##### 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 26, 2005


Commission File Number: 000-30027





Moldflow Corporation


(Exact name of registrant as specified in its charter)


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





þ o


þ o












---










MOLDFLOW CORPORATION


FORM 10-Q


For the Quarter Ended March 26, 2005


TABLE OF CONTENTS


|                                         |  |                                                                                                                                 |  |        |    | 
|---------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------- |  | ------ | -- | 
|                                         |  |                                                                                                                                 |  | Page   |   
|                                         |  |                                                                                                                                 |  | Number |   
|                                         |  |                                                                                                                                 |  |        |   
|PART I.  FINANCIAL
    INFORMATION      
|Item 1.                                  |  | Unaudited Financial Statements:                                                                                                 |  |        |    | 
|                                         |  | Condensed Consolidated Balance Sheet as of
    March 26, 2005 and June 30, 2004                                                 |  |        | 2  | 
|                                         |  | Condensed Consolidated Statement of Income
    for the three months and nine months ended March 26, 2005
    and March 27, 2004 |  |        | 3  | 
|                                         |  | Condensed Consolidated Statement of Cash
    Flows for the nine months ended March 26, 2005 and
    March 27, 2004              |  |        | 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                                                                  |  |        | 38 | 
|Item 4.                                  |  | Controls and Procedures                                                                                                         |  |        | 38 | 
|                                        
|PART II.  OTHER
    INFORMATION         
|Item 1.                                  |  | Legal Proceedings                                                                                                               |  |        | 40 | 
|Item 6.                                  |  | Exhibits                                                                                                                        |  |        | 40 | 
|Signatures                               |  |                                                                                                                                 |  |        | 41 | 
|EX-31.1 SECTION 302 CERTIFICATION OF CEO
|EX-31.2 SECTION 302 CERTIFICATION OF CFO
|EX-32.1 SECTION 906 CERTIFICATION OF CEO
|EX-32.2 SECTION 906 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 26,                                  |        |        | June 30, | 
|                                     |                                         | 2005                                       |        |        | 2004     | 
|                                     |                                         |                                            |        |        |          | 
|                                     |                                         | (In thousands)                             |       
|                                     |                                         | (Unaudited)                                |       
|ASSETS                              
|Current assets:                      |                                         |                                            |        |        |          |  |        |       
|                                     | Cash and cash equivalents               |                                            | $      | 47,788 |          |  | $      | 35,987 |       
|                                     | Marketable securities                   |                                            |        | 9,782  |          |  |        | 14,467 |       
|                                     | Accounts receivable, net                |                                            |        | 11,994 |          |  |        | 8,578  |       
|                                     | Inventories                             |                                            |        | 1,325  |          |  |        | 1,246  |       
|                                     | Prepaid expenses                        |                                            |        | 3,143  |          |  |        | 3,442  |       
|                                     | Other current assets                    |                                            |        | 2,632  |          |  |        | 2,063  |       
|                                     |                                         |                                            |        |        |          | 
|                                     |                                         | Total current assets                       |        |        | 76,664   |  |        |        | 65,783 | 
|Fixed assets, net                    |                                         |                                            | 3,627  |        |          |  | 3,502  |       
|Acquired intangible assets, net      |                                         |                                            | 1,659  |        |          |  | 1,986  |       
|Goodwill                             |                                         |                                            | 18,666 |        |          |  | 18,625 |       
|Marketable securities                |                                         |                                            | 1,188  |        |          |  | 1,198  |       
|Other assets                         |                                         |                                            | 3,176  |        |          |  | 3,264  |       
|                                     |                                         |                                            |        |        |          | 
|                                     |                                         | Total assets                               |        | $      | 104,980  |  |        | $      | 94,358 | 
|                                     |                                         |                                            |        |        |          | 
|                                    
|LIABILITIES AND STOCKHOLDERS EQUITY
|Current liabilities:                 |                                         |                                            |        |        |          |  |        |       
|                                     | Accounts payable                        |                                            | $      | 2,798  |          |  | $      | 3,251  |       
|                                     | Accrued expenses                        |                                            |        | 10,954 |          |  |        | 9,653  |       
|                                     | Deferred revenue                        |                                            |        | 10,993 |          |  |        | 10,013 |       
|                                     |                                         |                                            |        |        |          | 
|                                     |                                         | Total current liabilities                  |        |        | 24,745   |  |        |        | 22,917 | 
|Deferred revenue                     |                                         |                                            | 598    |        |          |  | 605    |       
|Other long-term liabilities          |                                         |                                            | 1,171  |        |          |  | 1,257  |       
|                                     |                                         |                                            |        |        |          | 
|                                     |                                         | Total liabilities                          |        |        | 26,514   |  |        |        | 24,779 | 
|                                     |                                         |                                            |        |        |          | 
|Stockholders equity:                |                                         |                                            |        |        |          |  |        |       
|                                     | Common stock                            |                                            |        | 109    |          |  |        | 106    |       
|                                     | Additional paid-in capital              |                                            |        | 69,357 |          |  |        | 67,554 |       
|                                     | Retained earnings (accumulated deficit) |                                            |        | 3,937  |          |  |        | (1,462 | )     
|                                     | Accumulated other comprehensive income  |                                            |        | 5,063  |          |  |        | 3,381  |       
|                                     |                                         |                                            |        |        |          | 
|                                     |                                         | Total stockholders equity                 |        |        | 78,466   |  |        |        | 69,579 | 
|                                     |                                         |                                            |        |        |          | 
|                                     |                                         | Total liabilities and stockholders equity |        | $      | 104,980  |  |        | $      | 94,358 | 
|                                     |                                         |                                            |        |        |          | 



2



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##### Table of Contents



MOLDFLOW CORPORATION





CONDENSED CONSOLIDATED STATEMENT OF INCOME


|                                                      |                                            |                                       |       |        |                   |  |     |           |        |  |           |        |        |  |       |        |        | 
|----------------------------------------------------- | ------------------------------------------ | ------------------------------------- | ----- | ------ | ----------------- |  | --- | --------- | ------ |  | --------- | ------ | ------ |  | ----- | ------ | ------ | 
|                                                      |                                            | Three Months Ended                    |       |        | Nine Months Ended | 
|                                                      |                                            |                                       |       |        |                   | 
|                                                      |                                            | March 26,                             |       |        | March 27,         |  |     | March 26, |        |  | March 27, |       
|                                                      |                                            | 2005                                  |       |        | 2004              |  |     | 2005      |        |  | 2004      |       
|                                                      |                                            |                                       |       |        |                   |  |     |           |        |  |           |       
|                                                      |                                            | (In thousands, except per share data) |      
|                                                      |                                            | (Unaudited)                           |      
|Revenue:                                              |                                            |                                       |       |        |                   |  |     |           |        |  |           |        |        |  |       |       
|                                                      | Product                                    |                                       | $     | 9,487  |                   |  | $   | 7,574     |        |  | $         | 26,976 |        |  | $     | 17,041 |       
|                                                      | Services                                   |                                       |       | 6,410  |                   |  |     | 5,716     |        |  |           | 19,160 |        |  |       | 16,391 |       
|                                                      |                                            |                                       |       |        |                   |  |     |           |        |  |           |       
|                                                      |                                            | Total revenue                         |       |        | 15,897            |  |     |           | 13,290 |  |           |        | 46,136 |  |       |        | 33,432 | 
|                                                      |                                            |                                       |       |        |                   |  |     |           |        |  |           |       
|Costs and expenses:                                   |                                            |                                       |       |        |                   |  |     |           |        |  |           |        |        |  |       |       
|                                                      | Cost of product revenue                    |                                       |       | 2,088  |                   |  |     | 1,778     |        |  |           | 5,804  |        |  |       | 3,021  |       
|                                                      | Cost of services revenue                   |                                       |       | 1,642  |                   |  |     | 1,457     |        |  |           | 4,588  |        |  |       | 3,020  |       
|                                                      | Research and development                   |                                       |       | 2,160  |                   |  |     | 1,695     |        |  |           | 5,845  |        |  |       | 4,823  |       
|                                                      | Selling and marketing                      |                                       |       | 5,650  |                   |  |     | 5,038     |        |  |           | 15,956 |        |  |       | 13,922 |       
|                                                      | General and administrative                 |                                       |       | 2,869  |                   |  |     | 2,188     |        |  |           | 8,445  |        |  |       | 6,219  |       
|                                                      | Restructuring charges                      |                                       |       |       |                   |  |     | 508       |        |  |           |       |        |  |       | 508    |       
|                                                      | Amortization of acquired intangible assets |                                       |       | 73     |                   |  |     | 126       |        |  |           | 224    |        |  |       | 347    |       
|                                                      |                                            |                                       |       |        |                   |  |     |           |        |  |           |       
|                                                      |                                            | Total operating costs and expenses    |       |        | 14,482            |  |     |           | 12,790 |  |           |        | 40,862 |  |       |        | 31,860 | 
|                                                      |                                            |                                       |       |        |                   |  |     |           |        |  |           |       
|Income from operations                                |                                            |                                       | 1,415 |        |                   |  | 500 |           |        |  | 5,274     |        |        |  | 1,572 |       
|Interest income                                       |                                            |                                       | 405   |        |                   |  | 321 |           |        |  | 1,135     |        |        |  | 879   |       
|Other income (expense), net                           |                                            |                                       | 86    |        |                   |  | (18 | )         |        |  | 44        |        |        |  | (52   | )     
|                                                      |                                            |                                       |       |        |                   |  |     |           |        |  |           |       
|                                                      |                                            | Income before income taxes            |       |        | 1,906             |  |     |           | 803    |  |           |        | 6,453  |  |       |        | 2,399  | 
|Provision for (benefit from) income taxes             |                                            |                                       | (139  | )      |                   |  | 294 |           |        |  | 1,054     |        |        |  | 878   |       
|                                                      |                                            |                                       |       |        |                   |  |     |           |        |  |           |       
|                                                      |                                            | Net income                            |       | $      | 2,045             |  |     | $         | 509    |  |           | $      | 5,399  |  |       | $      | 1,521  | 
|                                                      |                                            |                                       |       |        |                   |  |     |           |        |  |           |       
|Net income per common share:                          |                                            |                                       |       |        |                   |  |     |           |        |  |           |        |        |  |       |       
|                                                      | Basic                                      |                                       | $     | 0.19   |                   |  | $   | 0.05      |        |  | $         | 0.50   |        |  | $     | 0.15   |       
|                                                      | Diluted                                    |                                       | $     | 0.17   |                   |  | $   | 0.05      |        |  | $         | 0.47   |        |  | $     | 0.14   |       
|Shares used in computing net income per common share: |                                            |                                       |       |        |                   |  |     |           |        |  |           |        |        |  |       |       
|                                                      | Basic                                      |                                       |       | 10,837 |                   |  |     | 10,411    |        |  |           | 10,713 |        |  |       | 10,173 |       
|                                                      | Diluted                                    |                                       |       | 11,890 |                   |  |     | 11,001    |        |  |           | 11,599 |        |  |       | 10,746 |       



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MOLDFLOW CORPORATION





CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS


|                                                                                      |                                                         |                                           |        |        |           |   |        |        |       | 
|------------------------------------------------------------------------------------- | ------------------------------------------------------- | ----------------------------------------- | ------ | ------ | --------- | - | ------ | ------ | ----- | 
|                                                                                      |                                                         | Nine Months Ended                         |       
|                                                                                      |                                                         |                                           |       
|                                                                                      |                                                         | March 26,                                 |        |        | March 27, |  
|                                                                                      |                                                         | 2005                                      |        |        | 2004      |  
|                                                                                      |                                                         |                                           |        |        |           |  
|                                                                                      |                                                         | (In thousands)                            |       
|                                                                                      |                                                         | (Unaudited)                               |       
|Cash flows from operating activities:                                                 |                                                         |                                           |        |        |           |   |        |       
|Net income                                                                            |                                                         | $                                         | 5,399  |        |           | $ | 1,521  |       
|Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                         |                                           |        |        |           |   |        |       
|                                                                                      | Depreciation of fixed assets                            |                                           |        | 1,043  |           |   |        | 1,055  |      
|                                                                                      | Amortization of acquired intangible assets              |                                           |        | 331    |           |   |        | 371    |      
|                                                                                      | Amortization of other intangible assets                 |                                           |        | 548    |           |   |        | 202    |      
|                                                                                      | Provisions for doubtful accounts                        |                                           |        | 74     |           |   |        | 109    |      
|                                                                                      | Foreign exchange losses (gains), net                    |                                           |        | (66    | )         |   |        | 35     |      
|Changes in assets and liabilities, net of effects of acquisition:                     |                                                         |                                           |        |        |           |   |        |       
|                                                                                      | Accounts receivable                                     |                                           |        | (3,129 | )         |   |        | (1,132 | )    
|                                                                                      | Inventories, prepaid expenses, and other current assets |                                           |        | (60    | )         |   |        | 577    |      
|                                                                                      | Other assets                                            |                                           |        | (24    | )         |   |        | 64     |      
|                                                                                      | Accounts payable                                        |                                           |        | (552   | )         |   |        | (41    | )    
|                                                                                      | Accrued expenses and other current liabilities          |                                           |        | 864    |           |   |        | 188    |      
|                                                                                      | Deferred revenue                                        |                                           |        | 658    |           |   |        | 479    |      
|                                                                                      |                                                         |                                           |        |        |           |  
|                                                                                      |                                                         | Net cash provided by operating activities |        |        | 5,086     |   |        |        | 3,428 | 
|                                                                                      |                                                         |                                           |        |        |           |  
|Cash flows from investing activities:                                                 |                                                         |                                           |        |        |           |   |        |       
|                                                                                      | Purchases of fixed assets                               |                                           |        | (997   | )         |   |        | (1,032 | )    
|                                                                                      | Capitalization of software development costs            |                                           |        | (201   | )         |   |        | (442   | )    
|                                                                                      | Sales and maturities of marketable securities           |                                           |        | 8,528  |           |   |        | 12,340 |      
|                                                                                      | Purchases of marketable securities                      |                                           |        | (3,832 | )         |   |        |       |      
|                                                                                      | Acquisition of AMSI, net of cash acquired               |                                           |        |       |           |   |        | (7,091 | )    
|                                                                                      |                                                         |                                           |        |        |           |  
|                                                                                      |                                                         | Net cash provided by investing activities |        |        | 3,498     |   |        |        | 3,775 | 
|                                                                                      |                                                         |                                           |        |        |           |  
|Cash flows from financing activities:                                                 |                                                         |                                           |        |        |           |   |        |       
|                                                                                      | Issuance of common stock                                |                                           |        | 1,879  |           |   |        | 1,047  |      
|                                                                                      |                                                         |                                           |        |        |           |  
|                                                                                      |                                                         | Net cash provided by financing activities |        |        | 1,879     |   |        |        | 1,047 | 
|                                                                                      |                                                         |                                           |        |        |           |  
|Effect of exchange rate changes on cash and cash equivalents                          |                                                         |                                           | 1,338  |        |           |   | 1,298  |       
|                                                                                      |                                                         |                                           |        |        |           |  
|Net increase in cash and cash equivalents                                             |                                                         |                                           | 11,801 |        |           |   | 9,548  |       
|Cash and cash equivalents, beginning of period                                        |                                                         |                                           | 35,987 |        |           |   | 38,320 |       
|                                                                                      |                                                         |                                           |        |        |           |  
|Cash and cash equivalents, end of period                                              |                                                         | $                                         | 47,788 |        |           | $ | 47,868 |       
|                                                                                      |                                                         |                                           |        |        |           |  



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##### Table of Contents



MOLDFLOW CORPORATION





NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS




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









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



|                                               |  |                   |           |                  |                |   |       |        |                  |  |                |   |  |   |       | 
|---------------------------------------------- |  | ----------------- | --------- | ---------------- | -------------- | - | ----- | ------ | ---------------- |  | -------------- | - |  | - | ----- | 
|                                               |  | Nine Months Ended |          
|                                               |  |                   |          
|                                               |  | March 26, 2005    |           |                  | March 27, 2004 |  
|                                               |  |                   |           |                  |                |  
|                                               |  |                   |           | Weighted Average |                |   |       |        | Weighted Average | 
|                                               |  | Shares            |           |                  | Exercise Price |   |       | Shares |                  |  | Exercise Price |  
|                                               |  |                   |           |                  |                |   |       |        |                  |  |                |  
|Outstanding at beginning of period             |  |                   | 2,634,157 |                  |                | $ | 9.77  |        |                  |  | 2,433,206      |   |  | $ | 9.33  | 
|Granted                                        |  |                   | 337,800   |                  |                |   | 12.20 |        |                  |  | 546,480        |   |  |   | 10.33 | 
|Exercised                                      |  |                   | (282,205  | )                |                |   | 7.39  |        |                  |  | (175,935       | ) |  |   | 4.47  | 
|Canceled                                       |  |                   | (88,406   | )                |                |   | 12.08 |        |                  |  | (128,867       | ) |  |   | 10.96 | 
|                                               |  |                   |           |                  |                |   |       |        |                  |  |                |  
|Outstanding at end of period                   |  |                   | 2,601,346 |                  |                | $ | 10.26 |        |                  |  | 2,674,884      |   |  | $ | 9.77  | 
|                                               |  |                   |           |                  |                |   |       |        |                  |  |                |  
|Options exercisable at end of period           |  |                   | 1,754,262 |                  |                |   |       |        |                  |  | 1,334,580      |   |  |   |       | 
|Weighted average fair value of options granted |  |                   |           |                  |                | $ | 7.87  |        |                  |  |                |   |  | $ | 7.10  | 
|Options available for future grants            |  |                   | 974,122   |                  |                |   |       |        |                  |  | 1,129,506      |   |  |   |       | 

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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS  (Continued)






|                             |                                                                                                                                             |                                       |       |      |                   |   |        |           |   |   |           |       |  |   |        |       |  
|---------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------- | ----- | ---- | ----------------- | - | ------ | --------- | - | - | --------- | ----- |  | - | ------ | ----- | -
|                             |                                                                                                                                             | Three Months Ended                    |       |      | Nine Months Ended |  
|                             |                                                                                                                                             |                                       |       |      |                   |  
|                             |                                                                                                                                             | March 26,                             |       |      | March 27,         |   |        | March 26, |   |   | March 27, |      
|                             |                                                                                                                                             | 2005                                  |       |      | 2004              |   |        | 2005      |   |   | 2004      |      
|                             |                                                                                                                                             |                                       |       |      |                   |   |        |           |   |   |           |      
|                             |                                                                                                                                             | (In thousands, except per share data) |      
|Net income as reported       |                                                                                                                                             | $                                     | 2,045 |      |                   | $ | 509    |           |   | $ | 5,399     |       |  | $ | 1,521  |      
|Less:                        |                                                                                                                                             |                                       |       |      |                   |   |        |           |   |   |           |       |  |   |        |      
|                             | Total stock-based employee compensation expense determined under
    fair value based method for all awards, net of related tax
    effects |                                       |       | 879  |                   |   |        | 2,130     |   |   |           | 2,653 |  |   |        | 3,434 |  
|                             |                                                                                                                                             |                                       |       |      |                   |   |        |           |   |   |           |      
|Pro forma net income (loss)  |                                                                                                                                             | $                                     | 1,166 |      |                   | $ | (1,621 | )         |   | $ | 2,746     |       |  | $ | (1,913 | )    
|                             |                                                                                                                                             |                                       |       |      |                   |   |        |           |   |   |           |      
|Net income (loss) per share: |                                                                                                                                             |                                       |       |      |                   |   |        |           |   |   |           |       |  |   |        |      
|                             | Basic  as reported                                                                                                                         |                                       | $     | 0.19 |                   |   | $      | 0.05      |   |   | $         | 0.50  |  |   | $      | 0.15  |  
|                             | Basic  pro forma                                                                                                                           |                                       | $     | 0.11 |                   |   | $      | (0.16     | ) |   | $         | 0.26  |  |   | $      | (0.19 | )
|                             | Diluted  as reported                                                                                                                       |                                       | $     | 0.17 |                   |   | $      | 0.05      |   |   | $         | 0.47  |  |   | $      | 0.14  |  
|                             | Diluted  pro forma                                                                                                                         |                                       | $     | 0.10 |                   |   | $      | (0.16     | ) |   | $         | 0.23  |  |   | $      | (0.19 | )



|                                |  |                    |     |   |                   |  |     |           |  |  |           |   |  |  |     |  
|------------------------------- |  | ------------------ | --- | - | ----------------- |  | --- | --------- |  |  | --------- | - |  |  | --- | -
|                                |  | Three Months Ended |     |   | Nine Months Ended | 
|                                |  |                    |     |   |                   | 
|                                |  | March 26,          |     |   | March 27,         |  |     | March 26, |  |  | March 27, |  
|                                |  | 2005               |     |   | 2004              |  |     | 2005      |  |  | 2004      |  
|                                |  |                    |     |   |                   |  |     |           |  |  |           |  
|Dividend yield                  |  |                    |    |   |                   |  |    |           |  |  |          |   |  |  |    |  
|Volatility                      |  |                    | 82  | % |                   |  | 87  | %         |  |  | 84        | % |  |  | 89  | %
|Risk-free interest rate         |  |                    | 3.6 | % |                   |  | 3.1 | %         |  |  | 3.5       | % |  |  | 3.0 | %
|Expected option life (in years) |  |                    | 4.3 |   |                   |  | 4.5 |           |  |  | 4.4       |   |  |  | 4.7 |  

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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS  (Continued)




|   |                            
|-- | ---------------------------
|3. | Net Income Per Common Share



|                                                                                    |  |                                       |        |  |                   |   |        |           |  |   |           |  |  |   |        | 
|----------------------------------------------------------------------------------- |  | ------------------------------------- | ------ |  | ----------------- | - | ------ | --------- |  | - | --------- |  |  | - | ------ | 
|                                                                                    |  | Three Months Ended                    |        |  | Nine Months Ended |  
|                                                                                    |  |                                       |        |  |                   |  
|                                                                                    |  | March 26,                             |        |  | March 27,         |   |        | March 26, |  |   | March 27, | 
|                                                                                    |  | 2005                                  |        |  | 2004              |   |        | 2005      |  |   | 2004      | 
|                                                                                    |  |                                       |        |  |                   |   |        |           |  |   |           | 
|                                                                                    |  | (In thousands, except per share data) |       
|Net income                                                                          |  | $                                     | 2,045  |  |                   | $ | 509    |           |  | $ | 5,399     |  |  | $ | 1,521  | 
|                                                                                    |  |                                       |        |  |                   |   |        |           |  |   |           | 
|Weighted average shares used in computing net income per common
    share  basic   |  |                                       | 10,837 |  |                   |   | 10,411 |           |  |   | 10,713    |  |  |   | 10,173 | 
|Effect of dilutive securities:                                                      |  |                                       |        |  |                   |   |        |           |  |   |           |  |  |   |        | 
|Stock options                                                                       |  |                                       | 1,053  |  |                   |   | 590    |           |  |   | 886       |  |  |   | 573    | 
|                                                                                    |  |                                       |        |  |                   |   |        |           |  |   |           | 
|Weighted average shares used in computing net income per common
    share  diluted |  |                                       | 11,890 |  |                   |   | 11,001 |           |  |   | 11,599    |  |  |   | 10,746 | 
|                                                                                    |  |                                       |        |  |                   |   |        |           |  |   |           | 
|Net income per common share  basic                                                 |  | $                                     | 0.19   |  |                   | $ | 0.05   |           |  | $ | 0.50      |  |  | $ | 0.15   | 
|Net income per common share  diluted                                               |  | $                                     | 0.17   |  |                   | $ | 0.05   |           |  | $ | 0.47      |  |  | $ | 0.14   | 







|   |                                                        
|-- | -------------------------------------------------------
|4. | Derivative Financial Instruments and Hedging Activities







7



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS  (Continued)






|   |                                        
|-- | ---------------------------------------
|5. | Goodwill and Acquired Intangible Assets







|                            |                        |                |       |       |               |   |        |          |   |       |          |     |  |              |       |       |          |           |        |          |   |   |       |     |  |  |  |           | 
|--------------------------- | ---------------------- | -------------- | ----- | ----- | ------------- | - | ------ | -------- | - | ----- | -------- | --- |  | ------------ | ----- | ----- | -------- | --------- | ------ | -------- | - | - | ----- | --- |  |  |  | --------- | 
|                            |                        | March 26, 2005 |       |       | June 30, 2004 |   |        |         
|                            |                        |                |       |       |               |   |        |         
|                            |                        | Gross          |       |       |               |   | Net    |          |   | Gross |          |     |  |              | Net   |       |          | Weighted- |       
|                            |                        | Carrying       |       |       | Accumulated   |   |        | Carrying |   |       | Carrying |     |  | Accumulated  |       |       | Carrying |           |        | Average  |  
|                            |                        | Amount         |       |       | Amortization  |   |        | Amount   |   |       | Amount   |     |  | Amortization |       |       | Amount   |           |        | Use Life |  
|                            |                        |                |       |       |               |   |        |          |   |       |          |     |  |              |       |       |          |           |        |          |  
|                            |                        | (In thousands) |      
|Acquired intangible assets: |                        |                |       |       |               |   |        |          |   |       |          |     |  |              |       |       |          |           |        |          |   |   |       |     |  |  |  |          
|                            | Customer base          |                | $     | 993   |               |   | $      | (345     | ) |       | $        | 648 |  |              | $     | 987   |          |           | $      | (226     | ) |   | $     | 761 |  |  |  | 6.7 years | 
|                            | Developed technology   |                |       | 1,675 |               |   |        | (832     | ) |       |          | 843 |  |              |       | 1,675 |          |           |        | (724     | ) |   |       | 951 |  |  |  | 5.8 years | 
|                            | Customer order backlog |                |       | 40    |               |   |        | (40      | ) |       |          |    |  |              |       | 40    |          |           |        | (33      | ) |   |       | 7   |  |  |  | 0.5 years | 
|                            | Non-compete agreements |                |       | 1,419 |               |   |        | (1,251   | ) |       |          | 168 |  |              |       | 1,411 |          |           |        | (1,144   | ) |   |       | 267 |  |  |  | 3.5 years | 
|                            |                        |                |       |       |               |   |        |          |   |       |          |     |  |              |       |       |          |           |        |          |  
|Total                       |                        | $              | 4,127 |       |               | $ | (2,468 | )        |   | $     | 1,659    |     |  | $            | 4,113 |       |          | $         | (2,127 | )        |   | $ | 1,986 |     |  |  |  |          
|                            |                        |                |       |       |               |   |        |          |   |       |          |     |  |              |       |       |          |           |        |          |  



8



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS  (Continued)




|                                  |  |                |       | 
|--------------------------------- |  | -------------- | ----- | 
|                                  |  | Expected       |      
|                                  |  | Amortization   |      
|                                  |  | Expense        |      
|                                  |  |                |      
|                                  |  | (In thousands) |      
|Fiscal Year                       |  |                |       | 
|2005 (remainder)                  |  | $              | 100   | 
|2006                              |  |                | 346   | 
|2007                              |  |                | 314   | 
|2008                              |  |                | 298   | 
|2009                              |  |                | 246   | 
|Thereafter                        |  |                | 355   | 
|                                  |  |                |      
|Total future amortization expense |  | $              | 1,659 | 
|                                  |  |                |      



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



|               |  |                |       |  |          |   |       | 
|-------------- |  | -------------- | ----- |  | -------- | - | ----- | 
|               |  | March 26,      |       |  | June 30, |  
|               |  | 2005           |       |  | 2004     |  
|               |  |                |       |  |          |  
|               |  | (In thousands) |      
|Raw materials  |  | $              | 850   |  |          | $ | 708   | 
|Finished goods |  |                | 475   |  |          |   | 538   | 
|               |  |                |       |  |          |  
|               |  | $              | 1,325 |  |          | $ | 1,246 | 
|               |  |                |       |  |          |  



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





|                                |  |                |       |  |          |   |       | 
|------------------------------- |  | -------------- | ----- |  | -------- | - | ----- | 
|                                |  | March 26,      |       |  | June 30, |  
|                                |  | 2005           |       |  | 2004     |  
|                                |  |                |       |  |          |  
|                                |  | (In thousands) |      
|Gross carrying amount           |  | $              | 2,328 |  |          | $ | 2,127 | 
|Less  accumulated amortization |  |                | 937   |  |          |   | 503   | 
|                                |  |                |       |  |          |  
|Net carrying amount             |  | $              | 1,391 |  |          | $ | 1,624 | 
|                                |  |                |       |  |          |  

9



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS  (Continued)




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





|                                   |                                                                                               |                    |       |      |                   |   |     |           |   |   |           |       |  |   |       |       |  
|---------------------------------- | --------------------------------------------------------------------------------------------- | ------------------ | ----- | ---- | ----------------- | - | --- | --------- | - | - | --------- | ----- |  | - | ----- | ----- | -
|                                   |                                                                                               | Three Months Ended |       |      | Nine Months Ended |  
|                                   |                                                                                               |                    |       |      |                   |  
|                                   |                                                                                               | March 26,          |       |      | March 27,         |   |     | March 26, |   |   | March 27, |      
|                                   |                                                                                               | 2005               |       |      | 2004              |   |     | 2005      |   |   | 2004      |      
|                                   |                                                                                               |                    |       |      |                   |   |     |           |   |   |           |      
|                                   |                                                                                               | (In thousands)     |      
|Net income                         |                                                                                               | $                  | 2,045 |      |                   | $ | 509 |           |   | $ | 5,399     |       |  | $ | 1,521 |      
|Other comprehensive income (loss): |                                                                                               |                    |       |      |                   |   |     |           |   |   |           |       |  |   |       |      
|                                   | Changes in fair value of marketable securities, net of related
    tax effect                 |                    |       | (4   | )                 |   |     | (156      | ) |   |           | 1     |  |   |       | 1,345 |  
|                                   | Changes in value of financial instruments designated as hedges,
    net of related tax effect |                    |       | (45  | )                 |   |     | 10        |   |   |           | 29    |  |   |       | 1     |  
|                                   | Foreign currency translation adjustment                                                       |                    |       | (219 | )                 |   |     | (14       | ) |   |           | 1,652 |  |   |       | (91   | )
|                                   |                                                                                               |                    |       |      |                   |   |     |           |   |   |           |      
|                                   | Other comprehensive income (loss)                                                             |                    |       | (268 | )                 |   |     | (160      | ) |   |           | 1,682 |  |   |       | 1,255 |  
|                                   |                                                                                               |                    |       |      |                   |   |     |           |   |   |           |      
|Comprehensive income               |                                                                                               | $                  | 1,777 |      |                   | $ | 349 |           |   | $ | 7,081     |       |  | $ | 2,776 |      
|                                   |                                                                                               |                    |       |      |                   |   |     |           |   |   |           |      



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



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





|                          |  |                |      |  
|------------------------- |  | -------------- | ---- | -
|                          |  | Employee       |     
|                          |  | Severance      |     
|                          |  | Costs          |     
|                          |  |                |     
|                          |  | (In thousands) |     
|Balance at June 30, 2004  |  | $              | 205  |  
|Cash payments             |  |                | (200 | )
|                          |  |                |     
|Balance at March 26, 2005 |  | $              | 5    |  
|                          |  |                |     

10



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS  (Continued)




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





|                                              |  |                |     |  
|--------------------------------------------- |  | -------------- | --- | -
|                                              |  | Lease          |    
|                                              |  | Termination    |    
|                                              |  | Costs          |    
|                                              |  |                |    
|                                              |  | (In thousands) |    
|Balance at June 30, 2004                      |  | $              | 546 |  
|Cash payments                                 |  |                | (82 | )
|Foreign exchange impact and other adjustments |  |                | 20  |  
|                                              |  |                |    
|Balance at March 26, 2005                     |  | $              | 484 |  
|                                              |  |                |    





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







11



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS  (Continued)




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



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





|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |         |   |  |   |        |  
|-------------------------------------- | ---------------------------- | ------------------ | - | ------ | ----------------- |  | - | --------- | - |  | --------- | ------- | - |  | - | ------ | -
|                                       |                              | Three Months Ended |   |        | Nine Months Ended | 
|                                       |                              |                    |   |        |                   | 
|                                       |                              | March 26,          |   |        | March 27,         |  |   | March 26, |   |  | March 27, |        
|                                       |                              | 2005               |   |        | 2004              |  |   | 2005      |   |  | 2004      |        
|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |        
|                                       |                              | (In thousands)     |  
|Revenue:                               |                              |                    |   |        |                   |  |   |           |   |  |           |         |   |  |   |       
|Product revenue:                       |                              |                    |   |        |                   |  |   |           |   |  |           |         |   |  |   |       
|                                       | Design Analysis Solutions    |                    | $ | 5,913  |                   |  | $ | 4,425     |   |  | $         | 17,290  |   |  | $ | 11,975 |  
|                                       | Manufacturing Solutions      |                    |   | 3,574  |                   |  |   | 3,149     |   |  |           | 9,686   |   |  |   | 5,066  |  
|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |        
|                                       | Total product revenue        |                    |   | 9,487  |                   |  |   | 7,574     |   |  |           | 26,976  |   |  |   | 17,041 |  
|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |        
|Services revenue:                      |                              |                    |   |        |                   |  |   |           |   |  |           |         |   |  |   |       
|                                       | Design Analysis Solutions    |                    |   | 5,750  |                   |  |   | 5,124     |   |  |           | 17,182  |   |  |   | 15,074 |  
|                                       | Manufacturing Solutions      |                    |   | 660    |                   |  |   | 592       |   |  |           | 1,978   |   |  |   | 1,317  |  
|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |        
|                                       | Total services revenue       |                    |   | 6,410  |                   |  |   | 5,716     |   |  |           | 19,160  |   |  |   | 16,391 |  
|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |        
|Total revenue:                         |                              |                    |   |        |                   |  |   |           |   |  |           |         |   |  |   |       
|                                       | Design Analysis Solutions    |                    |   | 11,663 |                   |  |   | 9,549     |   |  |           | 34,472  |   |  |   | 27,049 |  
|                                       | Manufacturing Solutions      |                    |   | 4,234  |                   |  |   | 3,741     |   |  |           | 11,664  |   |  |   | 6,383  |  
|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |        
|                                       | Total revenue                |                    | $ | 15,897 |                   |  | $ | 13,290    |   |  | $         | 46,136  |   |  | $ | 33,432 |  
|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |        
|Costs and expenses:                    |                              |                    |   |        |                   |  |   |           |   |  |           |         |   |  |   |       
|                                       | Design Analysis Solutions    |                    | $ | 5,589  |                   |  | $ | 5,123     |   |  | $         | 15,064  |   |  | $ | 14,365 |  
|                                       | Manufacturing Solutions      |                    |   | 4,547  |                   |  |   | 4,397     |   |  |           | 12,462  |   |  |   | 8,763  |  
|                                       | Unallocated                  |                    |   | 4,346  |                   |  |   | 3,270     |   |  |           | 13,336  |   |  |   | 8,732  |  
|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |        
|                                       | Total costs and expenses     |                    | $ | 14,482 |                   |  | $ | 12,790    |   |  | $         | 40,862  |   |  | $ | 31,860 |  
|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |        
|Segment income (loss) from operations: |                              |                    |   |        |                   |  |   |           |   |  |           |         |   |  |   |       
|                                       | Design Analysis Solutions    |                    | $ | 6,074  |                   |  | $ | 4,426     |   |  | $         | 19,408  |   |  | $ | 12,684 |  
|                                       | Manufacturing Solutions      |                    |   | (313   | )                 |  |   | (656      | ) |  |           | (798    | ) |  |   | (2,380 | )
|                                       | Unallocated                  |                    |   | (4,346 | )                 |  |   | (3,270    | ) |  |           | (13,336 | ) |  |   | (8,732 | )
|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |        
|                                       | Total income from operations |                    | $ | 1,415  |                   |  | $ | 500       |   |  | $         | 5,274   |   |  | $ | 1,572  |  
|                                       |                              |                    |   |        |                   |  |   |           |   |  |           |        

12



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS  (Continued)




| |                       
| | ----------------------
| | Geographic Information



|                |                                           |                    |   |       |                   |  |   |           |        |  |           |        |        |  |   |        |        | 
|--------------- | ----------------------------------------- | ------------------ | - | ----- | ----------------- |  | - | --------- | ------ |  | --------- | ------ | ------ |  | - | ------ | ------ | 
|                |                                           | Three Months Ended |   |       | Nine Months Ended | 
|                |                                           |                    |   |       |                   | 
|                |                                           | March 26,          |   |       | March 27,         |  |   | March 26, |        |  | March 27, |       
|                |                                           | 2005               |   |       | 2004              |  |   | 2005      |        |  | 2004      |       
|                |                                           |                    |   |       |                   |  |   |           |        |  |           |       
|                |                                           | (In thousands)     |  
|Asia/Australia: |                                           |                    |   |       |                   |  |   |           |        |  |           |        |        |  |   |       
|                | Design Analysis Solutions product revenue |                    | $ | 3,119 |                   |  | $ | 2,459     |        |  | $         | 8,610  |        |  | $ | 6,262  |       
|                | Manufacturing Solutions product revenue   |                    |   | 4     |                   |  |   | 44        |        |  |           | 43     |        |  |   | 52     |       
|                | Design Analysis Solutions service revenue |                    |   | 1,962 |                   |  |   | 1,681     |        |  |           | 5,900  |        |  |   | 4,995  |       
|                | Manufacturing Solutions service revenue   |                    |   | 4     |                   |  |   | 8         |        |  |           | 9      |        |  |   | 13     |       
|                |                                           |                    |   |       |                   |  |   |           |        |  |           |       
|                |                                           | Total revenue      |   |       | 5,089             |  |   |           | 4,192  |  |           |        | 14,562 |  |   |        | 11,322 | 
|                |                                           |                    |   |       |                   |  |   |           |        |  |           |       
|Americas:       |                                           |                    |   |       |                   |  |   |           |        |  |           |        |        |  |   |       
|                | Design Analysis Solutions product revenue |                    |   | 963   |                   |  |   | 564       |        |  |           | 2,640  |        |  |   | 1,464  |       
|                | Manufacturing Solutions product revenue   |                    |   | 3,082 |                   |  |   | 2,859     |        |  |           | 8,121  |        |  |   | 3,608  |       
|                | Design Analysis Solutions service revenue |                    |   | 1,371 |                   |  |   | 1,432     |        |  |           | 4,089  |        |  |   | 4,153  |       
|                | Manufacturing Solutions service revenue   |                    |   | 433   |                   |  |   | 287       |        |  |           | 1,235  |        |  |   | 569    |       
|                |                                           |                    |   |       |                   |  |   |           |        |  |           |       
|                |                                           | Total revenue      |   |       | 5,849             |  |   |           | 5,142  |  |           |        | 16,085 |  |   |        | 9,794  | 
|                |                                           |                    |   |       |                   |  |   |           |        |  |           |       
|Europe:         |                                           |                    |   |       |                   |  |   |           |        |  |           |        |        |  |   |       
|                | Design Analysis Solutions product revenue |                    |   | 1,831 |                   |  |   | 1,402     |        |  |           | 6,040  |        |  |   | 4,249  |       
|                | Manufacturing Solutions product revenue   |                    |   | 488   |                   |  |   | 246       |        |  |           | 1,522  |        |  |   | 1,406  |       
|                | Design Analysis Solutions service revenue |                    |   | 2,417 |                   |  |   | 2,011     |        |  |           | 7,193  |        |  |   | 5,926  |       
|                | Manufacturing Solutions service revenue   |                    |   | 223   |                   |  |   | 297       |        |  |           | 734    |        |  |   | 735    |       
|                |                                           |                    |   |       |                   |  |   |           |        |  |           |       
|                |                                           | Total revenue      |   |       | 4,959             |  |   |           | 3,956  |  |           |        | 15,489 |  |   |        | 12,316 | 
|                |                                           |                    |   |       |                   |  |   |           |        |  |           |       
|Consolidated:   |                                           |                    |   |       |                   |  |   |           |        |  |           |        |        |  |   |       
|                | Design Analysis Solutions product revenue |                    |   | 5,913 |                   |  |   | 4,425     |        |  |           | 17,290 |        |  |   | 11,975 |       
|                | Manufacturing Solutions product revenue   |                    |   | 3,574 |                   |  |   | 3,149     |        |  |           | 9,686  |        |  |   | 5,066  |       
|                | Design Analysis Solutions service revenue |                    |   | 5,750 |                   |  |   | 5,124     |        |  |           | 17,182 |        |  |   | 15,074 |       
|                | Manufacturing Solutions service revenue   |                    |   | 660   |                   |  |   | 592       |        |  |           | 1,978  |        |  |   | 1,317  |       
|                |                                           |                    |   |       |                   |  |   |           |        |  |           |       
|                |                                           | Total revenue      |   | $     | 15,897            |  |   | $         | 13,290 |  |           | $      | 46,136 |  |   | $      | 33,432 | 
|                |                                           |                    |   |       |                   |  |   |           |        |  |           |       



13



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS  (Continued)




|                   |  |                |       |  |          |   |       | 
|------------------ |  | -------------- | ----- |  | -------- | - | ----- | 
|                   |  | March 26,      |       |  | June 30, |  
|                   |  | 2005           |       |  | 2004     |  
|                   |  |                |       |  |          |  
|                   |  | (In thousands) |      
|Fixed assets, net: |  |                |       |  |          |   |       | 
|Asia/ Australia    |  | $              | 2,053 |  |          | $ | 1,675 | 
|Americas           |  |                | 1,036 |  |          |   | 1,262 | 
|Europe             |  |                | 538   |  |          |   | 565   | 
|                   |  |                |       |  |          |  
|Total consolidated |  | $              | 3,627 |  |          | $ | 3,502 | 
|                   |  |                |       |  |          |  



12.     Contingencies, Commitments
and Guarantor Arrangements








14



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS  (Continued)




|                                         |  |                    |      |   |                   |   |     |           |  |   |           |   |  |   |     |  
|---------------------------------------- |  | ------------------ | ---- | - | ----------------- | - | --- | --------- |  | - | --------- | - |  | - | --- | -
|                                         |  | Three Months Ended |      |   | Nine Months Ended |  
|                                         |  |                    |      |   |                   |  
|                                         |  | March 26,          |      |   | March 27,         |   |     | March 26, |  |   | March 27, |  
|                                         |  | 2005               |      |   | 2004              |   |     | 2005      |  |   | 2004      |  
|                                         |  |                    |      |   |                   |   |     |           |  |   |           |  
|                                         |  | (In thousands)     |     
|Balance at beginning of period           |  | $                  | 280  |   |                   | $ | 47  |           |  | $ | 254       |   |  | $ | 42  |  
|Additions                                |  |                    |     |   |                   |   |    |           |  |   | 55        |   |  |   | 5   |  
|Revisions to estimated liabilities       |  |                    | (100 | ) |                   |   |    |           |  |   | (100      | ) |  |   |    |  
|Settlements                              |  |                    | (25  | ) |                   |   | (30 | )         |  |   | (54       | ) |  |   | (30 | )
|Liability assumed in acquisition of AMSI |  |                    |     |   |                   |   | 189 |           |  |   |          |   |  |   | 189 |  
|                                         |  |                    |      |   |                   |   |     |           |  |   |           |  
|Balance at end of period                 |  | $                  | 155  |   |                   | $ | 206 |           |  | $ | 155       |   |  | $ | 206 |  
|                                         |  |                    |      |   |                   |   |     |           |  |   |           |  



| |                  
| | -----------------
| | Lease Commitments



|                 |  |                |       | 
|---------------- |  | -------------- | ----- | 
|Fiscal Year      |  | Lease Payments |      
|                 |  |                |      
|                 |  | (In thousands) |      
|2005 (remainder) |  | $              | 601   | 
|2006             |  |                | 1,591 | 
|2007             |  |                | 1,106 | 
|2008             |  |                | 983   | 
|2009             |  |                | 979   | 
|Thereafter       |  |                | 2,364 | 
|                 |  |                |      
|                 |  | $              | 7,624 | 
|                 |  |                |      





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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED CONSOLIDATED


FINANCIAL STATEMENTS  (Continued)




| |                     
| | --------------------
| | Purchase Commitments



|                 |  |                |       | 
|---------------- |  | -------------- | ----- | 
|                 |  | Purchase       |      
|Fiscal Year      |  | Commitments    |      
|                 |  |                |      
|                 |  | (In thousands) |      
|2005 (remainder) |  | $              | 283   | 
|2006             |  |                | 1,163 | 
|Thereafter       |  |                | 27    | 
|                 |  |                |      
|                 |  | $              | 1,473 | 
|                 |  |                |      



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





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






Business Overview








17



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##### Table of Contents

















Design Analysis Solutions




18



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##### Table of Contents







Manufacturing Solutions








Critical Accounting Policies and Significant Judgments and
Estimates






19



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##### Table of Contents



Overview of Results of Operations for the Three Months and
Nine Months Ended March 26, 2005




| |                               
| | ------------------------------
| | Financial Highlights included:



| |   |                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | growth in revenues to $15.9 million in the third quarter of
    fiscal 2005 from $13.3 million in the third quarter of
    fiscal 2004,                                
|
| |  | growth in earnings to $0.17 per diluted share in the third
    quarter of fiscal 2005 from $0.05 per diluted share in the
    third quarter of fiscal 2004,            
|
| |  | growth in revenues to $46.1 million in the first nine
    months of fiscal 2005 from $33.4 million in the first nine
    months of fiscal 2004,                        
|
| |  | growth in earnings to $0.47 per diluted share in the first
    nine months of fiscal 2005 from $0.14 per diluted share in
    the first nine months of fiscal 2004, and
|
| |  | cash provided from operations of $5.1 million in the first
    nine months of fiscal 2005, compared to $3.4 million in the
    first nine months of fiscal 2004.       



| |                                  
| | ---------------------------------
| | Summary of Operating Performance:

|                       |  |                                            |        |  |         |  |        |           |  |   |         |  |  |  |     |  
|---------------------- |  | ------------------------------------------ | ------ |  | ------- |  | ------ | --------- |  | - | ------- |  |  |  | --- | -
|                       |  | Three                                      |        |  |         |  | Three  |           |  |  
|                       |  | Months                                     |        |  |         |  | Months |           |  |  
|                       |  | Ended                                      |        |  | As a %  |  |        | Ended     |  |   | As a %  | 
|                       |  | March 26,                                  |        |  | of      |  |        | March 27, |  |   | of      | 
|                       |  | 2005                                       |        |  | Revenue |  |        | 2004      |  |   | Revenue | 
|                       |  |                                            |        |  |         |  |        |           |  |   |         | 
|                       |  | (In thousands, except for percentage data) |       
|Revenue                |  | $                                          | 15,897 |  |         |  | 100    | %         |  | $ | 13,290  |  |  |  | 100 | %
|Cost of revenue        |  |                                            | 3,730  |  |         |  | 23     |           |  |   | 3,235   |  |  |  | 24  |  
|Operating expenses     |  |                                            | 10,752 |  |         |  | 68     |           |  |   | 9,555   |  |  |  | 72  |  
|                       |  |                                            |        |  |         |  |        |           |  |   |         | 
|Income from operations |  | $                                          | 1,415  |  |         |  | 9      | %         |  | $ | 500     |  |  |  | 4   | %
|                       |  |                                            |        |  |         |  |        |           |  |   |         | 

|                       |  |                                            |        |  |         |  |        |           |  |   |         |  |  |  |     |  
|---------------------- |  | ------------------------------------------ | ------ |  | ------- |  | ------ | --------- |  | - | ------- |  |  |  | --- | -
|                       |  | Nine                                       |        |  |         |  | Nine   |           |  |  
|                       |  | Months                                     |        |  |         |  | Months |           |  |  
|                       |  | Ended                                      |        |  | As a %  |  |        | Ended     |  |   | As a %  | 
|                       |  | March 26,                                  |        |  | of      |  |        | March 27, |  |   | of      | 
|                       |  | 2005                                       |        |  | Revenue |  |        | 2004      |  |   | Revenue | 
|                       |  |                                            |        |  |         |  |        |           |  |   |         | 
|                       |  | (In thousands, except for percentage data) |       
|Revenue                |  | $                                          | 46,136 |  |         |  | 100    | %         |  | $ | 33,432  |  |  |  | 100 | %
|Cost of revenue        |  |                                            | 10,392 |  |         |  | 23     |           |  |   | 6,041   |  |  |  | 18  |  
|Operating expenses     |  |                                            | 30,470 |  |         |  | 66     |           |  |   | 25,819  |  |  |  | 77  |  
|                       |  |                                            |        |  |         |  |        |           |  |   |         | 
|Income from operations |  | $                                          | 5,274  |  |         |  | 11     | %         |  | $ | 1,572   |  |  |  | 5   | %
|                       |  |                                            |        |  |         |  |        |           |  |   |         | 





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Results of Operations




|                                          |                                            |                                    |   |    |                   |   |   |           |     |   |           |    |     |   |   |    |     |  
|----------------------------------------- | ------------------------------------------ | ---------------------------------- | - | -- | ----------------- | - | - | --------- | --- | - | --------- | -- | --- | - | - | -- | --- | -
|                                          |                                            | Three Months Ended                 |   |    | Nine Months Ended |  
|                                          |                                            |                                    |   |    |                   |  
|                                          |                                            | March 26,                          |   |    | March 27,         |   |   | March 26, |     |   | March 27, |   
|                                          |                                            | 2005                               |   |    | 2004              |   |   | 2005      |     |   | 2004      |   
|                                          |                                            |                                    |   |    |                   |   |   |           |     |   |           |   
|Revenue:                                  |                                            |                                    |   |    |                   |   |   |           |     |   |           |    |     |   |   |   
|                                          | Product                                    |                                    |   | 60 | %                 |   |   | 57        | %   |   |           | 58 | %   |   |   | 51 | %  
|                                          | Services                                   |                                    |   | 40 |                   |   |   | 43        |     |   |           | 42 |     |   |   | 49 |    
|                                          |                                            |                                    |   |    |                   |   |   |           |     |   |           |   
|                                          |                                            | Total revenue                      |   |    | 100               | % |   |           | 100 | % |           |    | 100 | % |   |    | 100 | %
|                                          |                                            |                                    |   |    |                   |   |   |           |     |   |           |   
|Costs and expenses:                       |                                            |                                    |   |    |                   |   |   |           |     |   |           |    |     |   |   |   
|                                          | Cost of product revenue                    |                                    |   | 13 | %                 |   |   | 13        | %   |   |           | 13 | %   |   |   | 9  | %  
|                                          | Cost of services revenue                   |                                    |   | 10 |                   |   |   | 11        |     |   |           | 10 |     |   |   | 9  |    
|                                          | Research and development                   |                                    |   | 14 |                   |   |   | 13        |     |   |           | 13 |     |   |   | 14 |    
|                                          | Selling and marketing                      |                                    |   | 36 |                   |   |   | 38        |     |   |           | 35 |     |   |   | 42 |    
|                                          | General and administrative                 |                                    |   | 18 |                   |   |   | 16        |     |   |           | 18 |     |   |   | 19 |    
|                                          | Restructuring charges                      |                                    |   |   |                   |   |   | 4         |     |   |           |   |     |   |   | 2  |    
|                                          | Amortization of acquired intangible assets |                                    |   |   |                   |   |   | 1         |     |   |           |   |     |   |   | 1  |    
|                                          |                                            |                                    |   |    |                   |   |   |           |     |   |           |   
|                                          |                                            | Total operating costs and expenses |   |    | 91                |   |   |           | 96  |   |           |    | 89  |   |   |    | 96  |  
|                                          |                                            |                                    |   |    |                   |   |   |           |     |   |           |   
|                                          | Income from operations                     |                                    |   | 9  |                   |   |   | 4         |     |   |           | 11 |     |   |   | 4  |    
|Interest income                           |                                            |                                    | 3 |    |                   |   | 2 |           |     |   | 3         |    |     |   | 3 |   
|Other income (expense), net               |                                            |                                    | 1 |    |                   |   |  |           |     |   |          |    |     |   |  |   
|                                          |                                            |                                    |   |    |                   |   |   |           |     |   |           |   
|                                          |                                            | Income before income taxes         |   |    | 13                |   |   |           | 6   |   |           |    | 14  |   |   |    | 7   |  
|Provision for (benefit from) income taxes |                                            |                                    |  |    |                   |   | 2 |           |     |   | 2         |    |     |   | 3 |   
|                                          |                                            |                                    |   |    |                   |   |   |           |     |   |           |   
|                                          |                                            | Net income                         |   |    | 13                | % |   |           | 4   | % |           |    | 12  | % |   |    | 4   | %
|                                          |                                            |                                    |   |    |                   |   |   |           |     |   |           |   



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





| |   |                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------
| |  | license fees for our packaged software,                                                                        
|
| |  | product fees for our collaborative manufacturing management
    systems and hot runner process controllers, and

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



|                             |                 |                                            |   |        |                   |  |   |           |   |  |           |        |   |  |   |        |  
|---------------------------- | --------------- | ------------------------------------------ | - | ------ | ----------------- |  | - | --------- | - |  | --------- | ------ | - |  | - | ------ | -
|                             |                 | Three Months Ended                         |   |        | Nine Months Ended | 
|                             |                 |                                            |   |        |                   | 
|                             |                 | March 26,                                  |   |        | March 27,         |  |   | March 26, |   |  | March 27, |       
|                             |                 | 2005                                       |   |        | 2004              |  |   | 2005      |   |  | 2004      |       
|                             |                 |                                            |   |        |                   |  |   |           |   |  |           |       
|                             |                 | (In thousands, except for percentage data) |  
|Revenue:                     |                 |                                            |   |        |                   |  |   |           |   |  |           |        |   |  |   |       
|                             | Asia/ Australia |                                            | $ | 5,089  |                   |  | $ | 4,192     |   |  | $         | 14,562 |   |  | $ | 11,322 |  
|                             | Americas        |                                            |   | 5,849  |                   |  |   | 5,142     |   |  |           | 16,085 |   |  |   | 9,794  |  
|                             | Europe          |                                            |   | 4,959  |                   |  |   | 3,956     |   |  |           | 15,489 |   |  |   | 12,316 |  
|                             |                 |                                            |   |        |                   |  |   |           |   |  |           |       
|                             | Total           |                                            | $ | 15,897 |                   |  | $ | 13,290    |   |  | $         | 46,136 |   |  | $ | 33,432 |  
|                             |                 |                                            |   |        |                   |  |   |           |   |  |           |       
|Percentage of total revenue: |                 |                                            |   |        |                   |  |   |           |   |  |           |        |   |  |   |       
|                             | Asia/ Australia |                                            |   | 32     | %                 |  |   | 31        | % |  |           | 31     | % |  |   | 34     | %
|                             | Americas        |                                            |   | 37     |                   |  |   | 39        |   |  |           | 35     |   |  |   | 29     |  
|                             | Europe          |                                            |   | 31     |                   |  |   | 30        |   |  |           | 34     |   |  |   | 37     |  
|                             |                 |                                            |   |        |                   |  |   |           |   |  |           |       
|                             | Total           |                                            |   | 100    | %                 |  |   | 100       | % |  |           | 100    | % |  |   | 100    | %
|                             |                 |                                            |   |        |                   |  |   |           |   |  |           |       



| |                
| | ---------------
| | Product revenue









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| |                                          
| | -----------------------------------------
| | Design Analysis Solutions Product Revenue









| |                                        
| | ---------------------------------------
| | Manufacturing Solutions Product Revenue







| |                 
| | ----------------
| | Services Revenue





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| |                
| | ---------------
| | Cost of Revenue

|                                 |          |                                            |       |             |              |   |     |              |  |  |      |    |   |   |       |       | 
|-------------------------------- | -------- | ------------------------------------------ | ----- | ----------- | ------------ | - | --- | ------------ |  |  | ---- | -- | - | - | ----- | ----- | 
|                                 |          |                                            |       | Increase    |              |   |    
|                                 |          |                                            |       | Compared to |              |   |    
|                                 |          | Three Months                               |       |             | Prior Fiscal |   |     | Three Months | 
|                                 |          | Ended                                      |       |             | Year         |   |     | Ended        | 
|                                 |          | March 26,                                  |       |             |              |   |     | March 27,    | 
|                                 |          | 2005                                       |       |             | $            |   |     | %            |  |  | 2004 |   
|                                 |          |                                            |       |             |              |   |     |              |  |  |      |   
|                                 |          | (In thousands, except for percentage data) |      
|Cost of revenue:                 |          |                                            |       |             |              |   |     |              |  |  |      |    |   |   |       |      
|                                 | Product  |                                            | $     | 2,088       |              |   | $   | 310          |  |  |      | 17 | % |   | $     | 1,778 | 
|                                 | Services |                                            |       | 1,642       |              |   |     | 185          |  |  |      | 13 |   |   |       | 1,457 | 
|                                 |          |                                            |       |             |              |   |     |              |  |  |      |   
|                                 |          | $                                          | 3,730 |             |              | $ | 495 |              |  |  | 15   | %  |   | $ | 3,235 |      
|                                 |          |                                            |       |             |              |   |     |              |  |  |      |   
|As a percentage of total revenue |          |                                            | 23    | %           |              |   |     |              |  |  |      |    |   |   | 24    | %    

|                                 |          |                                            |        |             |              |   |       |             |  |  |      |    |   |   |       |       | 
|-------------------------------- | -------- | ------------------------------------------ | ------ | ----------- | ------------ | - | ----- | ----------- |  |  | ---- | -- | - | - | ----- | ----- | 
|                                 |          |                                            |        | Increase    |              |   |      
|                                 |          |                                            |        | Compared to |              |   |      
|                                 |          | Nine Months                                |        |             | Prior Fiscal |   |       | Nine Months | 
|                                 |          | Ended                                      |        |             | Year         |   |       | Ended       | 
|                                 |          | March 26,                                  |        |             |              |   |       | March 27,   | 
|                                 |          | 2005                                       |        |             | $            |   |       | %           |  |  | 2004 |   
|                                 |          |                                            |        |             |              |   |       |             |  |  |      |   
|                                 |          | (In thousands, except for percentage data) |       
|Cost of revenue:                 |          |                                            |        |             |              |   |       |             |  |  |      |    |   |   |       |      
|                                 | Product  |                                            | $      | 5,804       |              |   | $     | 2,783       |  |  |      | 92 | % |   | $     | 3,021 | 
|                                 | Services |                                            |        | 4,588       |              |   |       | 1,568       |  |  |      | 52 |   |   |       | 3,020 | 
|                                 |          |                                            |        |             |              |   |       |             |  |  |      |   
|                                 |          | $                                          | 10,392 |             |              | $ | 4,351 |             |  |  | 72   | %  |   | $ | 6,041 |      
|                                 |          |                                            |        |             |              |   |       |             |  |  |      |   
|As a percentage of total revenue |          |                                            | 23     | %           |              |   |       |             |  |  |      |    |   |   | 18    | %    



| |                        
| | -----------------------
| | Cost of Product Revenue





24



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| |                         
| | ------------------------
| | Cost of Services Revenue









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

|                                 |  |                                            |       |             |              |   |     |              |  |  |      |   |  |   |       |  
|-------------------------------- |  | ------------------------------------------ | ----- | ----------- | ------------ | - | --- | ------------ |  |  | ---- | - |  | - | ----- | -
|                                 |  |                                            |       | Increase    |              |   |    
|                                 |  |                                            |       | Compared to |              |   |    
|                                 |  | Three Months                               |       |             | Prior Fiscal |   |     | Three Months | 
|                                 |  | Ended                                      |       |             | Year         |   |     | Ended        | 
|                                 |  | March 26,                                  |       |             |              |   |     | March 27,    | 
|                                 |  | 2005                                       |       |             | $            |   |     | %            |  |  | 2004 |  
|                                 |  |                                            |       |             |              |   |     |              |  |  |      |  
|                                 |  | (In thousands, except for percentage data) |      
|Research and development         |  | $                                          | 2,160 |             |              | $ | 465 |              |  |  | 27   | % |  | $ | 1,695 |  
|As a percentage of total revenue |  |                                            | 14    | %           |              |   |     |              |  |  |      |   |  |   | 13    | %

|                                 |  |                                            |       |             |              |   |       |             |  |  |      |   |  |   |       |  
|-------------------------------- |  | ------------------------------------------ | ----- | ----------- | ------------ | - | ----- | ----------- |  |  | ---- | - |  | - | ----- | -
|                                 |  |                                            |       | Increase    |              |   |      
|                                 |  |                                            |       | Compared to |              |   |      
|                                 |  | Nine Months                                |       |             | Prior Fiscal |   |       | Nine Months | 
|                                 |  | Ended                                      |       |             | Year         |   |       | Ended       | 
|                                 |  | March 26,                                  |       |             |              |   |       | March 27,   | 
|                                 |  | 2005                                       |       |             | $            |   |       | %           |  |  | 2004 |  
|                                 |  |                                            |       |             |              |   |       |             |  |  |      |  
|                                 |  | (In thousands, except for percentage data) |      
|Research and development         |  | $                                          | 5,845 |             |              | $ | 1,022 |             |  |  | 21   | % |  | $ | 4,823 |  
|As a percentage of total revenue |  |                                            | 13    | %           |              |   |       |             |  |  |      |   |  |   | 14    | %

25



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

|                                 |  |                                            |       |             |              |   |     |              |  |  |      |   |  |   |       |  
|-------------------------------- |  | ------------------------------------------ | ----- | ----------- | ------------ | - | --- | ------------ |  |  | ---- | - |  | - | ----- | -
|                                 |  |                                            |       | Increase    |              |   |    
|                                 |  |                                            |       | Compared to |              |   |    
|                                 |  | Three Months                               |       |             | Prior Fiscal |   |     | Three Months | 
|                                 |  | Ended                                      |       |             | Year         |   |     | Ended        | 
|                                 |  | March 26,                                  |       |             |              |   |     | March 27,    | 
|                                 |  | 2005                                       |       |             | $            |   |     | %            |  |  | 2004 |  
|                                 |  |                                            |       |             |              |   |     |              |  |  |      |  
|                                 |  | (In thousands, except for percentage data) |      
|Selling and marketing            |  | $                                          | 5,650 |             |              | $ | 612 |              |  |  | 12   | % |  | $ | 5,038 |  
|As a percentage of total revenue |  |                                            | 36    | %           |              |   |     |              |  |  |      |   |  |   | 38    | %

|                                 |  |                                            |        |             |              |   |       |             |  |  |      |   |  |   |        |  
|-------------------------------- |  | ------------------------------------------ | ------ | ----------- | ------------ | - | ----- | ----------- |  |  | ---- | - |  | - | ------ | -
|                                 |  |                                            |        | Increase    |              |   |      
|                                 |  |                                            |        | Compared to |              |   |      
|                                 |  | Nine Months                                |        |             | Prior Fiscal |   |       | Nine Months | 
|                                 |  | Ended                                      |        |             | Year         |   |       | Ended       | 
|                                 |  | March 26,                                  |        |             |              |   |       | March 27,   | 
|                                 |  | 2005                                       |        |             | $            |   |       | %           |  |  | 2004 |  
|                                 |  |                                            |        |             |              |   |       |             |  |  |      |  
|                                 |  | (In thousands, except for percentage data) |       
|Selling and marketing            |  | $                                          | 15,956 |             |              | $ | 2,034 |             |  |  | 15   | % |  | $ | 13,922 |  
|As a percentage of total revenue |  |                                            | 35     | %           |              |   |       |             |  |  |      |   |  |   | 42     | %





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

|                                 |  |                                            |       |             |              |   |     |              |  |  |      |   |  |   |       |  
|-------------------------------- |  | ------------------------------------------ | ----- | ----------- | ------------ | - | --- | ------------ |  |  | ---- | - |  | - | ----- | -
|                                 |  |                                            |       | Increase    |              |   |    
|                                 |  |                                            |       | Compared to |              |   |    
|                                 |  | Three Months                               |       |             | Prior Fiscal |   |     | Three Months | 
|                                 |  | Ended                                      |       |             | Year         |   |     | Ended        | 
|                                 |  | March 26,                                  |       |             |              |   |     | March 27,    | 
|                                 |  | 2005                                       |       |             | $            |   |     | %            |  |  | 2004 |  
|                                 |  |                                            |       |             |              |   |     |              |  |  |      |  
|                                 |  | (In thousands, except for percentage data) |      
|General and administrative       |  | $                                          | 2,869 |             |              | $ | 681 |              |  |  | 31   | % |  | $ | 2,188 |  
|As a percentage of total revenue |  |                                            | 18    | %           |              |   |     |              |  |  |      |   |  |   | 16    | %

|                                 |  |                                            |       |             |              |   |       |             |  |  |      |   |  |   |       |  
|-------------------------------- |  | ------------------------------------------ | ----- | ----------- | ------------ | - | ----- | ----------- |  |  | ---- | - |  | - | ----- | -
|                                 |  |                                            |       | Increase    |              |   |      
|                                 |  |                                            |       | Compared to |              |   |      
|                                 |  | Nine Months                                |       |             | Prior Fiscal |   |       | Nine Months | 
|                                 |  | Ended                                      |       |             | Year         |   |       | Ended       | 
|                                 |  | March 26,                                  |       |             |              |   |       | March 27,   | 
|                                 |  | 2005                                       |       |             | $            |   |       | %           |  |  | 2004 |  
|                                 |  |                                            |       |             |              |   |       |             |  |  |      |  
|                                 |  | (In thousands, except for percentage data) |      
|General and administrative       |  | $                                          | 8,445 |             |              | $ | 2,226 |             |  |  | 36   | % |  | $ | 6,219 |  
|As a percentage of total revenue |  |                                            | 18    | %           |              |   |       |             |  |  |      |   |  |   | 19    | %







27



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





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





| |                
| | ---------------
| | Interest Income







| |                            
| | ---------------------------
| | Other Income (Expense), Net





28



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| |                                          
| | -----------------------------------------
| | Provision for Income (Benefit from) Taxes







Liquidity and Capital Resources


|                                                                |  |                |        |  |             |   |        | 
|--------------------------------------------------------------- |  | -------------- | ------ |  | ----------- | - | ------ | 
|                                                                |  | Nine Months    |        |  | Nine Months |  
|                                                                |  | Ended          |        |  | Ended       |  
|                                                                |  | March 26,      |        |  | March 27,   |  
|                                                                |  | 2005           |        |  | 2004        |  
|                                                                |  |                |        |  |             |  
|                                                                |  | (In thousands) |       
|Cash provided by operating activities                           |  | $              | 5,086  |  |             | $ | 3,428  | 
|Cash provided by investing activities                           |  |                | 3,498  |  |             |   | 3,775  | 
|Cash provided by financing activities                           |  |                | 1,879  |  |             |   | 1,047  | 
|Effect of exchange rate changes on cash and cash equivalents    |  |                | 1,338  |  |             |   | 1,298  | 
|                                                                |  |                |        |  |             |  
|Net increase in cash and cash equivalents                       |  |                | 11,801 |  |             |   | 9,548  | 
|Cash and cash equivalents, beginning of period                  |  |                | 35,987 |  |             |   | 38,320 | 
|                                                                |  |                |        |  |             |  
|Cash and cash equivalents, end of period                        |  | $              | 47,788 |  |             | $ | 47,868 | 
|                                                                |  |                |        |  |             |  
|Marketable securities, end of period                            |  | $              | 10,970 |  |             | $ | 1,481  | 
|                                                                |  |                |        |  |             |  
|Cash, cash equivalents and marketable securities, end of period |  | $              | 58,758 |  |             | $ | 49,349 | 
|                                                                |  |                |        |  |             |  



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Contractual Obligations




|                            |       |                        |       |           |      |   |        |      |  |        |       |       |        |      |       |        |      |   |     |            |  |   |     |     |  |   |       |       | 
|--------------------------- | ----- | ---------------------- | ----- | --------- | ---- | - | ------ | ---- |  | ------ | ----- | ----- | ------ | ---- | ----- | ------ | ---- | - | --- | ---------- |  | - | --- | --- |  | - | ----- | ----- | 
|                            |       | Payments Due by Period |      
|                            |       |                        |      
|                            |       |                        |       | Remainder |      |   |       
|                            |       |                        |       | of Fiscal |      |   | Fiscal |      |  | Fiscal |       |       | Fiscal |      |       | Fiscal |      |   |    
|                            |       | Total                  |       |           | 2005 |   |        | 2006 |  |        | 2007  |       |        | 2008 |       |        | 2009 |   |     | Thereafter | 
|                            |       |                        |       |           |      |   |        |      |  |        |       |       |        |      |       |        |      |   |     |            | 
|                            |       | (In thousands)         |      
|Operating lease obligations |       | $                      | 7,624 |           |      | $ | 601    |      |  | $      | 1,591 |       |        | $    | 1,106 |        |      | $ | 983 |            |  | $ | 979 |     |  | $ | 2,364 |      
|Purchase obligations(1)     |       |                        | 1,473 |           |      |   | 283    |      |  |        | 1,163 |       |        |      | 27    |        |      |   |    |            |  |   |    |     |  |   |      |      
|                            |       |                        |       |           |      |   |        |      |  |        |       |       |        |      |       |        |      |   |     |            | 
|                            | Total |                        | $     | 9,097     |      |   | $      | 884  |  |        | $     | 2,754 |        |      | $     | 1,133  |      |   | $   | 983        |  |   | $   | 979 |  |   | $     | 2,364 | 
|                            |       |                        |       |           |      |   |        |      |  |        |       |       |        |      |       |        |      |   |     |            | 






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



Off-Balance Sheet Financing Arrangements




Recent Accounting Pronouncements






Impact of Inflation




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Risk Factors and Important Factors That May Affect Future
Results






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





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





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



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





| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | seasonal slowdowns, in particular, in our first fiscal quarter,
    in many of the markets in which we sell our products,                                                                                                                                                                                                                                                                                                                                                
|
| |  | changes in the mix of products and services we provide because
    sales of our Manufacturing Solutions products and our services
    have resulted in lower gross margins and have resulted in a
    longer selling cycle, which effect may be more significant
    following the acquisition of AMSI, which will result in a higher
    percentage of sales coming from our Manufacturing Solutions
    products as compared to our Design Analysis Solutions products,
|
| |  | the timing and magnitude of capital expenditures, including
    costs relating to the expansion of our operations and
    infrastructure, and planned program spending, such as that
    required for major marketing initiatives or tradeshows,                                                                                                                                                                                                                         
|
| |  | introductions of new services or enhancements by us and our
    competitors and changes in our and our competitors pricing
    policies,                                                                                                                                                                                                                                                                                                                                
|
| |  | our increased use of third parties such as distributors,
    contract assembly operations and resellers which may lessen the
    control we have over revenue and earnings during any particular
    period,                                                                                                                                                                                                                                                             
|
| |  | the timing and magnitude of our tax expense, resulting from the
    globally distributed nature of our selling and research and
    development operations and certain on-going tax audits or
    investigations by various global taxing authorities that may
    lead to the loss of certain planned for tax benefits, or
    increased taxable income in certain jurisdictions that may not
    yet be offset by losses in other tax jurisdictions,                   
|
| |  | fluctuations in our tax rate from quarter to quarter due to the
    impact of discrete events, including the settlement of claims,
    the management of audits and other inquiries, the acquisition of
    other companies or other events,                                                                                                                                                                                                                             
|
| |  | currency and exchange rate fluctuations; particularly with
    respect to the Euro, the Japanese Yen and the Australian dollar,                                                                                                                                                                                                                                                                                                                                          
|
| |  | timing and integration of acquisitions, and                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | costs of compliance with the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                 





| |                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------
| | Failure to comply with Section 404 of Sarbanes-Oxley
    Act of 2002 in a timely fashion may have a negative impact on
    investor confidence.



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





| |   |                                             
| | - | --------------------------------------------
| |  | rapid technological advances,               
|
| |  | evolving industry standards,                
|
| |  | changes in end-user requirements,           
|
| |  | intense competition,                        
|
| |  | technically complex products,               
|
| |  | frequent new product introductions, and     
|
| |  | evolving offerings by product manufacturers.







| |                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Our 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.



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| |                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | If we determine that any of our goodwill or intangible
    assets, including technology purchased in acquisitions, are
    impaired, we would be required to take a charge to earnings,
    which could have a material adverse effect on 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.





| |                                                                                   
| | ----------------------------------------------------------------------------------
| | We may lose sales if we are unable to protect important
    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,

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| |   |                                                                                                                                                                                                                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | our trade secrets may also become known without breach of such
    agreements or may be independently developed by competitors,                                                                                                                                                                                        
|
| |  | foreign countries, including some of those in which we do
    business, may reduce or limit the protection of our intellectual
    property rights and software piracy, particularly in certain
    countries in Asia, may result in lost revenue in those countries
    or to customers with worldwide operations, and
|
| |  | the cost of enforcing our intellectual property rights may
    reduce our future profitability.                                                                                                                                                                                                                        



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





| |   |                                                                                                                                                                                                                                                   
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | 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
    manufacturing, sales, support and research and development
    operations across many countries,                                                                                  
|
| |  | decreased earnings based on changes in tax regulations in
    foreign jurisdictions or the timing of required tax payments in
    foreign jurisdictions that may not yet be offset by tax benefits
    arising from losses in other jurisdictions,
|
| |  | lost revenue resulting from difficulties associated with
    enforcing agreements and collecting receivables through foreign
    legal systems,                                                                                                   
|
| |  | interruptions in our operations due to political and social
    conditions of the countries in which we conduct business,                                                                                                                         
|
| |  | 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.





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



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##### Table of Contents







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





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





| |                                                                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | When we are required to expense options or other equity
    instruments granted under our employee stock plans as
    compensation, our net income and earnings per share will be
    significantly reduced.





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





| |   |                                                                                                                        
| | - | -----------------------------------------------------------------------------------------------------------------------
| |  | 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,                              
|
| |  | technological innovations by competitors or in competing
    technologies,                                             

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| |   |                                                          
| | - | ---------------------------------------------------------
| |  | a decrease in the demand for our common stock,           
|
| |  | investor perception of our industry or our prospects, and
|
| |  | general technology or economic trends.                   








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














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



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##### Table of Contents





39



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##### Table of Contents






PART II. OTHER INFORMATION







|        |                  
|------- | -----------------
|Item 1. | Legal Proceedings








|        |         
|------- | --------
|Item 6. | Exhibits

Exhibits:


| |    |     |  |                                                                                                                                                                                                                                                                             
| | -- | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10 | .1* |  | Employment Agreement between Christopher L. Gorgone and Moldflow
    Corporation previously filed as an exhibit to the Companys
    Current Report on Form 8-K filed on January 12, 2005,
    and incorporated herein by reference.                                        
| | 10 | .2* |  | Transitional Services Agreement between Suzanne E. MacCormack
    and Moldflow Corporation previously filed as exhibit to the
    Companys Current Report on Form 8-K filed on
    January 12, 2005, and incorporated herein by reference.                                 
| | 10 | .3  |  | Lease between Moldflow Corporation and 492 OCP, LLC dated
    as of January 28, 2005 previously filed as an exhibit to
    the Companys Quarterly Report on Form 10-Q filed on
    February 2, 2005, and incorporated herein by reference.                                 
| | 10 | .4  |  | Loan Modification Agreement dated as of January 31, 2005
    between Moldflow Corporation and Silicon Valley Bank previously
    filed as an exhibit to the Companys Quarterly Report on
    Form 10-Q filed on February 2, 2005, and incorporated
    herein by reference.
| | 31 | .1  |  | Rule 13a-14(a)/15d-14(a) Certification.**                                                                                                                                                                                                                                   
|
| | 31 | .2  |  | Rule 13a-14(a)/15d-14(a) Certification.**                                                                                                                                                                                                                                   
|
| | 32 | .1  |  | Section 1350 Certification.**(1)                                                                                                                                                                                                                                            
|
| | 32 | .2  |  | Section 1350 Certification.**(1)                                                                                                                                                                                                                                            






|  |                                                                 
|- | ----------------------------------------------------------------
|* | Denotes management contract or compensation plan or arrangement.



|   |                
|-- | ---------------
|** | Filed herewith.



|    |                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | This certification shall not be deemed filed for
    purposes of Section 18 of the Securities Exchange Act of
    1934, or otherwise subject to the liability of that section, nor
    shall it be deemed incorporated by reference into any filing
    under the Securities Act of 1933 or the Securities Exchange Act
    of 1934.

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SIGNATURES






| |                     
| | --------------------
| | Moldflow Corporation



| |     |                     
| | --- | --------------------
| | By: | /s/ A. Roland Thomas

| |                                      
| | -------------------------------------
| |                                      
| | A. Roland Thomas                     
| | President and Chief Executive Officer
|
| | Moldflow Corporation                 



| |     |                           
| | --- | --------------------------
| | By: | /s/ Christopher L. Gorgone

| |                                           
| | ------------------------------------------
| |                                           
| | Christopher L. Gorgone                    
| | Executive Vice President of Finance and   
| | Administration and Chief Financial Officer
| | (Principal Financial Officer)             



41