##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549




---

Form 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934


For the Quarterly Period Ended: March 27,
2004

Commission file number: 000-30027



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Moldflow Corporation

(Exact name of registrant as specified in its
charter)


|                                                                   |  |                                         
|------------------------------------------------------------------ |  | ----------------------------------------
|Delaware                                                           |  | 04-3406763                              
|(State or other jurisdiction of
    incorporation or organization) |  | (I.R.S. Employer
    Identification No.)

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)




---

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

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

There were 10,584,431 shares of our common stock,
par value $0.01 per share, outstanding on May 5, 2004.



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MOLDFLOW CORPORATION

FORM 10-Q

For the Quarter Ended March 27,
2004


TABLE OF CONTENTS

|                                          |  |                                                                                                                                                                                         |    |        |    | 
|----------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ------ | -- | 
|                                          |  |                                                                                                                                                                                         |    | Page  
|                                          |  |                                                                                                                                                                                         |    | Number
|                                          |  |                                                                                                                                                                                         |    |       
|PART I.  FINANCIAL
    INFORMATION       
|Item 1.                                   |  | Unaudited Financial
    Statements:                                                                                                                                                     |    |        |    | 
|                                          |  | Condensed Consolidated
    Balance Sheet as of March 27, 2004 and June 30,
    2003                                                                                                     |    |        | 2  | 
|                                          |  | Condensed Consolidated
    Statement of Operations for the three months ended
    March 27, 2004 and March 29, 2003 and for the nine
    months ended March 27, 2004 and March 29, 2003 |    |        | 3  | 
|                                          |  | Condensed Consolidated
    Statement of Cash Flows for the nine months ended March 27,
    2004 and March 29, 2003                                                                      |    |        | 4  | 
|                                          |  | Notes to Unaudited Condensed
    Consolidated Financial Statements                                                                                                                      |    |        | 5  | 
|Item 2.                                   |  | Managements Discussion
    and Analysis of Financial Condition and Results of Operations                                                                                               |    |        | 17 | 
|Item 3.                                   |  | Quantitative and Qualitative
    Disclosures About Market Risk                                                                                                                          |    |        | 35 | 
|Item 4.                                   |  | Controls and Procedures                                                                                                                                                                 |    |        | 36 | 
|PART II.  OTHER
    INFORMATION          
|Item 1.                                   |  | Legal Proceedings                                                                                                                                                                       |    |        | 37 | 
|Item 2.                                   |  | Changes in Securities, Use
    of Proceeds and Issuer Purchases of Equity Securities                                                                                                    |    |        | 37 | 
|Item 6.                                   |  | Exhibits and Reports on
    Form 8-K                                                                                                                                                    |    |        | 37 | 
|Signatures                                |  |                                                                                                                                                                                         | 39 |       
|Ex-31.1 Certification of CEO             
|Ex-31.2 Certification of CFO             
|Ex-32.1 Section 1350 Certification of CEO
|Ex-32.2 Section 1350 Certification of CFO



1



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##### Table of Contents






PART I.     FINANCIAL
INFORMATION






|        |                                   
|------- | ----------------------------------
|Item 1. | Unaudited Financial
    Statements

MOLDFLOW CORPORATION



CONDENSED CONSOLIDATED BALANCE SHEET


|                                         |                                        |                                            |        |          |        |  |       |        |        | 
|---------------------------------------- | -------------------------------------- | ------------------------------------------ | ------ | -------- | ------ |  | ----- | ------ | ------ | 
|                                         |                                        | March 27,                                  |        | June 30,
|                                         |                                        | 2004                                       |        | 2003    
|                                         |                                        |                                            |        |         
|                                         |                                        |                                           
|                                         |                                        | (In thousands)                            
|                                         |                                        | (Unaudited)                               
|ASSETS                                  
|Current assets:                          |                                        |                                            |        |          |        |  |       |       
|                                         | Cash and cash equivalents              |                                            | $      | 47,868   |        |  | $     | 38,320 |       
|                                         | Marketable securities                  |                                            |        | 1,481    |        |  |       | 13,820 |       
|                                         | Accounts receivable, net               |                                            |        | 9,200    |        |  |       | 6,147  |       
|                                         | Inventories                            |                                            |        | 958      |        |  |       | 313    |       
|                                         | Prepaid expenses                       |                                            |        | 2,500    |        |  |       | 2,189  |       
|                                         | Other current assets                   |                                            |        | 2,778    |        |  |       | 2,509  |       
|                                         |                                        |                                            |        |          |        |  |       |       
|                                         |                                        | Total current assets                       |        |          | 64,785 |  |       |        | 63,298 | 
|Fixed assets, net                        |                                        |                                            | 4,299  |          |        |  | 3,891 |       
|Acquired intangible assets, net          |                                        |                                            | 2,120  |          |        |  | 685   |       
|Goodwill                                 |                                        |                                            | 18,726 |          |        |  | 9,670 |       
|Other assets                             |                                        |                                            | 2,345  |          |        |  | 1,933 |       
|                                         |                                        |                                            |        |          |        |  |       |       
|                                         |                                        | Total assets                               |        | $        | 92,275 |  |       | $      | 79,477 | 
|                                         |                                        |                                            |        |          |        |  |       |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                        |                                            |        |          |        |  |       |       
|                                         | Accounts payable                       |                                            | $      | 2,576    |        |  | $     | 1,684  |       
|                                         | Accrued expenses                       |                                            |        | 7,228    |        |  |       | 5,732  |       
|                                         | Other current liabilities              |                                            |        | 2,091    |        |  |       | 1,707  |       
|                                         | Deferred revenue                       |                                            |        | 9,327    |        |  |       | 8,551  |       
|                                         |                                        |                                            |        |          |        |  |       |       
|                                         |                                        | Total current liabilities                  |        |          | 21,222 |  |       |        | 17,674 | 
|Deferred revenue                         |                                        |                                            | 907    |          |        |  | 513   |       
|Other long-term liabilities              |                                        |                                            | 1,281  |          |        |  | 641   |       
|                                         |                                        |                                            |        |          |        |  |       |       
|                                         |                                        | Total liabilities                          |        |          | 23,410 |  |       |        | 18,828 | 
|                                         |                                        |                                            |        |          |        |  |       |       
|Stockholders equity:                    |                                        |                                            |        |          |        |  |       |       
|                                         | Common stock                           |                                            |        | 106      |        |  |       | 102    |       
|                                         | Additional paid-in capital             |                                            |        | 67,377   |        |  |       | 62,867 |       
|                                         | Treasury stock                         |                                            |        |         |        |  |       | (926   | )     
|                                         | Accumulated deficit                    |                                            |        | (2,569   | )      |  |       | (4,090 | )     
|                                         | Accumulated other comprehensive income |                                            |        | 3,951    |        |  |       | 2,696  |       
|                                         |                                        |                                            |        |          |        |  |       |       
|                                         |                                        | Total stockholders equity                 |        |          | 68,865 |  |       |        | 60,649 | 
|                                         |                                        |                                            |        |          |        |  |       |       
|                                         |                                        | Total liabilities and stockholders equity |        | $        | 92,275 |  |       | $      | 79,477 | 
|                                         |                                        |                                            |        |          |        |  |       |       

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

2



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##### Table of Contents



MOLDFLOW CORPORATION



CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS


|                                                                 |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |        |  
|---------------------------------------------------------------- | ------------------------------------------ | ------------------------------------- | --- | ----------------- |  | --------- | ---- | --------- | - |  | ----- | ------ |  |  | ---- | ------ | -
|                                                                 |                                            |                                       |     |                  
|                                                                 |                                            | Three Months Ended                    |     | Nine Months Ended
|                                                                 |                                            |                                       |     |                  
|                                                                 |                                            | March 27,                             |     | March 29,         |  | March 27, |      | March 29,
|                                                                 |                                            | 2004                                  |     | 2003              |  | 2004      |      | 2003     
|                                                                 |                                            |                                       |     |                   |  |           |      |          
|                                                                 |                                            |                                      
|                                                                 |                                            | (In thousands, except per share data)
|                                                                 |                                            | (Unaudited)                          
|Revenue:                                                         |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |       
|                                                                 | Product                                    |                                       | $   | 7,574             |  |           | $    | 4,579     |   |  | $     | 17,041 |  |  | $    | 12,491 |  
|                                                                 | Services                                   |                                       |     | 5,716             |  |           |      | 4,894     |   |  |       | 16,391 |  |  |      | 14,209 |  
|                                                                 |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |       
|                                                                 | Total revenue                              |                                       |     | 13,290            |  |           |      | 9,473     |   |  |       | 33,432 |  |  |      | 26,700 |  
|                                                                 |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |       
|Costs and expenses:                                              |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |       
|                                                                 | Cost of product revenue                    |                                       |     | 1,778             |  |           |      | 829       |   |  |       | 3,021  |  |  |      | 2,164  |  
|                                                                 | Cost of services revenue                   |                                       |     | 1,457             |  |           |      | 323       |   |  |       | 3,020  |  |  |      | 886    |  
|                                                                 | Research and development                   |                                       |     | 1,695             |  |           |      | 1,567     |   |  |       | 4,823  |  |  |      | 4,341  |  
|                                                                 | Selling and marketing                      |                                       |     | 5,038             |  |           |      | 4,778     |   |  |       | 13,922 |  |  |      | 13,406 |  
|                                                                 | General and administrative                 |                                       |     | 2,188             |  |           |      | 1,878     |   |  |       | 6,219  |  |  |      | 5,330  |  
|                                                                 | Restructuring charges                      |                                       |     | 508               |  |           |      | 438       |   |  |       | 508    |  |  |      | 438    |  
|                                                                 | Amortization of acquired intangible assets |                                       |     | 126               |  |           |      | 176       |   |  |       | 347    |  |  |      | 494    |  
|                                                                 |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |       
|                                                                 | Total operating costs and expenses         |                                       |     | 12,790            |  |           |      | 9,989     |   |  |       | 31,860 |  |  |      | 27,059 |  
|                                                                 |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |       
|Income (loss) from operations                                    |                                            |                                       | 500 |                   |  |           | (516 | )         |   |  | 1,572 |        |  |  | (359 | )     
|Interest income, net                                             |                                            |                                       | 321 |                   |  |           | 263  |           |   |  | 879   |        |  |  | 834  |       
|Other income (loss), net                                         |                                            |                                       | (18 | )                 |  |           | (106 | )         |   |  | (52   | )      |  |  | (168 | )     
|                                                                 |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |       
|                                                                 | Income (loss) before income taxes          |                                       |     | 803               |  |           |      | (359      | ) |  |       | 2,399  |  |  |      | 307    |  
|Provision for income taxes                                       |                                            |                                       | 294 |                   |  |           | 225  |           |   |  | 878   |        |  |  | 675  |       
|                                                                 |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |       
|                                                                 | Net income (loss)                          |                                       | $   | 509               |  |           | $    | (584      | ) |  | $     | 1,521  |  |  | $    | (368   | )
|                                                                 |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |       
|Net income (loss) per common share:                              |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |       
|                                                                 | Basic                                      |                                       | $   | 0.05              |  |           | $    | (0.06     | ) |  | $     | 0.15   |  |  | $    | (0.04  | )
|                                                                 | Diluted                                    |                                       | $   | 0.05              |  |           | $    | (0.06     | ) |  | $     | 0.14   |  |  | $    | (0.04  | )
|Shares used in computing net income (loss) per
    common share: |                                            |                                       |     |                   |  |           |      |           |   |  |       |        |  |  |      |       
|                                                                 | Basic                                      |                                       |     | 10,411            |  |           |      | 9,997     |   |  |       | 10,173 |  |  |      | 10,026 |  
|                                                                 | Diluted                                    |                                       |     | 11,001            |  |           |      | 9,997     |   |  |       | 10,746 |  |  |      | 10,026 |  

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

3



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##### Table of Contents



MOLDFLOW CORPORATION



CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS

|                                                                                             |                                                                   |                   |        |           |   |   |        |        |  
|-------------------------------------------------------------------------------------------- | ----------------------------------------------------------------- | ----------------- | ------ | --------- | - | - | ------ | ------ | -
|                                                                                             |                                                                   |                  
|                                                                                             |                                                                   | Nine Months Ended
|                                                                                             |                                                                   |                  
|                                                                                             |                                                                   | March 27,         |        | March 29,
|                                                                                             |                                                                   | 2004              |        | 2003     
|                                                                                             |                                                                   |                   |        |          
|                                                                                             |                                                                   |                  
|                                                                                             |                                                                   | (In thousands)   
|                                                                                             |                                                                   | (Unaudited)      
|Cash flows from operating
    activities:                                                    |                                                                   |                   |        |           |   |   |        |       
|Net income (loss)                                                                            |                                                                   | $                 | 1,521  |           |   | $ | (368   | )     
|Adjustments to reconcile net income (loss) to net
    cash provided by operating activities: |                                                                   |                   |        |           |   |   |        |       
|                                                                                             | Depreciation of fixed assets                                      |                   |        | 1,055     |   |   |        | 1,051  |  
|                                                                                             | Amortization of acquired intangible assets                        |                   |        | 371       |   |   |        | 494    |  
|                                                                                             | Amortization of capitalized software development
    costs        |                   |        | 202       |   |   |        | 100    |  
|                                                                                             | Provisions for doubtful accounts                                  |                   |        | 109       |   |   |        | 94     |  
|                                                                                             | Foreign exchange losses                                           |                   |        | 35        |   |   |        | 142    |  
|                                                                                             | Write-off of assets due to restructuring
    activities           |                   |        |          |   |   |        | 471    |  
|                                                                                             | Other non-cash charges to income (loss)                           |                   |        | 8         |   |   |        | 80     |  
|Changes in operating assets and liabilities, net
    of effects of acquisitions:             |                                                                   |                   |        |           |   |   |        |       
|                                                                                             | Accounts receivable                                               |                   |        | (1,132    | ) |   |        | (787   | )
|                                                                                             | Inventories, prepaid expenses, and other current
    assets       |                   |        | 577       |   |   |        | 476    |  
|                                                                                             | Other assets                                                      |                   |        | 64        |   |   |        | (174   | )
|                                                                                             | Accounts payable                                                  |                   |        | (41       | ) |   |        | 457    |  
|                                                                                             | Accrued expenses and other liabilities                            |                   |        | 180       |   |   |        | (1,673 | )
|                                                                                             | Deferred revenue                                                  |                   |        | 479       |   |   |        | 1,107  |  
|                                                                                             |                                                                   |                   |        |           |   |   |        |       
|                                                                                             | Net cash provided by operating activities                         |                   |        | 3,428     |   |   |        | 1,470  |  
|                                                                                             |                                                                   |                   |        |           |   |   |        |       
|Cash flows from investing
    activities:                                                    |                                                                   |                   |        |           |   |   |        |       
|                                                                                             | Purchases of fixed assets                                         |                   |        | (1,032    | ) |   |        | (1,004 | )
|                                                                                             | Capitalization of software development costs                      |                   |        | (442      | ) |   |        | (318   | )
|                                                                                             | Sales and maturities of marketable securities                     |                   |        | 12,340    |   |   |        | (944   | )
|                                                                                             | Acquisition of businesses, net of cash acquired                   |                   |        | (7,091    | ) |   |        | (895   | )
|                                                                                             |                                                                   |                   |        |           |   |   |        |       
|                                                                                             | Net cash provided by (used in) investing
    activities           |                   |        | 3,775     |   |   |        | (3,161 | )
|                                                                                             |                                                                   |                   |        |           |   |   |        |       
|Cash flows from financing
    activities:                                                    |                                                                   |                   |        |           |   |   |        |       
|                                                                                             | Proceeds from collection of notes receivable from
    stockholder |                   |        |          |   |   |        | 16     |  
|                                                                                             | Issuance of common stock                                          |                   |        | 1,047     |   |   |        | 325    |  
|                                                                                             | Repurchase of common stock                                        |                   |        |          |   |   |        | (909   | )
|                                                                                             |                                                                   |                   |        |           |   |   |        |       
|                                                                                             | Net cash provided by (used in) financing
    activities           |                   |        | 1,047     |   |   |        | (568   | )
|                                                                                             |                                                                   |                   |        |           |   |   |        |       
|Effect of exchange rate changes on cash and cash
    equivalents                             |                                                                   |                   | 1,298  |           |   |   | 748    |       
|                                                                                             |                                                                   |                   |        |           |   |   |        |       
|Net increase (decrease) in cash and cash
    equivalents                                     |                                                                   |                   | 9,548  |           |   |   | (1,511 | )     
|Cash and cash equivalents, beginning of period                                               |                                                                   |                   | 38,320 |           |   |   | 47,634 |       
|                                                                                             |                                                                   |                   |        |           |   |   |        |       
|Cash and cash equivalents, end of period                                                     |                                                                   | $                 | 47,868 |           |   | $ | 46,123 |       
|                                                                                             |                                                                   |                   |        |           |   |   |        |       

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

4



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##### Table of Contents



MOLDFLOW CORPORATION




NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS




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

Moldflow Corporation (Moldflow or the
Company) designs, develops, manufactures and markets
computer software applications and enabling hardware for the
design, engineering and manufacture of injection-molded plastic
parts and, as such, revenues are derived primarily from the
plastics design and manufacturing industry. The Company sells
its products primarily to customers in the United States,
Europe, Asia and Australia.

The accompanying unaudited condensed consolidated
financial statements include the accounts of Moldflow
Corporation and its wholly-owned subsidiaries. The condensed
consolidated financial statements have been prepared by the
Company in accordance with the rules and regulations of the
Securities and Exchange Commission (SEC) regarding
interim financial reporting. Accordingly, they do not include
all of the information and footnotes required by generally
accepted accounting principles for complete financial statements
and should be read in conjunction with the audited consolidated
financial statements and notes thereto for the year ended
June 30, 2003 included in the Companys Annual Report
on Form 10-K. The June 30, 2003 Condensed Consolidated
Balance Sheet was derived from the Companys audited
consolidated financial statements. In the opinion of management,
the accompanying unaudited condensed consolidated financial
statements contain all adjustments, consisting only of those of
a normal recurring nature, necessary for a fair presentation of
results for the interim periods presented. The results of
operations for the three-month and nine-month periods ended
March 27, 2004 are not necessarily indicative of the
results to be expected for any future period or the full fiscal
year. Certain prior year amounts have been reclassified to
conform to the fiscal 2004 presentation.

The Companys fiscal year end is
June 30. During the fiscal year, the Company follows a
schedule in which each interim quarterly period ends on the
Saturday of the thirteenth week of the reporting period.



|   |                                                      
|-- | -----------------------------------------------------
|2. | Stock Plans and Stock-based Employee
    Compensation

A summary of the Companys stock option
activity follows:

|                                               |  |                    |           |                  |  |        |       |                  |  |  |           |   |  |   |       | 
|---------------------------------------------- |  | ------------------ | --------- | ---------------- |  | ------ | ----- | ---------------- |  |  | --------- | - |  | - | ----- | 
|                                               |  |                   
|                                               |  | Three Months Ended
|                                               |  |                   
|                                               |  |                    |           |                 
|                                               |  | March 27, 2004     |           | March 29, 2003  
|                                               |  |                    |           |                 
|                                               |  |                    |           | Weighted Average |  |        |       | Weighted Average
|                                               |  | Shares             |           | Exercise Price   |  | Shares |       | Exercise Price  
|                                               |  |                    |           |                  |  |        |       |                 
|Outstanding at beginning of period             |  |                    | 2,795,167 |                  |  | $      | 9.41  |                  |  |  | 2,481,330 |   |  | $ | 9.35  | 
|Granted                                        |  |                    | 111,300   |                  |  |        | 11.94 |                  |  |  | 6,900     |   |  |   | 6.95  | 
|Exercised                                      |  |                    | (149,187  | )                |  |        | 4.78  |                  |  |  | (3,379    | ) |  |   | 2.07  | 
|Canceled                                       |  |                    | (82,396   | )                |  |        | 8.98  |                  |  |  | (26,018   | ) |  |   | 13.44 | 
|                                               |  |                    |           |                  |  |        |       |                  |  |  |           |   |  |   |       | 
|Outstanding at end of period                   |  |                    | 2,674,884 |                  |  | $      | 9.77  |                  |  |  | 2,458,833 |   |  | $ | 9.31  | 
|                                               |  |                    |           |                  |  |        |       |                  |  |  |           |   |  |   |       | 
|Weighted average fair value of options granted |  |                    |           |                  |  | $      | 7.98  |                  |  |  |           |   |  | $ | 6.86  | 

5



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


|                                               |  |                   |           |                  |  |        |       |                  |  |  |           |   |  |   |       | 
|---------------------------------------------- |  | ----------------- | --------- | ---------------- |  | ------ | ----- | ---------------- |  |  | --------- | - |  | - | ----- | 
|                                               |  |                  
|                                               |  | Nine Months Ended
|                                               |  |                  
|                                               |  |                   |           |                 
|                                               |  | March 27, 2004    |           | March 29, 2003  
|                                               |  |                   |           |                 
|                                               |  |                   |           | Weighted Average |  |        |       | Weighted Average
|                                               |  | Shares            |           | Exercise Price   |  | Shares |       | Exercise Price  
|                                               |  |                   |           |                  |  |        |       |                 
|Outstanding at beginning of period             |  |                   | 2,433,206 |                  |  | $      | 9.33  |                  |  |  | 1,618,975 |   |  | $ | 12.23 | 
|Granted                                        |  |                   | 546,480   |                  |  |        | 10.33 |                  |  |  | 1,123,450 |   |  |   | 4.76  | 
|Exercised                                      |  |                   | (175,935  | )                |  |        | 4.47  |                  |  |  | (53,014   | ) |  |   | 0.70  | 
|Canceled                                       |  |                   | (128,867  | )                |  |        | 10.96 |                  |  |  | (230,578  | ) |  |   | 9.59  | 
|                                               |  |                   |           |                  |  |        |       |                  |  |  |           |   |  |   |       | 
|Outstanding at end of period                   |  |                   | 2,674,884 |                  |  | $      | 9.77  |                  |  |  | 2,458,833 |   |  | $ | 9.31  | 
|                                               |  |                   |           |                  |  |        |       |                  |  |  |           |   |  |   |       | 
|Options exercisable at end of period           |  |                   | 1,334,580 |                  |  |        |       |                  |  |  | 779,203   |   |  |   |       | 
|Weighted average fair value of options granted |  |                   |           |                  |  | $      | 7.10  |                  |  |  |           |   |  | $ | 6.29  | 
|Options available for future grant             |  |                   | 1,129,506 |                  |  |        |       |                  |  |  |           |   |  |   |       | 

The Company accounts for stock-based awards to
employees using the intrinsic value method as prescribed by
Accounting Principles Board (APB) Opinion
No. 25 Accounting for Stock Issued to
Employees, and related interpretations. Accordingly, no
compensation expense is recorded for options issued to employees
in fixed amounts with fixed exercise prices at least equal to
the fair market value of the Companys common stock at the
date of the grant. The Company has adopted the provisions of
Statement of Accounting Standards (SFAS)
No. 123, Accounting for Stock Based
Compensation, as amended by SFAS No. 148,
Accounting for Stock-Based Compensation Transition and
Disclosure, through disclosure only. All stock-based
awards to non-employees are accounted for at their fair value in
accordance with SFAS No. 123.

No compensation cost has been recognized for
employee stock-based awards in the three-month and nine-month
periods ended March 27, 2004 and March 29, 2003,
respectively. Had compensation cost been determined based on the
fair value at the grant dates, the Companys net income
(loss) would have been the pro forma amounts indicated in the
table below.

|                              |                                                                                                                                             |                                       |        |                   |   |           |        |           |   |   |        |        |   |   |        |        |  
|----------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ------ | ----------------- | - | --------- | ------ | --------- | - | - | ------ | ------ | - | - | ------ | ------ | -
|                              |                                                                                                                                             |                                       |        |                  
|                              |                                                                                                                                             | Three Months Ended                    |        | Nine Months Ended
|                              |                                                                                                                                             |                                       |        |                  
|                              |                                                                                                                                             | March 27,                             |        | March 29,         |   | March 27, |        | March 29,
|                              |                                                                                                                                             | 2004                                  |        | 2003              |   | 2004      |        | 2003     
|                              |                                                                                                                                             |                                       |        |                   |   |           |        |          
|                              |                                                                                                                                             |                                      
|                              |                                                                                                                                             | (In thousands, except per share data)
|Net income (loss) as reported |                                                                                                                                             | $                                     | 509    |                   |   | $         | (584   | )         |   | $ | 1,521  |        |   | $ | (368   | )     
|Less:                         |                                                                                                                                             |                                       |        |                   |   |           |        |           |   |   |        |        |   |   |        |       
|                              | Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |                                       |        | (2,130            | ) |           |        | (1,373    | ) |   |        | (3,434 | ) |   |        | (4,147 | )
|                              |                                                                                                                                             |                                       |        |                   |   |           |        |           |   |   |        |        |   |   |        |       
|Pro forma net loss            |                                                                                                                                             | $                                     | (1,621 | )                 |   | $         | (1,957 | )         |   | $ | (1,913 | )      |   | $ | (4,515 | )     
|                              |                                                                                                                                             |                                       |        |                   |   |           |        |           |   |   |        |        |   |   |        |       
|Net income (loss) per share:  |                                                                                                                                             |                                       |        |                   |   |           |        |           |   |   |        |        |   |   |        |       
|                              | Basic  as reported                                                                                                                         |                                       | $      | 0.05              |   |           | $      | (0.06     | ) |   | $      | 0.15   |   |   | $      | (0.04  | )
|                              | Basic  pro forma                                                                                                                           |                                       | $      | (0.16             | ) |           | $      | (0.20     | ) |   | $      | (0.19  | ) |   | $      | (0.45  | )
|                              | Diluted  as reported                                                                                                                       |                                       | $      | 0.05              |   |           | $      | (0.06     | ) |   | $      | 0.14   |   |   | $      | (0.04  | )
|                              | Diluted  pro forma                                                                                                                         |                                       | $      | (0.16             | ) |           | $      | (0.20     | ) |   | $      | (0.19  | ) |   | $      | (0.45  | )

6



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


The fair value of each option granted during the
periods presented below was estimated on the grant date using
the Black-Scholes option-pricing model with the following
assumptions:

|                                |  |                    |      |                   |  |           |      |           |  |  |      |   |  |  |      |  
|------------------------------- |  | ------------------ | ---- | ----------------- |  | --------- | ---- | --------- |  |  | ---- | - |  |  | ---- | -
|                                |  |                    |      |                  
|                                |  | Three Months Ended |      | Nine Months Ended
|                                |  |                    |      |                  
|                                |  | March 27,          |      | March 29,         |  | March 27, |      | March 29,
|                                |  | 2004               |      | 2003              |  | 2004      |      | 2003     
|                                |  |                    |      |                   |  |           |      |          
|Dividend yield                  |  |                    |     |                   |  |           |     |           |  |  |     |   |  |  |     |  
|Volatility                      |  |                    | 86.7 | %                 |  |           | 92.7 | %         |  |  | 89.2 | % |  |  | 92.7 | %
|Risk-free interest rate         |  |                    | 3.1  | %                 |  |           | 3.1  | %         |  |  | 3.0  | % |  |  | 3.1  | %
|Expected option life (in years) |  |                    | 4.5  |                   |  |           | 5.1  |           |  |  | 4.7  |   |  |  | 5.1  |  

3.     Net Income
(Loss) Per Common Share

The following table presents the calculation for
both basic and diluted net income (loss) per common share:

|                                                                                           |                                  |                                       |        |                   |  |           |       |           |  |   |        |     |  |   |        |   | 
|------------------------------------------------------------------------------------------ | -------------------------------- | ------------------------------------- | ------ | ----------------- |  | --------- | ----- | --------- |  | - | ------ | --- |  | - | ------ | - | 
|                                                                                           |                                  |                                       |        |                  
|                                                                                           |                                  | Three Months Ended                    |        | Nine Months Ended
|                                                                                           |                                  |                                       |        |                  
|                                                                                           |                                  | March 27,                             |        | March 29,         |  | March 27, |       | March 29,
|                                                                                           |                                  | 2004                                  |        | 2003              |  | 2004      |       | 2003     
|                                                                                           |                                  |                                       |        |                   |  |           |       |          
|                                                                                           |                                  |                                      
|                                                                                           |                                  | (In thousands, except per share data)
|Net income (loss)                                                                          |                                  | $                                     | 509    |                   |  | $         | (584  | )         |  | $ | 1,521  |     |  | $ | (368   | )
|                                                                                           |                                  |                                       |        |                   |  |           |       |           |  |   |        |     |  |   |        |  
|Weighted average shares used in computing net
    income (loss) per common share  basic   |                                  |                                       | 10,411 |                   |  |           | 9,997 |           |  |   | 10,173 |     |  |   | 10,026 |  
|                                                                                           |                                  |                                       |        |                   |  |           |       |           |  |   |        |     |  |   |        |  
|Effect of dilutive securities:                                                             |                                  |                                       |        |                   |  |           |       |           |  |   |        |     |  |   |        |  
|                                                                                           | Stock options                    |                                       |        | 590               |  |           |       |          |  |   |        | 573 |  |   |        |  | 
|                                                                                           |                                  |                                       |        |                   |  |           |       |           |  |   |        |     |  |   |        |  
|                                                                                           | Dilutive potential common shares |                                       |        | 590               |  |           |       |          |  |   |        | 573 |  |   |        |  | 
|                                                                                           |                                  |                                       |        |                   |  |           |       |           |  |   |        |     |  |   |        |  
|Weighted average shares used in computing net
    income (loss) per common share  diluted |                                  |                                       | 11,001 |                   |  |           | 9,997 |           |  |   | 10,746 |     |  |   | 10,026 |  
|                                                                                           |                                  |                                       |        |                   |  |           |       |           |  |   |        |     |  |   |        |  
|Net income (loss) per common share 
    basic                                             |                                  | $                                     | 0.05   |                   |  | $         | (0.06 | )         |  | $ | 0.15   |     |  | $ | (0.04  | )
|Net income (loss) per common share 
    diluted                                           |                                  | $                                     | 0.05   |                   |  | $         | (0.06 | )         |  | $ | 0.14   |     |  | $ | (0.04  | )

Options to purchase 1,034,210 and
1,413,000 shares of common stock were not included in the
calculation of diluted net income per share for the three and
nine months ended March 27, 2004, respectively, because the
option exercise prices were greater than the average market
price of the Companys common stock during those periods.

Options to purchase 2,674,884 and
2,458,833 shares of common stock were not included in the
calculation of net loss per share for the three and nine months
ended March 29, 2003, respectively, due to the net losses
generated in those periods.



|   |                                            
|-- | -------------------------------------------
|4. | Acquisition of American MSI
    Corporation

On January 23, 2004, the Company acquired
all of the outstanding stock of American MSI Corporation
(AMSI), located in Moorpark, California, in exchange
for $7.2 million in cash, of which $1.1 million was
used to retire all of AMSIs outstanding debt, and
349,288 shares of the Companys common stock, valued
at $4.4 million for accounting purposes or $12.57 per
share. Of the shares issued, 146,864 were issued from

7



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


the Companys existing treasury shares. In
addition, the Company paid $293,000 of costs directly related to
the acquisition. The Company believes the acquisition of AMSI
will expand the breadth of the Companys product offerings
for the injection molding shop floor. For this reason, the
purchase price exceeds the fair value of net tangible and
intangible assets, resulting in goodwill. The results of AMSI
have been included in the Companys consolidated financial
statements from the date of acquisition.

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

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

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

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

8



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


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

|                                   |         |                          |        |           |  |   |        |       |  
|---------------------------------- | ------- | ------------------------ | ------ | --------- |  | - | ------ | ----- | -
|                                   |         |                         
|                                   |         | Nine Months Ended       
|                                   |         |                         
|                                   |         | March 27,                |        | March 29,
|                                   |         | 2004                     |        | 2003     
|                                   |         |                          |        |          
|                                   |         |                         
|                                   |         | (In thousands except per
|                                   |         | share data)             
|Revenue                            |         | $                        | 38,345 |           |  | $ | 33,995 |      
|Net income (loss)                  |         |                          | 1,582  |           |  |   | (862   | )    
|Net income (loss) per common share |         |                          |        |           |  |   |        |      
|                                   | Basic   |                          | $      | 0.15      |  |   | $      | (0.08 | )
|                                   | Diluted |                          | $      | 0.14      |  |   | $      | (0.08 | )



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

The Company has established a hedging program
designed to reduce the exposure to changes in currency exchange
rates.

At March 27, 2004, currency options and
collars designated as hedging instruments with notional amounts
of $1.5 million, $6.1 million and $641,000 to exchange
Euros, Japanese yen and Australian dollars for
U.S. dollars, respectively, were outstanding. At
March 27, 2004, the total fair values of all currency
options and collars held by the Company of $196,000 and $147,000
were recorded as components of other current assets and other
current liabilities, respectively. Net unrealized losses on
options and collars that qualified as hedging instruments of
$64,000 were included in accumulated other comprehensive income.
During the three-month and nine-month periods ended
March 27, 2004, net losses of $19,000 and $136,000,
respectively, were recorded as components of other income and
expense on the effective portion of options that were settled.
For the three-month and nine-month periods ended March 27,
2004, unrealized losses of $0 and $64,000, respectively, were
recognized on the ineffective portion of the options and collars
dedesignated as hedging instruments. As of March 27, 2004,
there were no financial instruments or derivatives outstanding
that did not qualify for hedge accounting.

At March 29, 2003, currency options and
collars designated as hedging instruments with notional amounts
of $2.5 million, $7.6 million and $1.9 million to
exchange Euros, Japanese yen and Australian dollars for
U.S. dollars, respectively, were outstanding. During the
first quarter of fiscal 2003, the Company discontinued hedge
accounting for the excess portion of instruments that were used
to hedge transactions considered no longer probable of
occurring. At March 29, 2003, these instruments had
notional amounts of $464,000, $922,000 and $110,000 to exchange
Euros, Japanese yen and Australian dollars for
U.S. dollars, respectively. At March 29, 2003, the
total fair values of all currency options and collars held by
the Company of $292,000 and $130,000 were recorded as components
of other current assets and other current liabilities,
respectively. Net unrealized losses on options and collars that
qualified as hedging instruments of $69,000 were included in
accumulated other comprehensive income. During the three-month
and nine-month periods ended March 29, 2003, losses of
$50,000 and $112,000, respectively, were recorded as components
of other income and expense on the effective portion of options
that were settled. For the three-month and nine-month periods
ended March 29, 2003, unrealized losses of $3,000 and net
unrealized gains of $25,000, respectively, were recognized on
the ineffective portion of the options and collars dedesignated
as hedging instruments.

9



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)




|   |                           
|-- | --------------------------
|6. | Acquired Intangible Assets

Intangible assets acquired in the Companys
business combinations include goodwill, customer base, developed
technology, non-compete agreements and customer order backlog.
All of the Companys acquired intangible assets, except for
goodwill, are subject to amortization over their estimated
useful lives. No significant residual value is estimated for
these intangible assets. A portion of this amortization is
included as a component of the Companys cost of product
revenue on the Condensed Consolidated Statement of Operations. A
portion of the acquired intangible assets is recorded in the
accounts of our French subsidiary and, as such, is subject to
translation at the currency exchange rates in effect at the
balance sheet date.

The components of acquired intangible assets are
as follows:

|                            |                            |                |       |               |  |          |        |          |   |              |       |          |  |   |       |       |  |   |        |      |   |   |     |     | 
|--------------------------- | -------------------------- | -------------- | ----- | ------------- |  | -------- | ------ | -------- | - | ------------ | ----- | -------- |  | - | ----- | ----- |  | - | ------ | ---- | - | - | --- | --- | 
|                            |                            |                |       |              
|                            |                            | March 27, 2004 |       | June 30, 2003
|                            |                            |                |       |              
|                            |                            | Gross          |       |               |  | Net      |        | Gross    |   |              |       | Net     
|                            |                            | Carrying       |       | Accumulated   |  | Carrying |        | Carrying |   | Accumulated  |       | Carrying
|                            |                            | Amount         |       | Amortization  |  | Amount   |        | Amount   |   | Amortization |       | Amount  
|                            |                            |                |       |               |  |          |        |          |   |              |       |         
|                            |                            |               
|                            |                            | (In thousands)
|Acquired intangible assets: |                            |                |       |               |  |          |        |          |   |              |       |          |  |   |       |       |  |   |        |      |   |   |     |    
|                            | Customer base              |                | $     | 986           |  |          | $      | (221     | ) |              | $     | 765      |  |   | $     | 421   |  |   | $      | (116 | ) |   | $   | 305 | 
|                            | Developed technology       |                |       | 1,675         |  |          |        | (681     | ) |              |       | 994      |  |   |       | 675   |  |   |        | (533 | ) |   |     | 142 | 
|                            | Backlog of customer orders |                |       | 40            |  |          |        | (13      | ) |              |       | 27       |  |   |       |      |  |   |        |     |   |   |     |    | 
|                            | Non-compete agreements     |                |       | 1,411         |  |          |        | (1,077   | ) |              |       | 334      |  |   |       | 1,205 |  |   |        | (967 | ) |   |     | 238 | 
|                            |                            |                |       |               |  |          |        |          |   |              |       |          |  |   |       |       |  |   |        |      |   |   |     |    
|Total                       |                            | $              | 4,112 |               |  | $        | (1,992 | )        |   | $            | 2,120 |          |  | $ | 2,301 |       |  | $ | (1,616 | )    |   | $ | 685 |    
|                            |                            |                |       |               |  |          |        |          |   |              |       |          |  |   |       |       |  |   |        |      |   |   |     |    

The following table summarizes the expected
remaining amortization of acquired intangible assets as of
March 27, 2004:

|                                  |  |                |       | 
|--------------------------------- |  | -------------- | ----- | 
|                                  |  | Estimated     
|                                  |  | Amortization  
|                                  |  | Expense       
|                                  |  |               
|                                  |  | (In thousands)
|Fiscal Year                       |  |                |       | 
|2004 (remainder)                  |  | $              | 158   | 
|2005                              |  |                | 432   | 
|2006                              |  |                | 319   | 
|2007                              |  |                | 314   | 
|2008                              |  |                | 298   | 
|2009                              |  |                | 246   | 
|2010                              |  |                | 223   | 
|2011                              |  |                | 130   | 
|                                  |  |                |       | 
|Total future amortization expense |  | $              | 2,120 | 
|                                  |  |                |       | 

10



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


The following table describes changes to goodwill
(in thousands):

|                                                |  |                   |        |               |  |   |       | 
|----------------------------------------------- |  | ----------------- | ------ | ------------- |  | - | ----- | 
|                                                |  |                  
|                                                |  | Nine Months Ended
|                                                |  |                  
|                                                |  | March 27, 2004    |        | June 30, 2003
|                                                |  |                   |        |              
|Beginning balance                               |  | $                 | 9,670  |               |  | $ | 8,790 | 
|Goodwill resulting from the acquisition of AMSI |  |                   | 9,032  |               |  |   | 842   | 
|Foreign exchange impact                         |  |                   | 24     |               |  |   | 38    | 
|                                                |  |                   |        |               |  |   |       | 
|Ending balance                                  |  | $                 | 18,726 |               |  | $ | 9,670 | 
|                                                |  |                   |        |               |  |   |       | 



|   |                           
|-- | --------------------------
|7. | Software Development Costs

Costs associated with the development of computer
software and related products are expensed prior to establishing
technological feasibility, as defined by 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.

In the nine months ended March 27, 2004, the
Company established technological feasibility of three
additional products. Research and development costs of $220,000
were capitalized in the second fiscal quarter related to
MPI 7.0 and Moldflow Manufacturing Solutions
(MMS)/Production Monitoring 1.0, both of which were
commercially released in December 2003. In addition, research
and development costs of $222,000 were capitalized in the three
months ended March 27, 2004 related to MMS 2.0, which
has not yet been commercially released.

A summary of capitalized software development
costs follows:

|                                |  |                |       |          |  |   |       |  
|------------------------------- |  | -------------- | ----- | -------- |  | - | ----- | -
|                                |  | March 27,      |       | June 30,
|                                |  | 2004           |       | 2003    
|                                |  |                |       |         
|                                |  |               
|                                |  | (In thousands)
|Gross carrying amount           |  | $              | 1,713 |          |  | $ | 1,271 |  
|Less  accumulated amortization |  |                | (418  | )        |  |   | (217  | )
|                                |  |                |       |          |  |   |       |  
|Net carrying amount             |  | $              | 1,295 |          |  | $ | 1,054 |  
|                                |  |                |       |          |  |   |       |  

All such costs have been included as a component
of other non-current assets in the Condensed Consolidated
Balance Sheet and are being amortized to cost of product revenue
over a five-year period, the estimated useful lives of the
products.



|   |                     
|-- | --------------------
|8. | Comprehensive Income

Comprehensive income is comprised of net income
(loss) and other comprehensive income and losses. Other
comprehensive income includes certain changes in equity that are
excluded from net income (loss), such as cumulative foreign
currency translation adjustments. Other comprehensive income
also includes unrealized gains and losses on the Companys
hedging instruments and unrealized gains and losses on the
Companys marketable securities.

11



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


The following table presents the calculation of
comprehensive income:

|                                   |                                                                                               |                    |     |                   |   |           |      |           |  |   |       |       |   |   |      |     | 
|---------------------------------- | --------------------------------------------------------------------------------------------- | ------------------ | --- | ----------------- | - | --------- | ---- | --------- |  | - | ----- | ----- | - | - | ---- | --- | 
|                                   |                                                                                               |                    |     |                  
|                                   |                                                                                               | Three Months Ended |     | Nine Months Ended
|                                   |                                                                                               |                    |     |                  
|                                   |                                                                                               | March 27,          |     | March 29,         |   | March 27, |      | March 29,
|                                   |                                                                                               | 2004               |     | 2003              |   | 2004      |      | 2003     
|                                   |                                                                                               |                    |     |                   |   |           |      |          
|                                   |                                                                                               |                   
|                                   |                                                                                               | (In thousands)    
|Net income (loss)                  |                                                                                               | $                  | 509 |                   |   | $         | (584 | )         |  | $ | 1,521 |       |   | $ | (368 | )  
|Other comprehensive income (loss): |                                                                                               |                    |     |                   |   |           |      |           |  |   |       |       |   |   |      |    
|                                   | Foreign currency translation adjustment                                                       |                    |     | (156              | ) |           |      | 884       |  |   |       | 1,345 |   |   |      | 766 | 
|                                   | Changes in fair value of marketable securities,
    net of related tax effect                 |                    |     | 10                |   |           |      | 1         |  |   |       | 1     |   |   |      | 9   | 
|                                   | Changes in value of financial instruments
    designated as hedges, net of related tax effect |                    |     | (14               | ) |           |      | 226       |  |   |       | (91   | ) |   |      | 210 | 
|                                   |                                                                                               |                    |     |                   |   |           |      |           |  |   |       |       |   |   |      |    
|                                   | Other comprehensive income (loss)                                                             |                    |     | (160              | ) |           |      | 1,111     |  |   |       | 1,255 |   |   |      | 985 | 
|                                   |                                                                                               |                    |     |                   |   |           |      |           |  |   |       |       |   |   |      |    
|Comprehensive income               |                                                                                               | $                  | 349 |                   |   | $         | 527  |           |  | $ | 2,776 |       |   | $ | 617  |    
|                                   |                                                                                               |                    |     |                   |   |           |      |           |  |   |       |       |   |   |      |    



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



| |                  
| | -----------------
| | January 2004 Plan

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

The following table presents the restructuring
charges incurred, cash paid to settle the liability and the
remaining liability included in accrued expenses in the
Companys Condensed Consolidated Balance Sheet (in
thousands):

|                          |  |           |     |  
|------------------------- |  | --------- | --- | -
|                          |  | Employee 
|                          |  | Severance
|                          |  | Costs    
|                          |  |          
|Restructuring charges     |  | $         | 508 |  
|Cash payments             |  |           | (52 | )
|                          |  |           |     |  
|Balance at March 27, 2004 |  | $         | 456 |  
|                          |  |           |     |  



| |                
| | ---------------
| | March 2003 Plan

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

As a result of the March 2003 plan, the Company
recorded charges and related accruals of $584,000 in its third
fiscal quarter of 2003. Of this charge, $179,000 related to the
write-off of inventories and, as such, was

12



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


included as a component of the cost of product
revenue. The remainder of the charge was recorded as a
restructuring charge in the Companys Condensed
Consolidated Statement of Operations. All significant activities
under the March 2003 plan were completed as of June 30,
2003.

The following table presents the charges incurred
by category of expenditure, and related restructuring costs
included in accrued expenses in the Companys Condensed
Consolidated Balance Sheet (in thousands):

|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|----------------------------------- |  | ---------------- | --- | ------------------------------- |  | --------- | --- | ----- |  | --------- | -- | ----------- |  | ----- | --- | ----- |  | - | --- | - |  | - | --- | - |  | - | --- | - |  | - | --- | -
|                                    |  |                  |     |                                
|                                    |  | Non-Cash Charges |     | Charges Requiring Cash Payments
|                                    |  |                  |     |                                
|                                    |  |                  |     | Write-off of                    |  | Write-off |     |       |  | Employee  |    | Lease       |  |      
|                                    |  | Write-off of     |     | Intangible                      |  | of Other  |     |       |  | Severance |    | Termination |  | Other |     |      
|                                    |  | Inventories      |     | Asset                           |  | Assets    |     | Total |  | Costs     |    | Costs       |  | Costs |     | Total
|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |      
|Restructuring charge in fiscal 2003 |  | $                | 179 |                                 |  | $         | 217 |       |  | $         | 75 |             |  | $     | 471 |       |  | $ | 79  |   |  | $ | 45  |   |  | $ | 22  |   |  | $ | 146 |  
|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Revision of estimated liability     |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   | 1   |   |  |   | (34 | ) |  |   |    |   |  |   | (33 | )
|Cash payments                       |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   | (49 | ) |  |   | (11 | ) |  |   | (22 | ) |  |   | (82 | )
|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Balance at June 30, 2003            |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   | 31  |   |  |   |    |   |  |   |    |   |  |   | 31  |  
|Cash payments                       |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   | (31 | ) |  |   |    |   |  |   |    |   |  |   | (31 | )
|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Balance at March 27, 2004           |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  | $ |    |   |  | $ |    |   |  | $ |    |   |  | $ |    |  
|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  



| |                
| | ---------------
| | April 2002 Plan

In April 2002, the Company enacted a corporate
restructuring plan (the April 2002 plan) to resize
the Companys operations and to reduce overhead costs. The
April 2002 plan included the involuntary termination of 37
employees, the closing of certain leased offices and the
reduction in size of other leased offices. All significant
activities under the April 2002 plan are complete. As a result
of the April 2002 plan, the Company recorded charges and related
accruals in fiscal 2002 of $1.3 million. The remaining
accrual balances as of March 27, 2004 relate to long-term
contractual obligations from facility commitments that will be
paid over five years. The following table presents the balance
of the accrued restructuring charges:

|                          |  |                |     |  
|------------------------- |  | -------------- | --- | -
|                          |  | Accrued Lease 
|                          |  | Termination   
|                          |  | Costs         
|                          |  |               
|                          |  | (In thousands)
|Balance at June 30, 2003  |  | $              | 596 |  
|Cash payments             |  |                | (76 | )
|Foreign exchange impact   |  |                | 52  |  
|                          |  |                |     |  
|Balance at March 27, 2004 |  | $              | 572 |  
|                          |  |                |     |  



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

In January 2004, the Company completed the
renewal of its unsecured $5.0 million working capital
credit facility with a domestic bank. The terms of the facility,
which expires December 2, 2004, are substantially the same
as those of the previous facility. The available borrowing base
of the facility is subject to a calculation that is based upon
eligible accounts receivable. Advances may be in the form of
loans, letters of credit, foreign exchange contracts or other
cash management lines. Loans against the facility bear interest
at the banks prime rate. The facility includes certain
restrictive covenants, all of which the Company was in
compliance with as of March 27, 2004. These covenants
include certain liquidity and profitability measures and
restrictions that limit the ability of the Company to merge,
acquire or sell certain assets without prior approval from the
bank. As of March 27, 2004, the Company had employed
$733,000 of the available borrowing base

13



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


through outstanding foreign exchange contracts
and letters of credit. These advances do not incur interest
charges. As of March 27, 2004, there were no loans advanced
against the facility, and the remaining available borrowing base
was $4.3 million.

Certain subsidiaries of the Company have
established credit facilities with two separate financial
institutions primarily for the purposes of establishing foreign
exchange contracts. Advances against these facilities bear
interest at the institutions published rates plus
2% per annum. These credit facilities are unsecured.
Advances against these facilities are guaranteed by the Company.
There were no advances against these facilities as of
March 27, 2004.

Certain subsidiaries of the Company have
established other credit facilities totaling $207,000 with two
separate financial institutions for general working capital
requirements and foreign exchange facilities. Advances against
these facilities bear interest at the institutions
published rates, plus 1.5% per annum. Advances against one
of these facilities are secured by a $111,000 term deposit and
the assets of an Australian subsidiary of the Company. There
were no advances against these facilities as of March 27,
2004.



|    |                                   
|--- | ----------------------------------
|11. | Segment and Geographic Information

The Company is engaged in one reportable industry
segment: the development, marketing and support of software and
enabling hardware products for the plastics part and mold design
and manufacturing industry.

14



---



##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)


Geographic information regarding the
Companys operations follows:

|                                     |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |        | 
|------------------------------------ | ---------------------------------- | ------------------ | - | ----------------- |  | --------- | - | --------- |  |  | - | ------ |  |  | - | ------ | 
|                                     |                                    |                    |   |                  
|                                     |                                    | Three Months Ended |   | Nine Months Ended
|                                     |                                    |                    |   |                  
|                                     |                                    | March 27,          |   | March 29,         |  | March 27, |   | March 29,
|                                     |                                    | 2004               |   | 2003              |  | 2004      |   | 2003     
|                                     |                                    |                    |   |                   |  |           |   |          
|                                     |                                    |                   
|                                     |                                    | (In thousands)    
|Revenue from unaffiliated customers: |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|Asia/ Australia:                     |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|                                     | Design Analysis Solutions products |                    | $ | 2,459             |  |           | $ | 2,257     |  |  | $ | 6,262  |  |  | $ | 5,009  | 
|                                     | Manufacturing Solutions products   |                    |   | 44                |  |           |   | 25        |  |  |   | 52     |  |  |   | 74     | 
|                                     | Services                           |                    |   | 1,689             |  |           |   | 1,487     |  |  |   | 5,008  |  |  |   | 4,192  | 
|                                     |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|                                     | Total Asia/ Australia              |                    |   | 4,192             |  |           |   | 3,769     |  |  |   | 11,322 |  |  |   | 9,275  | 
|                                     |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|Americas:                            |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|                                     | Design Analysis Solutions products |                    |   | 564               |  |           |   | 542       |  |  |   | 1,464  |  |  |   | 1,757  | 
|                                     | Manufacturing Solutions products   |                    |   | 2,859             |  |           |   | 370       |  |  |   | 3,608  |  |  |   | 1,525  | 
|                                     | Services                           |                    |   | 1,719             |  |           |   | 1,476     |  |  |   | 4,722  |  |  |   | 4,361  | 
|                                     |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|                                     | Total Americas                     |                    |   | 5,142             |  |           |   | 2,388     |  |  |   | 9,794  |  |  |   | 7,643  | 
|                                     |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|Europe:                              |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|                                     | Design Analysis Solutions products |                    |   | 1,402             |  |           |   | 1,153     |  |  |   | 4,249  |  |  |   | 3,202  | 
|                                     | Manufacturing Solutions products   |                    |   | 246               |  |           |   | 232       |  |  |   | 1,406  |  |  |   | 924    | 
|                                     | Services                           |                    |   | 2,308             |  |           |   | 1,931     |  |  |   | 6,661  |  |  |   | 5,656  | 
|                                     |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|                                     | Total Europe                       |                    |   | 3,956             |  |           |   | 3,316     |  |  |   | 12,316 |  |  |   | 9,782  | 
|                                     |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|Consolidated:                        |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|                                     | Design Analysis Solutions products |                    |   | 4,425             |  |           |   | 3,952     |  |  |   | 11,975 |  |  |   | 9,968  | 
|                                     | Manufacturing Solutions products   |                    |   | 3,149             |  |           |   | 627       |  |  |   | 5,066  |  |  |   | 2,523  | 
|                                     | Services                           |                    |   | 5,716             |  |           |   | 4,894     |  |  |   | 16,391 |  |  |   | 14,209 | 
|                                     |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       
|                                     | Total consolidated                 |                    | $ | 13,290            |  |           | $ | 9,473     |  |  | $ | 33,432 |  |  | $ | 26,700 | 
|                                     |                                    |                    |   |                   |  |           |   |           |  |  |   |        |  |  |   |       

Revenue from unaffiliated customers in Japan for
the three months ended March 27, 2004 and March 29,
2003 was $2.8 million and $2.7 million (21% and 28% of
total revenue), respectively. Revenue from unaffiliated
customers in Japan for the nine months ended March 27, 2004
and March 29, 2003 was $7.4 million and
$6.3 million (22% and 24% of total revenue), respectively.
Substantially all of the revenue in the Americas region is
derived from the United States.

|                   |  |                |       |          |  |   |       | 
|------------------ |  | -------------- | ----- | -------- |  | - | ----- | 
|                   |  | March 27,      |       | June 30,
|                   |  | 2004           |       | 2003    
|                   |  |                |       |         
|                   |  |               
|                   |  | (In thousands)
|Fixed assets, net: |  |                |       |          |  |   |       | 
|Asia/ Australia    |  | $              | 1,852 |          |  | $ | 1,734 | 
|Americas           |  |                | 1,543 |          |  |   | 1,512 | 
|Europe             |  |                | 904   |          |  |   | 645   | 
|                   |  |                |       |          |  |   |       | 
|Total consolidated |  | $              | 4,299 |          |  | $ | 3,891 | 
|                   |  |                |       |          |  |   |       | 

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

15



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL
STATEMENTS  (Continued)




|    |                                                          
|--- | ---------------------------------------------------------
|12. | Contingencies, Commitments and Guarantor
    Arrangements

The Company generally warrants that its products
will perform in all material respects in accordance with its
standard published specifications in effect at the time of
delivery of the products to the customer for a period of
90 days to 2 years from the date of shipment or any
longer period that may be required by local law.

The following table describes changes to the
warranty provision (in thousands):

|                                         |  |                   |     |           |  |   |    | 
|---------------------------------------- |  | ----------------- | --- | --------- |  | - | -- | 
|                                         |  |                  
|                                         |  | Nine Months Ended
|                                         |  |                  
|                                         |  | March 27,         |     | March 29,
|                                         |  | 2004              |     | 2003     
|                                         |  |                   |     |          
|Beginning balance                        |  | $                 | 42  |           |  | $ | 13 | 
|Additional accruals                      |  |                   | 5   |           |  |   | 31 | 
|Settlements and reductions               |  |                   | (30 | )         |  |   |   | 
|Liability assumed in acquisition of AMSI |  |                   | 189 |           |  |   |   | 
|                                         |  |                   |     |           |  |   |    | 
|Ending balance                           |  | $                 | 206 |           |  | $ | 44 | 
|                                         |  |                   |     |           |  |   |    | 



|    |                                 
|--- | --------------------------------
|13. | Recent Accounting Pronouncements

In November 2002, the Financial Accounting
Standards Board (FASB) issued Emerging Issues Task
Force 00-21 (EITF 00-21), Revenue
Arrangements with Multiple Deliverables. EITF 00-21
requires revenue arrangements with multiple deliverables to be
divided into separate units of accounting. If the deliverables
in the arrangement meet certain criteria, arrangement
consideration should be allocated among the separate units of
accounting based on their relative fair values. Applicable
revenue recognition criteria are to be considered for separate
units of accounting. The guidance in EITF 00-21 was
effective for revenue arrangements entered into in fiscal
periods beginning after June 15, 2003. The Companys
adoption of EITF 00-21 did not have a material impact on
its financial position or results of operations.

On December 17, 2003, the Staff of the
Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 104 (SAB 104),
Revenue Recognition, which supersedes SAB 101,
Revenue Recognition in Financial Statements.
SAB 104s primary purpose is to rescind the accounting
guidance contained in SAB 101 related to multiple-element
revenue arrangements that was superseded as a result of the
issuance of EITF 00-21, Accounting for Revenue
Arrangements with Multiple Deliverables. Additionally,
SAB 104 rescinds the SECs related Revenue
Recognition in Financial Statements Frequently Asked Questions
and Answers issued with SAB 101 that had been
codified in SEC Topic 13, Revenue Recognition.
While the wording of SAB 104 has changed to reflect the
issuance of EITF 00-21, the revenue recognition principles
of SAB 101 remain largely unchanged by the issuance of
SAB 104, which was effective upon issuance. The
Companys adoption of SAB 104 did not have a material
effect on its financial position or results of operations.

16



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 2. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 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 30. Readers should not place undue reliance on our
forward-looking statements. We do not undertake any obligation
to update any of our forward-looking statements to reflect
events occurring after the date of this report.

Business Overview

Our primary business is the development, sale and
support of software applications and enabling hardware for the
design, engineering and manufacture of injection molded plastic
parts. We develop software products internally and through
cooperative research relationships with a number of public and
private educational and research organizations around the world.
In addition, some software is developed by commercial
contractors. Historically, we categorized our products into two
groups, Design Optimization Solutions and Manufacturing
Solutions. Our Design Optimization Solutions allow a product
designer or engineer to simulate the manufacture of a plastic
part to determine the optimal part design and part/mold
combination. Our Design Optimization Solutions include our
Moldflow Plastics Insight (MPI) series for in-depth
part and mold design and our Moldflow Plastics Advisers
(MPA) series for part design and high-level mold
design. Our Manufacturing Solutions deliver a complete
collaborative manufacturing management system which provides
production and process data for use in real-time business
performance management and functions to automate the setup and
control of the injection molding process. Our Manufacturing
Solutions products are an integration of our existing Moldflow
Plastics Xpert (MPX) product, our Shotscope product
acquired from Branden Technologies in April 2003, and our CPI
production monitoring system product introduced in January 2003
after our acquisition of the assets and the ongoing operations
of Côntrole de Processus Industriels s.a.r.l.

On January 23, 2004, we acquired all of the
outstanding stock of American MSI Corporation
(AMSI), located in Moorpark, California, for a total
of $7.2 million in cash, of which $1.1 million was
used to retire all of AMSIs outstanding debt, and issuance
of 349,288 shares of our common stock valued at
$4.4 million. In addition, we paid $293,000 of costs
directly related to the acquisition. AMSI is a leading solution
provider of hot runner process control systems for the injection
molding industry. Hot runners are a key element of sophisticated
mold systems used in the manufacture of large components or
molds with high cavitation typically used in industries such as
automotive, packaging and medical instruments. Hot runner
process control systems facilitate proper control of the
temperature of the molten plastic, providing optimized feedback
and extensive mold diagnostics and process data collection. We
believe the acquisition of AMSI will expand the breadth of our
product offerings for the injection molding shop floor.

In conjunction with the acquisition, we announced
our intention to reorganize our operations into two business
units along our Design Optimization Solutions and Manufacturing
Solutions product lines. In connection with this reorganization,
we have renamed our Design Optimization Solutions as our Design
Analysis Solutions business. The products and services provided
by AMSI became part of the Manufacturing Solutions product line,
effective the date of the acquisition.

17



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##### Table of Contents



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

Critical Accounting Policies and Significant
Judgments and Estimates

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

The accounting policies that we believe are most
critical to fully understand our consolidated financial
statements include: revenue recognition, valuation allowances,
acquisition accounting, impairment of intangible assets,
goodwill and other long-lived assets, income tax accounting,
restructuring charges, hedge accounting and capitalization of
software development costs. For a more detailed explanation of
the judgments included in these areas, refer to the
Companys Annual Report on Form 10-K for the year
ended June 30, 2003.

Results of Operations

We generate revenue from three principal sources:



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

Product revenue.Our
product revenue includes both license fees for our packaged
software and product fees for our manufacturing management
systems and hot runner process control systems. Typically, our
customers pay an up-front, one-time fee for all of our products.
For our packaged software products, the amount of the fee
depends upon the number and type of software modules licensed
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. For sales of our other
packaged software products, we generally require a signed
license agreement. For our manufacturing management and hot
runner process control systems, the amount of the fee depends
upon the number and type of software modules licensed with the
system, if any, and the systems hardware components. We
generally require a signed license agreement for sales of our
manufacturing management systems that have embedded software
functionality. In addition, we receive royalty payments from
developers of other software products related to the bundling of
our software with their design software programs.

We generally record a larger percentage of our
quarterly revenue in the third month of each fiscal quarter.
Accordingly, our quarterly results, and particularly our product
revenues, are often difficult to predict prior to the final days
of each quarter.

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

Cost of product
revenue.Cost of product revenue
consists primarily of the costs associated with hardware
components for our Manufacturing Solutions products, compact
discs and related packaging material, duplication and shipping
costs and the salaries of our distribution personnel. In some
cases, we pay

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royalties to third parties for usage-based
licenses of their products that are embedded in our products.
Product royalties are expensed when the related obligation
arises, which is generally upon the license of our products, and
are included in cost of product revenue. Also included in cost
of product revenue is amortization expense related to
capitalized software development costs and amortization expense
related to intangible assets acquired in our acquisition of AMSI
in January 2004.


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

Research and
development.We employ a development
staff to create new products and enhance our existing products.
Product development expenditures, which include salaries,
benefits, travel, payments to universities and other research
institutions and facilities costs, are generally charged to
operations as incurred. SFAS No. 86, Accounting
for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed, requires the capitalization of certain
software development costs subsequent to the establishment of
technological feasibility up to the point of the products
release for commercial sale. In accordance with
SFAS No. 86, research and development costs of
$222,000 were capitalized in the three months ended
March 27, 2004 related to MMS 2.0, a product not yet
commercially released. In the nine months ended March 27,
2004, total costs of $442,000 were capitalized related to MMS
2.0 and other product releases. In the three and nine months
ended March 29, 2003, costs of $148,000 and $318,000,
respectively, were capitalized related to various product
releases.

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

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

Restructuring
charges.In the third fiscal quarter
of 2004, we incurred charges related to actions we took to
restructure our business after our acquisition of AMSI. In the
third fiscal quarter of 2003, we incurred charges related to
actions we took to restructure our business after our
acquisition of CPI. These actions and the related charges are
more fully described in the section below titled,
Restructuring.

Amortization of acquired intangible
assets.These costs represent the
amortization of intangible assets recorded in connection with
our acquisitions.

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

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

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

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changes in our business across different
jurisdictions with varying country, state and local income tax
rates, deductibility of certain costs and expenses by
jurisdiction and as a result of acquisitions.


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

|                           |                                            |                    |      |                   |   |           |      |           |    |  |      |       |   |  |      |       |   
|-------------------------- | ------------------------------------------ | ------------------ | ---- | ----------------- | - | --------- | ---- | --------- | -- |  | ---- | ----- | - |  | ---- | ----- | --
|                           |                                            |                    |      |                  
|                           |                                            | Three Months Ended |      | Nine Months Ended
|                           |                                            |                    |      |                  
|                           |                                            | March 27,          |      | March 29,         |   | March 27, |      | March 29,
|                           |                                            | 2004               |      | 2003              |   | 2004      |      | 2003     
|                           |                                            |                    |      |                   |   |           |      |          
|Revenue:                   |                                            |                    |      |                   |   |           |      |           |    |  |      |       |   |  |      |      
|                           | Product                                    |                    |      | 57.0              | % |           |      | 48.3      | %  |  |      | 51.0  | % |  |      | 46.8  | % 
|                           | Services                                   |                    |      | 43.0              |   |           |      | 51.7      |    |  |      | 49.0  |   |  |      | 53.2  |   
|                           |                                            |                    |      |                   |   |           |      |           |    |  |      |       |   |  |      |      
|                           | Total revenue                              |                    |      | 100.0             | % |           |      | 100.0     | %  |  |      | 100.0 | % |  |      | 100.0 | % 
|                           |                                            |                    |      |                   |   |           |      |           |    |  |      |       |   |  |      |      
|Costs and expenses:        |                                            |                    |      |                   |   |           |      |           |    |  |      |       |   |  |      |      
|                           | Cost of product revenue                    |                    |      | 13.4              | % |           |      | 8.8       | %  |  |      | 9.0   | % |  |      | 8.1   | % 
|                           | Cost of services revenue                   |                    |      | 11.0              |   |           |      | 3.4       |    |  |      | 9.0   |   |  |      | 3.3   |   
|                           | Research and development                   |                    |      | 12.8              |   |           |      | 16.5      |    |  |      | 14.4  |   |  |      | 16.3  |   
|                           | Selling and marketing                      |                    |      | 37.9              |   |           |      | 50.4      |    |  |      | 41.6  |   |  |      | 50.2  |   
|                           | General and administrative                 |                    |      | 16.5              |   |           |      | 19.8      |    |  |      | 18.6  |   |  |      | 20.0  |   
|                           | Restructuring charges                      |                    |      | 3.8               |   |           |      | 4.6       |    |  |      | 1.5   |   |  |      | 1.6   |   
|                           | Amortization of acquired intangible assets |                    |      | 0.9               |   |           |      | 1.9       |    |  |      | 1.0   |   |  |      | 1.9   |   
|                           |                                            |                    |      |                   |   |           |      |           |    |  |      |       |   |  |      |      
|                           | Total operating expenses                   |                    |      | 96.3              |   |           |      | 105.4     |    |  |      | 95.1  |   |  |      | 101.4 |   
|                           |                                            |                    |      |                   |   |           |      |           |    |  |      |       |   |  |      |      
|                           | Income (loss) from operations              |                    |      | 3.7               |   |           |      | (5.4      | )  |  |      | 4.9   |   |  |      | (1.4  | ) 
|Interest income, net       |                                            |                    | 2.4  |                   |   |           | 2.8  |           |    |  | 2.6  |       |   |  | 3.1  |      
|Other income, net          |                                            |                    | (0.1 | )                 |   |           | (1.1 | )         |    |  | (0.2 | )     |   |  | (0.6 | )    
|                           |                                            |                    |      |                   |   |           |      |           |    |  |      |       |   |  |      |      
|                           | Income (loss) before income taxes          |                    |      | 6.0               |   |           |      | (3.7      | )  |  |      | 7.3   |   |  |      | 1.1   |   
|Provision for income taxes |                                            |                    | 2.2  |                   |   |           | 2.4  |           |    |  | 2.6  |       |   |  | 2.6  |      
|                           |                                            |                    |      |                   |   |           |      |           |    |  |      |       |   |  |      |      
|                           | Net income (loss)                          |                    |      | 3.8               | % |           |      | (6.1      | )% |  |      | 4.7   | % |  |      | (1.5  | )%
|                           |                                            |                    |      |                   |   |           |      |           |    |  |      |       |   |  |      |      

Three Months Ended March 27, 2004
compared to Three Months Ended March 29, 2003



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

Total revenue increased 40%, or
$3.8 million, to $13.3 million for the three months
ended March 27, 2004, from $9.5 million for the three
months ended March 29, 2003. On a constant currency basis,
which excludes the impact of changes in foreign currency
exchange rates from those of the previous year, total revenue
increased approximately 30%. Total revenue for the third fiscal
quarter of 2004 included $2.4 million of hot runner process
control systems and services, a result of our January 2004
acquisition of AMSI.

The following table sets forth our total revenue
by geographic region for the third quarter of fiscal 2004 and
2003:

|         |                 |                    |   |           |  |  |   |       | 
|-------- | --------------- | ------------------ | - | --------- |  |  | - | ----- | 
|         |                 |                   
|         |                 | Three Months Ended
|         |                 |                   
|         |                 | March 27,          |   | March 29,
|         |                 | 2004               |   | 2003     
|         |                 |                    |   |          
|         |                 |                   
|         |                 | (In thousands)    
|Revenue: |                 |                    |   |           |  |  |   |      
|         | Asia/ Australia |                    | $ | 4,192     |  |  | $ | 3,769 | 
|         | Americas        |                    |   | 5,142     |  |  |   | 2,388 | 
|         | Europe          |                    |   | 3,956     |  |  |   | 3,316 | 
|         |                 |                    |   |           |  |  |   |      
|         | Total           |                    | $ | 13,290    |  |  | $ | 9,473 | 
|         |                 |                    |   |           |  |  |   |      

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|                             |                 |                    |  |           |   |  |  |     |  
|---------------------------- | --------------- | ------------------ |  | --------- | - |  |  | --- | -
|                             |                 |                   
|                             |                 | Three Months Ended
|                             |                 |                   
|                             |                 | March 27,          |  | March 29,
|                             |                 | 2004               |  | 2003     
|                             |                 |                    |  |          
|                             |                 |                   
|                             |                 | (In thousands)    
|Percentage of total revenue: |                 |                    |  |           |   |  |  |    
|                             | Asia/ Australia |                    |  | 31        | % |  |  | 40  | %
|                             | Americas        |                    |  | 39        |   |  |  | 25  |  
|                             | Europe          |                    |  | 30        |   |  |  | 35  |  
|                             |                 |                    |  |           |   |  |  |    
|                             | Total           |                    |  | 100       | % |  |  | 100 | %
|                             |                 |                    |  |           |   |  |  |    

Revenues from sales of AMSI products and services
were generated primarily in the Americas, and accordingly, the
percentage of our revenues coming from the Americas region was
significantly higher in the third quarter of fiscal 2004 than in
the same period of fiscal 2003.

Product revenue.Product revenue increased 65%, or $3.0 million, to
$7.6 million for the three months ended March 27,
2004, from $4.6 million for the three months ended
March 29, 2003. On a constant currency basis, product
revenue increased approximately 55%. The following table sets
forth our product revenue by product group and geography for the
third quarter of fiscal 2004 and 2003:

|                                     |                           |                           |   |           |   |  |   |       |  
|------------------------------------ | ------------------------- | ------------------------- | - | --------- | - |  | - | ----- | -
|                                     |                           |                          
|                                     |                           | Three Months Ended       
|                                     |                           |                          
|                                     |                           | March 27,                 |   | March 29,
|                                     |                           | 2004                      |   | 2003     
|                                     |                           |                           |   |          
|                                     |                           |                          
|                                     |                           | (In thousands, except for
|                                     |                           | percentage data)         
|Asia/ Australia product revenue:     |                           |                           |   |           |   |  |   |      
|                                     | Design Analysis Solutions |                           | $ | 2,459     |   |  | $ | 2,257 |  
|                                     | Manufacturing Solutions   |                           |   | 44        |   |  |   | 25    |  
|                                     |                           |                           |   |           |   |  |   |      
|                                     | Total                     |                           |   | 2,503     |   |  |   | 2,282 |  
|                                     |                           |                           |   |           |   |  |   |      
|Americas product revenue:            |                           |                           |   |           |   |  |   |      
|                                     | Design Analysis Solutions |                           |   | 564       |   |  |   | 542   |  
|                                     | Manufacturing Solutions   |                           |   | 2,859     |   |  |   | 370   |  
|                                     |                           |                           |   |           |   |  |   |      
|                                     | Total                     |                           |   | 3,423     |   |  |   | 912   |  
|                                     |                           |                           |   |           |   |  |   |      
|Europe product revenue:              |                           |                           |   |           |   |  |   |      
|                                     | Design Analysis Solutions |                           |   | 1,402     |   |  |   | 1,153 |  
|                                     | Manufacturing Solutions   |                           |   | 246       |   |  |   | 232   |  
|                                     |                           |                           |   |           |   |  |   |      
|                                     | Total                     |                           |   | 1,648     |   |  |   | 1,385 |  
|                                     |                           |                           |   |           |   |  |   |      
|Total product revenue:               |                           |                           |   |           |   |  |   |      
|                                     | Design Analysis Solutions |                           |   | 4,425     |   |  |   | 3,952 |  
|                                     | Manufacturing Solutions   |                           |   | 3,149     |   |  |   | 627   |  
|                                     |                           |                           |   |           |   |  |   |      
|                                     | Total                     |                           | $ | 7,574     |   |  | $ | 4,579 |  
|                                     |                           |                           |   |           |   |  |   |      
|Percentage of total product revenue: |                           |                           |   |           |   |  |   |      
|                                     | Design Analysis Solutions |                           |   | 58        | % |  |   | 86    | %
|                                     | Manufacturing Solutions   |                           |   | 42        |   |  |   | 14    |  
|                                     |                           |                           |   |           |   |  |   |      
|                                     | Total                     |                           |   | 100       | % |  |   | 100   | %
|                                     |                           |                           |   |           |   |  |   |      

Product revenue from Design Analysis Solutions
increased 12%, or $473,000, to $4.4 million for the three
months ended March 27, 2004 from $4.0 million for the
three months ended March 29, 2003. The increase in Design
Analysis Solutions product revenue was primarily a result of
strength in our Asia Pacific and European markets, particularly
in Japan, France and Germany. Our third fiscal quarter coincides
with the fiscal year end of many Japanese companies, which is
historically when these companies make capital investments in
equipment to prepare for the start of their next fiscal year,
which we believe results in increased sales of our Design
Analysis

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


Product revenue from Manufacturing Solutions
increased $2.5 million to $3.1 million for the three
months ended March 27, 2004, from $627,000 for the three
months ended March 29, 2003. The increase in Manufacturing
Solutions product revenue from the Americas in the third quarter
of fiscal 2004 was primarily a result of our acquisition of
AMSI, which added $2.2 million of product revenue from
sales of the Altanium hot runner process control systems and
related ancillary hardware. Product revenue from other
Manufacturing Solutions increased 44%, or $278,000, to $905,000
for the three months ended March 27, 2004, from $627,000
for the three months ended March 29, 2003, primarily a
result of strengthening economic conditions in the United States.

We added 111 new customers in the third quarter
of fiscal 2004, compared to 77 new customers in the same period
of fiscal 2003. Sales to new customers represented 31% of total
product revenues in the third quarter of fiscal 2004, compared
to 40% in the same period of fiscal 2003. We sold 188 seats
of Design Analysis Solutions products in the third quarter of
fiscal 2004, compared to 130 seats in the corresponding
period of fiscal 2003. Pricing of individual products within
these product families can vary greatly, and the mix of products
sold during a given period can significantly impact our average
sales price per seat. As such, we do not believe that average
sales prices per seat provide a meaningful measure of our
business.

Services revenue.Services revenue increased 17%, or $822,000, to
$5.7 million for the three months ended March 27,
2004, from $4.9 million for the three months ended
March 29, 2003. On a constant currency basis, service
revenue increased approximately 8%, over the same period last
year. This increase was primarily in the sale of maintenance
contracts, which is the result of growth in our customer base
arising from product license sales. Services revenue from the
third fiscal quarter of 2004 included approximately $200,000 in
repair and other service billings from the acquired AMSI
business.

No customer accounted for more than 10% of our
total revenue during the three-month periods ended
March 27, 2004 and March 29, 2003.



| |                   
| | ------------------
| | Costs and Expenses

Cost of product
revenue.The cost of product revenue
increased 114%, or $949,000, to $1.8 million for the three
months ended March 27, 2004, from $829,000 for the three
months ended March 29, 2003. Increased hardware and direct
material costs of $1.1 million related to our Manufacturing
Solutions products and increased amortization expense of
$60,000, related to capitalized software development costs and
intangible assets acquired in the purchase of AMSI, were
partially offset by the impact of a redirection of some
employees to post-sales support activities which are included in
the cost of services revenue. We expect that sales of
manufacturing solutions will continue to represent a significant
portion of our product revenue. Since these products include
hardware components, we expect that our cost of product revenue
will increase to be a more significant component of our
operating expenses relative to the level of these costs in prior
periods.

On the date of its acquisition, AMSI had
approximately $198,000 of open sales orders related to shipments
in-transit to customers. As the earning process was not yet
complete, the value of these orders was recorded as deferred
revenue on the date of acquisition, with an equal amount
recorded as inventory. The corresponding product revenue and
cost of product revenue was recorded in our third fiscal quarter
of 2004 upon completion of delivery to the customers. As a
result, no gross margin in respect of these sales was included
in our reported results of operations.

Cost of services
revenue.Our cost of services revenue
increased 351%, or $1.1 million, to $1.5 million for
the three months ended March 27, 2004, from $323,000 for
the three months ended March 29, 2003. The increase
reflects the impact of organizational changes to redirect
technical staff from research and development, sales and cost of
product revenue to our post-sales and implementation groups, the
costs of which are included in cost of services revenue. These
implementation resources were expanded as a result of the
increased requirements to provide technical assistance to the
growing customer base for our Manufacturing Solutions products.
To enhance the benefits realized by our customers from the
purchase of our solutions, we

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provide services including the training of
customer personnel, data conversion and building of interfaces
to other plant and business management systems. Accordingly, as
sales of our Manufacturing Solutions products increase, we
anticipate that our cost of service revenue will increase when
compared with previous periods. The impact of the acquisition of
AMSI on the cost of services revenue was not significant.


Research and
development.Research and development
expenses increased 8%, or $128,000, to $1.7 million for the
three months ended March 27, 2004, from $1.6 million
for the three months ended March 29, 2003. The increase is
primarily attributable to increased compensation expense, which
resulted from the combination of several factors, including the
impact of changes in foreign currency exchange rates and annual
salary increases which took effect in October. These increases
were partially offset by the capitalization of software
development costs in accordance with SFAS No. 86,
which was higher than the corresponding period in fiscal 2003 by
$74,000.

Selling and
marketing.Selling and marketing
expenses increased 5%, or $260,000 to $5.0 million for the
three months ended March 27, 2004, from $4.8 million
for the three months ended March 29, 2003 due to increased
employee compensation costs resulting from higher commission
expense on increased sales and our annual salary adjustments for
our staff, and additional travel and promotional activities.
These increases were partially offset by the impact of the
aforementioned redirection of resources to customer support and
implementation activities, which reduced selling and marketing
expenses by $562,000 as compared to the prior period and
increased cost of services revenue by a corresponding amount.

General and
administrative.General and
administrative expenses increased 17%, or $310,000, to
$2.2 million for the three months ended March 27,
2004, from $1.9 million for the three months ended
March 29, 2003. The increase was primarily due to increased
compensation expense, resulting from our annual salary increases
for our staff and changes in foreign currency exchange rates and
increased professional service fees, including the cost of
audit, tax, and other accounting services. In addition to these
ongoing expenses, we incurred expenses of $130,000 in connection
with preparation for, and compliance with, the requirements of
the Sarbanes-Oxley Act in the three months ended March 27,
2004. A significant portion of these expenses were a result of
first-year implementation activities related to the requirement
that companies certify, and the independent auditors audit and
attest to a system of internal controls. Our estimates of the
total costs of compliance, a portion of which was expensed
during our third quarter of fiscal 2004, are subject to further
revision. We anticipate, however, that these costs will continue
to be significant over the remainder of our fiscal year and
during our next fiscal year.

Restructuring
charges.In the third fiscal quarter
of 2004, we incurred charges related to actions we took to
restructure our business after our acquisition of AMSI. In the
third fiscal quarter of 2003, we incurred charges related to
actions we took to restructure our business after our
acquisition of CPI. These actions and the related charges are
more fully described in the section below titled,
Restructuring.

Amortization of acquired intangible
assets.Amortization expense decreased
28%, or $50,000, to $126,000 for the three months ended
March 27, 2004, from $176,000 for the three months ended
March 29, 2003. The decrease was primarily a result of our
March 2003 restructuring plan that included the write-off of
certain intangible assets that were acquired in our purchase of
Branden Technologies in March 2001. The reduction of
amortization expense resulting from this write-off was partially
offset by amortization of intangible assets acquired in the
January 2004 acquisition of AMSI.

Interest income,
net.Interest income, net increased
22%, or $58,000, to $321,000 for the three months ended
March 27, 2004 from $263,000 for the three months ended
March 29, 2003. The increase is a result of greater returns
on cash equivalents held by our Australian subsidiary.

Other income (loss),
net.Other income (loss) net, was a
loss of $18,000 for the three months ended March 27, 2004,
compared to a loss of $106,000 for the three months ended
March 29, 2003. This smaller net loss was primarily due to
gains arising from our foreign exchange hedging activities for
the three months ended March 27, 2004, while hedge losses
were incurred during the three months ended March 29, 2003.

Provision for income
taxes.The provision for income taxes
increased 31%, or $69,000, to $294,000 for the three months
ended March 27, 2004, from $225,000 for the three months
ended March 29, 2003, primarily

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a result of higher income before income taxes. In
2004, our effective annual income tax rate is estimated to be
37% of income before income taxes. The expected annual income
tax rate of 37% in 2004 is higher than the U.S. statutory
income tax rate due principally to the effect of income taxes
levied at the state level, the tax impact of net operating
losses for which no financial statement benefit may be recorded
currently, and permanent differences between the deductibility
of certain items for book and tax accounting purposes, offset,
in part, by the impact of differences in tax rates on income
earned in foreign jurisdictions. Our estimated effective annual
income tax rate of 37% for 2004 is lower than the actual
effective income tax rate for the comparable period of the prior
year due primarily to the effect, in the prior year, of taxable
income in certain jurisdictions that was not offset in the
financial statement income tax provision by losses in other
jurisdictions.


Nine Months Ended March 27, 2004 compared
to Nine Months Ended March 29, 2003



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

Total revenue increased 25%, or
$6.7 million, to $33.4 million for the nine months
ended March 27, 2004, from $26.7 million for the nine
months ended March 29, 2003. On a constant currency basis,
which excludes the impact of changes in foreign exchange rates
from those of the previous year, total revenue increased
approximately 16%. Total revenue for the nine months ended
March 27, 2004 included $2.4 million of hot runner
process control systems and services, a result of our January
2004 acquisition of AMSI.

The following table sets forth our total revenue
by geographic region for the first nine months of fiscal 2004
and 2003:

|                             |                 |                   |   |           |   |  |   |        |  
|---------------------------- | --------------- | ----------------- | - | --------- | - |  | - | ------ | -
|                             |                 |                  
|                             |                 | Nine Months Ended
|                             |                 |                  
|                             |                 | March 27,         |   | March 29,
|                             |                 | 2004              |   | 2003     
|                             |                 |                   |   |          
|                             |                 |                  
|                             |                 | (In thousands)   
|Revenue:                     |                 |                   |   |           |   |  |   |       
|                             | Asia/ Australia |                   | $ | 11,322    |   |  | $ | 9,275  |  
|                             | Americas        |                   |   | 9,794     |   |  |   | 7,643  |  
|                             | Europe          |                   |   | 12,316    |   |  |   | 9,782  |  
|                             |                 |                   |   |           |   |  |   |       
|                             | Total           |                   | $ | 33,432    |   |  | $ | 26,700 |  
|                             |                 |                   |   |           |   |  |   |       
|                            
|Percentage of total revenue: |                 |                   |   |           |   |  |   |       
|                             | Asia/ Australia |                   |   | 34        | % |  |   | 35     | %
|                             | Americas        |                   |   | 29        |   |  |   | 28     |  
|                             | Europe          |                   |   | 37        |   |  |   | 37     |  
|                             |                 |                   |   |           |   |  |   |       
|                             | Total           |                   |   | 100       | % |  |   | 100    | %
|                             |                 |                   |   |           |   |  |   |       

Product revenue.Product revenue increased 36%, or $4.5 million to
$17.0 million for the nine months ended March 27,
2004, from $12.5 million for the nine months ended
March 29, 2003. On a constant currency

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basis, product revenue increased approximately
26%. The following table sets forth our product revenue by
product group and geography for the first three quarters of
fiscal 2004 and 2003:


|                                     |                           |                       |   |           |  |  |   |        | 
|------------------------------------ | ------------------------- | --------------------- | - | --------- |  |  | - | ------ | 
|                                     |                           |                      
|                                     |                           | Nine Months Ended    
|                                     |                           |                      
|                                     |                           | March 27,             |   | March 29,
|                                     |                           | 2004                  |   | 2003     
|                                     |                           |                       |   |          
|                                     |                           |                      
|                                     |                           | (In thousands, except
|                                     |                           | for percentage data) 
|Asia/ Australia product revenue:     |                           |                       |   |           |  |  |   |       
|                                     | Design Analysis Solutions |                       | $ | 6,262     |  |  | $ | 5,009  | 
|                                     | Manufacturing Solutions   |                       |   | 52        |  |  |   | 74     | 
|                                     |                           |                       |   |           |  |  |   |       
|                                     | Total                     |                       |   | 6,314     |  |  |   | 5,083  | 
|                                     |                           |                       |   |           |  |  |   |       
|                                    
|Americas product revenue:            |                           |                       |   |           |  |  |   |       
|                                     | Design Analysis Solutions |                       |   | 1,464     |  |  |   | 1,757  | 
|                                     | Manufacturing Solutions   |                       |   | 3,608     |  |  |   | 1,525  | 
|                                     |                           |                       |   |           |  |  |   |       
|                                     | Total                     |                       |   | 5,072     |  |  |   | 3,282  | 
|                                     |                           |                       |   |           |  |  |   |       
|                                    
|Europe product revenue:              |                           |                       |   |           |  |  |   |       
|                                     | Design Analysis Solutions |                       |   | 4,249     |  |  |   | 3,202  | 
|                                     | Manufacturing Solutions   |                       |   | 1,406     |  |  |   | 924    | 
|                                     |                           |                       |   |           |  |  |   |       
|                                     | Total                     |                       |   | 5,655     |  |  |   | 4,126  | 
|                                     |                           |                       |   |           |  |  |   |       
|Total product revenue:               |                           |                       |   |           |  |  |   |       
|                                     | Design Analysis Solutions |                       |   | 11,975    |  |  |   | 9,968  | 
|                                     | Manufacturing Solutions   |                       |   | 5,066     |  |  |   | 2,523  | 
|                                     |                           |                       |   |           |  |  |   |       
|                                     | Total                     |                       | $ | 17,041    |  |  | $ | 12,491 | 
|                                     |                           |                       |   |           |  |  |   |       
|                                    
|Percentage of total product revenue: |                           |                       |   |           |  |  |   |       
|                                     | Design Analysis Solutions |                       |   | 70%       |  |  |   | 80%    | 
|                                     | Manufacturing Solutions   |                       |   | 30        |  |  |   | 20     | 
|                                     |                           |                       |   |           |  |  |   |       
|                                     | Total                     |                       |   | 100%      |  |  |   | 100%   | 
|                                     |                           |                       |   |           |  |  |   |       

Product revenue from Design Analysis Solutions
increased 20%, or $2.0 million, to $12.0 million for
the nine months ended March 27, 2004, from
$10.0 million for the nine months ended March 29,
2003. The increase was primarily due to increased sales in
Japan, France, and Germany, a result of strengthening economies
in those regions and our introduction of new product modules in
the MPA product that have created a broader base of potential
customers for these products and an opportunity to sell
additional modules to existing MPA customers. Product revenue
from Manufacturing Solutions increased $2.5 million to
$5.1 million for the nine months ended March 27, 2004,
from $2.5 million for the nine months ended March 29,
2003. The increase was primarily a result of our acquisition of
AMSI, which added $2.2 million of product revenue in the
Americas region.

We added 335 new customers in the nine months
ended March 27, 2004, compared to 231 new customers in the
same period of fiscal 2003. Sales to new customers represented
35% of total product revenues in the nine months ended
March 27, 2004, compared to 38% in the same period of
fiscal 2003. We sold 437 seats of Design Analysis Solutions
products in the nine months ended March 27, 2004, compared
to 316 seats in the corresponding period of fiscal 2003.
Pricing of individual products within these product families can
vary greatly, and the mix of products sold during a given period
can significantly impact our average sales price per seat. As
such, we do not believe that average sales prices per seat
provide a meaningful measure of our business.

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Services revenue.Services revenue increased 15%, or $2.2 million, to
$16.4 million for the nine months ended March 27,
2004, from $14.2 million for the nine months ended
March 29, 2003. On a constant currency basis, service
revenue increased approximately 7%. This increase was primarily
in the sale of maintenance contracts, which is the result of
growth in our customer base arising from product license sales.
Service revenue from the acquired AMSI business in the nine
month period ended March 27, 2004 was approximately
$200,000.

No customer accounted for more than 10% of our
total revenue during the nine-month periods ended March 27,
2004 and March 29, 2003.

Costs and
Expenses

Cost of product
revenue.The cost of product revenue
increased 40%, or $857,000, to $3.0 million for the nine
months ended March 27, 2004, from $2.2 million for the
nine months ended March 29, 2003. Increased hardware and
direct material costs of $1.0 million related to our
Manufacturing Solutions products and increased amortization
expense of $99,000 related to capitalized software development
costs and intangible assets acquired in the purchase of AMSI
were partially offset by the impact of a redirection of some
employees to post-sales support activities which are included in
the cost of services revenue.

On the date of its acquisition, AMSI had
approximately $198,000 of open sales orders related to shipments
in-transit to customers. As the earning process was not yet
complete, the value of these orders was recorded as deferred
revenue on the date of acquisition, with an equal amount
recorded as inventory. The corresponding product revenue and
cost of product revenue was recorded in our nine months ended
March 27, 2004 upon completion of delivery to the
customers. As a result, no gross margin in respect of these
sales was included in our reported results of operations.

Cost of services
revenue.Our cost of services revenue
increased 241%, or $2.1 million, to $3.0 million for
the nine months ended March 27, 2004, from $886,000 for the
nine months ended March 29, 2003. The increase reflects the
impact of organizational changes to redirect technical staff
during the last nine months from research and development, sales
and cost of product revenue to our post-sales and implementation
groups, the costs of which are included in cost of services
revenue.

Research and
development.Research and development
expenses increased 11%, or $482,000, to $4.8 million for
the nine months ended March 27, 2004, from
$4.3 million for the nine months ended March 29, 2003.
The increase is primarily attributable to increased compensation
expense which resulted from the combination of several factors,
including the impact of changes in foreign currency exchange
rates, our annual salary increases which took effect in October,
and development staff added in our January 2003 acquisition of
CPI. These increases were partially offset by the capitalization
of software development costs in accordance with
SFAS No. 86, which was higher than the corresponding
period of fiscal 2003 by $99,000.

Selling and
marketing.Selling and marketing
increased 4%, or $516,000, to $13.9 million for the nine
months ended March 27, 2004, from $13.4 million for
the nine months ended March 29, 2003. The increase was a
result of a $1.0 million increase in employee compensation
costs resulting from increased sales and annual salary
adjustments, additional travel expenses and a $283,000 increase
in marketing spending . These increases were partially offset by
the impact of our redirection of resources to customer support
and implementation activities, which is included in cost of
services revenue, which reduced our selling and marketing
expenses by $813,000 as compared to the prior period and
increased cost of services revenue by a corresponding amount.

General and
administrative.General and
administrative expenses increased 17%, or $888,000, to
$6.2 million for the nine months ended March 27, 2004,
from $5.3 million for the nine months ended March 29,
2003. The increase was primarily due to increased compensation
expense, changes in foreign currency exchange rates and
increased professional service fees, including the cost of
audit, tax, Sarbanes-Oxley compliance and preparation costs, and
other accounting services. In addition to these ongoing
expenses, in the nine months ended March 27, 2004, we
incurred professional service fees of $346,000 for advice and
assistance in connection with an inquiry and review of prior
years tax filings of a foreign subsidiary of the

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Company. The review by the relevant taxing
authority is ongoing and we expect that we will continue to
incur expenses related to this matter in future quarters. No
claim or assessment has been asserted by the taxing authority to
date and we are not able to predict the final outcome of the
review. Accordingly, no provision for additional tax exposure
related to this matter has been recorded in the consolidated
financial statements as of March 27, 2004.


Restructuring
charges.In the nine months ended
March 27, 2004, we incurred charges related to actions we
took to restructure our business after our acquisition of AMSI.
In the nine months ended March 29, 2003, we incurred
charges related to actions we took to restructure our business
after our acquisition of CPI. These actions and the related
charges are more fully described in the section below titled,
Restructuring.

Amortization of acquired intangible
assets.Amortization expense decreased
30%, or $147,000, to $347,000 for the nine months ended
March 27, 2004, from $494,000 for the nine months ended
March 29, 2003. The decrease was primarily a result of our
March 2003 restructuring plan that included the write-off of
certain intangible assets that were acquired in our purchase of
Branden Technologies in March 2001. The reduction of
amortization expense resulting from this write-off was partially
offset by amortization of intangible assets acquired in the
January 2004 acquisition of AMSI.

Interest income,
net.Interest income, net increased
5%, or $45,000, to $879,000 for the nine months ended
March 27, 2004 from $834,000 for the nine months ended
March 29, 2003.

Other income (loss),
net.Other income (loss), net
decreased 69%, or $116,000, to a smaller loss of $52,000 for the
nine months ended March 27, 2004, from a loss of $168,000
for the nine months ended March 29, 2003.

Provision for income
taxes.The provision for income taxes
increased 30%, or $203,000, to $878,000 for the nine months
ended March 27, 2004, from $675,000 for the nine months
ended March 29, 2003, primarily a result of higher income
before income taxes. In 2004, our effective annual income tax
rate is estimated to be 37% of income before income taxes. The
expected annual income tax rate of 37% in 2004 is higher than
the U.S. statutory income tax rate due principally to the
effect of income taxes levied at the state level, the tax impact
of net operating losses for which no financial statement benefit
may be recorded currently, and permanent differences between the
deductibility of certain items for book and tax accounting
purposes, offset, in part, by the impact of differences in tax
rates on income earned in foreign jurisdictions. Our estimated
effective annual income tax rate of 37% for 2004 is lower than
the actual effective income tax rate for the comparable period
of the prior year due primarily to the effect in the prior year,
of taxable income in certain jurisdictions that was not offset
in the financial statement income tax provision by losses in
other jurisdictions.

Liquidity and Capital Resources

Historically, we have financed our operations and
met our capital expenditure requirements primarily through funds
generated from operations, sales of our capital stock and
borrowings from lending institutions. As of March 27, 2004,
our primary sources of liquidity consisted of our total cash and
cash equivalents balance of $47.9 million, our marketable
securities balance of $1.5 million and our credit
facilities. In January 2004, we renewed our primary
$5.0 million, unsecured working capital credit facility.
The available borrowing base of the facility is subject to a
calculation that is based upon eligible accounts receivable. At
March 27, 2004, we had employed $733,000 of available
borrowings through outstanding foreign exchange contracts and
letters of credit. The remaining available borrowings were
$4.3 million. In addition to our primary working capital
line of credit, we also utilize domestic and foreign banking
institutions to provide liquidity to our subsidiaries. We also
have relationships with other banking institutions in order to
facilitate foreign currency and hedging transactions. As of
March 27, 2004, we had no outstanding debt.

At March 27, 2004, our marketable securities
consisted of corporate bonds with maturities in excess of three
months but less than one year. Investments in marketable
securities are made in accordance with our corporate investment
policy. The primary objective of this policy is the preservation
of capital. Investments are limited to high quality corporate
debt, government securities, municipal debt securities, money
market funds

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and similar instruments. The policy establishes
maturity limits, liquidity requirements and concentration
limits. At March 27, 2004, we were in compliance with this
policy.


Operating activities of the nine months ended
March 27, 2004 generated $3.4 million of net cash.
This was a result of our net income, adjusted for certain
non-cash charges and expenses, such as depreciation and
amortization, which added $3.3 million of net cash. In
addition, net cash of $641,000 was provided by decreases in
current and non-current assets, net cash of $180,000 was
provided by increases in accrued expenses and net cash of
$479,000 was provided by increased deferred revenue balances.
Many of our European and Japanese customers renew their existing
maintenance and support contracts in January and April. This
timing contributes to a seasonal increase in deferred revenue in
our third fiscal quarter which, in turn, increases our cash
generated from operations. All such items were partially offset
by increases in accounts receivable balances and decreases in
accounts payable balances, which used cash of $1.1 million
and $41,000, respectively.

Net cash provided by investing activities was
$3.8 million for the nine months ended March 27, 2004.
Cash of $12.3 million was generated from the proceeds of
sales and maturities of our marketable securities. This increase
in cash was partially offset by $7.1 million of cash used
to acquire AMSI, net of cash acquired, our purchases of
$1.0 million of fixed assets and capitalization of $442,000
of software development costs.

Net cash of $1.0 million was provided by
financing activities during the nine months ended March 27,
2004. This cash was generated by exercises of stock options and
proceeds received for common stock under our Employee Stock
Purchase Plan.

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 Quarterly Report. On a
long-term basis or to complete acquisitions in the short term,
we may require additional external financing through credit
facilities, sales of additional equity or other financing
vehicles. There can be no assurance that such financing can be
obtained on favorable terms, if at all.

We do not have any special purpose entities or
off-balance sheet financing arrangements. Our cash commitments,
as disclosed in Note 18 to our audited consolidated
financial statements, included in our Annual Report on
Form 10-K for the year ended June 30, 2003, have not
changed significantly.

Restructuring



| |                  
| | -----------------
| | January 2004 Plan

In January 2004, we initiated a corporate
restructuring plan (the January 2004 plan) related
to our January 2004 acquisition of AMSI. The January 2004 plan
included the termination of three employees from sales and
management positions in the United States and Italy. As a result
of the January 2004 plan, we recorded charges and related
accruals of $508,000 in our third fiscal quarter of 2004. These
charges were recorded as restructuring costs in our Condensed
Consolidated Statement of Operations. All significant activities
under the January 2004 plan were completed as of March 27,
2004.

The following table presents the restructuring
charges incurred, cash paid to settle the liability and the
remaining liability included in accrued expenses in our
Condensed Consolidated Balance Sheet (in thousands):

|                          |  |           |     |  
|------------------------- |  | --------- | --- | -
|                          |  | Employee 
|                          |  | Severance
|                          |  | Costs    
|                          |  |          
|Restructuring charges     |  | $         | 508 |  
|Cash payments             |  |           | (52 | )
|                          |  |           |     |  
|Balance at March 27, 2004 |  | $         | 456 |  
|                          |  |           |     |  

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| |                
| | ---------------
| | March 2003 Plan

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

As a result of the March 2003 plan, we recorded
charges and related accruals of $584,000 in our third fiscal
quarter of 2003. Of this charge, $179,000 related to the
write-off of inventories and, as such, was included as a
component of the cost of product revenue. The remainder of the
charge was recorded as a restructuring charge in our Condensed
Consolidated Statement of Income. All significant activities
under the March 2003 plan were completed as of June 30,
2003.

The following table presents the charges incurred
by category of expenditure, and related restructuring costs
included in accrued expenses in our Condensed Consolidated
Balance Sheet (in thousands):

|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|----------------------------------- |  | ---------------- | --- | ------------------------------- |  | --------- | --- | ----- |  | --------- | -- | ----------- |  | ----- | --- | ----- |  | - | --- | - |  | - | --- | - |  | - | --- | - |  | - | --- | -
|                                    |  |                  |     |                                
|                                    |  | Non-Cash Charges |     | Charges Requiring Cash Payments
|                                    |  |                  |     |                                
|                                    |  |                  |     | Write-off of                    |  | Write-off |     |       |  | Employee  |    | Lease       |  |      
|                                    |  | Write-off of     |     | Intangible                      |  | of Other  |     |       |  | Severance |    | Termination |  | Other |     |      
|                                    |  | Inventories      |     | Asset                           |  | Assets    |     | Total |  | Costs     |    | Costs       |  | Costs |     | Total
|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |      
|Restructuring charge in fiscal 2003 |  | $                | 179 |                                 |  | $         | 217 |       |  | $         | 75 |             |  | $     | 471 |       |  | $ | 79  |   |  | $ | 45  |   |  | $ | 22  |   |  | $ | 146 |  
|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Revision of estimated liability     |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   | 1   |   |  |   | (34 | ) |  |   |    |   |  |   | (33 | )
|Cash payments                       |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   | (49 | ) |  |   | (11 | ) |  |   | (22 | ) |  |   | (82 | )
|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Balance at June 30, 2003            |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   | 31  |   |  |   |    |   |  |   |    |   |  |   | 31  |  
|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Cash payments                       |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   | (31 | ) |  |   |    |   |  |   |    |   |  |   | (31 | )
|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  
|Balance at March 27, 2004           |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  | $ |    |   |  | $ |    |   |  | $ |    |   |  | $ |    |  
|                                    |  |                  |     |                                 |  |           |     |       |  |           |    |             |  |       |     |       |  |   |     |   |  |   |     |   |  |   |     |   |  |   |     |  

April 2002
Plan

In April 2002, we enacted a corporate
restructuring plan (the April 2002 plan) to resize
our operations and to reduce overhead costs. The April 2002 plan
included the involuntary termination of 37 employees, the
closing of certain leased offices and the reduction in size of
other leased offices. All significant activities under the April
2002 plan are complete. As a result of the April 2002 plan, we
recorded charges and related accruals in fiscal 2002 of
$1.3 million. The remaining accrual balances as of
March 27, 2004 relate to long-term contractual obligations
from facility commitments that will be paid over five years. The
following table presents the balance of the accrued
restructuring charges:

|                          |  |                |     |  
|------------------------- |  | -------------- | --- | -
|                          |  | Accrued Lease 
|                          |  | Termination   
|                          |  | Costs         
|                          |  |               
|                          |  | (In thousands)
|Balance at June 30, 2003  |  | $              | 596 |  
|Cash payments             |  |                | (76 | )
|Foreign exchange impact   |  |                | 52  |  
|                          |  |                |     |  
|Balance at March 27, 2004 |  | $              | 572 |  
|                          |  |                |     |  

Recent Accounting Pronouncements

In November 2002, the Financial Accounting
Standards Board (FASB) issued Emerging Issues Task
Force 00-21 (EITF 00-21), Revenue
Arrangements with Multiple Deliverables. EITF 00-21
requires revenue arrangements with multiple deliverables to be
divided into separate units of accounting. If the

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deliverables in the arrangement meet certain
criteria, arrangement consideration should be allocated among
the separate units of accounting based on their relative fair
values. Applicable revenue recognition criteria are to be
considered for separate units of accounting. The guidance in
EITF 00-21 was effective for revenue arrangements entered
into in fiscal periods beginning after June 15, 2003. Our
adoption of EITF 00-21 did not have a material impact on
its financial position or results of operations.


On December 17, 2003, the Staff of the
Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin No. 104
(SAB 104), Revenue Recognition,
which supersedes SAB 101, Revenue Recognition in
Financial Statements. SAB 104s primary purpose
is to rescind the accounting guidance contained in SAB 101
related to multiple-element revenue arrangements that was
superseded as a result of the issuance of EITF 00-21,
Accounting for Revenue Arrangements with Multiple
Deliverables. Additionally, SAB 104 rescinds the
SECs related Revenue Recognition in Financial
Statements Frequently Asked Questions and Answers issued
with SAB 101 that had been codified in SEC Topic 13,
Revenue Recognition. While the wording of
SAB 104 has changed to reflect the issuance of
EITF 00-21, the revenue recognition principles of
SAB 101 remain largely unchanged by the issuance of
SAB 104, which was effective upon issuance. Our adoption of
SAB 104 did not have a material effect on its financial
position or results of operations.

Impact of Inflation

We believe that our revenue and results of
operations have not been significantly impacted by inflation.

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. These risks and uncertainties may also cause our actual
results to differ materially from those contained in or
predicted by our forward-looking statements.



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

The development and implementation of a robust
set of Manufacturing Solutions products has required that we
devote significant research and development, marketing and
executive level resources to this product family. Further
expenditures of time and effort will be required in order to
maximize the potential of this set of products. We recently
completed the acquisition of AMSI, a provider of hot runner
process control systems, with products focused solely on the
manufacturing market. In connection with this acquisition, we
reorganized our business into two strategically focused business
units, one focused on Design Analysis Solutions products and one
on Manufacturing Solutions products. This change in
organizational structure may lead to disruption in our business
operations, as we have begun to split our direct sales into
product-specific sales forces, which will be reporting directly
to the responsible business unit leader. In addition, the
Companys executive vice president of sales resigned from
the Company and the transition of the sales force may cause
disruption in our selling cycles and have a material adverse
effect on our results of operations. Our results of operations
could be adversely affected by significant delays in developing,
completing or shipping our new or enhanced Manufacturing
Solutions products as well as by delays in acceptance of these
products by customers. Because these products interact with
other factory or enterprise-wide systems, we may be required to
provide additional functionality or services, which may delay
the recognition of revenue. Further, our acquisition of AMSI may
delay the development and completion of our Manufacturing
Solutions products as we seek to integrate newly acquired
technology into our product platform. Our Manufacturing
Solutions business unit will be managed by the former chief
executive officer and sole stockholder of AMSI and our ability
to successfully integrate the AMSI business will be dependent on
our ability to retain this employee.

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| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | A 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 experienced severe
economic declines which significantly and adversely affected our
business in fiscal 2002 and 2003. While general economic trends
have improved in some geographic markets, a revived or continued
general economic slowdown in these or other markets will
materially and adversely affect us by decreasing our revenue as
compared to prior years, or by lowering our revenue growth.



| |                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our quarterly operating results are subject
    to significant fluctuations and, as a result, period-to-period
    comparisons of our results of operations are not necessarily
    meaningful and should not be relied upon as indicators of future
    performance.

We have experienced significant historical
fluctuations in our results of operations on a quarterly basis.
We expect to continue to experience significant fluctuations in
our future quarterly results of operations due to a variety of
factors, many of which are outside of our control, including:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | seasonal slowdowns, in particular, in our first
    fiscal quarter, in many of the markets in which we sell our
    products,                                                                                                                                                                                                                                                                                                                                  
|
| |  | changes in the mix of products and services we
    provide as sales of our Manufacturing Solutions products and our
    services will result in lower gross margins and may result in a
    longer selling cycle, which effect may be more significant
    following the acquisition of AMSI, which will result in a higher
    percentage of sales coming from our Manufacturing Solutions
    products as compared to our Design Analysis Solutions products,
|
| |  | the timing and magnitude of capital expenditures,
    including costs relating to the expansion of our operations and
    infrastructure, and planned program spending, such as that
    required for major marketing initiatives or tradeshows,                                                                                                                                                                                                               
|
| |  | the timing and magnitude of our tax expense,
    resulting from the globally distributed nature of our selling
    and research and development operations that may lead to
    increased taxable income in certain jurisdictions that may not
    be offset by losses in other tax jurisdictions,                                                                                                                                                             
|
| |  | introductions of new services or enhancements by
    us and our competitors and changes in our and our
    competitors pricing policies,                                                                                                                                                                                                                                                                                                                      
|
| |  | currency fluctuations, and                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | timing and integration of acquisitions,
    particularly the acquisition of AMSI which will require time and
    focus by our management team and may lead to disruptions in our
    business.                                                                                                                                                                                                                                                                 

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



| |                                                                                                                                                      
| | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | If we experience delays in introducing new
    products or if our existing or new products do not achieve
    market acceptance, we may lose revenue.

Our industry is characterized by:



| |   |                                  
| | - | ---------------------------------
| |  | rapid technological advances,    
|
| |  | evolving industry standards,     
|
| |  | changes in end-user requirements,
|
| |  | intense competition,             

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| |   |                                             
| | - | --------------------------------------------
| |  | technically complex products,               
|
| |  | frequent new product introductions, and     
|
| |  | evolving offerings by product manufacturers.

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

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



| |                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our recent acquisition of AMSI and any
    future mergers, acquisitions and strategic relationships may
    result in lost revenue caused by business disruptions and missed
    opportunities caused by the distraction of our
    management.

In January 2004 we acquired American MSI
Corporation, a privately held company specializing in
development and sale of hot runner process control systems for
the plastics processing industry. Further, we may engage in
other acquisitions and strategic relationships in the future. We
may not be able to identify suitable acquisition candidates,
and, if we do identify suitable candidates, we may not be able
to make such acquisitions on commercially acceptable terms or at
all. In connection with our acquisition of AMSI and future
mergers or acquisitions, if any, we will only receive the
anticipated benefits if we successfully integrate the acquired
business into our existing business in a timely and
non-disruptive manner. We will have to devote a significant
amount of time and management and financial resources to do so.
Even with this investment of management and financial resources,
the acquisition of AMSI or another business may not produce the
revenues, earnings or business synergies that we anticipated. If
we fail to integrate the acquired business effectively or if key
employees of that business leave, the anticipated benefits of
the acquisition would be jeopardized. The time, capital,
management and other resources spent on an acquisition that
failed to meet our expectations could cause our business and
financial condition to be materially and adversely affected. In
addition, acquisitions can involve non-recurring charges and
amortization of significant amounts of acquired identifiable
intangible assets that could adversely affect our results of
operations.



| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we become subject to intellectual
    property infringement claims, we could incur significant
    expenses and we could be prevented from offering specific
    products or services.

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

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| |                                                                                                  
| | -------------------------------------------------------------------------------------------------
| | We may lose sales to competitors if we are
    unable to protect important intellectual property.

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

We face the following risks in protecting our
intellectual property:



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



| |                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------
| | Our financial condition or results of
    operations may be adversely affected by international business
    risks.

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



| |   |                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | decreased liquidity resulting from longer
    accounts receivable collection cycles typical of certain foreign
    countries,                                                                                                                                   
|
| |  | decreased revenue on foreign sales resulting from
    possible foreign currency exchange and conversion issues,                                                                                                                                                 
|
| |  | lower productivity resulting from difficulties
    managing our sales, support and research and development
    operations across many countries,                                                                                                               
|
| |  | decreased earnings based on changes in tax
    regulations in foreign jurisdictions or the timing of required
    tax payments in foreign jurisdictions that may not yet, or ever,
    be offset by tax benefits arising from losses in other
    jurisdictions,
|
| |  | lost revenue resulting from difficulties
    associated with enforcing agreements and collecting receivables
    through foreign legal systems,                                                                                                                 
|
| |  | lost revenue resulting from the imposition by
    foreign governments of trade protection measures, and                                                                                                                                                         
|
| |  | higher cost of sales resulting from import or
    export licensing requirements.                                                                                                                                                                                



| |                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | We have more limited financial and other
    resources than many of our competitors and potential competitors
    and may be unable to compete successfully against
    them.

We operate in a highly competitive environment
and may not be able to successfully compete. Companies in our
industry and entities in similar industries could decide to
focus on the development of

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software and enabling hardware solutions for the
design, analysis and manufacturing of injection molded plastic
parts. Many of these entities have substantially greater
financial, research and development, manufacturing and marketing
resources than we do. Increased competition may result in price
reductions, reduced profitability and loss of market share.




| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | Disruption of operations at our development
    or manufacturing facilities could interfere with our product
    development and production cycles.

A significant portion of our computer equipment,
source code and personnel, including critical resources
dedicated to research and development, are presently located at
operating facilities in Australia, the United States and Europe.
Further, following our acquisition of AMSI, we manufacture the
hardware components of our hot runner process control products
at our facility in Moorpark, California. 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 any of these sites could severely disrupt our product
development and operations.



| |                                                                                          
| | -----------------------------------------------------------------------------------------
| | Our Manufacturing Solutions products may
    lead to product liability claims against us.

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



| |                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our stock price is highly volatile and our
    stock price could experience substantial declines and our
    managements attention may be diverted from more productive
    tasks.

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



| |   |                                                                                                                                                                                                                                                                                                                   
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | revenues and operating results failing to meet
    the expectations of securities analysts or investors in any
    quarter,                                                                                                                                                                                       
|
| |  | downward revisions in securities analysts
    estimates or changes in general market conditions,                                                                                                                                                                                                                 
|
| |  | changes in our senior management personnel,                                                                                                                                                                                                                                                                       
|
| |  | distribution or sale of shares of our common
    stock by insiders or affiliated persons, including the shares
    received by the selling stockholder in connection with the
    acquisition of AMSI, a portion of which have been registered for
    resale on Form S-3 and could therefore be sold at any time,
|
| |  | technological innovations by competitors or in
    competing technologies,                                                                                                                                                                                                                                        
|
| |  | a decrease in the demand for our common stock,                                                                                                                                                                                                                                                                    
|
| |  | investor perception of our industry or our
    prospects, and                                                                                                                                                                                                                                                     
|
| |  | general technology or economic trends.                                                                                                                                                                                                                                                                            

In the past, companies that have experienced
volatility in the market price of their stock have been the
subjects of securities class action litigation. We may be
involved in securities class action litigation in the future.
Such litigation often results in substantial costs which may not
be covered by our directors and officers liability
insurance, and a diversion of managements attention and
resources and could harm our business, financial condition and
results of operations.

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

We make significant estimates in determining our
worldwide income tax provision. These estimates are subject to
many transactions, calculations and proceedings where the
ultimate tax outcome is uncertain. These proceedings currently
include customary inquiry activities by various taxing
authorities, including an ongoing inquiry and review of prior
years tax filings of one of our foreign subsidiaries. To
date, no claim or assessment has been asserted by the taxing
authority and we are not able to predict the final outcome of
the review. Accordingly, no provision for additional tax
exposure related to this matter has been recorded in the
consolidated financial statements as of March 27, 2004.
Although we believe that our estimates are reasonable, the final
outcome of tax matters and proceedings could be different than
the estimates reflected in the historical income tax provision
and accruals. Such differences could have a material impact on
income tax expense and net income in the period in which such
determination is made.



| |                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------
| | We are dependent on distributors to
    distribute a substantial portion of our Manufacturing Solutions
    products.

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






|        |                                                               
|------- | --------------------------------------------------------------
|Item 3. | Quantitative and Qualitative Disclosures
    About Market Risk

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

We collect amounts representing a substantial
portion of our revenues and pay amounts representing a
substantial portion of our operating expenses in foreign
currencies. As a result, changes in currency exchange rates from
time to time may affect our operating results. We engage in
hedging transactions designed to reduce our exposure to changes
in currency exchange rates. We cannot assure you, however, that
any efforts we make to hedge our exposure to currency exchange
rate changes will be successful.

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

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|        |                        
|------- | -----------------------
|Item 4. | Controls and Procedures

As required by Rules 13a-15 and 15d-15 under
the Securities Exchange Act of 1934, we have evaluated with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures as of the end of the period
covered by this report. In designing and evaluating our
disclosure controls and procedures, we and our management
recognize that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and our management
necessarily was required to apply its judgment in evaluating and
implementing possible controls and procedures. Based upon that
evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that they believe that, as of
March 27, 2004, our disclosure controls and procedures were
reasonably effective to ensure that information required to be
disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange
Commissions rules and forms. In compliance with the rules,
we intend to continue to review and document our disclosure
controls and procedures, including our internal control over
financial reporting, on an ongoing basis, and may from time to
time make changes aimed at enhancing their effectiveness and to
ensure that our systems evolve with our business. There were no
changes in our internal control over financial reporting that
occurred during the period covered by this Quarterly Report on
Form 10-Q that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.

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##### Table of Contents






PART II.     OTHER
INFORMATION






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






|        |                                                                                     
|------- | ------------------------------------------------------------------------------------
|Item 2. | Changes in Securities, Use of Proceeds and
    Issuer Purchases of Equity Securities

(c) Recent Sales of Unregistered Securities



| |                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) On January 23, 2004, Moldflow
    Corporation issued 349,288 shares of its common stock, par
    value $0.01 per share (the Securities), to the
    Timothy and Deborah Triplett Family Trust (the
    Stockholder) as partial consideration for the
    acquisition of all of the outstanding stock of American MSI
    Corporation.
|
| | (b) See (a) above.                                                                                                                                                                                                                                                                                                                           
|
| | (c) See (a) above.                                                                                                                                                                                                                                                                                                                           
|
| | (d) The Stockholder was an accredited
    investor as that term is defined in Regulation D of
    the Securities Act of 1933 (the Securities Act), as
    amended and the Securities were issued in reliance on the
    exemption from registration set forth in Section 4 of the
    Securities Act.                                    
|
| | (e) Not applicable.                                                                                                                                                                                                                                                                                                                          
|
| | (f) Not applicable.                                                                                                                                                                                                                                                                                                                          

(e) Purchases of Equity Securities by the
Issuer and Affiliated Purchasers



| |                                                                                                                                                                                                                                                                                                                                                                                    
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On September 19, 2001, the Board of
    Directors authorized the Company to repurchase up to
    500,000 shares of its outstanding common stock. To date,
    the Company reacquired 244,165 shares for
    $1.4 million, at an average cost of $5.62 per share. The
    Company did not make any purchases of its common stock during
    the fiscal quarter ended March 27, 2004.






|        |                                     
|------- | ------------------------------------
|Item 6. | Exhibits and Reports on
    Form 8-K



| |     |         
| | --- | --------
| | (a) | Exhibits

| |       |    |  |                                                                                                                                                                                                                                        
| | ----- | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 2.2   | *  |  | Agreement and Plan of Merger by and among
    Moldflow Corp., MF Merger Sub I, Inc., American MSI
    Corp., the Timothy and Deborah Triplett Family Trust,
    Timothy L. Triplett and Deborah A. Triplett dated
    January 23, 2004.
| | 10.40 | *  |  | Employment Agreement, dated January 23, 2004
    between Moldflow Corporation and Timothy Triplett.                                                                                                                                    
| | 10.48 | *  |  | Third Amendment to the Moldflow Corporation 2000
    Stock Option and Incentive Plan, effective as of
    January 22, 2004.                                                                                                            
| | 10.49 | *  |  | Loan Modification Agreement, dated
    January 15, 2004, between Silicon Valley Bank and Moldflow
    Corporation.                                                                                                                     
| | 31.1  |    |  | Certification of Principal Executive Officer,
    pursuant to Rules 13a-15(e) and 15d-15(e), as adopted
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                 
| | 31.2  |    |  | Certification of Principal Financial Officer,
    pursuant to Rules 13a-15(e) and 15d-15(e), as adopted
    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                 
| | 32.1  | ** |  | Certification of Principal Executive Officer,
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                        
| | 32.2  | ** |  | Certification of Principal Financial Officer,
    pursuant to 18 U.S.C. Section 1350, as adopted
    pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                        

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| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | *     Previously filed
    as an exhibit to the Companys Quarterly Report on
    Form 10-Q filed with the Securities and Exchange Commission
    on February 10, 2004 and incorporated by reference thereto.                                                                                                                                  
|
| | ** This certification shall not be deemed
    filed for purposes of Section 18 of the
    Securities Exchange Act of 1934, or otherwise subject to the
    liability of that section, nor shall it be deemed to be
    incorporated by reference into any filing under the Securities
    Act of 1934 or the Securities Exchange Act of 1934.

(b) Reports on Form 8-K

On April 22, 2004, the Company filed a
Form 8-K disclosing the financial results for the fiscal
quarter and nine months ended March 27, 2004.

On January 26, 2004, the Company filed a
Form 8-K disclosing the acquisition of American MSI
Corporation, the resignation of Richard Underwood, the
Companys Executive Vice President of Sales, and the
financial results for the fiscal quarter and six months ended
December 27, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.



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



| |     |                     
| | --- | --------------------
| | By: | /s/ A. ROLAND THOMAS

| |                                          
| | -----------------------------------------
| |                                          
| | A. Roland Thomas                         
| | President and Chief Executive
    Officer
|
| | MOLDFLOW CORPORATION                     



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

| |                                               
| | ----------------------------------------------
| |                                               
| | Suzanne E. MacCormack                         
| | Executive Vice President of Finance
    and   
| | Administration and Chief Financial
    Officer
| | (Principal Financial Officer)                 

Date: May 7, 2004

39