##### 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:
September 27, 2003

Commission File Number: 000-30027



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Moldflow Corporation

(Exact name of registrant as specified in its
charter)


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

430 Boston Post Road, Wayland, MA
01778

(Address of principal executive offices,
including zip code)


(508) 358-5848

(Registrants telephone number, including
area code)




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

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

There were
10,058,053 shares of our common stock, par value $0.01,
outstanding on November 7, 2003.



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TABLE OF CONTENTS



|                                                               |                                                                                               |  |  |  |  |  |  | 
|-------------------------------------------------------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION                                 
|                                                               | Item 1. Unaudited Financial Statements                                                       
|NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|                                                               | Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|                                                               | Item 3. Quantitative and Qualitative Disclosures about Market Risk                           
|                                                               | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                                    
|                                                               | Item 1. Legal Proceedings                                                                    
|                                                               | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                                    
|EX-31.1 CEO CERTIFICATION                                     
|EX-31.2 CFO CERTIFICATION                                     
|EX-32.1 CEO CERTIFICATION (SEC. 906)                          
|EX-32.2 CFO CERTIFICATION (SEC. 906)                          



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##### Table of Contents



MOLDFLOW CORPORATION

FORM 10-Q

For the Quarter Ended September 27,
2003


TABLE OF CONTENTS

|                                   |  |                                                                                                                         |    |        |    | 
|---------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------- | -- | ------ | -- | 
|                                   |  |                                                                                                                         |    | Page  
|                                   |  |                                                                                                                         |    | Number
|                                   |  |                                                                                                                         |    |       
|PART I.  FINANCIAL
    INFORMATION
|Item 1.                            |  | Unaudited Financial Statements:                                                                                         |    |        |    | 
|                                   |  | Condensed Consolidated Balance Sheet as of
    September 27, 2003 and June 30, 2003                                     |    |        | 2  | 
|                                   |  | Condensed Consolidated Statement of Income for
    the three months ended September 27, 2003 and
    September 28, 2002 |    |        | 3  | 
|                                   |  | Condensed Consolidated Statement of Cash Flows
    the three months ended September 27, 2003 and
    September 28, 2002 |    |        | 4  | 
|                                   |  | Notes to Unaudited Condensed Consolidated
    Financial Statements                                                      |    |        | 5  | 
|Item 2.                            |  | Managements Discussion and Analysis of
    Financial Condition and Results of Operations                               |    |        | 13 | 
|Item 3.                            |  | Quantitative and Qualitative Disclosures About
    Market Risk                                                          |    |        | 25 | 
|Item 4.                            |  | Controls and Procedures                                                                                                 |    |        | 25 | 
|PART II.  OTHER
    INFORMATION   
|Item 1.                            |  | Legal Proceedings                                                                                                       |    |        | 26 | 
|Item 6.                            |  | Exhibits and Reports on Form 8-K                                                                                        |    |        | 26 | 
|Signatures                         |  |                                                                                                                         | 27 |       

1



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##### Table of Contents






PART I.     FINANCIAL
INFORMATION






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

MOLDFLOW CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

|                                         |                                        |                                            |       |          |        |  |       |        |        | 
|---------------------------------------- | -------------------------------------- | ------------------------------------------ | ----- | -------- | ------ |  | ----- | ------ | ------ | 
|                                         |                                        | September 27,                              |       | June 30,
|                                         |                                        | 2003                                       |       | 2003    
|                                         |                                        |                                            |       |         
|                                         |                                        |                                           
|                                         |                                        | (In thousands)                            
|                                         |                                        | (Unaudited)                               
|ASSETS                                  
|Current assets:                          |                                        |                                            |       |          |        |  |       |       
|                                         | Cash and cash equivalents              |                                            | $     | 40,725   |        |  | $     | 38,320 |       
|                                         | Marketable securities                  |                                            |       | 11,932   |        |  |       | 13,820 |       
|                                         | Accounts receivable, net               |                                            |       | 5,037    |        |  |       | 6,147  |       
|                                         | Inventories                            |                                            |       | 358      |        |  |       | 313    |       
|                                         | Prepaid expenses                       |                                            |       | 2,624    |        |  |       | 2,189  |       
|                                         | Other current assets                   |                                            |       | 2,320    |        |  |       | 2,509  |       
|                                         |                                        |                                            |       |          |        |  |       |       
|                                         |                                        | Total current assets                       |       |          | 62,996 |  |       |        | 63,298 | 
|Fixed assets, net                        |                                        |                                            | 3,890 |          |        |  | 3,891 |       
|Acquired intangible assets, net          |                                        |                                            | 574   |          |        |  | 685   |       
|Goodwill                                 |                                        |                                            | 9,671 |          |        |  | 9,670 |       
|Other assets                             |                                        |                                            | 1,347 |          |        |  | 1,933 |       
|                                         |                                        |                                            |       |          |        |  |       |       
|                                         |                                        | Total assets                               |       | $        | 78,478 |  |       | $      | 79,477 | 
|                                         |                                        |                                            |       |          |        |  |       |       
|LIABILITIES AND STOCKHOLDERS
    EQUITY
|Current liabilities:                     |                                        |                                            |       |          |        |  |       |       
|                                         | Accounts payable                       |                                            | $     | 1,545    |        |  | $     | 1,684  |       
|                                         | Accrued expenses                       |                                            |       | 7,047    |        |  |       | 7,439  |       
|                                         | Deferred revenue                       |                                            |       | 7,312    |        |  |       | 8,551  |       
|                                         |                                        |                                            |       |          |        |  |       |       
|                                         |                                        | Total current liabilities                  |       |          | 15,904 |  |       |        | 17,674 | 
|Deferred revenue                         |                                        |                                            | 596   |          |        |  | 513   |       
|Other long-term liabilities              |                                        |                                            | 576   |          |        |  | 641   |       
|                                         |                                        |                                            |       |          |        |  |       |       
|                                         | Total liabilities                      |                                            |       | 17,076   |        |  |       | 18,828 |       
|                                         |                                        |                                            |       |          |        |  |       |       
|Stockholders equity:                    |                                        |                                            |       |          |        |  |       |       
|                                         | Common stock                           |                                            |       | 102      |        |  |       | 102    |       
|                                         | Additional paid-in capital             |                                            |       | 62,933   |        |  |       | 62,867 |       
|                                         | Treasury stock                         |                                            |       | (823     | )      |  |       | (926   | )     
|                                         | Accumulated deficit                    |                                            |       | (3,673   | )      |  |       | (4,090 | )     
|                                         | Accumulated other comprehensive income |                                            |       | 2,863    |        |  |       | 2,696  |       
|                                         |                                        |                                            |       |          |        |  |       |       
|                                         | Total stockholders equity             |                                            |       | 61,402   |        |  |       | 60,649 |       
|                                         |                                        |                                            |       |          |        |  |       |       
|                                         |                                        | Total liabilities and stockholders equity |       | $        | 78,478 |  |       | $      | 79,477 | 
|                                         |                                        |                                            |       |          |        |  |       |       

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

2



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##### Table of Contents



MOLDFLOW CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF
INCOME

|                                                          |                                            |                                       |     |               |  |  |     |        |  
|--------------------------------------------------------- | ------------------------------------------ | ------------------------------------- | --- | ------------- |  |  | --- | ------ | -
|                                                          |                                            |                                      
|                                                          |                                            | Three Months Ended                   
|                                                          |                                            |                                      
|                                                          |                                            | September 27,                         |     | September 28,
|                                                          |                                            | 2003                                  |     | 2002         
|                                                          |                                            |                                       |     |              
|                                                          |                                            |                                      
|                                                          |                                            | (In thousands, except per share data)
|                                                          |                                            | (Unaudited)                          
|Revenue:                                                  |                                            |                                       |     |               |  |  |     |       
|                                                          | Product                                    |                                       | $   | 4,354         |  |  | $   | 3,696  |  
|                                                          | Services                                   |                                       |     | 5,157         |  |  |     | 4,605  |  
|                                                          |                                            |                                       |     |               |  |  |     |       
|                                                          | Total revenue                              |                                       |     | 9,511         |  |  |     | 8,301  |  
|                                                          |                                            |                                       |     |               |  |  |     |       
|Costs and expenses:                                       |                                            |                                       |     |               |  |  |     |       
|                                                          | Cost of product revenue                    |                                       |     | 638           |  |  |     | 661    |  
|                                                          | Cost of services revenue                   |                                       |     | 629           |  |  |     | 280    |  
|                                                          | Research and development                   |                                       |     | 1,593         |  |  |     | 1,455  |  
|                                                          | Selling and marketing                      |                                       |     | 4,186         |  |  |     | 4,165  |  
|                                                          | General and administrative                 |                                       |     | 1,914         |  |  |     | 1,650  |  
|                                                          | Amortization of acquired intangible assets |                                       |     | 111           |  |  |     | 159    |  
|                                                          |                                            |                                       |     |               |  |  |     |       
|                                                          | Total operating costs and expenses         |                                       |     | 9,071         |  |  |     | 8,370  |  
|                                                          |                                            |                                       |     |               |  |  |     |       
|                                                          | Income (loss) from operations              |                                       |     | 440           |  |  |     | (69    | )
|Interest income, net                                      |                                            |                                       | 268 |               |  |  | 287 |       
|Other income (loss), net                                  |                                            |                                       | (43 | )             |  |  | 22  |       
|                                                          |                                            |                                       |     |               |  |  |     |       
|                                                          | Income before income taxes                 |                                       |     | 665           |  |  |     | 240    |  
|Provision for income taxes                                |                                            |                                       | 248 |               |  |  | 225 |       
|                                                          |                                            |                                       |     |               |  |  |     |       
|                                                          | Net income                                 |                                       | $   | 417           |  |  | $   | 15     |  
|                                                          |                                            |                                       |     |               |  |  |     |       
|Net income per common share:                              |                                            |                                       |     |               |  |  |     |       
|                                                          | Basic                                      |                                       | $   | 0.04          |  |  | $   | 0.00   |  
|                                                          | Diluted                                    |                                       | $   | 0.04          |  |  | $   | 0.00   |  
|Shares used in computing net income per common
    share: |                                            |                                       |     |               |  |  |     |       
|                                                          | Basic                                      |                                       |     | 10,049        |  |  |     | 10,108 |  
|                                                          | Diluted                                    |                                       |     | 10,580        |  |  |     | 10,371 |  

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

3



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##### Table of Contents



MOLDFLOW CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH
FLOWS

|                                                                                      |                                                                                 |                    |        |               |   |   |        |       |  
|------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | ------------------ | ------ | ------------- | - | - | ------ | ----- | -
|                                                                                      |                                                                                 |                   
|                                                                                      |                                                                                 | Three Months Ended
|                                                                                      |                                                                                 |                   
|                                                                                      |                                                                                 | September 27,      |        | September 28,
|                                                                                      |                                                                                 | 2003               |        | 2002         
|                                                                                      |                                                                                 |                    |        |              
|                                                                                      |                                                                                 |                   
|                                                                                      |                                                                                 | (In thousands)    
|                                                                                      |                                                                                 | (Unaudited)       
|Cash flows from operating
    activities:                                             |                                                                                 |                    |        |               |   |   |        |      
|Net income                                                                            |                                                                                 | $                  | 417    |               |   | $ | 15     |      
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                                 |                    |        |               |   |   |        |      
|                                                                                      | Depreciation of fixed assets and amortization of
    acquired intangible assets |                    |        | 457           |   |   |        | 498   |  
|                                                                                      | Amortization of capitalized software development
    costs                      |                    |        | 63            |   |   |        | 32    |  
|                                                                                      | Provisions for doubtful accounts                                                |                    |        | 41            |   |   |        | 38    |  
|                                                                                      | Foreign exchange losses (gains)                                                 |                    |        | 38            |   |   |        | (23   | )
|                                                                                      | Other non-cash charges to income                                                |                    |        | 2             |   |   |        | 72    |  
|Changes in assets and liabilities:                                                    |                                                                                 |                    |        |               |   |   |        |      
|                                                                                      | Accounts receivable                                                             |                    |        | 1,203         |   |   |        | 386   |  
|                                                                                      | Other current assets                                                            |                    |        | (186          | ) |   |        | 728   |  
|                                                                                      | Other assets                                                                    |                    |        | 540           |   |   |        | (175  | )
|                                                                                      | Accounts payable                                                                |                    |        | (147          | ) |   |        | (249  | )
|                                                                                      | Accrued expenses                                                                |                    |        | (768          | ) |   |        | (715  | )
|                                                                                      | Deferred revenue                                                                |                    |        | (1,373        | ) |   |        | (874  | )
|                                                                                      |                                                                                 |                    |        |               |   |   |        |      
|                                                                                      | Net cash provided by (used in) operating
    activities                         |                    |        | 287           |   |   |        | (267  | )
|                                                                                      |                                                                                 |                    |        |               |   |   |        |      
|Cash flows from investing
    activities:                                             |                                                                                 |                    |        |               |   |   |        |      
|                                                                                      | Purchases of fixed assets                                                       |                    |        | (310          | ) |   |        | (290  | )
|                                                                                      | Sales and maturities of marketable securities                                   |                    |        | 1,889         |   |   |        | 1,441 |  
|                                                                                      |                                                                                 |                    |        |               |   |   |        |      
|                                                                                      | Net cash provided by investing activities                                       |                    |        | 1,579         |   |   |        | 1,151 |  
|                                                                                      |                                                                                 |                    |        |               |   |   |        |      
|Cash flows from financing
    activities:                                             |                                                                                 |                    |        |               |   |   |        |      
|                                                                                      | Issuance of common stock                                                        |                    |        | 169           |   |   |        | 177   |  
|                                                                                      | Repurchase of common stock                                                      |                    |        |              |   |   |        | (909  | )
|                                                                                      |                                                                                 |                    |        |               |   |   |        |      
|                                                                                      | Net cash provided by (used in) financing
    activities                         |                    |        | 169           |   |   |        | (732  | )
|                                                                                      |                                                                                 |                    |        |               |   |   |        |      
|Effect of exchange rate changes on cash and cash
    equivalents                      |                                                                                 |                    | 370    |               |   |   | (427   | )    
|                                                                                      |                                                                                 |                    |        |               |   |   |        |      
|Net increase (decrease) in cash and cash
    equivalents                              |                                                                                 |                    | 2,405  |               |   |   | (275   | )    
|Cash and cash equivalents, beginning of period                                        |                                                                                 |                    | 38,320 |               |   |   | 47,634 |      
|                                                                                      |                                                                                 |                    |        |               |   |   |        |      
|Cash and cash equivalents, end of period                                              |                                                                                 | $                  | 40,725 |               |   | $ | 47,359 |      
|                                                                                      |                                                                                 |                    |        |               |   |   |        |      

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

4



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##### Table of Contents



MOLDFLOW CORPORATION






NOTES TO UNAUDITED CONDENSED
CONSOLIDATED


FINANCIAL STATEMENTS


1.     Basis of
Presentation and Nature of Business

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

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

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

2.     Stock Plans
and Stock-based Employee Compensation

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

|                                               |  |                    |           |                    |  |        |       |                  |  |  |           |   |  |   |       | 
|---------------------------------------------- |  | ------------------ | --------- | ------------------ |  | ------ | ----- | ---------------- |  |  | --------- | - |  | - | ----- | 
|                                               |  |                   
|                                               |  | Three Months Ended
|                                               |  |                   
|                                               |  |                    |           |                   
|                                               |  | September 27, 2003 |           | September 28, 2002
|                                               |  |                    |           |                   
|                                               |  |                    |           | Weighted Average   |  |        |       | Weighted Average
|                                               |  | Shares             |           | Exercise Price     |  | Shares |       | Exercise Price  
|                                               |  |                    |           |                    |  |        |       |                 
|Outstanding at beginning of period             |  |                    | 2,433,206 |                    |  | $      | 9.33  |                  |  |  | 1,618,975 |   |  | $ | 12.23 | 
|Granted                                        |  |                    | 392,980   |                    |  |        | 6.95  |                  |  |  | 1,066,550 |   |  |   | 4.62  | 
|Exercised                                      |  |                    | (17,073   | )                  |  |        | 2.07  |                  |  |  | (45,637   | ) |  |   | 0.55  | 
|Canceled                                       |  |                    | (23,314   | )                  |  |        | 13.44 |                  |  |  | (73,689   | ) |  |   | 13.14 | 
|                                               |  |                    |           |                    |  |        |       |                  |  |  |           |   |  |   |       | 
|Outstanding at end of period                   |  |                    | 2,785,799 |                    |  | $      | 9.31  |                  |  |  | 2,566,199 |   |  | $ | 9.25  | 
|                                               |  |                    |           |                    |  |        |       |                  |  |  |           |   |  |   |       | 
|Options exercisable at end of period           |  |                    | 1,220,703 |                    |  |        |       |                  |  |  | 692,340   |   |  |   |       | 
|Weighted average fair value of options granted |  |                    |           |                    |  | $      | 6.79  |                  |  |  |           |   |  | $ | 2.69  | 
|Options available for future grant             |  |                    | 1,168,157 |                    |  |        |       |                  |  |  | 24,765    |   |  |   |       | 

No compensation cost has been recognized for
employee stock-based awards for the three months ended
September 27, 2003 and September 28, 2002. Had
compensation cost been determined based on the fair value at the
grant dates, the Companys net income would have been the
pro forma amounts indicated in the table below.

5



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


|                             |                                                                                                                                             |                    |      |               |   |   |        |        |  
|---------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ---- | ------------- | - | - | ------ | ------ | -
|                             |                                                                                                                                             |                   
|                             |                                                                                                                                             | Three Months Ended
|                             |                                                                                                                                             |                   
|                             |                                                                                                                                             | September 27,      |      | September 28,
|                             |                                                                                                                                             | 2003               |      | 2002         
|                             |                                                                                                                                             |                    |      |              
|                             |                                                                                                                                             |                   
|                             |                                                                                                                                             | (In thousands)    
|Net income as reported       |                                                                                                                                             | $                  | 417  |               |   | $ | 15     |       
|Less:                        |                                                                                                                                             |                    |      |               |   |   |        |       
|                             | Total stock-based employee compensation expense
    determined under fair value based method for all awards, net of
    related tax effects |                    |      | (972          | ) |   |        | (1,331 | )
|                             |                                                                                                                                             |                    |      |               |   |   |        |       
|Pro forma net loss           |                                                                                                                                             | $                  | (555 | )             |   | $ | (1,316 | )     
|                             |                                                                                                                                             |                    |      |               |   |   |        |       
|Net income (loss) per share: |                                                                                                                                             |                    |      |               |   |   |        |       
|                             | Basic  as reported                                                                                                                         |                    | $    | 0.04          |   |   | $      | 0.00   |  
|                             | Basic  pro forma                                                                                                                           |                    | $    | (0.06         | ) |   | $      | (0.13  | )
|                             | Diluted  as reported                                                                                                                       |                    | $    | 0.04          |   |   | $      | 0.00   |  
|                             | Diluted  pro forma                                                                                                                         |                    | $    | (0.06         | ) |   | $      | (0.13  | )

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

|                                |  |        |      |        |  |  |      |  
|------------------------------- |  | ------ | ---- | ------ |  |  | ---- | -
|                                |  | Fiscal |      | Fiscal
|                                |  | 2004   |      | 2003  
|                                |  |        |      |       
|Dividend yield                  |  |        |     |        |  |  |     |  
|Volatility                      |  |        | 89.6 | %      |  |  | 92.7 | %
|Risk-free interest rate         |  |        | 3.0  | %      |  |  | 3.1  | %
|Expected option life (in years) |  |        | 4.7  |        |  |  | 5.1  |  

3.     Net Income Per
Common Share

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

|                                                                                    |                                  |                        |        |               |  |   |        |     | 
|----------------------------------------------------------------------------------- | -------------------------------- | ---------------------- | ------ | ------------- |  | - | ------ | --- | 
|                                                                                    |                                  |                       
|                                                                                    |                                  | Three Months Ended    
|                                                                                    |                                  |                       
|                                                                                    |                                  | September 27,          |        | September 28,
|                                                                                    |                                  | 2003                   |        | 2002         
|                                                                                    |                                  |                        |        |              
|                                                                                    |                                  |                       
|                                                                                    |                                  | (In thousands,        
|                                                                                    |                                  | except per share data)
|Net income                                                                          |                                  | $                      | 417    |               |  | $ | 15     |    
|                                                                                    |                                  |                        |        |               |  |   |        |    
|Weighted average shares used in computing net
    income per common share  basic   |                                  |                        | 10,049 |               |  |   | 10,108 |    
|                                                                                    |                                  |                        |        |               |  |   |        |    
|Effect of dilutive securities:                                                      |                                  |                        |        |               |  |   |        |    
|                                                                                    | Restricted stock                 |                        |        |              |  |   |        | 3   | 
|                                                                                    | Stock options                    |                        |        | 531           |  |   |        | 260 | 
|                                                                                    |                                  |                        |        |               |  |   |        |    
|                                                                                    | Dilutive potential common shares |                        |        | 531           |  |   |        | 263 | 
|                                                                                    |                                  |                        |        |               |  |   |        |    
|Weighted average shares used in computing net
    income per common share  diluted |                                  |                        | 10,580 |               |  |   | 10,371 |    
|                                                                                    |                                  |                        |        |               |  |   |        |    
|Net income per common share  basic                                                 |                                  | $                      | 0.04   |               |  | $ | 0.00   |    
|Net income per common share  diluted                                               |                                  | $                      | 0.04   |               |  | $ | 0.00   |    

6



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


4.     Derivative
Financial Instruments and Hedging Activities

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

At September 27, 2003, currency options and
collars designated as hedging instruments with notional amounts
of $1.5 million, $4.5 million and $1.8 million to
exchange Euros, Japanese yen and Australian dollars for
U.S. dollars, respectively, were outstanding. At
September 27, 2003, the total fair values of all currency
options and collars held by the Company of $157,000 and $268,000
were recorded as components of other current assets and other
current liabilities, respectively. Net unrealized losses on
options and collars that qualified as hedging instruments of
$95,000 were included in accumulated other comprehensive income.
During the three months ended September 27, 2003, net
losses of $80,000 were recorded as components of other income
and expense on the effective portion of options that were
settled. For the three months ended September 27, 2003, an
unrealized loss of $21,000 was recognized on the ineffective
portion of the options and collars dedesignated as hedging
instruments.

At September 28, 2002, currency options and
collars designated as hedging instruments with notional amounts
of $3.2 million, $6.6 million and $1.8 million to
exchange Euros, Japanese yen and Australian dollars for
U.S. dollars, respectively, were outstanding. In August
2002, the Company discontinued hedge accounting for the excess
portion of instruments that were used to hedge transactions
considered no longer probable of occurring. At
September 28, 2002, these instruments had notional amounts
of $1.4 million and $243,000 to exchange Japanese yen and
Australian dollars for U.S. dollars, respectively. At
September 28, 2002, the total fair values of all currency
options and collars held by the Company of $163,000 and $299,000
were recorded as components of other current assets and other
current liabilities, respectively. Net unrealized losses on
options and collars that qualified as hedging instruments of
$222,000 were included in accumulated other comprehensive
income. During the three months ended September 28, 2002,
gains of $11,000 were recorded as components of other income and
expense on the effective portion of options that were settled.
For the three months ended September 28, 2002, an
unrealized gain of $38,000 was recognized on the ineffective
portion of the options and collars dedesignated as hedging
instruments.

5.     Acquired
Intangible Assets

Intangible assets acquired in the Companys
business combinations include goodwill, customer base, developed
technology and non-compete agreements. All of the Companys
acquired intangible assets, except for goodwill, are subject to
amortization over their estimated useful lives. No significant
residual value is estimated for these intangible assets.

The components of acquired intangible assets are
as follows:

|                            |                        |                    |       |               |  |          |        |          |   |              |     |          |  |   |       |       |  |   |        |      |   |   |     |     | 
|--------------------------- | ---------------------- | ------------------ | ----- | ------------- |  | -------- | ------ | -------- | - | ------------ | --- | -------- |  | - | ----- | ----- |  | - | ------ | ---- | - | - | --- | --- | 
|                            |                        |                    |       |              
|                            |                        | September 27, 2003 |       | June 30, 2003
|                            |                        |                    |       |              
|                            |                        | Gross              |       |               |  | Net      |        | Gross    |   |              |     | Net     
|                            |                        | Carrying           |       | Accumulated   |  | Carrying |        | Carrying |   | Accumulated  |     | Carrying
|                            |                        | Amount             |       | Amortization  |  | Amount   |        | Amount   |   | Amortization |     | Amount  
|                            |                        |                    |       |               |  |          |        |          |   |              |     |         
|                            |                        |                   
|                            |                        | (In thousands)    
|Acquired intangible assets: |                        |                    |       |               |  |          |        |          |   |              |     |          |  |   |       |       |  |   |        |      |   |   |     |    
|                            | Customer base          |                    | $     | 421           |  |          | $      | (135     | ) |              | $   | 286      |  |   | $     | 421   |  |   | $      | (116 | ) |   | $   | 305 | 
|                            | Developed technology   |                    |       | 675           |  |          |        | (573     | ) |              |     | 102      |  |   |       | 675   |  |   |        | (533 | ) |   |     | 142 | 
|                            | Non-compete agreements |                    |       | 1,205         |  |          |        | (1,019   | ) |              |     | 186      |  |   |       | 1,205 |  |   |        | (967 | ) |   |     | 238 | 
|                            |                        |                    |       |               |  |          |        |          |   |              |     |          |  |   |       |       |  |   |        |      |   |   |     |    
|Total                       |                        | $                  | 2,301 |               |  | $        | (1,727 | )        |   | $            | 574 |          |  | $ | 2,301 |       |  | $ | (1,616 | )    |   | $ | 685 |    
|                            |                        |                    |       |               |  |          |        |          |   |              |     |          |  |   |       |       |  |   |        |      |   |   |     |    

7



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


The following table summarizes the expected
remaining amortization of acquired intangible assets as of
September 27, 2003:

|                                  |  |                |     | 
|--------------------------------- |  | -------------- | --- | 
|                                  |  | Estimated     
|                                  |  | Amortization  
|Fiscal Year                       |  | Expense       
|                                  |  |               
|                                  |  | (In thousands)
|2004 (remainder)                  |  | $              | 284 | 
|2005                              |  |                | 146 | 
|2006                              |  |                | 56  | 
|2007                              |  |                | 50  | 
|2008                              |  |                | 38  | 
|                                  |  |                |     | 
|Total future amortization expense |  | $              | 574 | 
|                                  |  |                |     | 

6.     Software
Development Costs

Costs associated with the development of computer
software and related products are expensed prior to establishing
technological feasibility, as defined by Statement of Financial
Accounting Standards (SFAS) No. 86,
Accounting for the Costs of Computer Software to be Sold,
Leased, or Otherwise Marketed, and capitalized thereafter
until commercial release of the software products. Development
costs eligible for capitalization in the three months ended
September 27, 2003 and September 28, 2002 were not
significant.

A summary of capitalized software development
costs follows:

|                                |  |                |       |          |  |   |       |  
|------------------------------- |  | -------------- | ----- | -------- |  | - | ----- | -
|                                |  | September 27,  |       | June 30,
|                                |  | 2003           |       | 2003    
|                                |  |                |       |         
|                                |  |               
|                                |  | (In thousands)
|Gross carrying amount           |  | $              | 1,271 |          |  | $ | 1,271 |  
|Less  accumulated amortization |  |                | (280  | )        |  |   | (217  | )
|                                |  |                |       |          |  |   |       |  
|Net carrying amount             |  | $              | 991   |          |  | $ | 1,054 |  
|                                |  |                |       |          |  |   |       |  

All such costs have been included in other assets
and are being amortized to cost of product revenue over a
five-year period.

7.     Treasury
Stock

On September 19, 2001, the Board of
Directors authorized the Company to repurchase up to 500,000
shares of its outstanding common stock. In September 2002, the
Company reacquired 194,165 shares of its outstanding common
stock for $909,000, at an average cost of $4.68 per share. As of
September 27, 2003, 80,726 of these shares were reissued
under the Companys Employee Stock Purchase Plan and
163,439 shares remained in treasury.

8.     Comprehensive
Income

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

8



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


The following table presents the calculation of
comprehensive income (loss):

|                                   |                                                                                               |                    |     |               |   |   |      |      |  
|---------------------------------- | --------------------------------------------------------------------------------------------- | ------------------ | --- | ------------- | - | - | ---- | ---- | -
|                                   |                                                                                               |                   
|                                   |                                                                                               | Three Months Ended
|                                   |                                                                                               |                   
|                                   |                                                                                               | September 27,      |     | September 28,
|                                   |                                                                                               | 2003               |     | 2002         
|                                   |                                                                                               |                    |     |              
|                                   |                                                                                               |                   
|                                   |                                                                                               | (In thousands)    
|Net income                         |                                                                                               | $                  | 417 |               |   | $ | 15   |     
|                                   |                                                                                               |                    |     |               |   |   |      |     
|Other comprehensive income (loss): |                                                                                               |                    |     |               |   |   |      |     
|                                   | Changes in fair value of marketable securities,
    net of related tax effect                 |                    |     | (93           | ) |   |      | 206  |  
|                                   | Changes in value of financial instruments
    designated as hedges, net of related tax effect |                    |     | (121          | ) |   |      | 57   |  
|                                   | Foreign currency translation adjustment                                                       |                    |     | 381           |   |   |      | (607 | )
|                                   |                                                                                               |                    |     |               |   |   |      |     
|                                   | Other comprehensive income (loss)                                                             |                    |     | 167           |   |   |      | (344 | )
|                                   |                                                                                               |                    |     |               |   |   |      |     
|Comprehensive income (loss)        |                                                                                               | $                  | 584 |               |   | $ | (329 | )   
|                                   |                                                                                               |                    |     |               |   |   |      |     

9.     Restructuring
Plans

March 2003 Plan

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

As a result of the March 2003 plan, the Company
recorded pre-tax charges and related accruals of $584,000
($486,000 after tax, or $0.05 per diluted share) in its third
fiscal quarter of 2003. Of this charge, $179,000 related to the
write-off of inventories and, as such, was included as a
component of the cost of product revenue. The remainder of the
charge was recorded as a restructuring charge in the
Companys Consolidated Statement of Income. All significant
activities under the March 2003 plan were completed as of
June 30, 2003.

The following table presents the pre-tax charges
incurred by category of expenditure, and related restructuring
costs included in accrued expenses in the Companys balance
sheet (in thousands):

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

9



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


April 2002 Plan

In April 2002, the Company enacted a corporate
restructuring plan (the April 2002 plan) to resize
the Company and to reduce overhead costs. The April 2002 plan
included the involuntary termination of 37 employees, the
closing of certain leased offices and the reduction in size of
other leased offices. All significant activities under the April
2002 plan are complete. As a result of the April 2002 plan, the
Company recorded pre-tax charges and related accruals in fiscal
2002 of $1.3 million. The remaining accrual balances as of
September 27, 2003 relate to long-term contractual
obligations from facility commitments that will be paid over six
years. The following table presents the balance of the accrued
restructuring charges:

|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  
|--------------------------------------------- |  | -------------- | --- | ----------- |  | ----- | ---- | ----- |  | - | ---- | - |  | - | ---- | -
|                                              |  | Employee       |     | Lease       |  |       |      |      
|                                              |  | Severance      |     | Termination |  | Other |      |      
|                                              |  | Costs          |     | Costs       |  | Costs |      | Total
|                                              |  |                |     |             |  |       |      |      
|                                              |  |               
|                                              |  | (In thousands)
|Balance at June 30, 2002                      |  | $              | 31  |             |  | $     | 642  |       |  | $ | 124  |   |  | $ | 797  |  
|Cash payments                                 |  |                | (26 | )           |  |       | (113 | )     |  |   | (115 | ) |  |   | (254 | )
|Foreign exchange impact and other adjustments |  |                | (5  | )           |  |       | 67   |       |  |   | (9   | ) |  |   | 53   |  
|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  
|Balance at June 30, 2003                      |  |                |    |             |  |       | 596  |       |  |   |     |   |  |   | 596  |  
|Cash payments                                 |  |                |    |             |  |       | (24  | )     |  |   |     |   |  |   | (24  | )
|Foreign exchange impact and other adjustments |  |                |    |             |  |       | (3   | )     |  |   |     |   |  |   | (3   | )
|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  
|Balance at September 27, 2003                 |  | $              |    |             |  | $     | 569  |       |  | $ |     |   |  | $ | 569  |  
|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  

10.     Credit
Facilities

In December 2002, the Company renewed its
unsecured $5.0 million working capital credit facility with
a domestic bank. The terms of the facility, which expires
December 5, 2003, are substantially the same as that of the
previous facility. The available borrowing base of the facility
is subject to a calculation that is based upon eligible accounts
receivable. Advances may be in the form of loans, letters of
credit, foreign exchange contracts or other cash management
lines. Loans against the facility bear interest at the
banks prime rate. The facility includes certain
restrictive covenants, all of which the Company was in
compliance with as of September 27, 2003. These covenants
include certain liquidity and profitability measures and
restrictions that limit the ability of the Company to merge,
acquire or sell certain assets without prior approval from the
bank. As of September 27, 2003, the Company had employed
$1.6 million of the available borrowing base through
outstanding foreign exchange contracts and letters of credit.
These advances do not incur interest charges. As of
September 27, 2003, there were no loans advanced against
the facility, and the remaining available borrowing base was
$2.1 million.

Certain subsidiaries of the Company have
established credit facilities with two separate financial
institutions primarily for the purposes of establishing foreign
exchange contracts. Advances against these facilities bear
interest at the institutions published rates plus 2% per
annum. These credit facilities are unsecured. Advances against
these facilities are guaranteed by the Company. There were no
advances against these facilities as of September 27, 2003.

Certain subsidiaries of the Company have
established other credit facilities totaling $365,000 with two
separate financial institutions for general working capital
requirements and foreign exchange facilities. Advances against
these facilities bear interest at the institutions
published rates, plus 1.5% per annum. Advances against one of
these facilities are secured by a $102,000 term deposit and the
assets of a subsidiary of the Company. There were no advances
against these facilities as of September 27, 2003.

10



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


11.     Segment and
Geographic Information

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

Geographic information regarding the
Companys operations follows:

|                                     |                                        |                    |   |               |  |  |   |       | 
|------------------------------------ | -------------------------------------- | ------------------ | - | ------------- |  |  | - | ----- | 
|                                     |                                        |                   
|                                     |                                        | Three Months Ended
|                                     |                                        |                   
|                                     |                                        | September 27,      |   | September 28,
|                                     |                                        | 2003               |   | 2002         
|                                     |                                        |                    |   |              
|                                     |                                        |                   
|                                     |                                        | (In thousands)    
|Revenue from unaffiliated customers: |                                        |                    |   |               |  |  |   |      
|Asia/ Australia:                     |                                        |                    |   |               |  |  |   |      
|                                     | Design Optimization Solutions products |                    | $ | 2,158         |  |  | $ | 1,316 | 
|                                     | Manufacturing Solutions products       |                    |   |              |  |  |   | 17    | 
|                                     | Services                               |                    |   | 1,611         |  |  |   | 1,333 | 
|                                     |                                        |                    |   |               |  |  |   |      
|                                     | Total Asia/ Australia                  |                    |   | 3,769         |  |  |   | 2,666 | 
|                                     |                                        |                    |   |               |  |  |   |      
|Americas:                            |                                        |                    |   |               |  |  |   |      
|                                     | Design Optimization Solutions products |                    |   | 596           |  |  |   | 578   | 
|                                     | Manufacturing Solutions products       |                    |   | 305           |  |  |   | 493   | 
|                                     | Services                               |                    |   | 1,441         |  |  |   | 1,441 | 
|                                     |                                        |                    |   |               |  |  |   |      
|                                     | Total Americas                         |                    |   | 2,342         |  |  |   | 2,512 | 
|                                     |                                        |                    |   |               |  |  |   |      
|Europe:                              |                                        |                    |   |               |  |  |   |      
|                                     | Design Optimization Solutions products |                    |   | 672           |  |  |   | 853   | 
|                                     | Manufacturing Solutions products       |                    |   | 623           |  |  |   | 439   | 
|                                     | Services                               |                    |   | 2,105         |  |  |   | 1,831 | 
|                                     |                                        |                    |   |               |  |  |   |      
|                                     | Total Europe                           |                    |   | 3,400         |  |  |   | 3,123 | 
|                                     |                                        |                    |   |               |  |  |   |      
|Consolidated:                        |                                        |                    |   |               |  |  |   |      
|                                     | Design Optimization Solutions products |                    |   | 3,426         |  |  |   | 2,747 | 
|                                     | Manufacturing Solutions products       |                    |   | 928           |  |  |   | 949   | 
|                                     | Services                               |                    |   | 5,157         |  |  |   | 4,605 | 
|                                     |                                        |                    |   |               |  |  |   |      
|                                     | Total consolidated                     |                    | $ | 9,511         |  |  | $ | 8,301 | 
|                                     |                                        |                    |   |               |  |  |   |      

Revenue from unaffiliated customers in Japan for
the three months ended September 27, 2003 and
September 28, 2002 was $2.4 million and
$2.0 million (25% and 24% of total revenue), respectively.
Substantially all of the revenue in the Americas region is
derived from the United States.

|                   |  |                |       |          |  |   |       | 
|------------------ |  | -------------- | ----- | -------- |  | - | ----- | 
|                   |  | September 27,  |       | June 30,
|                   |  | 2003           |       | 2003    
|                   |  |                |       |         
|                   |  |               
|                   |  | (In thousands)
|Fixed assets, net: |  |                |       |          |  |   |       | 
|Asia/ Australia    |  | $              | 1,715 |          |  | $ | 1,734 | 
|Americas           |  |                | 1,462 |          |  |   | 1,512 | 
|Europe             |  |                | 713   |          |  |   | 645   | 
|                   |  |                |       |          |  |   |       | 
|Total consolidated |  | $              | 3,890 |          |  | $ | 3,891 | 
|                   |  |                |       |          |  |   |       | 

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

11



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##### Table of Contents



MOLDFLOW CORPORATION


NOTES TO UNAUDITED CONDENSED
CONSOLIDATED

FINANCIAL STATEMENTS 
(Continued)


12.     Contingencies,
Commitments and Guarantor Arrangements

In the normal course of business, the Company has
indemnified third parties and has commitments and guarantees
under which it may be required to make payments in certain
circumstances. These indemnities, commitments and guarantees
include: its indemnities to various lessors in connection with
facility leases; indemnities to customers related to
intellectual property and performance of services subcontracted
to other providers; indemnities to vendors that guarantee
expenses incurred by employees of the Company; indemnities and
guarantees to financial institutions related to sales of the
Companys equity securities and performance under credit
facilities of the Companys subsidiaries; and indemnities
to directors and officers of the Company to the maximum extent
permitted under the laws of the State of Delaware. The duration
of these indemnities, commitments and guarantees varies, and in
certain cases, is indefinite. The majority of these indemnities,
commitments and guarantees do not provide for any limitation of
the maximum potential future payments the Company could be
obligated to make. The Company has never incurred material costs
to settle claims or defend lawsuits related to these
indemnities, commitments and guarantees. As a result, the
estimated fair value of these agreements is minimal.
Accordingly, no liabilities have been recorded for these
agreements as of September 27, 2003.

The Company generally warrants that its products
will perform in all material respects in accordance with its
standard published specifications in effect at the time of
delivery of the products to the customer for a period of
90 days from the date of shipment or any longer period that
may be required by local law. The Company records a liability
based upon its history of claims against the contractual
warranty provisions. The following table describes changes to
the warranty provision:

|                              |  |   |    | 
|----------------------------- |  | - | -- | 
|Balance at June 30, 2003      |  | $ | 42 | 
|Additional accruals           |  |   |   | 
|Settlements made              |  |   |   | 
|                              |  |   |    | 
|Balance at September 27, 2003 |  | $ | 42 | 
|                              |  |   |    | 

12



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##### Table of Contents








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

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains
forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended. You can identify these statements by forward-looking
words such as may, will,
expect, anticipate, believe,
estimate, and continue or similar words.
You should read statements that contain these words carefully
because they discuss our future expectations, contain
projections of our future results of operations or of our
financial condition, or state other forward-looking
information. We believe that it is important to communicate our
future expectations to our investors.

However, there may be events in the future that
we are not able to accurately predict or control and that may
cause our actual results to differ materially from the
expectations we describe in our forward-looking statements.
Investors are cautioned that all forward-looking statements
involve risks and uncertainties, and actual results may differ
materially from those discussed as a result of various factors,
including those factors described in Risk Factors and
Important Factors That May Affect Future Results beginning
on page 21. Readers should not place undue reliance on our
forward-looking statements. We do not undertake any obligation
to update any of our forward-looking statements to reflect
events occurring after the date of this report.

Business Overview

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

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

Critical Accounting Policies and Significant
Judgments and Estimates

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

The accounting policies that we believe are most
critical to fully understand our consolidated financial
statements include: revenue recognition, valuation allowances,
acquisition accounting, impairment of intangible assets,
goodwill and other long-lived assets, income tax accounting,
restructuring charges, hedge

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accounting, and capitalization of software
development costs. For a more detailed explanation of the
judgments included in these areas, refer to the Companys
Annual Report on Form 10-K for the year ended June 30,
2003.


Results of Operations

We generate revenue from two principal sources:



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

Product revenue.Typically, our customers pay an
up-front, one-time fee for our products. The amount of the fee
depends upon the number and type of software modules licensed,
the associated hardware components and the number of the
customers employees or other users who can access the
software product simultaneously. Our MPA product is subject to
the terms of a click-wrapped software license
agreement that is included as part of each customers
installation process. Revenue for our iMPA product, a
fully functional, application service provider version of our
Part Adviser product, is earned on a pay-per-use basis and, to
date, has not been significant. For sales of our other products,
we generally require a signed license agreement. In addition, we
receive royalty payments from developers of other software
products related to the bundling of our software with their
design software programs.

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

Cost of product revenue.Cost of product revenue consists
primarily of the costs associated with hardware components for
our Manufacturing Solutions products, compact discs and related
packaging material, duplication and shipping costs and the
salaries of our distribution personnel. In some cases, we pay
royalties to third parties for usage-based licenses of their
products that are embedded in our products. Product royalties
are expensed when the related obligation arises, which is
generally upon the license of our products, and are included in
cost of product revenue. Also included in cost of product
revenue is amortization expense related to capitalized software
development costs.

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

Research and development.We employ a development staff to
create new products and enhance our existing products. Product
development expenditures, which include salaries, benefits,
travel, payments to universities and other research institutions
and facilities costs, are generally charged to operations as
incurred. SFAS No. 86, Accounting for the Costs of
Computer Software to be Sold, Leased, or Otherwise
Marketed, requires the capitalization of certain software
development costs subsequent to the establishment of
technological feasibility up to the point of the products
release. In the three months ended September 27, 2003 and
the three months ended September 28, 2002, costs eligible
for capitalization were not significant.

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

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

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Amortization of acquired intangible assets.These costs represent the amortization
of intangible assets recorded in connection with our
acquisitions. These assets include developed technology,
customer base and non-compete agreements.

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

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

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

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

|                           |                                            |                    |      |               |   |  |     |       |  
|-------------------------- | ------------------------------------------ | ------------------ | ---- | ------------- | - |  | --- | ----- | -
|                           |                                            |                   
|                           |                                            | Three Months Ended
|                           |                                            |                   
|                           |                                            | September 27,      |      | September 28,
|                           |                                            | 2003               |      | 2002         
|                           |                                            |                    |      |              
|Revenue:                   |                                            |                    |      |               |   |  |     |      
|                           | Product                                    |                    |      | 45.8          | % |  |     | 44.5  | %
|                           | Services                                   |                    |      | 54.2          |   |  |     | 55.5  |  
|                           |                                            |                    |      |               |   |  |     |      
|                           | Total revenue                              |                    |      | 100.0         | % |  |     | 100.0 | %
|                           |                                            |                    |      |               |   |  |     |      
|Costs and expenses:        |                                            |                    |      |               |   |  |     |      
|                           | Cost of product revenue                    |                    |      | 6.7           | % |  |     | 8.0   | %
|                           | Cost of services revenue                   |                    |      | 6.6           |   |  |     | 3.4   |  
|                           | Research and development                   |                    |      | 16.7          |   |  |     | 17.5  |  
|                           | Selling and marketing                      |                    |      | 44.0          |   |  |     | 50.2  |  
|                           | General and administrative                 |                    |      | 20.1          |   |  |     | 19.9  |  
|                           | Amortization of acquired intangible assets |                    |      | 1.2           |   |  |     | 1.9   |  
|                           |                                            |                    |      |               |   |  |     |      
|                           | Total operating expenses                   |                    |      | 95.3          |   |  |     | 100.9 |  
|                           |                                            |                    |      |               |   |  |     |      
|                           | Income (loss) from operations              |                    |      | 4.7           |   |  |     | (0.9  | )
|Interest income, net       |                                            |                    | 2.8  |               |   |  | 3.5 |      
|Other income (loss), net   |                                            |                    | (0.5 | )             |   |  | 0.3 |      
|                           |                                            |                    |      |               |   |  |     |      
|                           | Income before income taxes                 |                    |      | 7.0           |   |  |     | 2.9   |  
|Provision for income taxes |                                            |                    | 2.6  |               |   |  | 2.7 |      
|                           |                                            |                    |      |               |   |  |     |      
|                           | Net income                                 |                    |      | 4.4           | % |  |     | 0.2   | %
|                           |                                            |                    |      |               |   |  |     |      

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Three Months Ended September 27, 2003
compared to Three Months Ended September 28, 2002



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

Total revenue increased 15%, or
$1.2 million, to $9.5 million for the three months
ended September 27, 2003, from $8.3 million for the
three months ended September 28, 2002. On a constant
currency basis, which excludes the impact of changes in foreign
exchange rates from those of the previous year, total revenue
increased approximately 8%. The following table sets forth our
total revenue by geographic region for the first quarter of
fiscal 2004 and 2003:

|                             |                 |                    |   |               |   |  |   |       |  
|---------------------------- | --------------- | ------------------ | - | ------------- | - |  | - | ----- | -
|                             |                 |                   
|                             |                 | Three Months Ended
|                             |                 |                   
|                             |                 | September 27,      |   | September 28,
|                             |                 | 2003               |   | 2002         
|                             |                 |                    |   |              
|                             |                 |                   
|                             |                 | (In thousands)    
|Revenue:                     |                 |                    |   |               |   |  |   |      
|                             | Asia/ Australia |                    | $ | 3,769         |   |  | $ | 2,656 |  
|                             | Americas        |                    |   | 2,342         |   |  |   | 2,490 |  
|                             | Europe          |                    |   | 3,400         |   |  |   | 3,155 |  
|                             |                 |                    |   |               |   |  |   |      
|                             | Total           |                    | $ | 9,511         |   |  | $ | 8,301 |  
|                             |                 |                    |   |               |   |  |   |      
|Percentage of total revenue: |                 |                    |   |               |   |  |   |      
|                             | Asia/ Australia |                    |   | 40            | % |  |   | 32    | %
|                             | Americas        |                    |   | 25            |   |  |   | 30    |  
|                             | Europe          |                    |   | 35            |   |  |   | 38    |  
|                             |                 |                    |   |               |   |  |   |      
|                             | Total           |                    |   | 100           | % |  |   | 100   | %
|                             |                 |                    |   |               |   |  |   |      

Product Revenue.Product revenue increased 18%, or
$658,000, to $4.4 million for the three months ended
September 27, 2003, from $3.7 million for the three
months ended September 28, 2002. On a constant currency
basis, product revenue increased approximately 10%. The
following table sets forth our product revenue by product group
and geography for the first quarter of fiscal 2004 and 2003:

|                                 |                               |                           |   |               |  |  |   |       | 
|-------------------------------- | ----------------------------- | ------------------------- | - | ------------- |  |  | - | ----- | 
|                                 |                               |                          
|                                 |                               | Three Months Ended       
|                                 |                               |                          
|                                 |                               | September 27,             |   | September 28,
|                                 |                               | 2003                      |   | 2002         
|                                 |                               |                           |   |              
|                                 |                               |                          
|                                 |                               | (In thousands, except for
|                                 |                               | percentage data)         
|Asia/ Australia product revenue: |                               |                           |   |               |  |  |   |      
|                                 | Design Optimization Solutions |                           | $ | 2,158         |  |  | $ | 1,316 | 
|                                 | Manufacturing Solutions       |                           |   |              |  |  |   | 17    | 
|                                 |                               |                           |   |               |  |  |   |      
|                                 | Total                         |                           |   | 2,158         |  |  |   | 1,333 | 
|                                 |                               |                           |   |               |  |  |   |      
|Americas product revenue:        |                               |                           |   |               |  |  |   |      
|                                 | Design Optimization Solutions |                           |   | 596           |  |  |   | 578   | 
|                                 | Manufacturing Solutions       |                           |   | 305           |  |  |   | 493   | 
|                                 |                               |                           |   |               |  |  |   |      
|                                 | Total                         |                           |   | 901           |  |  |   | 1,071 | 
|                                 |                               |                           |   |               |  |  |   |      
|Europe product revenue:          |                               |                           |   |               |  |  |   |      
|                                 | Design Optimization Solutions |                           |   | 672           |  |  |   | 853   | 
|                                 | Manufacturing Solutions       |                           |   | 623           |  |  |   | 439   | 
|                                 |                               |                           |   |               |  |  |   |      
|                                 | Total                         |                           |   | 1,295         |  |  |   | 1,292 | 
|                                 |                               |                           |   |               |  |  |   |      

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|                                     |                               |                           |   |               |   |  |   |       |  
|------------------------------------ | ----------------------------- | ------------------------- | - | ------------- | - |  | - | ----- | -
|                                     |                               |                          
|                                     |                               | Three Months Ended       
|                                     |                               |                          
|                                     |                               | September 27,             |   | September 28,
|                                     |                               | 2003                      |   | 2002         
|                                     |                               |                           |   |              
|                                     |                               |                          
|                                     |                               | (In thousands, except for
|                                     |                               | percentage data)         
|Total product revenue:               |                               |                           |   |               |   |  |   |      
|                                     | Design Optimization Solutions |                           |   | 3,426         |   |  |   | 2,747 |  
|                                     | Manufacturing Solutions       |                           |   | 928           |   |  |   | 949   |  
|                                     |                               |                           |   |               |   |  |   |      
|                                     | Total                         |                           | $ | 4,354         |   |  | $ | 3,696 |  
|                                     |                               |                           |   |               |   |  |   |      
|Percentage of total product revenue: |                               |                           |   |               |   |  |   |      
|                                     | Design Optimization Solutions |                           |   | 79            | % |  |   | 75    | %
|                                     | Manufacturing Solutions       |                           |   | 21            |   |  |   | 25    |  
|                                     |                               |                           |   |               |   |  |   |      
|                                     | Total                         |                           |   | 100           | % |  |   | 100   | %
|                                     |                               |                           |   |               |   |  |   |      

The increase in product revenue in the first
quarter of fiscal 2004 was primarily a result of an increase in
product revenue in our Asia/ Australia region, particularly in
Japan, China and Taiwan, where we currently are selling only
Design Optimization Solutions products. We believe that the
increase in product revenue in Japan is a result of a broadening
of the market for our products beyond our traditional customer
base to include members of the original equipment manufacturers
(OEM) supply chain and a mild economic recovery in
Japan which resulted in higher levels of capital spending by our
customers. In China and Taiwan, we believe that local
manufacturers are expanding their capabilities to include a
value-added design component to their businesses, which has
resulted in an increase in our product revenue in those
countries.

We added 102 new customers in the first quarter
of fiscal 2004, compared to 67 new customers in the same period
of fiscal 2003. Sales to new customers represented 25% of total
product revenues in the first quarter of fiscal 2004, compared
to 43% in the same period of fiscal 2003. We sold 134 seats
of Design Optimization Solutions products and 90 seats of
Manufacturing Solutions products in the first quarter of fiscal
2004, compared to 121 seats and 133 seats,
respectively, in the corresponding period of fiscal 2003.
Pricing of individual products within these product families can
vary greatly, and the mix of products sold during a given period
can significantly impact our average sales price per seat. As
such, we do not believe that average sales prices per seat
provide a meaningful measure of our business.

Service revenue.Services revenue increased 12%, or
$552,000, to $5.2 million for the three months ended
September 27, 2003, from $4.6 million for the three
months ended September 28, 2002. This increase was
primarily in the sale of maintenance contracts, which is the
result of historical growth in our customer base arising from
product license sales.

No customer accounted for more than 10% of our
total revenue during the three-month periods ended
September 27, 2003 and September 28, 2002.



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

Cost of product revenue.The cost of product revenue decreased
3%, or $23,000, to $638,000 for the three months ended
September 27, 2003, from $661,000 for the three months
ended September 28, 2002. The decrease was a result of
reduced hardware costs and a reallocation of some resources to
cost of services revenue from cost of product revenue, partially
offset by increased amortization expense related to capitalized
software development costs.

Cost of services revenue.Our cost of services revenue increased
125%, or $349,000, to $629,000 for the three months ended
September 27, 2003, from $280,000 for the three months
ended September 28, 2002. The increase reflects the impact
of organizational changes to redirect technical resources from
research and development, sales and cost of product revenue to
our post sales implementation group, the cost of which is
included in cost of services revenue.

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The implementation group was expanded as a result
of the growing customer base for our Manufacturing Solutions
products and will increase our cost of service revenue when
compared with previous periods. We expect that the gross margin
on total revenues will be in the range of 83% to 84% over the
course of the remainder of the fiscal year.

Research and development.Research and development expenses
increased 9%, or $138,000, to $1.6 million for the three
months ended September 27, 2003, from $1.5 million for
the three months ended September 28, 2002. The increase is
primarily attributable to the addition of 5 employees relative
to the same period of fiscal 2003, most of whom joined the
Company as a result of the acquisition of the assets and ongoing
operations of CPI in January 2003.

Selling and marketing.Selling and marketing expenses of
$4.2 million for the three months ended September 27,
2003 were unchanged from the three months ended
September 28, 2002, as increased employee costs of $172,000
were offset by reduced spending on promotional activities of
$32,000 and the reallocation of $87,000 of resources to customer
support and implementation, which is included in cost of
services revenue.

General and administrative.General and administrative expenses
increased 16%, or $264,000, to $1.9 million for the three
months ended September 27, 2003, from $1.7 million for
the three months ended September 28, 2002. The increase was
primarily due to increased professional service fees, including
the cost of audit, tax and other accounting services.

Amortization of acquired intangible assets.Amortization expense decreased 30%, or
$48,000, to $111,000 for the three months ended
September 27, 2003, from $159,000 for the three months
ended September 28, 2002. The decrease was a result of our
March 2003 restructuring plan that included the write-off of
certain intangible assets which were acquired in our purchase of
Branden Technologies in March 2001. The reduction of
amortization expense resulting from this write-off was partially
offset by amortization of intangible assets acquired in the
January 2003 acquisition of CPI.

Interest income, net.Interest income, net decreased 7%, or
$19,000, to $268,000 for the three months ended
September 27, 2003 from $287,000 for the three months ended
September 28, 2002. The decrease was primarily the result
of the conversion of marketable securities to cash and other
highly liquid instruments that yield lower interest income.

Other income (loss), net.Other income (loss), net decreased
295%, or $65,000, to a loss of $43,000 for the three months
ended September 27, 2003, from income of $22,000 for the
three months ended September 28, 2002.

Provision for income taxes.The provision for income taxes
increased 10%, or $23,000, to $248,000 for the three months
ended September 27, 2003, from $225,000 for the three
months ended September 28, 2002. In 2003, we incurred
income taxes in certain foreign jurisdictions that could not be
offset in the financial statement tax provision by tax benefits
arising from losses in other jurisdictions, resulting in a
higher than normal tax provision. In 2004, our effective annual
tax rate is estimated to be 37% of income before income taxes.

Liquidity and Capital Resources

Historically, we have financed our operations and
met our capital expenditure requirements primarily through funds
generated from operations, sales of our capital stock and
borrowings from lending institutions. As of September 27,
2003, our primary sources of liquidity consisted of our total
cash and cash equivalents balance of $40.7 million, our
marketable securities balance of $11.9 million and our
credit facilities. In December 2002, we renewed our primary
$5.0 million, unsecured working capital credit facility.
The available borrowing base of the facility is subject to a
calculation that is based upon eligible accounts receivable. At
September 27, 2003, we had employed $1.6 million of
available borrowings through outstanding foreign exchange
contracts and letters of credit. The remaining available
borrowings were $2.1 million. The Company plans to renew
this facility when it expires in December 2003. In addition to
our primary working capital line of credit, we also utilize
domestic and foreign banking institutions to provide liquidity
to our subsidiaries. We

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also have relationships with other banking
institutions in order to facilitate foreign currency and hedging
transactions. As of September 27, 2003, we had no
outstanding debt.


At September 27, 2003, our marketable
securities consisted of corporate bonds with maturities in
excess of three months but less than one year. Investments in
marketable securities are made in accordance with our corporate
investment policy. The primary objective of this policy is the
preservation of capital. Investments are limited to high quality
corporate debt, government securities, municipal debt
securities, money market funds and similar instruments. The
policy establishes maturity limits, liquidity requirements and
concentration limits. At September 27, 2003, we were in
compliance with this policy.

Operating activities of the three months ended
September 27, 2003 generated $287,000 of net cash. This was
a result of our net income, adjusted for certain non-cash
charges and expenses, such as depreciation and amortization,
reductions in account receivable balances, which increased cash
by $1.2 million, and reductions in other non-current
assets, which generated $540,000 of cash. These increases were
offset by $186,000 of cash used to increase inventories, prepaid
expenses and other current assets and $2.3 million of cash
used to reduce accounts payable balances, accrued expenses and
deferred revenue balances.

Net cash provided by investing activities was
$1.6 million for the three months ended September 27,
2003. Cash of $1.9 million was generated from the proceeds
of sales and maturities of our marketable securities. This was
partially offset by our purchases of fixed assets, which used
$310,000 of cash.

Net cash of $169,000 was provided by financing
activities during the three months ended September 27,
2003. This cash was generated by exercises of stock options and
proceeds received for common stock under the Companys
Employee Stock Purchase Plan.

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

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

Restructuring

March 2003 Plan

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

As a result of the March 2003 plan, the Company
recorded pre-tax charges and related accruals of $584,000
($486,000 after tax, or $0.05 per diluted share) in its third
fiscal quarter of 2003. Of this charge, $179,000 related to the
write-off of inventories and, as such, was included as a
component of the cost of product revenue. The remainder of the
charge was recorded as a restructuring charge in the
Companys Consolidated Statement of Income. All significant
activities under the March 2003 plan were completed as of
June 30, 2003.

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##### Table of Contents



The following table presents the pre-tax charges
incurred by category of expenditure, and related restructuring
costs included in accrued expenses in the Companys balance
sheet (in thousands):

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

April 2002 Plan

In April 2002, the Company enacted a corporate
restructuring plan (the April 2002 plan) to resize
the Company and to reduce overhead costs. The April 2002 plan
included the involuntary termination of 37 employees, the
closing of certain leased offices and the reduction in size of
other leased offices. All significant activities under the April
2002 plan are complete. As a result of the April 2002 plan, the
Company recorded pre-tax charges and related accruals in fiscal
2002 of $1.3 million. The remaining accrual balances as of
September 27, 2003 relate to long-term contractual
obligations from facility commitments that will be paid over six
years. The following table presents the balance of the accrued
restructuring charges:

|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  
|--------------------------------------------- |  | -------------- | --- | ----------- |  | ----- | ---- | ----- |  | - | ---- | - |  | - | ---- | -
|                                              |  | Employee       |     | Lease       |  |       |      |      
|                                              |  | Severance      |     | Termination |  | Other |      |      
|                                              |  | Costs          |     | Costs       |  | Costs |      | Total
|                                              |  |                |     |             |  |       |      |      
|                                              |  |               
|                                              |  | (In thousands)
|Balance at June 30, 2002                      |  | $              | 31  |             |  | $     | 642  |       |  | $ | 124  |   |  | $ | 797  |  
|Cash payments                                 |  |                | (26 | )           |  |       | (113 | )     |  |   | (115 | ) |  |   | (254 | )
|Foreign exchange impact and other adjustments |  |                | (5  | )           |  |       | 67   |       |  |   | (9   | ) |  |   | 53   |  
|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  
|Balance at June 30, 2003                      |  |                |    |             |  |       | 596  |       |  |   |     |   |  |   | 596  |  
|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  
|Cash payments                                 |  |                |    |             |  |       | (24  | )     |  |   |     |   |  |   | (24  | )
|Foreign exchange impact and other adjustments |  |                |    |             |  |       | (3   | )     |  |   |     |   |  |   | (3   | )
|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  
|Balance at September 27, 2003                 |  | $              |    |             |  | $     | 569  |       |  | $ |     |   |  | $ | 569  |  
|                                              |  |                |     |             |  |       |      |       |  |   |      |   |  |   |      |  

Impact of Inflation

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

Risk Factors and Important Factors That May
Affect Future Results

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



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

The demand for our products is largely driven by
the demand for the products in our primary end markets. Many of
these end markets, particularly the automotive,
telecommunications and electronics industries have experienced
severe economic declines over the past 24 months which
significantly and

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adversely affected our business in fiscal 2002
and 2003. A continuation of this general economic slowdown will
materially and adversely affect us by decreasing our revenue as
compared to prior years, as was the case in fiscal 2002, or by
lowering our revenue growth rates when compared to those
experienced prior to fiscal 2002. In addition, increased
hostilities around the world are continuing to cause widespread
uncertainty and speculation in the United States and world
financial markets. This uncertainty and speculation may result
in further economic contraction and a further suspension in the
normal purchasing patterns of our customers.




| |                                                                                                                                
| | -------------------------------------------------------------------------------------------------------------------------------
| | Our business model and market focus is
    changing as we further develop and exploit our Manufacturing
    Solutions products.

The development and implementation of a robust
set of Manufacturing Solutions products has required that we
devote significant research and development, marketing and
executive level resources to this product family. Further
expenditures of time and effort will be required in order to
maximize the potential of this set of products. Optimizing sales
of this product group will also require that we capitalize on
existing customer synergies through a common product strategy
and that our sales model be effective in selling both Design
Optimization Solutions and Manufacturing Solutions products. Our
results of operations could be adversely affected by significant
delays in developing, completing or shipping our new or enhanced
Manufacturing Solutions products as well as by delays in
acceptance of these products by customers. Because these
products interact with other factory or enterprise-wide systems,
we may be required to provided additional functionality or
services, which may delay the recognition of revenue.
Acquisition of other businesses, such as CPI, may delay the
development and completion of our Manufacturing Solutions
products as we seek to integrate newly acquired technology onto
our product platform.



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

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



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

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

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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.

Our industry is characterized by:



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

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

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



| |                                                                                                                                                                                                     
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Future mergers, acquisitions and strategic
    relationships may result in lost revenue caused by business
    disruptions and missed opportunities caused by the distraction
    of our management.

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



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

Our products include proprietary intellectual
property. We may become subject to claims that we infringe on
the proprietary rights of others. In the United States and
elsewhere, a significant number of software and business method
patents have been issued over the past decade and the holders of
these patents have been actively seeking out potential
infringers. In addition, our Manufacturing Solutions products
require interaction with an injection molding machine, the use
and technology of which are subject to a wide variety of
world-wide patents and other intellectual property protection.
If any element of our products or services violates third-party
proprietary rights, we might not be able to obtain licenses on
commercially reasonable terms to

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continue offering our products or services
without substantial re-engineering and any effort to undertake
such re-engineering might not be successful. In addition, any
claim of infringement could cause us to incur substantial costs
defending against the claim, even if the claim is invalid, and
could distract our management from our business. Any judgment
against us could require us to pay substantial damages and could
also include an injunction or other court order that could
prevent us from offering our products and services.




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

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

We face the following risks in protecting our
intellectual property:



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



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

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



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

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



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

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



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

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



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

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



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

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



| |   |                                                                                                                            
| | - | ---------------------------------------------------------------------------------------------------------------------------
| |  | revenues and operating results failing to meet
    the expectations of securities analysts or investors in any
    quarter,
|
| |  | downward revisions in securities analysts
    estimates or changes in general market conditions,                          
|
| |  | changes in our senior management personnel,                                                                                
|
| |  | distribution or sale of shares of Moldflow stock
    by insiders or affiliated persons,                                    
|
| |  | technological innovations by competitors or in
    competing technologies,                                                 
|
| |  | a decrease in the demand for our common stock,                                                                             
|
| |  | investor perception of our industry or our
    prospects, and                                                              
|
| |  | general technology or economic trends.                                                                                     

In the past, companies that have experienced
volatility in the market price of their stock have been the
subjects of securities class action litigation. We may be
involved in securities class action litigation in the

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##### Table of Contents



future. Such litigation often results in
substantial costs and a diversion of managements attention
and resources and could harm our business, financial condition
and results of operations.





Item 3.     Quantitative
and Qualitative Disclosures about Market Risk

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

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

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




Item 4.     Controls
and Procedures

As required by Rules 13a-15 and 15d-15 under
the Securities Exchange Act of 1934, we have evaluated with the
participation of our management, including our Chief Executive
Officer and Chief Financial Officer, the effectiveness of our
disclosure controls and procedures as of the end of the period
covered by this report. In designing and evaluating our
disclosure controls and procedures, we and our management
recognize that any controls and procedures, no matter how well
designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and our management
necessarily was required to apply its judgment in evaluating and
implementing possible controls and procedures. Based upon that
evaluation, our Chief Executive Officer and Chief Financial
Officer have concluded that they believe that, as of
September 27, 2003, our disclosure controls and procedures
were reasonably effective to ensure that information required to
be disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Securities and Exchange
Commissions rules and forms. In compliance with the rules,
we intend to continue to review and document our disclosure
controls and procedures, including our internal control over
financial reporting, on an ongoing basis, and may from time to
time make changes aimed at enhancing their effectiveness and to
ensure that our systems evolve with our business. There were no
changes in our internal control over financial reporting that
occurred during the period covered by this Quarterly Report on
Form 10-Q that have materially affected, or are reasonably
likely to materially affect our internal control over financial
reporting.

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##### Table of Contents






PART II.     OTHER
INFORMATION






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

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






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

(a) Exhibits:

| |      |  |  |                                  
| | ---- |  |  | ---------------------------------
| | 31.1 |  |  | Certification of CEO             
| | 31.2 |  |  | Certification of CFO             
| | 32.1 |  |  | Section 1350 Certification of CEO
| | 32.2 |  |  | Section 1350 Certification of CFO

(b) Reports on Form 8-K

On August 5, 2003, the Company filed a
Form 8-K disclosing the financial results for the fiscal
year ended June 30, 2003.

On October 23, 2003, the Company filed a
Form 8-K disclosing the financial results for the fiscal
quarter ended September 27, 2003.

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SIGNATURES

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



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



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

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



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

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

Date: November 12, 2003

27