optimal polymers for parts and enables users to order material
testing services from us.
CONSULTING ZONE provides access to our consulting services for
troubleshooting, performance of more challenging plastic flow analyses and
other types of plastic injection molding projects.
EDUCATION ZONE offers a listing of upcoming seminars and training courses
related to plastic injection molding processes and the software solutions
that can help designers and engineers become more productive. It also offers
live web seminars and web-based self study classes.
KNOWLEDGE ZONE provides online evaluation tools, interactive answers to
commonly asked questions about part manufacturability and comparisons among
many plastic materials.
8
<Page>
OUR CUSTOMERS
Our products are used at more than 4,500 user sites in more than 4,100
companies, which are located in over 55 countries spanning the globe.
Representative customers in various industries include:
AUTOMOTIVE
BMW AG
DENSO Corporation
Ford Motor Company
Hyundai Business Group
Valeo SA
Volkswagen AG
TOYS
Hasbro, Inc.
The Lego Group
Mattel, Inc.
ELECTRONICS
The Framatome Group
Fuji Xerox Co., Ltd.
Hewlett-Packard Company
Motorola, Inc.
Nokia Corporation
Siemens AG
Tyco International Inc.
MATERIAL SUPPLIERS
Bayer AG
The Dow Chemical Company
Eastman Chemical Company
E. I. duPont de Nemours and Company
GE Plastics
M. A. Hanna Company
MEDICAL
Bausch and Lomb
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 a direct sales
organization. As of June 30, 2001, our direct sales organization consisted of 48
sales associates, who operated out of offices located in Australia, China,
France, Germany, Italy, Japan, Korea, the Netherlands, Singapore, Spain, Sweden,
Taiwan, the United Kingdom and the United States. Our direct sales model
involves pairing a sales associate and an engineer to form a sales team. These
teams work together to conduct a thorough evaluation of potential customers'
design and manufacturing processes and provide the potential customers with a
detailed analysis of the cost savings our products could produce in a selected
aspect of their business. Based upon the success of this sales model to date in
increasing sales as well as the awareness among our potential customers of our
products, we intend to continue building our direct sales organization
worldwide. See Note 15 of the Notes to 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 Structural
Dynamics Research Corporation ("SDRC") 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 MAI partner, which gives us
access to Autodesk's distribution channel to sell our MPA product. We have
retained over 100 distributors to provide worldwide sales coverage to complement
our direct sales organization. We are also partnering with other businesses in
distribution arrangements which allow
9
<Page>
them to promote and distribute IMPA on their websites, further expanding the
reach of our products. For example, GE Plastics offers IMPA on their
geplastics.com and gepolymerland.com websites.
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.
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 plastics
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 a number of injection molding machines in Melbourne. 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 always 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.
We also fund or participate in a wide assortment of external research and
development projects, often being conducted by the world's leading experts in
their fields. 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
10
<Page>
University of Singapore for optimization. We believe that these relationships
provide a significant benefit to our product development efforts.
As of June 30, 2001, our product development staff had 86 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 1999, 2000 and 2001 our research
and development expenses were $3.5 million, $4.1 million and $6.6 million,
respectively.
ACQUISITIONS
On April 13, 2000, we acquired Advanced CAE Technologies, Inc., which
formerly conducted business as C-Mold. C-Mold was a developer of competing
software solutions complementary to our Design Optimization Solutions series.
The acquisition of C-Mold has expanded our development capabilities and we
believe that it will enable us to broaden our product lines into adjacent
markets more quickly. The purchase price was $11.3 million in cash, including
transaction costs.
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.
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. We also face competition from
materials vendors, injection molding machine manufacturers and small vendors,
such as independent engineering consultants. In addition, new competitors may
arise as we introduce new products into the marketplace.
The entrance of new competitors would be likely to intensify competition in
all or a portion of the markets in which we compete. Some of our current and
possible future competitors have greater financial, technical, marketing and
other resources than we do, and some have well-established relationships with
our current and potential customers. Competitors may form alliances and rapidly
acquire significant market share. Moreover, competition may increase as a result
of software industry consolidation.
We believe that the principal competitive factors affecting our market
include:
- speed of innovation,
- ease of use,
- flexibility,
- quality,
- ease of integration into or communication with computer-aided design
systems,
- compatibility across computer platforms,
- range of supported computer platforms,
- performance,
- price and cost of ownership,
- customer service and support,
- company reputation and financial viability, and
- effectiveness of sales and marketing efforts.
We believe that we compete effectively on these factors.
11
<Page>
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 certain 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 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
12
<Page>
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 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, however, 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, 2001, we had 290 employees, 120 of whom resided in the United
States, 58 of whom resided in Australia, 23 of whom resided in the United
Kingdom and 89 of whom resided in other countries. None of our employees are
subject to any collective bargaining agreement. We believe that our relationship
with our employees is good.
ITEM 2. PROPERTIES
We operate out of 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 our senior management team, some of
our North American sales force and technical support personnel, some product
marketing and development personnel and some finance and administration
personnel.
We own an 18,100 square foot office building set on approximately 15 acres
in the Kilsyth suburb of Melbourne, Australia. Personnel located at our
Melbourne facility include members of our software development and research
team, some of our materials testing personnel, a portion of our Asia Pacific
sales force and administrative staff. We lease a 13,000 square foot office and
laboratory building in Ithaca, New York pursuant to a 1-year lease that expires
in April 2002. In March 2001, we signed a lease pursuant to which we will lease
a newly constructed 18,000 square foot building in Ithaca upon completion, which
is expected to occur during fiscal year 2002. We anticipate moving our Ithaca
operations into this building upon completion of the construction. 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
13
<Page>
building in 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 research team and some administrative and
distribution personnel.
We also lease office space in the other countries in which we do business.
Our aggregate lease expenses were $1.9 million in fiscal 2001.
During fiscal 2001, we sold our facility in Louisville, Kentucky and our
office condominium in Taiwan. Both of these properties were acquired when we
purchased C-Mold in fiscal 2000.
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
The Company's 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.
<Table>
<Caption>
PERIOD OR QUARTER ENDED HIGH LOW
----------------------- -------- --------
April 1, 2000............................................... $16.94 $15.25
June 30, 2000............................................... $18.50 $13.50
September 30, 2000.......................................... $28.00 $15.25
December 30, 2000........................................... $27.38 $19.50
March 31, 2001.............................................. $30.13 $17.75
June 30, 2001............................................... $18.50 $11.17
</Table>
On September 19, 2001, the last reported sale price of the common stock on
Nasdaq was $9.31 per share. On September 19, 2001, there were 93 holders of
record of the Company's common stock.
We have never declared or paid any cash dividends on our common stock. We
currently intend to retain our future earnings, if any, to finance the expansion
of our business and do not expect to pay any cash dividends in the foreseeable
future.
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 31,
2001.
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, 1999, 2000 and 2001 and the balance sheet data at June 30,
2000 and 2001 are derived from our audited consolidated financial statements
appearing elsewhere in this document. The statement of operations data for the
years ended June 30, 1997 and 1998 and the balance sheet data at June 30, 1997
and 1998 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 in March 1998. As a result of the treatment of
this redesignation, we had no common stock outstanding
14
<Page>
prior to June 30, 1998 for purposes of computing net income per common share.
Accordingly, basic net income per common share was zero for the years ended June
30, 1997 and 1998.
<Table>
<Caption>
YEAR ENDED JUNE 30,
----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Revenue:
Software licenses............................ $ 6,743 $ 8,514 $12,238 $16,742 $24,494
Services..................................... 8,080 7,875 7,983 10,627 15,449
------- ------- ------- ------- -------
Total revenue.............................. 14,823 16,389 20,221 27,369 39,943
------- ------- ------- ------- -------
Costs and expenses:
Cost of software licenses revenue............ 377 397 378 785 1,846
Cost of services revenue..................... 1,904 1,685 1,319 1,057 1,440
Research and development..................... 3,527 3,062 3,466 4,074 6,642
Selling and marketing........................ 6,703 7,287 9,673 13,495 19,396
General and administrative................... 3,719 3,303 3,839 5,018 6,095
Litigation................................... -- -- 620 785 --
Nonrecurring charges......................... -- -- -- 284 --
Amortization of goodwill and other intangible
assets..................................... 2,370 84 -- 311 1,701
------- ------- ------- ------- -------
Total operating expenses................... 18,600 15,818 19,295 25,809 37,120
------- ------- ------- ------- -------
Income (loss) from operations.................. (3,777) 571 926 1,560 2,823
Interest income (expense), net................. (139) (238) (177) 427 2,139
Other income (loss), net....................... 17 19 (92) 1,717 272
------- ------- ------- ------- -------
Income (loss) before income taxes............ (3,899) 352 657 3,704 5,234
Provision for income taxes..................... 371 163 176 251 1,726
------- ------- ------- ------- -------
Net income (loss)............................ (4,270) 189 481 3,453 3,508
Accretion on redeemable preferred stock........ 741 80 -- -- --
------- ------- ------- ------- -------
Net income (loss) available to common
stockholders............................... $(5,011) $ 109 $ 481 $ 3,453 $ 3,508
======= ======= ======= ======= =======
Net income per common share:
Basic........................................ $ -- $ -- $ 1.82 $ 1.29 $ 0.36
Diluted...................................... $ -- $ 0.04 $ 0.08 $ 0.48 $ 0.35
Shares used in computing net income per share:
Basic........................................ -- -- 265 2,667 9,658
Diluted...................................... -- 5,228 6,166 7,190 10,124
</Table>
<Table>
<Caption>
AS OF JUNE 30,
----------------------------------------------------
1997 1998 1999 2000 2001
-------- -------- -------- -------- --------
(IN THOUSANDS)
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 1,009 $1,700 $1,240 $27,259 $32,969
Marketable securities............................ -- -- -- 8,452 12,750
Working capital.................................. (3,260) (1,999) (2,108) 30,991 42,511
Working capital, net of deferred revenue......... (501) 984 1,310 36,094 48,883
Total assets..................................... 13,940 14,336 10,247 57,323 71,455
Long-term debt, net of current portion........... 524 890 -- 852 --
Redeemable convertible preferred stock........... 10,322 -- -- -- --
Stockholders' equity (deficit)................... (10,584) 34 1,270 43,778 57,593
</Table>
15
<Page>
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 24.
Readers should not place undue reliance on our forward-looking statements, and
the Company assumes no obligation to update any forward-looking statements.
BUSINESS OVERVIEW
Our primary business is the development, sale and support of software
applications for the design and manufacture of injection molded plastic parts.
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 Manufacturing Solutions products allow plant
engineers and managers to maintain and optimize manufacturing conditions
throughout the manufacturing process.
We develop software products internally and through cooperative research
relationships with a number of public and private educational and research
organizations around the world. Prior to June 1997, our products consisted
solely of our Moldflow Plastics Insight ("MPI") series for in-depth mold design.
Since then, we have introduced additional modules of our MPI product series and
have also introduced other new product lines. Our Moldflow Plastics Advisers
("MPA") series for part design and high level mold design was introduced in
fiscal 1997 and our Moldflow Plastics Xpert ("MPX") series for production set-up
and production monitoring was introduced in fiscal 1999. In fiscal 2000, we
introduced plasticszone.com, a business and productivity website for
professionals working with injection molded plastics. The plasticszone.com site
currently offers five primary services, including one which provides our
customers with access to our IMPA product, an application service provider, or
ASP, version of one of our MPA series of products. In fiscal 2001, two
additional products were launched under the Moldflow brand, Shotscope and
EZ-Track. Shotscope, the primary 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,
developed jointly by Moldflow and Branden, provides real-time, plant-wide
production monitoring and reporting. We categorize these products into two
groups: Design Optimization Solutions, which includes the MPA and MPI series,
and Manufacturing Solutions, which includes the MPX, Shotscope and EZ-Track
products.
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. These business combinations were accounted for using the
purchase method of accounting. Accordingly, our consolidated financial
statements present together with the Company the financial position and results
of operations of C-Mold and Branden from the dates of their respective
acquisition.
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.
16
<Page>
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. 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 original equipment manufacturers related to the bundling of our software
with their design software programs.
We recognize software licenses revenue when persuasive evidence of a
purchase commitment exists, delivery has occurred upon shipment of the product
to the customer, no significant installation obligations remain, the license fee
is fixed or determinable, and collectibility is probable. Installation of the
product by Moldflow is not essential to its functionality, and typically is
completed by our customers.
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. Maintenance and support contract revenue is invoiced in advance and is
recognized ratably over the term of the corresponding maintenance agreement,
which typically is twelve months.
Maintenance and support contracts are often entered into at the same time as
the sale of our software licenses, and 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 for each, which is determined based on
prices charged to our customers when these elements are sold separately. The
revenue allocated to each of these elements is then recognized as described
above. When vendor specific objective evidence of fair value does not exist for
all elements of an arrangement, we employ the residual method of accounting. The
residual method requires that we defer the portion of the total fee received
that relates to the undelivered elements of the arrangement. The amount deferred
is based upon the prices charged to customers for those elements when they are
sold separately, typically from the renewal of the annual maintenance and
support contracts. The deferred amount is then recognized ratably over the term
of the corresponding maintenance agreement or as the services are performed. The
difference between the total fee and the amount deferred is recognized as
revenue related to the delivered elements, assuming all other revenue
recognition criteria is met.
We also provide consulting services, training of customers' employees, and
material testing services. Revenue is recognized as the services are performed.
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 sale of
our products, and are included in cost of software licenses revenue.
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 our consulting
services.
RESEARCH AND DEVELOPMENT. We maintain a development staff to enhance our
existing products and to develop new ones. Product development expenditures,
which include salaries, benefits and travel and
17
<Page>
facilities costs, are generally charged to operations as incurred. Statement of
Financial Accounting Standards 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. We typically establish technological feasibility upon
the completion of a working model. Accordingly, due to the minimal level of
software development costs incurred subsequent to the establishment of
technological feasibility, costs eligible for capitalization have not been
significant to date.
SELLING AND MARKETING. We sell our products primarily through our direct
sales force and indirect distribution channels. Selling and marketing expenses
consist primarily of personnel costs, commissions to sales staff, 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 our
personnel, routine legal, audit and other costs of our executive management,
finance, 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
anticipate no further significant litigation costs to be incurred in connection
with this action.
NONRECURRING CHARGES. In connection with our acquisition of C-Mold, we
incurred nonrecurring charges to terminate a lease on a facility and to
immediately expense costs of purchased in-process research and development.
AMORTIZATION OF GOODWILL AND OTHER INTANGIBLE ASSETS. These costs represent
the amortization of intangible assets recorded in connection with our
acquisitions, including goodwill, developed technology, assembled workforce,
customer base and protective covenants.
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.
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 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 1999, 2000 or 2001 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.
18
<Page>
RESULTS OF OPERATIONS
The following table sets forth statement of income data for the periods
indicated as a percentage of total revenue:
<Table>
<Caption>
FISCAL YEAR ENDED JUNE 30,
------------------------------------
1999 2000 2001
-------- -------- --------
Revenue:
Software licenses......................................... 60.5% 61.2% 61.3%
Services.................................................. 39.5 38.8 38.7
----- ----- -----
Total revenue........................................... 100.0% 100.0% 100.0%
===== ===== =====
Costs and expenses:
Cost of software licenses revenue......................... 1.9% 2.9% 4.6%
Cost of services revenue.................................. 6.5 3.9 3.6
Research and development.................................. 17.1 14.9 16.6
Selling and marketing..................................... 47.8 49.3 48.6
General and administrative................................ 19.0 18.3 15.2
Litigation................................................ 3.1 2.9 --
Nonrecurring charges...................................... -- 1.0 --
Amortization of goodwill and other intangible assets...... -- 1.1 4.3
----- ----- -----
Total operating expenses................................ 95.4 94.3 92.9
----- ----- -----
Income from operations...................................... 4.6 5.7 7.1
Interest income (expense), net.............................. (0.9) 1.6 5.3
Other income (loss), net.................................... (0.5) 6.2 0.7
----- ----- -----
Income before income taxes.............................. 3.2 13.5 13.1
Provision for income taxes.................................. 0.9 0.9 4.3
----- ----- -----
Net income.............................................. 2.3% 12.6% 8.8%
===== ===== =====
</Table>
COMPARISON OF FISCAL YEARS 1999, 2000 AND 2001
REVENUE
SOFTWARE LICENSES REVENUE. Software licenses revenue increased from the
prior year by 37% in 2000 from $12.2 million to $16.7 million and by 46% in 2001
from $16.7 million to $24.5 million. Several factors have contributed to these
increases. We acquired C-Mold, a major competitor, in April 2000, which
contributed to our growth in 2000 and 2001. We acquired Branden Technologies in
March 2001. Branden's Shotscope product contributed modestly to our growth in
2001. We introduced new products, including Mold Adviser during 1999 and
EZ-Track in 2001. We also released new modules for our MPI product line, and
released new version updates to existing products, including our MPA product. We
increased our direct sales coverage, adding new sales offices in the United
States, Asia and Europe, and increased the number of our sales representatives
from 25 at June 30, 1999 to 48 at June 30, 2001. As a result, we have increased
the proportion of total licenses revenue sold directly to end-user customers
from 72% in 1999 to 83% in 2001.
19
<Page>
The following table sets forth our software licenses revenue by product
group for each of 1999, 2000 and 2001:
<Table>
<Caption>
FISCAL YEAR ENDED JUNE 30,
------------------------------------
1999 2000 2001
-------- -------- --------
(IN THOUSANDS EXCEPT PERCENTAGE
DATA)
Software licenses revenue:
Design Optimization Solutions............................. $11,951 $16,093 $22,698
Manufacturing Solutions................................... 287 649 1,796
------- ------- -------
Total................................................... $12,238 $16,742 $24,494
======= ======= =======
% of total software licenses revenue:
Design Optimization Solutions............................. 97.7% 96.1% 92.7%
Manufacturing Solutions................................... 2.3 3.9 7.3
------- ------- -------
Total................................................... 100.0% 100.0% 100.0%
======= ======= =======
</Table>
SERVICES REVENUE. Services revenue has a lower gross profit margin than
licenses revenue and accounted for approximately 39% of our total revenue in
1999, 2000 and 2001. Revenue from services increased from the prior year by 33%
in 2000 from $8.0 million to $10.6 million and by 45% in 2001 from
$10.6 million to $15.4 million. These increases were primarily in the sale of
maintenance contracts, which was the result of growth in our customer base
arising from software license sales.
The following table sets forth our total revenue by geographic region for
each of 1999, 2000 and 2001:
<Table>
<Caption>
FISCAL YEAR ENDED JUNE 30,
---------------------------------
1999 2000 2001
--------- --------- ---------
(IN THOUSANDS EXCEPT PERCENTAGE
DATA)
Revenue:
USA....................................................... $ 6,974 $ 7,804 $13,286
Europe.................................................... 8,235 10,399 13,623
Asia/Australia............................................ 5,012 9,166 13,034
------- ------- -------
Total................................................... $20,221 $27,369 $39,943
======= ======= =======
% of total revenue:
USA....................................................... 34.5% 28.5% 33.3%
Europe.................................................... 40.7 38.0 34.1
Asia/Australia............................................ 24.8 33.5 32.6
------- ------- -------
Total................................................... 100.0% 100.0% 100.0%
======= ======= =======
</Table>
The demand for our products is largely driven by the demand for these
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 last twelve months. In particular, as a result
of this downturn, we experienced a decrease in licensing revenue in the fourth
quarter of fiscal 2001 of 3% as compared to the fourth quarter of fiscal 2000
and of 26% as compared to the third quarter of fiscal 2001. A continuation of
this general economic slowdown could affect us in the future by decreasing our
revenue and lowering our revenue growth rates. In addition, the recent terrorist
attacks on the United States are causing widespread uncertainty and speculation
in the United States and world financial markets. This uncertainty and
speculation may result in further economic contraction and a suspension in the
normal purchasing patterns of our customers.
20
<Page>
COSTS AND EXPENSES
COST OF SOFTWARE LICENSES REVENUE. Our cost of software licenses revenue
was $378,000 in 1999, $785,000 in 2000 and $1.8 million in 2001. The increases
are due to the increased sales of products in our Manufacturing Solutions
product group, which have a higher cost of materials than our Design Solutions
products, and an increase in personnel costs.
COST OF SERVICES REVENUE. Our cost of services revenue was $1.3 million in
1999, $1.1 million in 2000, and $1.4 million in 2001. The decrease from 1999 to
2000 was a result of the implementation of our strategy of redirecting field
technical personnel from largely passive roles of customer hotline and
maintenance services to active roles in pre-sales activities and customer
retention programs. Consequently, the costs of these individuals were redirected
to selling and marketing. The increase from 2000 to 2001 was mainly due to
increased headcount in technical support and material testing activities.
RESEARCH AND DEVELOPMENT. Our research and development expenses increased
from the prior year by 18% in 2000 from $3.5 million to $4.1 million and by 61%
in 2001 from $4.1 million to $6.6 million. These increases are 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 increased from
the prior year by 40% in 2000 from $9.7 million to $13.5 million and by 44% in
2001 from $13.5 million to $19.4 million. The increase in 2000 was due
principally to the redirection of field technical personnel to pre-sales
applications support roles and an increase in the number of direct sales force
personnel and, to a lesser extent, an increase in promotional activities in
connection with the rollout of new releases of our software products. The
increase in 2001 was due principally due to headcount additions and an increase
in promotional activities, including telemarketing and international advertising
programs.
GENERAL AND ADMINISTRATIVE. Our general and administrative expenses
increased from the prior year by 31% in 2000 from $3.8 million to $5.0 million
and by 22% in 2001 from $5.0 million to $6.1 million. These increases are the
result of additional hiring of corporate staff and increased costs for
professional services incurred as a result of becoming a publicly-held company.
LITIGATION. The litigation expenses incurred amounted to $620,000 in 1999
and $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 connection with our acquisition of C-Mold, we
incurred nonrecurring charges of $284,000 in fiscal 2000 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 AND OTHER INTANGIBLE ASSETS. These costs represent
the amortization of intangible assets acquired in our purchases of C-Mold and
Branden, including goodwill, developed technology, assembled workforce, customer
base and protective covenants. In 2000, we incurred amortization charges of
$311,000, related entirely to our April 2000 acquisition of C-Mold. In 2001, we
incurred amortization charges of $1.7 million, $1.5 million of which related to
goodwill and other intangible assets acquired in our purchase of C-Mold and
$184,000 of which related to goodwill and other intangible assets acquired in
our purchase of Branden.
21
<Page>
OTHER INCOME AND EXPENSES
INTEREST INCOME (EXPENSE), NET. Our interest income (expense), net was an
expense of $177,000 in 1999, income of $427,000 in 2000 and income of $2.1
million in 2001. The increases were due primarily to a reduction in the amount
of interest expense incurred as a result of a reduction in the level of bank and
stockholder debt outstanding and an increase in interest income on the available
cash balance from the investment of the unused portion of the proceeds of our
public offerings of common stock in March and December 2000.
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 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 27% for 1999,
7% for 2000 and 33% for 2001. The effective tax rates in 1999 and 2000 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, 2001, our primary sources of liquidity consisted
of our total cash and cash equivalents balance of $33.0 million and our
marketable securities balance of $12.8 million. In January 2001, we completed
the restructuring of our working capital credit line, resulting in an available
credit facility of $5.0 million. Our marketable securities balance at June 30,
2001 included $411,000 related to our remaining minority investment in a
publicly traded Indian software company that is recorded at market value at the
end of each reporting period. This value has been subject to significant
fluctuation in the past. It is management's opinion that this investment is
subject to a number of risks that may cause the value to never be fully
realized. As of June 30, 2001, we had no outstanding debt.
Net cash provided by operating activities was $1.2 million in 1999, $1.4
million in 2000 and $6.2 million in 2001. Cash was provided by operations in
1999 as a result of net income (adjusted for non-cash items), increased deferred
maintenance and support contract revenues and accounts payable, offset by
decreases to accrued expenses. In 1999, net income was impacted by $1 million of
non-cash charges, including $881,000 of depreciation and amortization. Cash was
provided by operations in 2000 as a result of increased net income (adjusted for
non-cash items) and accrued expenses, partially offset by increases to accounts
receivable, current and non-current assets and decreases to accounts payable. In
2000, net income was impacted by $1.3 million of non-cash charges, primarily due
to depreciation and amortization, and an offsetting $1.7 million gain on the
sale of a portion of our minority investment in an Indian software company. Cash
was provided by operations in 2001 as a result of increased net income (adjusted
for non-cash items), 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 $2.8 million of non-cash charges, primarily arising from
depreciation and amortization.
Net cash used in investing activities was $854,000 in 1999, $11.9 million in
2000 and $11.8 million in 2001. In 1999, cash was used for purchases of property
and equipment, primarily for computers, networking and materials laboratory test
equipment to support our global product development activities, and to enable
data communications among our worldwide development, sales, customer support and
administrative organizations. In 2000, in addition to the purchase of fixed
assets, $7.9
22
<Page>
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 an Indian software company.
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
our facilities in Kentucky and Taiwan.
Net cash provided by financing activities was $35.9 million in 2000 and
$12.3 million in 2001. Net cash of $907,000 was used in financing activities in
1999. In 1999, $2.3 million of cash was used to satisfy bank note and capital
lease obligations, net of new bank note borrowings. 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. In 2001, $13.0 million was provided by
a second public offering of our common stock, stock option exercises and
purchases of stock under our Employee Stock Purchase Plan. In 2001, we fully
paid off our outstanding long-term debt obligations.
We believe that our current cash, cash equivalents, marketable securities
and available lines of credit will be sufficient to meet our anticipated cash
needs for working capital and capital expenditures for at least the next twelve
months following the date of this Annual Report. On a long-term basis or to
complete acquisitions in the short term, we may require additional external
financing through credit facilities, sales of additional equity or other
financing vehicles. There can be no assurance that such financing can be
obtained on favorable terms, if at all.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 141, "Business
Combinations," and SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS
141 requires use of the purchase method of accounting for business combinations
initiated after June 30, 2001 and eliminated the pooling-of-interests method.
The Company does not believe that the adoption of SFAS 141 will have a
significant impact on its financial position or its results from operations.
SFAS 142 requires, among other things, the discontinuance of goodwill
amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangible assets into goodwill,
the reassessment of the useful lives of existing recognized intangible assets,
the reclassification of certain intangible assets out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires the Company to
complete a transitional goodwill impairment test within six months from the date
of adoption. SFAS 142 must be adopted by the Company by July 1, 2002; however,
the Company has the option of adopting SFAS 142 early, as of July 1, 2001. While
the Company is likely to adopt SFAS 142 as of July 1, 2001, it is currently
assessing but has not yet determined the impact of adoption on its financial
position and results of operations.
EUROPEAN UNION CURRENCY CONVERSION
On January 1, 1999, eleven member nations of the European Economic and
Monetary Union began using a common currency, the Euro. For a three-year
transition period ending June 30, 2002, both the Euro and each of the currencies
for such member countries will remain in circulation. After June 30, 2002, the
Euro will be the sole legal tender for those countries. The adoption of the Euro
will affect many financial systems and business applications as the commerce of
those countries may be transacted both in the Euro and the existing national
currency during the transition period. Significant portions of our revenue have
been historically generated in Europe. Of the eleven countries currently using
the Euro, we have subsidiary operations in France, Germany, Ireland, Italy,
Netherlands and Spain. We have assessed the potential impact of the Euro
conversion in a number of areas, particularly on our pricing and other marketing
strategies. Although we do not currently expect that the conversion,
23
<Page>
either during or after the transition period, will have an adverse effect on our
operations or financial condition, there can be no assurance that it will not
have some unexpected adverse impact.
IMPACT OF INFLATION
We believe that our revenue and results of operations have not been
significantly impacted by inflation during the past three fiscal years.
RISK FACTORS AND IMPORTANT FACTORS THAT MAY AFFECT FUTURE RESULTS
You should carefully consider the following risks and uncertainties prior to
making an investment in our common stock. The following risks and uncertainties
may also cause our actual results to differ materially from those contained in
or predicted by our forward-looking statements.
OUR 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 2001 was $9.6 million as compared with total revenue of $11.1 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,
- 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,
- changes in the mix of products and services we provide as sales of our
Manufacturing Solutions products and our services may result in lower
gross margins,
- 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.
THE EXISTING GENERAL ECONOMIC SLOWDOWN, PARTICULARLY IN OUR END MARKETS, MAY
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. A continuation of this
general economic slowdown will materially and adversely affect us by decreasing
our revenue and/ or lowering our revenue growth rates. In addition, the recent
terrorist attacks on the United States are causing widespread uncertainty and
speculation in the United States and world financial markets. This uncertainty
and speculation may result in further economic contraction and a suspension in
the normal purchasing patterns of our customers.
24
<Page>
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.
THE ACQUISITIONS OF C-MOLD AND BRANDEN TECHNOLOGIES AND FUTURE ACQUISITIONS
AND STRATEGIC RELATIONSHIPS MAY RESULT IN LOST REVENUE CAUSED BY BUSINESS
DISRUPTIONS AND MISSED OPPORTUNITIES CAUSED BY THE DISTRACTION OF OUR
MANAGEMENT.
If we are unable to effectively integrate both Branden's and C-Mold's
products, personnel and systems, our business and operating results will likely
suffer. Integrating acquired businesses has required time and focus by our
management team. Further, we cannot guarantee that we will realize any of the
benefits or strategic objectives we were seeking in acquiring C-Mold or Branden.
Additionally, we may engage in other acquisitions and strategic
relationships in the future. We may not be able to identify suitable acquisition
candidates, and, if we do identify suitable candidates, we may not be able to
make such acquisitions on commercially acceptable terms or at all. If we acquire
another company, we will only receive the anticipated benefits if we
successfully integrate the acquired business into our existing business in a
timely and non-disruptive manner. We may have to devote a significant amount of
time and management and financial resources to do so. Even with this investment
of management and financial resources, an acquisition may not produce the
revenues, earnings or business synergies that we anticipated. If we fail to
integrate the acquired business effectively or if key employees of that business
leave, the anticipated benefits of the acquisition would be jeopardized. The
time, capital, management and other resources spent on an acquisition that
failed to meet our expectations could cause our business and financial condition
to be materially and adversely affected. In addition, acquisitions can involve
non-recurring charges and amortization of significant amounts of acquired
identifiable intangible assets that could adversely affect our results of
operations.
25
<Page>
WE MAY EXPERIENCE DIFFICULTY ACHIEVING SALES TARGETS, MAKING TIMELY PRODUCT
RELEASES OR OTHERWISE OPERATING OUR BUSINESS IF WE ARE UNABLE TO ATTRACT OR
RETAIN KEY PERSONNEL.
In order to grow our business, we will have to hire additional employees in
various countries. Our future success, therefore, will depend, in part, on
attracting and retaining additional qualified management, marketing and
technical personnel. We do not know whether we will be successful in hiring or
retaining qualified personnel. Competition for personnel throughout the software
industry is intense.
IF WE BECOME SUBJECT TO INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS, WE COULD
INCUR SIGNIFICANT EXPENSES AND WE COULD BE PREVENTED FROM OFFERING SPECIFIC
PRODUCTS OR SERVICES.
Our products include proprietary intellectual property. We may become
subject to claims that we infringe on the proprietary rights of others. In the
United States and elsewhere, a significant number of software and business
method patents have been issued over the past decade and the holders of these
patents have been actively seeking out potential infringers. In addition, our
Manufacturing Solutions products require interaction with an injection molding
machine, the use and technology of which are subject to a wide variety of
world-wide patents and other intellectual property protection. If any element of
our products or services violates third-party proprietary rights, we might not
be able to obtain licenses on commercially reasonable terms to continue offering
our products or services without substantial re-engineering and any effort to
undertake such re-engineering might not be successful. In addition, any claim of
infringement could cause us to incur substantial costs defending against the
claim, even if the claim is invalid, and could distract our management from our
business. Any judgment against us could require us to pay substantial damages
and could also include an injunction or other court order that could prevent us
from offering our products and services.
WE MAY LOSE SALES TO COMPETITORS IF WE ARE UNABLE TO PROTECT IMPORTANT
INTELLECTUAL PROPERTY.
Our ability to compete effectively against other companies in our industry
will depend, in part, on our ability to protect our proprietary rights in our
technology. We may be unable to maintain the proprietary nature of our
technology. While we have attempted to safeguard and maintain our proprietary
rights, we do not know whether we have been or will be completely successful in
doing so.
We face the following risks in protecting our intellectual property:
- we cannot be certain that our pending United States and foreign patent
applications will result in issued patents or that the claims allowed are
or will be sufficiently broad to protect our technology,
- third parties may design around our patented technologies or seek to
challenge or invalidate our patented technologies,
- 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. Conducting
business outside of the United States is subject to numerous risks, including:
26
<Page>
- decreased liquidity resulting from longer accounts receivable collection
cycles typical of foreign countries,
- decreased revenue on foreign sales resulting from possible foreign
currency exchange and conversion issues,
- lower productivity resulting from difficulties managing our sales, support
and research and development operations across many countries,
- lost revenue resulting from difficulties associated with enforcing
agreements and collecting receivables through foreign legal systems,
- lost revenue resulting from the imposition by foreign governments of trade
protection measures, and
- higher cost of sales resulting from import or export licensing
requirements.
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.
WE MAY HAVE DIFFICULTY MANAGING THE EXPANSION OF OUR OPERATIONS, WHICH COULD
RESULT IN DAMAGE TO CUSTOMER RELATIONSHIPS OR DELAYED BILLING OR COLLECTION OF
REVENUE.
The implementation of our business strategy could result in a period of
rapid growth in the number of our employees and the scope of our operations.
Rapid expansion could place a significant strain on our senior management team
and our operational, financial and other resources as we attempt to expand our
operations in multiple locations around the world. We may have difficulty
effectively managing the budgeting, forecasting, global hiring and other
business control issues presented by such a rapid expansion. This could, among
other things, adversely affect our relationships with our customers and result
in delays in billing and collections of revenue from our customers and increased
costs.
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 PRODUCT GROUP 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
27
<Page>
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 from a high of $30.13 to a low of $9.31 on
September 19, 2001. Many factors may cause the market price for our common stock
to decline, including:
- a decrease in the demand for our common stock,
- revenues and operating results failing to meet the expectations of
securities analysts or investors in any quarter,
- downward revisions in securities analysts' estimates or changes in general
market conditions,
- technological innovations by competitors or in competing technologies,
- investor perception of our industry or our prospects, and
- general technology or economic trends.
In the past, companies that have experienced volatility in the market price
of their stock have been the 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 and weak
economic conditions in foreign markets. In the future, we expect to increase our
international operations in our existing markets and in geographic locations
where we do not have any operations now.
We collect amounts representing a substantial portion of our revenues and
pay amounts representing a substantial portion of our operating expenses in
foreign currencies. As a result, changes in currency exchange rates from time to
time may affect our operating results. In fiscal 2001, we initiated a hedging
program designed to reduce our exposure to changes in currency exchange rates.
We routinely use currency options, zero cost collars and other combinations of
options to hedge our exposure to currency exchange rate risk. Principle
currencies hedged include the Euro, Japanese yen and Australian dollar. We
cannot assure you, however, that these efforts or others that we may make in the
future to hedge our exposure to currency exchange rate changes will be
successful.
Our marketable securities and cash equivalents include investments in
corporate bonds and overnight investments held at major financial institutions.
The returns earned on these investments are affected by factors such as changes
in interest rates and overall market risk. We cannot assure you that the returns
on these investments will not decline in the future.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The index to the Consolidated Financial Statements of the Company is
included in Item 14, and the Consolidated Financial Statements follow the
signature pages to this Annual Report on Form 10-K.
28
<Page>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS. Incorporated herein by reference is the information appearing
under the caption "Information Regarding Directors" in the Company's definitive
Proxy Statement for its 2001 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 2001 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 2001 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 2001 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 2001 Annual Meeting of Stockholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
14(a)(1) FINANCIAL STATEMENTS
The financial statements and notes thereto are listed in the Index to
Consolidated Financial Statements on page F-1 of this report.
14(a)(2) FINANCIAL STATEMENT SCHEDULES
The following are contained on the indicated pages of this Annual Report on
Form 10-K:
<Table>
<Caption>
PAGE NO.
--------
Schedule II--Valuation and Qualifying Accounts.............. 34
</Table>
Schedules not listed above are omitted because they are not required or
because the required information is given in the Consolidated Financial
Statements or Notes thereto.
29
<Page>
14(a)(3) EXHIBITS
The following exhibits are filed as part of this report. Where such filing
is made by incorporation by reference to a previously filed statement, such
statement is identified.
EXHIBITS
<Table>
<Caption>
EXHIBIT
NO. TITLE
------- -----
+2.1 Agreement and Plan of Merger, dated February 11, 2000, by
and among the Registrant, Moldflow Merger Corp. (a
subsidiary of the Registrant), Advanced CAE Technology, Inc.
d/b/a C-Mold ("C-Mold") and certain stockholders of C-Mold.
*3.1 Third Amended and Restated Certificate of Incorporation of
the Registrant.
*3.2 Second Amended and Restated By-laws of the Registrant.
+10.1 Loan Agreement, dated April 23, 1998, by and among Silicon
Valley Bank, the Registrant, Moldflow International Pty.
Ltd. and Moldflow Pty. Ltd.
+10.2 Loan Document Modification Agreement No. 2, dated
November 30, 1998, by and between Silicon Valley Bank and
the Registrant.
+10.3 Amendment to Loan Modification Agreement No. 2, dated
January 19, 1999, by and between Silicon Valley Bank and the
Registrant.
+10.4 Loan Document Modification Agreement No. 3, dated as of
June 1, 1999, by and between Silicon Valley Bank and the
Registrant.
+10.5 Loan Document Modification Agreement No. 4, dated as of
October 22, 1999, by and between Silicon Valley Bank and the
Registrant.
+10.6 Warrant to Purchase Common Stock, dated April 23, 1998,
issued by the Registrant to Silicon Valley Bank.
+10.7 Stock Restriction Agreement, dated July 1, 1998, between the
Registrant and Marc J. L. Dulude.**
+10.8 Amended and Restated Promissory Note, dated September 9,
1999, issued by Marc J. L. Dulude in favor of the
Registrant.**
+10.9 Stock Restriction Agreement, dated July 1, 1998, between the
Registrant and Suzanne E. Rogers.**
+10.10 Amended and Restated Promissory Note, dated September 9,
1999, issued by Suzanne E. Rogers in favor of the
Registrant.**
+10.11 Stock Restriction Agreement, dated July 1, 1998, between the
Registrant and Kenneth R. Welch.**
+10.12 Amended and Restated Promissory Note, dated September 9,
1999, issued by Kenneth R. Welch in favor of the
Registrant.**
+10.13 Stock Restriction Agreement, dated July 1, 1998, between the
Registrant and Richard M. Underwood.**
+10.14 Amended and Restated Promissory Note, dated September 9,
1999, issued by Richard M. Underwood in favor of the
Registrant.**
+10.15 Service Agreement, dated July 1, 1994, between Moldflow Pty.
Ltd. and A. Roland Thomas.**
+10.16 Letter Amendment, dated June 30, 1997, to Service Agreement
between Moldflow Pty. Ltd. and A. Roland Thomas.**
</Table>
30
<Page>
<Table>
<Caption>
EXHIBIT
NO. TITLE
------- -----
+10.17 Letter Amendment, dated July 1, 1999, to Service Agreement
between Moldflow Pty. Ltd. and A. Roland Thomas.**
+10.18 Loan Agreement, dated July 1, 1999 between Moldflow Pty.
Ltd. and A. Roland Thomas.**
+10.19 Moldflow Corporation 2000 Stock Option and Incentive Plan.
+10.20 Form of Incentive Stock Option Agreement under the Moldflow
Corporation 2000 Stock Option and Incentive Plan.
+10.21 Form of Non-Qualified Stock Option Agreement for Company
Employees under the Moldflow Corporation 2000 Stock Option
and Incentive Plan.
+10.22 Moldflow Corporation Employee Stock Purchase Plan.
+10.23 Moldflow Corporation 1997 Equity Incentive Plan.
+10.24 Form of Incentive Stock Option Agreement under the Moldflow
Corporation 1997 Equity Incentive Plan.
+10.25 Form of Non-Qualified Stock Option Agreement under the
Moldflow Corporation 1997 Equity Incentive Plan.
+10.26 Form of Non-Qualified Stock Option Agreement for Australian
employees under the Moldflow Corporation 1997 Equity
Incentive Plan.
+10.27 Employment Agreement, dated February 1, 2000, between the
Registrant and Marc J. L. Dulude.**
+10.28 Employment Agreement, dated February 1, 2000, between the
Registrant and Suzanne E. Rogers.**
+10.29 Employment Agreement, dated February 1, 2000, between the
Registrant and Kenneth R. Welch.**
+10.30 Employment Agreement, dated February 1, 2000, between the
Registrant and Richard M. Underwood.**
+10.31 Employment Agreement, dated March 20, 2000, between the
Registrant and A. Roland Thomas.**
+10.32 Form of Director Indemnification Agreement to be entered
into between the Registrant and each non-employee
director.**
+10.33 Form of Non-Qualified Stock Option Agreement for
Non-Employee Directors under the Moldflow Corporation
2000 Stock Option and Incentive Plan.**
***10.34 Lease, dated as of June 16, 2000 by and between Wayland
Business Center, LLC, as Landlord and Moldflow Corporation
as Tenant.
***10.35 Amendment No. 1 to Employment Agreement dated March 20, 2000
between Moldflow Corporation and A. Roland Thomas.**
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
</Table>
------------------------
+ Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (File No. 333-95289) and incorporated by reference thereto.
* Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q filed with the Securities and Exchange Commission on May 12, 2000
and incorporated by reference thereto.
31
<Page>
** Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this form pursuant to Item 14(c) of this report.
*** Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended June 30, 2000 and incorporated by reference
thereto.
14(b) REPORTS ON FORM 8-K
None
14(c) EXHIBITS
Exhibits filed with this Annual Report are as set forth in the Exhibit Index
which immediately follows the Notes to the Consolidated Financial Statements.
14(d) OTHER FINANCIAL STATEMENTS
Not applicable.
32
<Page>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Form 10-K
to be signed on its behalf by the undersigned, thereunto duly authorized.
<Table>
MOLDFLOW CORPORATION
By: /s/ SUZANNE E. ROGERS
-----------------------------------------
Suzanne E. Rogers
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
</Table>
Date: September 21, 2001
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.
<Table>
<Caption>
SIGNATURE TITLE DATE
--------- ----- ----
President, Chief Executive
/s/ MARC J. L. DULUDE Officer and Director
------------------------------------------- (Principal Executive September 21, 2001
Marc J. L. Dulude Officer)
Vice President and Chief
/s/ SUZANNE E. ROGERS Financial Officer
------------------------------------------- (Principal Financial September 21, 2001
Suzanne E. Rogers Officer and Principal
Accounting Officer)
/s/ A. ROLAND THOMAS
------------------------------------------- Director September 21, 2001
A. Roland Thomas
/s/ CHARLES D. YIE
------------------------------------------- Director September 21, 2001
Charles D. Yie
/s/ JULIAN H. BEALE
------------------------------------------- Director September 21, 2001
Julian H. Beale
/s/ RICHARD A. CHARPIE
------------------------------------------- Director September 21, 2001
Richard A. Charpie
/s/ ROGER E. BROOKS
------------------------------------------- Director September 21, 2001
Roger E. Brooks
/s/ ROBERT P. SCHECHTER
------------------------------------------- Director September 21, 2001
Robert P. Schechter
</Table>
33
<Page>
SCHEDULE II
SCHEDULE II. VALUATION AND QUALIFYING ACCOUNTS OF MOLDFLOW CORPORATION
<Table>
<Caption>
BEGINNING ENDING
ITEM BALANCE ADDITIONS DEDUCTIONS BALANCE
---- --------- --------- ---------- --------
(IN THOUSANDS)
For the year ended June 30, 1999:
Allowance for doubtful accounts.................... $ 539 $ 33(a) $ (340)(b) $ 232
Deferred tax asset valuation allowance............. 6,293 416(a) (173)(c) 6,536
For the year ended June 30, 2000:
Allowance for doubtful accounts.................... 232 639(a) (165)(b) 706
Deferred tax asset valuation allowance............. 6,536 1,071(a) (2,310)(c) 5,297
For the year ended June 30, 2001:
Allowance for doubtful accounts.................... 706 117(a) (457)(b) 366
Deferred tax asset valuation allowance............. 5,297 680(a) (1,481)(c) 4,496
</Table>
------------------------
(a) Additional provisions, acquired balances and foreign currency translation
effects.
(b) Specific write-offs and foreign currency translation effects.
(c) Utilization of net operating losses, reductions in other deferred tax assets
and foreign currency translation effects.
34
<Page>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<Table>
Consolidated Balance Sheet at June 30, 2000 and 2001........ F-2
Consolidated Statement of Income for the years ended
June 30, 1999, 2000 and 2001.............................. F-3
Consolidated Statement of Stockholders' Equity for the years
ended June 30, 1999, 2000
and 2001.................................................. F-4
Consolidated Statement of Cash Flows for the years ended
June 30, 1999, 2000 and 2001.............................. F-5
Notes to Consolidated Financial Statements.................. F-6
Report of Independent Accountants........................... F-26
</Table>
F-1
<Page>
MOLDFLOW CORPORATION
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
JUNE 30,
-------------------
2000 2001
-------- --------
ASSETS
Current assets:
Cash and cash equivalents................................. $27,259 $32,969
Marketable securities..................................... 8,452 12,750
Accounts receivable, net of allowance for doubtful
accounts of $706 and $366 at June 30, 2000 and 2001,
respectively............................................ 5,972 7,241
Inventories............................................... 220 539
Prepaid expenses.......................................... 551 1,069
Other current assets...................................... 1,175 1,701
------- -------
Total current assets.................................... 43,629 56,269
Fixed assets, net........................................... 4,864 4,027
Intangible assets, net of accumulated amortization of $105
and $706 at June 30, 2000 and 2001, respectively.......... 1,994 2,814
Goodwill, net of accumulated amortization of $206 and $1,306
at June 30, 2000 and 2001, respectively................... 6,628 8,003
Other assets................................................ 208 342
------- -------
Total assets.............................................. $57,323 $71,455
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 58 $ --
Current portion of capital lease obligations.............. 10 --
Accounts payable.......................................... 1,203 1,040
Accrued expenses.......................................... 6,264 6,346
Deferred revenue.......................................... 5,103 6,372
------- -------
Total current liabilities............................... 12,638 13,758
Long-term debt, net of current portion...................... 852 --
Other long-term liabilities................................. 55 104
------- -------
Total liabilities......................................... 13,545 13,862
------- -------
Commitments and contingencies (Note 14)
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares
authorized at June 30, 2000 and 2001; no shares issued
and outstanding at June 30, 2000 and 2001............... -- --
Common stock, $0.01 par value; 60,000,000 shares
authorized at June 30, 2000 and 2001; 9,278,493 and
10,094,763 shares issued and outstanding at June 30,
2000 and 2001, respectively............................. 93 101
Additional paid-in capital.................................. 49,482 62,507
Deferred stock compensation................................. (47) (28)
Notes receivable from stockholders.......................... (210) (37)
Accumulated deficit......................................... (8,260) (4,752)
Accumulated other comprehensive income (loss)............... 2,720 (198)
------- -------
Total stockholders' equity................................ 43,778 57,593
------- -------
Total liabilities and stockholders' equity................ $57,323 $71,455
======= =======
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-2
<Page>
MOLDFLOW CORPORATION
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<Table>
<Caption>
YEAR ENDED JUNE 30,
------------------------------
1999 2000 2001
-------- -------- --------
Revenue:
Software licenses......................................... $12,238 $16,742 $24,494
Services.................................................. 7,983 10,627 15,449
------- ------- -------
Total revenue........................................... 20,221 27,369 39,943
------- ------- -------
Costs and expenses:
Cost of software licenses revenue......................... 378 785 1,846
Cost of services revenue.................................. 1,319 1,057 1,440
Research and development.................................. 3,466 4,074 6,642
Selling and marketing..................................... 9,673 13,495 19,396
General and administrative................................ 3,839 5,018 6,095
Litigation................................................ 620 785 --
Nonrecurring charges...................................... -- 284 --
Amortization of goodwill and other intangible assets...... -- 311 1,701
------- ------- -------
Total operating expenses................................ 19,295 25,809 37,120
------- ------- -------
Income from operations...................................... 926 1,560 2,823
Interest income............................................. 21 512 2,203
Interest expense............................................ (198) (85) (64)
Other income (loss), net.................................... (92) 1,717 272
------- ------- -------
Income before income taxes.............................. 657 3,704 5,234
Provision for income taxes.................................. 176 251 1,726
------- ------- -------
Net income.............................................. $ 481 $ 3,453 $ 3,508
======= ======= =======
Net income per common share:
Basic................................................... $ 1.82 $ 1.29 $ 0.36
Diluted................................................. $ 0.08 $ 0.48 $ 0.35
Shares used in computing net income per common share:
Basic................................................... 265 2,667 9,658
Diluted................................................. 6,166 7,190 10,124
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<Page>
MOLDFLOW CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<Table>
<Caption>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED
--------------------- ---------------------- PAID-IN STOCK
SHARES AMOUNT SHARES PAR VALUE CAPITAL COMPENSATION
---------- -------- ---------- --------- ---------- ------------
Balance at June 30, 1998......................... 7,440,970 $ 11,476 -- $ -- $ -- $ --
Conversion of promissory notes to convertible
preferred stock................................ 698,609 890
Issuance of common stock......................... 551,287 6 192
Exercise of stock options........................ 1,890 -- 1
Deferred compensation associated with stock
options........................................ 77 (77)
Amortization of deferred compensation............ 10
Comprehensive income:
Net income.....................................
Foreign currency translation adjustment........
Comprehensive income...........................
---------- -------- ---------- ---- ------- ----
Balance at June 30, 1999......................... 8,139,579 12,366 553,177 6 270 (67)
Exercise of stock options........................ 45,916 -- 35
Amortization of deferred compensation............ 20
Conversion of outstanding shares of convertible
preferred stock to shares of common stock...... (8,139,579) (12,366) 5,488,450 55 12,311
Proceeds from initial public offering of common
stock, net of issuance costs................... 3,000,000 30 34,673
Exercise of warrants............................. 9,294 -- --
Proceeds from issuance of common stock to the
underwriters of the Company's initial public
offering of common shares pursuant to an option
in the underwriting agreements................. 181,656 2 2,193
Interest on notes receivable from stockholders...
Comprehensive income:
Net income.....................................
Unrealized gain on investments, net of taxes...
Foreign currency translation adjustment........
Comprehensive income...........................
---------- -------- ---------- ---- ------- ----
Balance at June 30, 2000......................... -- -- 9,278,493 93 49,482 (47)
Exercise of stock options........................ 60,445 -- 90
Issuance of stock under employee stock purchase
plan........................................... 10,825 -- 147
Amortization of deferred compensation............ 19
Interest on notes receivable from stockholders...
Stock options granted to a consultant............ 5
Proceeds from second public offering of common
stock, net of issuance costs................... 575,000 6 9,733
Proceeds from issuance of common stock to the
underwriters of the Company's second public
offering of common shares pursuant to an option
in the underwriting agreements................. 170,000 2 3,050
Repayment of notes receivable from
stockholders...................................
Comprehensive income:
Net income.....................................
Unrealized loss on investments, net of taxes...
Unrealized gains on hedging instruments........
Foreign currency translation adjustment........
Comprehensive income...........................
---------- -------- ---------- ---- ------- ----
Balance at June 30, 2001......................... -- $ -- 10,094,763 $101 $62,507 $(28)
========== ======== ========== ==== ======= ====
<Caption>
NOTES ACCUMULATED
RECEIVABLE OTHER TOTAL
FROM ACCUMULATED COMPREHENSIVE STOCKHOLDERS' COMPREHENSIVE
STOCKHOLDERS DEFICIT INCOME (LOSS) EQUITY INCOME
------------ ------------ -------------- ------------- --------------
Balance at June 30, 1998......................... $ -- $(12,194) $ 752 $ 34
Conversion of promissory notes to convertible
preferred stock................................ 890
Issuance of common stock......................... (198) --
Exercise of stock options........................ 1
Deferred compensation associated with stock
options........................................ --
Amortization of deferred compensation............ 10
Comprehensive income:
Net income..................................... 481 481 $ 481
Foreign currency translation adjustment........ (146) (146) (146)
-------
Comprehensive income........................... $ 335
----- -------- ------ -------- =======
Balance at June 30, 1999......................... (198) (11,713) 606 1,270
Exercise of stock options........................ 35
Amortization of deferred compensation............ 20
Conversion of outstanding shares of convertible
preferred stock to shares of common stock...... --
Proceeds from initial public offering of common
stock, net of issuance costs................... 34,703
Exercise of warrants............................. --
Proceeds from issuance of common stock to the
underwriters of the Company's initial public
offering of common shares pursuant to an option
in the underwriting agreements................. 2,195
Interest on notes receivable from stockholders... (12) (12)
Comprehensive income:
Net income..................................... 3,453 3,453 $ 3,453
Unrealized gain on investments, net of taxes... 2,281 2,281 2,281
Foreign currency translation adjustment........ (167) (167) (167)
-------
Comprehensive income........................... $ 5,567
----- -------- ------ -------- =======
Balance at June 30, 2000......................... (210) (8,260) 2,720 43,778
Exercise of stock options........................ 90
Issuance of stock under employee stock purchase
plan........................................... 147
Amortization of deferred compensation............ 19
Interest on notes receivable from stockholders... (17) (17)
Stock options granted to a consultant............ 5
Proceeds from second public offering of common
stock, net of issuance costs................... 9,739
Proceeds from issuance of common stock to the
underwriters of the Company's second public
offering of common shares pursuant to an option
in the underwriting agreements................. 3,052
Repayment of notes receivable from
stockholders................................... 190 190
Comprehensive income:
Net income..................................... 3,508 3,508 $ 3,508
Unrealized loss on investments, net of taxes... (1,953) (1,953) (1,953)
Unrealized gains on hedging instruments........ 143 143 143
Foreign currency translation adjustment........ (1,108) (1,108) (1,108)
-------
Comprehensive income........................... $ 590
----- -------- ------ -------- =======
Balance at June 30, 2001......................... $ (37) $ (4,752) $ (198) $ 57,593
===== ======== ====== ========
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<Page>
MOLDFLOW CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<Table>
<Caption>
YEAR ENDED JUNE 30,
------------------------------
1999 2000 2001
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 481 $ 3,453 $ 3,508
Adjustments to reconcile net income to net cash provided
by operating activities:
Gain on sale of long term investment.................... -- (1,744) --
Loss on disposals of fixed assets....................... 18 40 7
Depreciation and amortization........................... 881 1,240 2,877
Provision for doubtful accounts......................... 29 13 102
Foreign exchange losses (gains)......................... 97 (17) (298)
Other non-cash charges to income........................ -- 12 72
Changes in assets and liabilities, net of effects of
acquisitions in 2000 and 2001:
Accounts receivable................................... (7) (600) (1,784)
Inventories, prepaid expenses, other current assets... 209 (891) (829)
Other assets.......................................... (209) (211) (49)
Accounts payable...................................... 437 (212) (205)
Accrued expenses...................................... (1,104) 332 1,239
Deferred revenue...................................... 374 (38) 1,586
------- -------- --------
Net cash provided by operating activities........... 1,206 1,377 6,226
------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets................................. (863) (875) (2,072)
Proceeds from fixed asset disposals....................... 9 4 1,543
Purchases of marketable securities........................ -- (4,957) (15,528)
Sales of marketable securities............................ -- -- 8,195
Acquisition of C-Mold, net of cash acquired............... -- (7,860) (278)
Acquisition of Branden Technologies, net of cash
acquired................................................ -- -- (3,679)
Proceeds from sale of long-term investment................ -- 1,779 --
------- -------- --------
Net cash used in investing activities............... (854) (11,909) (11,819)
------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of notes receivable from stockholders........... -- -- 190
Borrowings on bank notes payable.......................... 1,412 1,450 5
Payments on bank notes payable............................ (2,120) (2,276) (898)
Payments on capital lease obligations..................... (200) (180) (9)
Proceeds from issuance of common stock.................... 1 36,921 13,028
------- -------- --------
Net cash provided by (used in) financing
activities........................................ (907) 35,915 12,316
------- -------- --------
Effect of exchange rate changes on cash and cash
equivalents............................................... 95 636 (1,013)
------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ (460) 26,019 5,710
Cash and cash equivalents, beginning of year................ 1,700 1,240 27,259
------- -------- --------
Cash and cash equivalents, end of year...................... $ 1,240 $ 27,259 $ 32,969
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest.................................... $ 225 $ 104 $ 46
Cash paid for income taxes................................ 157 212 1,290
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Acquisition of fixed assets under capital leases.......... $ -- $ 34 $ --
Conversion of notes payable to stockholders into
convertible preferred stock............................. 890 -- --
Issuance of common stock in exchange for notes
receivable.............................................. 198 -- --
</Table>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND NATURE OF BUSINESS
Moldflow Corporation (the "Company") was incorporated in Delaware, USA in
January 1997. The Company was formed as the successor corporation to Moldflow
International Pty. Ltd. ("MIPL"), an Australian corporation that had been
incorporated in March 1994. On August 5, 1997, the stockholders of MIPL effected
a reorganization of that company's shares, resulting in MIPL becoming a wholly-
owned subsidiary of the Company, and the stockholders of MIPL becoming
stockholders of the Company.
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
present together with the Company 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 1999, 2000 or 2001
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 and translation adjustments are recorded in stockholders'
equity as a component of accumulated other comprehensive income. Statement of
income amounts are translated at the average rate for the year. Foreign currency
transaction gains and losses are included in other income and expense. Net
foreign currency transaction gains were $55,000, $17,000 and $302,000 for the
years ended June 30, 1999, 2000 and 2001, respectively.
CASH AND CASH EQUIVALENTS
All highly liquid investments purchased with a maturity of three months or
less are considered to be cash equivalents. The Company invests excess cash
primarily in overnight investments held at major financial institutions.
Accordingly, these investments are subject to minimal credit and market risk and
are reported at cost, which approximates fair value.
F-6
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MARKETABLE SECURITIES
The Company's marketable securities at June 30, 2001 consisted of corporate
bonds with maturities in excess of three months but less than one year and
shares of a publicly traded Indian company. These investments are classified as
available-for-sale and are reported at fair value, with unrealized gains and
losses included in accumulated other comprehensive income, net of the related
tax effect. As of June 30, 2000 and 2001, the unrealized gains on these
marketable securities were $2.3 million, net of the related tax effect of
$1.2 million, and $328,000, net of the related tax effect of $39,000,
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 and such losses, in the aggregate, have not exceeded
management expectations. The Company invests its excess cash in financial
instruments with high credit quality in accordance with its investment policy,
as approved by the board of directors.
Revenue of $1.9 million (9% of total revenue), $2.3 million (8% of total
revenue) and $2.5 million (6% of total revenue) was attributable to one customer
in fiscal 1999, 2000 and 2001, respectively. At June 30, 2000 and 2001, accounts
receivable from that customer were $182,000 (3% of total accounts receivable)
and $353,000 (5% of total accounts receivable), respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
At June 30, 2001, the Company's financial instruments consisted of cash and
cash equivalents, marketable securities, accounts receivable, accounts payable,
accrued expenses, and deferred revenue. The carrying amounts of these
instruments at June 30, 2001 approximate their fair values.
INVENTORIES
Inventories are predominantly finished goods and are stated at the lower of
cost, using the first-in, first-out method, or market.
FIXED ASSETS
Fixed assets are recorded at cost and are depreciated using the
straight-line method over their estimated useful lives. Fixed assets held under
capital leases are stated at the lower of the fair market value of the related
asset or the present value of the minimum lease payments at the inception of the
lease and are amortized using the straight-line method over the shorter of the
life of the related asset or the term of the lease. Maintenance and repair costs
are charged to expense as incurred; improvements are capitalized. Upon
retirement or sale, the cost of the asset disposed of and the related
accumulated depreciation are removed from the accounts with any resulting gain
or loss credited or charged to other income.
GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill represents the excess of cost over the fair value of the net assets
acquired in the purchases of C-Mold and Branden Technologies (Note 3). Goodwill
and other intangible assets are
F-7
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
amortized using the straight-line method over each asset's respective useful
life. The useful lives of goodwill and intangible assets acquired are as
follows:
<Table>
<Caption>
ESTIMATED
USEFUL LIFE
(YEARS)
------------
Goodwill.................................................... 7
Customer base............................................... 7
Assembled workforce......................................... 4
Developed technology........................................ 4 - 7
Non-compete agreements...................................... 2 - 5
</Table>
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets used in
operations, including goodwill and other intangible assets, when indicators of
impairment are present and the undiscounted cash flows estimated to be generated
by those assets are less than the assets' carrying amount. Through June 30,
2001, the Company had not recognized any impairment loss on its long-lived
assets.
REVENUE RECOGNITION
Revenue is derived from the licensing of computer software products and from
services consisting of maintenance and support, consulting, material testing and
training. The Company follows AICPA Statement of Position ("SOP") 97-2,
"Software Revenue Recognition," as amended by SOP No. 98-9, "Modification of SOP
No. 97-2, Software Revenue Recognition, with Respect to Certain Transactions"
("SOP 98-9"), both of which provide guidance on applying generally accepted
accounting principles in recognizing revenue on software transactions.
The Company recognizes revenue from sales of software licenses upon product
shipment provided that evidence of the purchase commitment exists, the license
fee is fixed or determinable, collection is probable and all other revenue
recognition criteria of SOP 97-2 are met. Generally, the Company's software
products do not require significant modification or customization. Installation
of the products is generally routine, requires insignificant effort and is not
essential to the functionality of the product. The Company recognizes revenue
from maintenance and support 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 elements of an arrangement, the Company
employs the "residual method" of accounting for revenue recognition, as defined
by SOP 98-9. The residual method requires that the portion of the total
arrangement fee attributable to the undelivered elements, as indicated by VSOE,
is deferred and subsequently recognized in accordance with SOP 97-2. The
F-8
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
In June 1998, the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements." This statement was amended by SAB 101B, "Second Amendment: Revenue
Recognition in Financial Statements," which delayed the implementation date of
SAB 101 until the fourth fiscal quarter of fiscal years beginning after
December 15, 1999. SAB 101 summarizes the SEC's views in applying generally
accepted accounting principles to selected revenue recognition issues in
financial statements. The Company adopted SAB 101 in its fourth quarter of
fiscal 2001, without having a material impact on its financial position or its
results from operations.
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 Statement of Financial Accounting Standards ("SFAS") No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed," and capitalized thereafter until commercial release of the software
products. Software development costs eligible for capitalization have not been
significant through June 30, 2001.
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, 1999, 2000 and 2001 were $741,000, $714,000 and $936,000,
respectively.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation to employees in accordance
with Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock
Issued to Employees," and related interpretations. Accordingly, compensation
expense is recorded for options issued to employees in fixed amounts to the
extent that the fixed exercise prices are less than the fair market value of the
Company's common stock at the date of grant. The Company follows the disclosure
requirements of SFAS No. 123, "Accounting for Stock-Based Compensation"
(Note 10). All stock-based awards to non-employees are accounted for at their
fair value in accordance with SFAS No. 123.
F-9
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NET INCOME PER COMMON SHARE
The Company computes net income per common share in accordance with SFAS
No. 128, "Earnings Per Share," and SEC SAB No. 98. Under the provisions of
SFAS 128 and SAB 98, basic earnings per common share is computed by dividing net
income by the weighted-average number of common shares outstanding. Diluted
earnings per common share is computed by dividing net income by the
weighted-average number of common shares outstanding and, when dilutive, all
potential common equivalent shares outstanding including restricted stock,
options and warrants. The dilutive effect of options and warrants to purchase
common stock is determined under the treasury stock method using the average
fair value of common stock for the period (Note 11).
COMPREHENSIVE INCOME
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, 2001, 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,
1999, 2000 and 2001.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
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 July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations," and SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS 141 requires use of the purchase method of accounting
for business combinations initiated after June 30, 2001 and eliminated the
pooling-of-interests method. The Company does not believe that the adoption of
SFAS 141 will have a significant impact on its financial position or its results
from operations. SFAS 142 requires, among other things, the discontinuance of
goodwill amortization. In addition, the standard includes provisions for the
reclassification of certain existing recognized intangible assets into goodwill,
the reassessment of the useful lives of existing recognized intangible assets,
the reclassification of certain intangible assets out of previously reported
goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS 142 also requires the Company to
complete a transitional goodwill impairment test within six months from the date
of adoption. SFAS 142 must be adopted by the Company by July 1, 2002; however,
the Company has the option of adopting SFAS 142 early, as of July 1, 2001. While
the Company is likely to adopt SFAS 142 as of July 1, 2001, it is currently
assessing but has not yet determined the impact of adoption on its financial
position and results of operations.
F-10
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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):
<Table>
Current assets.............................................. $ 4,685
Property and equipment...................................... 1,884
Assembled workforce......................................... 832
Developed technology........................................ 655
Non-compete covenants....................................... 611
In-process research and development......................... 214
Other long term assets...................................... 199
Current liabilities......................................... (3,780)
Non-current liabilities..................................... (881)
Goodwill.................................................... 6,834
-------
$11,253
=======
</Table>
In the opinion of management, the purchased in-process research and
development had not yet reached technological feasibility and had no alternative
future use. Consequently, a nonrecurring charge of $214,000 was recognized
during the fourth quarter of fiscal 2000 to expense the value of the acquired
in-process research and development. The value assigned was determined by
identifying research projects that were in-process as of the date of acquisition
for which technological feasibility had not yet been established. To determine
the fair value of the acquired in-process research and development, the Company
considered the stage of completion, the costs incurred and the costs to
complete, and the contribution of existing core technology, estimating the
resulting net future cash flows from the products under development, discounted
to their net present value.
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. As of June 30, 2001, the carrying value
of goodwill related to the C-Mold acquisition was $5.9 million, net of
accumulated amortization of $1.2 million.
F-11
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
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):
<Table>
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
=======
</Table>
As of June 30, 2001, the carrying value of goodwill related to the Branden
acquisition was $2.1 million, net of accumulated amortization of $78,000.
PRO FORMA INFORMATION
The following table summarizes the unaudited pro forma results of operations
for the years ended June 30, 2000 and 2001 as if the acquisitions of C-Mold and
Branden had been completed on July 1, 1999. The pro forma results of operations
include the actual operating results for each period, adjusted to include
amortization of goodwill and other intangible assets and changes to net interest
and income tax expense and to exclude the nonrecurring charge for in-process
research and development. The pro forma results of operations also reflect the
issuance of 1,169,260 shares of common stock, at an initial public offering
price of $13.00 per share, to fund the acquisitions as if such shares were
issued on
F-12
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITIONS (CONTINUED)
July 1, 1999. These pro forma amounts do not purport to be indicative of actual
results had the acquisition occurred on July 1, 1999 or that may be obtained in
the future.
<Table>
<Caption>
YEAR ENDED JUNE 30,
---------------------
2000 2001
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
(UNAUDITED)
Revenue................................................. $35,331 $41,451
Net income.............................................. 954 2,866
Net income per common share:
Basic................................................. $ 0.27 $ 0.30
Diluted............................................... 0.12 0.28
</Table>
4. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES
During the first quarter of fiscal 2001, the Company adopted SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133
requires that all derivative financial instruments are recorded on the balance
sheet at their fair value. Changes in the fair value of these derivatives are
recorded each period in current earnings or other comprehensive income,
depending on whether the instrument is designated as part of a hedge transaction
and, if it is, the type of hedge transaction.
The Company hedges a portion of its forecasted foreign currency denominated
intercompany sales and a portion of its foreign currency denominated
intercompany research and development payments over a period of up to twelve
months using currency options, zero cost collars and other combinations of
options that constitute net purchased options. These derivatives have been
designated as cash-flow hedges and, as such, the effective portion of the change
in their fair value is recorded as a component of accumulated other
comprehensive income until the underlying forecasted transaction impacts
earnings. Once the underlying forecasted transaction is realized, 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 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.
F-13
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. DERIVATIVE FINANCIAL INSTRUMENTS AND HEDGING ACTIVITIES (CONTINUED)
At the end of the fourth quarter of fiscal 2001, the assessment of hedge
effectiveness is based on changes in an instrument's total value. Management
considers that through the date of the forecasted sales and research and
development payments, the hedge will be completely effective since the critical
terms of the derivative contract exactly match those of the forecasted
transaction.
If the Company determines that a hedged transaction is no longer probable of
occurring or that the hedge instrument is no longer highly effective, the
Company discontinues hedge accounting for the affected portion of the forecasted
transaction, and any unrealized gain or loss on the contract is recognized in
current earnings as a component of other income and expense. During the year
ended June 30, 2001, there were no such discontinuations.
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 has been included in other
current assets. Unrealized gains on these instruments were $143,000 at June 30,
2001. This amount, which the Company expects to affect earnings over the next
twelve months, is included in accumulated other comprehensive income. 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 period for non-hedging purposes.
5. FIXED ASSETS
Fixed assets consist of the following (in thousands):
<Table>
<Caption>
ESTIMATED JUNE 30,
USEFUL LIFE -------------------
(YEARS) 2000 2001
------------ -------- --------
Land............................................. -- $ 990 $ 427
Buildings........................................ 30 2,285 1,062
Equipment........................................ 5-7 2,557 933
Computer equipment............................... 3-5 1,642 2,928
Furniture and fixtures........................... 7-10 568 711
Computers and equipment under capital leases..... 3-7 633 427
Other............................................ 3-7 405 613
------- -------
9,080 7,101
Less--accumulated depreciation and
amortization................................... (4,216) (3,074)
------- -------
$ 4,864 $ 4,027
======= =======
</Table>
F-14
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. FIXED ASSETS (CONTINUED)
Depreciation expense, including amortization of assets under capital leases,
was $881,000, $929,000, and $1.2 million for the years ended June 30, 1999, 2000
and 2001, respectively. Accumulated amortization for assets held under capital
leases was $596,000, $575,000 and $587,000 at June 30, 1999, 2000 and 2001,
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).
Also in fiscal 2001, $916,000 of fully depreciated assets were removed from
service and retired.
6. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<Table>
<Caption>
JUNE 30,
-------------------
2000 2001
-------- --------
Employee wages and commissions.............................. $1,218 $ 905
Employee leave costs........................................ 465 473
Employee retirement costs................................... 620 564
Professional fees........................................... 713 565
Taxes and withholding....................................... 2,104 2,579
Severance costs............................................. 573 113
Lease termination charges................................... 70 --
Travel costs................................................ 168 107
Employee stock purchase plan withholdings................... -- 177
Employee health plan costs.................................. 68 250
Other....................................................... 265 613
------ ------
$6,264 $6,346
====== ======
</Table>
In June 2000, the Company recorded a charge of $70,000 related to exit costs
incurred in the relocation of its corporate headquarters to Wayland,
Massachusetts. The amount was included as a nonrecurring charge in the Company's
consolidated statement of income. The exit costs specifically related to
non-cancelable leases which terminated in November 2000. During fiscal 2001,
$70,000 of cash was paid against this accrual, eliminating the remaining
balance.
7. BANK NOTES PAYABLE
LINES OF CREDIT
In January 2001, the Company completed the restructuring of its working
capital credit line with a domestic bank resulting in a $5.0 million credit
facility which expires on December 27, 2001. Borrowings under the credit
facility bear interest at the prime rate (6.75% at June 30, 2001). The line is
subject to an annual fee equal to 0.125% of the maximum available borrowings. In
connection with this arrangement, the bank relinquished its security interest
over all of the Company's assets except for $5.0 million of cash, which has been
deposited with the bank and which may be invested by the Company in interest
bearing securities. In addition, other elements of credit support, including a
standby letter of credit from an Australian bank and the guarantees of certain
subsidiaries of the Company, were released. The agreement contains restrictions
that limit the ability of the Company to
F-15
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. BANK NOTES PAYABLE (CONTINUED)
merge, acquire or sell assets without prior approval from the bank. As of
June 30, 2001, $5.0 million was available under this facility.
In connection with the release of the standby letter of credit from the
Australian bank, the Company restructured its available credit line from the
Australian lender, resulting in a decrease of the total available credit from
$1.0 million to $0.2 million and the elimination of certain borrowing costs. The
Australian credit facility continues to be secured by the assets of a subsidiary
of the Company.
As of June 30, 2001, there were no amounts outstanding under these lines of
credit.
EQUIPMENT LOANS
At June 30, 2000, the Company had $13,000 outstanding under various
equipment term loans. The loans bore interest at variable rates ranging from 6%
to 8% and required monthly payments of principal and interest through 2001. At
June 30, 2001, all such loans were repaid.
SECURED LOANS
At June 30, 2000, the Company had $897,000 outstanding under two mortgage
contracts secured by real estate in Louisville, Kentucky and Taiwan. During
fiscal 2001, both properties were sold and all outstanding mortgage contracts
were repaid (Note 3). At the date of repayment, the balance of the outstanding
mortgages was $604.000.
8. PREFERRED STOCK
On July 6, 1998, the Company converted the outstanding principal balance of
$890,000 in notes payable to stockholders of the Company into 698,609 shares of
newly designated convertible 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, 2001, there were no shares of preferred stock issued or
outstanding.
9. COMMON STOCK
Each share of common stock entitles the holder to one vote on all matters
submitted to a vote of the Company's stockholders. Common stockholders are
entitled to dividends when-and-if declared by the Board of Directors.
On July 1, 1998, the Company issued 551,287 shares of its common stock to
certain officers and senior managers of the Company for a cash purchase price of
$198,000. In connection with this issuance, the employees entered into Stock
Restriction Agreements that contain restrictions on the sale of the shares by
the employees and loan agreements evidenced by promissory notes bearing interest
at 5.77% and maturing on June 30, 2003. The shares purchased by the employees
under the Stock
F-16
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK (CONTINUED)
Restriction Agreements vest on varying schedules through fiscal year 2003.
During fiscal 2001, $190,000 of the promissory notes were repaid to the Company.
As of June 30, 2001, 28,687 shares remain unvested.
On March 31, 2000, the Company completed an initial public offering of
common stock, which resulted in the issuance of 3,000,000 shares of common
stock. Proceeds to the Company, net of the underwriting discount and costs of
the offering, were $34.7 million. Additionally, effective March 31, 2000, the
number of authorized shares of common stock of the Company was increased to
60,000,000.
On April 13, 2000, the underwriters of the Company's initial public offering
exercised their option to purchase an additional 450,000 shares of common stock,
of which 181,656 shares were issued by the Company. The proceeds to the Company,
net of the underwriting discount, were $2.2 million.
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 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, 2001 the Company had 2,183,747 shares of its common stock
reserved for issuance under the Company's Stock Option and Incentive Plan and
Employee Stock Purchase Plan. Of these, 163,254 shares were added during fiscal
2001 pursuant to a provision in the Company's 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.
10. STOCK PLANS
STOCK OPTION PLAN
In August 1997, the Company adopted the 1997 Equity Incentive Plan (the
"1997 Plan") which provides for the grant of incentive stock options,
non-qualified stock options, stock awards and stock purchase rights for the
purchase of up to 931,303 shares of the Company's common stock by officers,
employees, consultants and directors of the Company. In April 1999, the number
of shares available under the 1997 Plan was increased to 1,537,158 shares. The
Board of Directors is responsible for administration of the 1997 Plan. The Board
determines the term of each option, the option exercise price, the number of
shares for which each option is granted and the rate at which each option is
exercisable. Incentive stock options may be granted to any officer or employee
at an exercise price per share of not less than the fair value per common share
on the date of the grant (not less than 110% of fair value in the case of
holders of more than 10% of the Company's voting stock) and with a term not to
exceed ten years from the date of the grant (five years for incentive stock
options granted to holders of more than 10% of the Company's voting stock).
Non-qualified stock options may be granted to any officer, employee, consultant
or director at an exercise price per share of not less than the par value per
share. The Company will not issue any more shares under the 1997 Plan.
F-17
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK PLANS (CONTINUED)
On January 20, 2000, the Board of Directors approved the Moldflow
Corporation 2000 Stock Option and Incentive Plan (the "2000 Plan"), which
provides for the grant of incentive stock options, stock awards and stock
purchase rights for the purchase of up to 2,000,000 shares of common stock by
officers, employees, consultants and directors of the Company. The
administration and significant terms of the 2000 Plan are the same as those of
the 1997 Plan, described above.
In January 1999 an amendment was made to certain employee stock options
which resulted in a determinable measurement date. Deferred compensation of
$77,000 was recorded, in accordance with APB No. 25, and is being amortized over
the related vesting period. Related compensation expense of $10,000, $20,000 and
$19,000 was recorded during the years ended June 30, 1999, 2000 and 2001,
respectively.
During fiscal 2000, the Company granted options to purchase 1,042 shares of
its common stock at an exercise price below the then fair market value of the
Company's stock, as determined by the Board of Directors. In addition, the
Company granted an option to purchase 521 shares of its common stock to a
consultant. The Company recorded compensation expense of $12,000 in fiscal 2000
relating to these two option grants. During fiscal 2001, the Company granted an
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,
1999, 2000 and 2001. Had compensation cost been determined based on the fair
value at the grant dates for awards in 1999, 2000 and 2001 consistent with the
provisions of SFAS No. 123, the Company's net income (loss) would have been the
pro forma amounts indicated below. Because options vest over several years and
additional option grants are expected to be made in future years, the pro forma
results are not representative of the pro forma results for future years.
<Table>
<Caption>
YEAR ENDED JUNE 30,
------------------------------
1999 2000 2001
-------- -------- --------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net income (loss):
As reported........................................ $ 481 $3,453 $3,508
Pro forma.......................................... 462 2,285 (470)
Net income (loss) per common share:
Basic--as reported................................. $1.82 $ 1.29 $ 0.36
Pro forma basic.................................... 1.74 0.86 (0.05)
Diluted--as reported............................... 0.08 0.48 0.35
Pro forma diluted.................................. 0.07 0.32 (0.05)
</Table>
F-18
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK PLANS (CONTINUED)
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions for
grants:
<Table>
<Caption>
YEAR ENDED JUNE 30,
------------------------------------
1999 2000 2001
-------- -------- --------
Dividend yield................................. -- -- --
Volatility..................................... .001% 75.00% 93.30%
Risk-free interest rate........................ 4.6% 6.3% 6.5%
Expected option life (in years)................ 8.0 7.3 7.53
</Table>
A summary of the status of the Company's stock options as of June 30, 1999,
2000 and 2001, and changes during the years then ended, is presented below:
<Table>
<Caption>
1999 2000 2001
----------------------------- ---------------------------- -----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
---------- ---------------- --------- ---------------- ---------- ----------------
Outstanding at beginning
of year............... 795,624 $2.45 566,105 $ 3.07 863,604 $ 8.22
Granted................. 375,938 4.44 374,738 15.07 378,712 19.72
Exercised............... (553,177) 0.36 (45,916) 0.53 (60,445) 1.48
Canceled................ (52,280) 0.36 (31,323) 8.49 (65,411) 15.35
---------- --------- ----------
Outstanding at end of
year.................. 566,105 3.07 863,604 8.22 1,116,460 12.07
========== ========= ==========
Options exercisable at
end of year........... 68,382 159,614 321,450
Weighted average fair
value of options
granted during the
year.................. $ 1.37 $ 11.42 $ 16.64
Options available for
future grant.......... 417,877 1,704,650 1,545,266
</Table>
The following table summarizes information about stock options outstanding
at June 30, 2001:
<Table>
<Caption>
WEIGHTED AVERAGE
SHARES WEIGHTED AVERAGE REMAINING CONTRACTUAL SHARES WEIGHTED AVERAGE
EXERCISE PRICE OUTSTANDING EXERCISE PRICE LIFE (YEARS) EXERCISABLE EXERCISE PRICE
-------------- ----------- ---------------- --------------------- ----------- ----------------
$0.36-$5.00............. 198,994 $ 0.74 4.8 111,995 $ 0.65
$5.01-$10.00............ 262,058 6.17 6.0 123,261 6.09
$10.01-$15.00........... 105,846 11.97 7.7 31,237 12.33
$15.01-$20.00........... 398,562 17.58 7.1 54,957 16.80
$20.01-$25.00........... 121,000 21.78 7.3 -- --
$25.01-$29.50........... 30,000 26.46 7.5 -- --
--------- -------
$0.36-$29.50............ 1,116,460 $12.07 6.5 321,450 $ 6.63
========= =======
</Table>
F-19
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK PLANS (CONTINUED)
EMPLOYEE STOCK PURCHASE PLAN
On January 20, 2000, the Board of Directors approved the Moldflow
Corporation Employee Stock Purchase Plan (the "ESPP") with an authorization of
up to 500,000 shares of common stock. The ESPP is open to all eligible employees
of the Company. Under the ESPP, each employee may elect to have up to 10% of his
or her base salary withheld and applied toward the purchase of shares within
each six-month offering period. The purchase price per share is determined based
on 85% of the lower of the fair market value of the stock on the first or the
last day of each offering period. In fiscal 2000, no shares were issued under
the ESPP. In fiscal 2001, 10,825 shares were issued on January 2, 2001, at a
purchase price $13.60 per share. On July 6, 2001, 13,498 shares were issued
under the ESPP at a purchase price of $13.10 per share.
11. NET INCOME PER COMMON SHARE
The following table displays the calculation of net income per common share:
<Table>
<Caption>
YEAR ENDED JUNE 30,
------------------------------
1999 2000 2001
-------- -------- --------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
Net income................................................. $ 481 $3,453 $ 3,508
====== ====== =======
Weighted average shares used in computing net income per
common share--basic...................................... 265 2,667 9,658
Effect of dilutive securities:
Restricted stock......................................... 287 158 64
Employee stock options and warrants...................... 162 310 402
Convertible preferred stock.............................. 5,452 4,055 --
------ ------ -------
Dilutive potential common shares....................... 5,901 4,523 466
------ ------ -------
Weighted average shares used in computing net income per
common share--diluted.................................... 6,166 7,190 10,124
====== ====== =======
Net income per common share--basic......................... $ 1.82 $ 1.29 $ 0.36
Net income per common share--diluted....................... $ 0.08 $ 0.48 $ 0.35
</Table>
Options to purchase 335,000 and 712,000 shares of common stock were
outstanding for the years ended June 30, 2000 and 2001, respectively, but were
not included in the calculation of diluted net income per common share, as their
inclusion would be antidilutive.
F-20
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES
Income before income taxes consists of the following (in thousands):
<Table>
<Caption>
YEAR ENDED JUNE 30,
------------------------------
1999 2000 2001
-------- -------- --------
Domestic income (loss)..................................... $(3,335) $1,999 $ 461
Foreign income............................................. 3,992 1,705 4,773
------- ------ ------
Income before income taxes............................... $ 657 $3,704 $5,234
======= ====== ======
</Table>
The provision for income taxes consists of the following (in thousands):
<Table>
<Caption>
YEAR ENDED JUNE 30,
------------------------------
1999 2000 2001
-------- -------- --------
Current:
Federal.............................................. $ 5 $ 10 $ 30
State................................................ 18 73 161
Foreign.............................................. 153 86 1,306
---- ---- ------
Total current...................................... 176 169 1,497
---- ---- ------
Deferred:
Federal.............................................. -- 74 --
State................................................ -- 8 --
Foreign.............................................. -- -- 229
---- ---- ------
Total deferred..................................... -- 82 229
---- ---- ------
$176 $251 $1,726
==== ==== ======
</Table>
The reconciliation of the provision for income taxes computed at the U.S.
federal statutory tax rate to the actual provision is as follows (in thousands):
<Table>
<Caption>
YEAR ENDED JUNE 30,
------------------------------
1999 2000 2001
-------- -------- --------
Statutory federal rate of 34%........................ $223 $1,259 $1,779
Foreign withholding taxes............................ 79 (26) --
State income taxes, net of federal benefit........... 12 53 107
Permanent differences................................ (94) (6) 960
Change in valuation allowance........................ (54) (1,018) (2,051)
Foreign tax rate differential........................ 20 15 898
Other................................................ (10) (26) 33
---- ------ ------
$176 $ 251 $1,726
==== ====== ======
</Table>
F-21
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INCOME TAXES (CONTINUED)
The deferred tax assets and liabilities consist of the following (in
thousands):
<Table>
<Caption>
JUNE 30,
-------------------
2000 2001
-------- --------
Deferred tax assets:
Net operating loss carryforwards.......................... $4,794 $4,247
Foreign tax credit........................................ 537 188
Accrued expenses not deductible for tax purposes.......... 274 73
Revenue deferred for financial purposes................... 47 --
Other..................................................... 465 128
------ ------
Gross deferred tax assets............................... 6,117 4,636
Deferred tax asset valuation allowance.................... (5,297) (4,496)
------ ------
Total deferred tax assets............................... 820 140
Deferred tax liabilities.................................... (948) (497)
------ ------
Net deferred tax liabilities............................ $ (128) $ (357)
====== ======
</Table>
At June 30, 2001, the Company had available federal, state and foreign net
operating loss carryforwards of approximately $10.0 million, $4.7 million and
$2.2 million, respectively. These carryforwards expire at various times through
2021 if not utilized. Under the provisions of the U.S. Internal Revenue Code,
certain substantial changes in the Company's ownership may limit the amount of
federal net operating loss carryforwards and tax credit carryforwards which
could be utilized annually to offset federal future taxable income and taxes
payable.
Under generally accepted accounting principles, the benefit associated with
future deductible differences is recognized if it is more likely than not that
the benefit will be realized. Management believes that, based on the Company's
historical results of operations, it is more likely than not that a substantial
amount of the Company's deferred tax assets will not be realized. Accordingly,
the Company has recorded a valuation allowance of $5.3 million and $4.5 million
at June 30, 2000 and 2001, respectively. Management believes that the net
deferred tax asset represents management's best estimate, based upon the weight
of available evidence, of the deferred tax asset that will be realized. If such
evidence were to change, based upon near-term operating results and longer-term
projections, the amount of the valuation allowance recorded against the gross
deferred tax asset may be decreased or increased.
13. BENEFIT PLANS
401(K) SAVINGS PLAN
The Company has established a retirement savings plan under Section 401(k)
of the U.S. Internal Revenue Code (the "401(k) Plan"). The 401(k) Plan covers
substantially all U.S. based employees of the Company who meet minimum age and
service requirements, and allows participants to defer a portion of their annual
compensation on a pre-tax basis. Matching contributions to the 401(k) Plan may
be made at the discretion of the Company. The Company contributed $175,000,
$227,000 and $451,000 to the 401(k) Plan in the years ended June 30, 1999, 2000
and 2001, respectively.
F-22
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. BENEFIT PLANS (CONTINUED)
SUPERANNUATION PLAN
Employees of the Company's Australian subsidiary are covered by a defined
contribution Superannuation Plan. The Superannuation Plan covers substantially
all Australian employees and, under Australian law, the Company is required to
contribute a fixed percentage of taxable compensation to this plan. The Company
contributed $201,000, $187,000 and $146,000 to the Superannuation Plan in the
years ended June 30, 1999, 2000 and 2001, respectively.
14. 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, 2001, the
Company had no outstanding capital lease obligations. Future minimum operating
lease commitments at June 30, 2001 are as follows (in thousands):
<Table>
<Caption>
OPERATING
YEAR ENDING JUNE 30, LEASES
-------------------- ---------
2002........................................................ $1,381
2003........................................................ 1,273
2004........................................................ 1,000
2005........................................................ 757
2006........................................................ 680
Thereafter.................................................. 2,389
------
$7,480
======
</Table>
Total rent expense under these operating leases was $664,000, $837,000 and
$1.9 million for the years ended June 30, 1999, 2000 and 2001, respectively.
LITIGATION
On February 17, 1999, the Company filed suit against a former employee and
the individual's then current employer, C-Mold, seeking immediate and permanent
injunctive relief in connection with the theft and misappropriation of the
Company's proprietary trade secrets. The complaint sought permanent injunction
against the defendants, actual, consequential and punitive damages, and recovery
of all legal costs.
During fiscal years 1999 and 2000, the Company incurred legal expenses of
$620,000 and $785,000, respectively, during the prosecution of this litigation.
These expenses have been included in litigation expenses in the consolidated
statement of income.
On April 13, 2000, in connection with the Company's acquisition of C-Mold,
this litigation was dismissed by the agreement of all parties.
F-23
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. SEGMENT AND GEOGRAPHIC INFORMATION
The Company is engaged in one reportable industry segment: the development,
marketing and support of software products for the plastic design and
manufacturing industry.
The Company licenses its products to customers throughout the world. Sales
and marketing operations outside the United States are conducted principally
through the Company's foreign sales subsidiaries in Europe and Asia.
The Company's research and development centers are located in Australia, the
United States and the United Kingdom.
Geographic information regarding the Company's operations was as follows:
<Table>
<Caption>
YEAR ENDED JUNE 30,
------------------------------
1999 2000 2001
-------- -------- --------
(IN THOUSANDS)
REVENUE FROM UNAFFILIATED CUSTOMERS:
Asia/Australia
Software licenses......................................... $ 3,156 $ 6,335 $ 8,828
Services.................................................. 1,856 2,831 4,206
------- ------- -------
Total Asia/Australia.................................... 5,012 9,166 13,034
------- ------- -------
USA
Software licenses......................................... 3,904 3,977 7,122
Services.................................................. 3,070 3,827 6,164
------- ------- -------
Total USA............................................... 6,974 7,804 13,286
------- ------- -------
Europe
Software licenses......................................... 5,178 6,430 8,544
Services.................................................. 3,057 3,969 5,079
------- ------- -------
Total Europe............................................ 8,235 10,399 13,623
------- ------- -------
Consolidated
Software licenses......................................... 12,238 16,742 24,494
Services.................................................. 7,983 10,627 15,449
------- ------- -------
Total consolidated...................................... $20,221 $27,369 $39,943
======= ======= =======
</Table>
Revenue from unaffiliated customers in Japan was $2.7 million (13% of total
revenue), $5.2 million (19% of total revenue) and $8.5 million (21% of total
revenue) in fiscal 1999, 2000 and 2001, respectively.
<Table>
<Caption>
JUNE 30,
-------------------
2000 2001
-------- --------
(IN THOUSANDS)
FIXED ASSETS, NET:
Asia/Australia............................................ $ 2,641 $ 2,118
USA....................................................... 1,792 1,465
Europe.................................................... 431 444
------- -------
Total consolidated...................................... $ 4,864 $ 4,027
======= =======
</Table>
F-24
<Page>
MOLDFLOW CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. 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, 2001. 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.
<Table>
<Caption>
QUARTER ENDED
-------------------------------------------------------------------------------------
OCT. 2, JAN. 1, APR. 1, JUN. 30, SEP. 30 DEC. 30 MAR. 31, JUN. 30,
1999 2000 2000 2000 2000 2000 2001 2001
-------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
Revenue:
Software licenses.................. $2,823 $3,828 $4,594 $5,497 $5,222 $6,728 $7,220 $5,324
Services........................... 2,358 2,495 2,489 3,285 3,602 3,690 3,874 4,283
------ ------ ------ ------ ------ ------ ------ ------
Total revenue.................... 5,181 6,323 7,083 8,782 8,824 10,418 11,094 9,607
------ ------ ------ ------ ------ ------ ------ ------
Costs and expenses:
Cost of software licenses
revenue.......................... 169 153 163 300 341 420 418 667
Cost of services revenue........... 236 255 233 333 343 396 343 358
Research and development........... 835 874 939 1,426 1,587 1,592 1,586 1,877
Selling and marketing.............. 2,698 3,113 3,363 4,321 4,291 4,650 5,245 5,210
General and administrative......... 1,076 1,201 1,244 1,497 1,385 1,690 1,604 1,416
Litigation......................... 280 250 255 -- -- -- -- --
Nonrecurring charges............... -- -- -- 284 -- -- -- --
Amortization of goodwill and other
intangible assets................ -- -- -- 311 367 392 380 562
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses......... 5,294 5,846 6,197 8,472 8,314 9,140 9,576 10,090
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) from operations........ (113) 477 886 310 510 1,278 1,518 (483)
Interest income (expense), net....... (1) (38) (16) 482 371 588 629 550
Other income (loss), net............. (34) (30) 1,703 78 35 27 78 132
------ ------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes............................ (148) 409 2,573 870 916 1,893 2,225 199
Provision (benefit) for income
taxes.............................. (217) 45 423 -- 382 605 674 65
------ ------ ------ ------ ------ ------ ------ ------
Net income......................... $ 69 $ 364 $2,150 $ 870 $ 534 $1,288 $1,551 $ 134
====== ====== ====== ====== ====== ====== ====== ======
</Table>
17. SUBSEQUENT EVENT (UNAUDITED)
On September 19, 2001, the Board of Directors authorized the Company to
repurchase up to 500,000 shares of its outstanding common stock.
F-25
<Page>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Moldflow Corporation:
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 29 of this Annual Report on Form 10-K
present fairly, in all material respects, the financial position of Moldflow
Corporation (the "Company") and its subsidiaries at June 30, 2000 and 2001, and
the results of their operations and their cash flows for each of the three years
in the period ended June 30, 2001 in conformity with accounting principles
generally accepted in the United States of America. In addition, in our opinion,
the financial statement schedules listed in the index appearing under Item
14(a)(2) on page 29 of this Annual Report on Form 10-K present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedules are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States 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, 2001
F-26