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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

|QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|---------------------------------------------------------------------------------------
|For the Quarterly Period Ended: March 29, 2003                                         

Commission File Number: 000-30027

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Moldflow Corporation(Exact name of registrant as specified in its charter)

|Delaware(State or other jurisdiction
of incorporation or organization)                              |  | 04-3406763(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 ý    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 ý

There
were 9,999,359 shares of our common stock, par value $0.01, outstanding on May 8, 2003.

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MOLDFLOW CORPORATION
FORM 10-Q
For the Quarter Ended March 29, 2003

Table of Contents

|                              |  |                                                                                                                                                                             |  | Page
Number
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -----------
|Part I. FINANCIAL INFORMATION |  |                                                                                                                                                                            
|Item 1.                       |  | Unaudited Financial Statements:                                                                                                                                             |  |            
|                              |  | Condensed Consolidated Balance Sheet as of March 29, 2003 and June 30, 2002                                                                                                 |  | 2          
|                              |  | Condensed Consolidated Statement of Operations for the three months ended March 29, 2003 and March 30, 2002 and for the nine months ended March 29, 2003 and March 30, 2002 |  | 3          
|                              |  | Condensed Consolidated Statement of Cash Flows for the nine months ended March 29, 2003 and March 30, 2002                                                                  |  | 4          
|                              |  | Notes to Unaudited Condensed Consolidated Financial Statements                                                                                                              |  | 5          
|Item 2.                       |  | Management's Discussion and Analysis of Financial Condition and Results of Operations                                                                                       |  | 17         
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                  |  | 31         
|Item 4.                       |  | Controls and Procedures                                                                                                                                                     |  | 32         
|Part II. OTHER INFORMATION    |  |                                                                                                                                                                            
|Item 1.                       |  | Legal Proceedings                                                                                                                                                           |  | 33         
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                                                                            |  | 33         
|Signatures                    |  | 34                                                                                                                                                                         
|Certifications                |  | 35                                                                                                                                                                         

1

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PART I. FINANCIAL INFORMATION

ITEM 1. UNAUDITED FINANCIAL STATEMENTS

Moldflow Corporation        Condensed Consolidated Balance Sheet        (in thousands)        (unaudited)

|                                                                |                                            | March 29,
2003 |       | June 30,
2002 |  
|--------------------------------------------------------------- | ------------------------------------------ | -------------- | ----- | ------------- | -
|Assets                                                          |                                            |                |       |               |  
|Current assets:                                                 |                                            |                |       |               |  
|                                                                | Cash and cash equivalents                  |                | $     | 46,123        |  
|                                                                | Marketable securities                      |                |       | 4,177         |  
|                                                                | Accounts receivable, net                   |                |       | 6,771         |  
|                                                                | Other current assets                       |                |       | 3,390         |  
|                                                                |                                            |                |       |               |  
|                                                                | Total current assets                       |                |       | 60,461        |  
|Fixed assets, net                                               |                                            |                | 3,846 |               |  
|Goodwill                                                        |                                            |                | 9,632 |               |  
|Other intangible assets, net                                    |                                            |                | 787   |               |  
|Other assets, net                                               |                                            |                | 1,643 |               |  
|                                                                |                                            |                |       |               |  
|                                                                | Total assets                               |                | $     | 76,369        |  
|                                                                |                                            |                |       |               |  
|Liabilities and Stockholders' Equity                            |                                            |                |       |               |  
|Current liabilities:                                            |                                            |                |       |               |  
|                                                                | Accounts payable                           |                | $     | 1,683         |  
|                                                                | Accrued expenses                           |                |       | 6,106         |  
|                                                                | Deferred revenue                           |                |       | 9,238         |  
|                                                                |                                            |                |       |               |  
|                                                                | Total current liabilities                  |                |       | 17,027        |  
|Other long-term liabilities                                     |                                            |                | 645   |               |  
|                                                                |                                            |                |       |               |  
|                                                                | Total liabilities                          |                |       | 17,672        |  
|                                                                |                                            |                |       |               |  
|Commitments, contingencies and guarantor arrangements (Note 12) |                                            |                |       |               |  
|Stockholders' equity:                                           |                                            |                |       |               |  
|                                                                | Common stock                               |                |       | 102           |  
|                                                                | Additional paid-in capital                 |                |       | 62,783        |  
|                                                                | Treasury stock, at cost                    |                |       | (926          | )
|                                                                | Deferred stock compensation                |                |       |              |  
|                                                                | Notes receivable from stockholders         |                |       | (13           | )
|                                                                | Accumulated deficit                        |                |       | (4,340        | )
|                                                                | Accumulated other comprehensive income     |                |       | 1,091         |  
|                                                                |                                            |                |       |               |  
|                                                                | Total stockholders' equity                 |                |       | 58,697        |  
|                                                                |                                            |                |       |               |  
|                                                                | Total liabilities and stockholders' equity |                | $     | 76,369        |  
|                                                                |                                            |                |       |               |  

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

2

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Moldflow Corporation

Condensed Consolidated Statement of Operations        (in thousands, except per share data)        (unaudited)

|                                                             |                                         | Three Months Ended |      | Nine Months Ended |  
|------------------------------------------------------------ | --------------------------------------- | ------------------ | ---- | ----------------- | -
|
|Revenue:                                                     |                                         |                    |      |                   |  
|                                                             | Product                                 |                    | $    | 4,579             |  
|                                                             | Services                                |                    |      | 4,894             |  
|                                                             |                                         |                    |      |                   |  
|                                                             | Total revenue                           |                    |      | 9,473             |  
|                                                             |                                         |                    |      |                   |  
|Costs and expenses:                                          |                                         |                    |      |                   |  
|                                                             | Cost of product revenue                 |                    |      | 829               |  
|                                                             | Cost of services revenue                |                    |      | 323               |  
|                                                             | Research and development                |                    |      | 1,567             |  
|                                                             | Selling and marketing                   |                    |      | 4,778             |  
|                                                             | General and administrative              |                    |      | 1,878             |  
|                                                             | Restructuring charges                   |                    |      | 438               |  
|                                                             | Amortization of other intangible assets |                    |      | 176               |  
|                                                             |                                         |                    |      |                   |  
|                                                             | Total operating costs and expenses      |                    |      | 9,989             |  
|                                                             |                                         |                    |      |                   |  
|                                                             | Income (loss) from operations           |                    |      | (516              | )
|Interest income, net                                         |                                         |                    | 263  |                   |  
|Other income (loss), net                                     |                                         |                    | (106 | )                 |  
|                                                             |                                         |                    |      |                   |  
|                                                             | Income (loss) before income taxes       |                    |      | (359              | )
|Provision for income taxes                                   |                                         |                    | 225  |                   |  
|                                                             |                                         |                    |      |                   |  
|                                                             | Net income (loss)                       |                    | $    | (584              | )
|                                                             |                                         |                    |      |                   |  
|Net income (loss) per common share:                          |                                         |                    |      |                   |  
|                                                             | Basic                                   |                    | $    | (0.06             | )
|                                                             | Diluted                                 |                    | $    | (0.06             | )
|Shares used in computing net income (loss) per common share: |                                         |                    |      |                   |  
|                                                             | Basic                                   |                    |      | 9,997             |  
|                                                             | Diluted                                 |                    |      | 9,997             |  

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

3

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Moldflow Corporation

Condensed Consolidated Statement of Cash Flows        (in thousands)        (unaudited)

|                                                                       |                                                                           | Nine Months Ended    |       
|---------------------------------------------------------------------- | ------------------------------------------------------------------------- | -------------------- | ------
|
|Cash flows from operating activities:                                  |                                                                           |                      |       
|Net income (loss)                                                      |                                                                           | $                    | (368  
|Adjustments to reconcile to net cash provided by operating activities: |                                                                           |                      |       
|                                                                       | Gain on disposal of fixed assets                                          |                      |       
|                                                                       | Gain on sale of long-term investment                                      |                      |       
|                                                                       | Depreciation of fixed assets and amortization of other intangible assets  |                      |       
|                                                                       | Amortization of capitalized software development costs                    |                      |       
|                                                                       | Provisions for doubtful accounts                                          |                      |       
|                                                                       | Foreign exchange losses (gains)                                           |                      |       
|                                                                       | Write-off of assets due to restructuring activities                       |                      |       
|                                                                       | Other non-cash charges to income                                          |                      |       
|                                                                       | Changes in assets and liabilities, net of effects of acquisition in 2003: |                      |       
|                                                                       |                                                                           | Accounts receivable  |       
|                                                                       |                                                                           | Other current assets |       
|                                                                       |                                                                           | Other assets         |       
|                                                                       |                                                                           | Accounts payable     |       
|                                                                       |                                                                           | Accrued expenses     |       
|                                                                       |                                                                           | Deferred revenue     |       
|                                                                       |                                                                           |                      |       
|                                                                       | Net cash provided by operating activities                                 |                      |       
|                                                                       |                                                                           |                      |       
|Cash flows from investing activities:                                  |                                                                           |                      |       
|                                                                       | Purchases of fixed assets                                                 |                      |       
|                                                                       | Capitalization of software development costs (Note 6)                     |                      |       
|                                                                       | Acquisition of CPI (Note 4)                                               |                      |       
|                                                                       | Proceeds from fixed asset disposals                                       |                      |       
|                                                                       | Purchases of marketable securities                                        |                      |       
|                                                                       | Sales and maturities of marketable securities                             |                      |       
|                                                                       | Proceeds from sale of long-term investment                                |                      |       
|                                                                       |                                                                           |                      |       
|                                                                       | Net cash (used in) provided by investing activities                       |                      |       
|                                                                       |                                                                           |                      |       
|Cash flows from financing activities:                                  |                                                                           |                      |       
|                                                                       | Proceeds from collection of notes receivable from stockholder             |                      |       
|                                                                       | Issuance of common stock                                                  |                      |       
|                                                                       | Repurchase of common stock                                                |                      |       
|                                                                       |                                                                           |                      |       
|                                                                       | Net cash used in financing activities                                     |                      |       
|                                                                       |                                                                           |                      |       
|Effect of exchange rate changes on cash and cash equivalents           |                                                                           |                      | 748   
|                                                                       |                                                                           |                      |       
|Net increase (decrease) in cash and cash equivalents                   |                                                                           |                      | (1,511
|Cash and cash equivalents, beginning of period                         |                                                                           |                      | 47,634
|                                                                       |                                                                           |                      |       
|Cash and cash equivalents, end of period                               |                                                                           | $                    | 46,123
|                                                                       |                                                                           |                      |       

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

4

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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, 2002 included in the Company's Annual Report on Form 10-K. The June 30, 2002
condensed consolidated balance sheet was derived from the Company's audited consolidated financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial
statements contain all adjustments, consisting only of those of a normal recurring nature, necessary for a fair presentation of results for the interim periods presented. The results of operations for
the three-month and nine-month periods ended March 29, 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 2003 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.    Net Income (Loss) Per Common Share

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

|                                                                                     |                                  | Three Months Ended |       | Nine Months Ended
|------------------------------------------------------------------------------------ | -------------------------------- | ------------------ | ----- | -----------------
|
|
|Net income (loss)                                                                    |                                  | $                  | (584  | )                
|                                                                                     |                                  |                    |       |                  
|Weighted average shares used in computing net income (loss) per common sharebasic   |                                  |                    | 9,997 |                  
|                                                                                     |                                  |                    |       |                  
|Effect of dilutive securities:                                                       |                                  |                    |       |                  
|                                                                                     | Restricted stock                 |                    |       |                 
|                                                                                     | Stock options                    |                    |       |                 
|                                                                                     |                                  |                    |       |                  
|                                                                                     | Dilutive potential common shares |                    |       |                 
|                                                                                     |                                  |                    |       |                  
|Weighted average shares used in computing net income (loss) per common sharediluted |                                  |                    | 9,997 |                  
|                                                                                     |                                  |                    |       |                  
|Net income (loss) per common sharebasic                                             |                                  | $                  | (0.06 | )                
|Net income (loss) per common sharediluted                                           |                                  | $                  | (0.06 | )                

5

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Weighted
average common stock equivalents related to stock options of 1,524,000 and 1,413,000 shares were outstanding for the three and nine months ended March 29, 2003,
respectively, but were not included in the calculation of diluted net loss per share, as their inclusion would be antidilutive due to the net loss for those periods. Weighted average common stock
equivalents related to stock options of 579,000 and 1,008,000 shares were outstanding for the three and nine months ended March 30, 2002, respectively, but were not included in the calculation
of diluted income per share, as their inclusion would be antidilutive, as the weighted average exercise price of these options was greater than the weighted average fair value of the underlying shares
in those periods.

3.    Derivative Financial Instruments and Hedging Activities

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

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

At
March 30, 2002, currency options and collars designated as hedging instruments with notional amounts of $6.4 million, $38.4 million and $7.3 million to
exchange Euros, Japanese yen and Australian dollars for U.S. dollars, respectively, were outstanding. The fair values of these instruments, as derived from dealer quotations, were recorded as
components of other current assets or other current liabilities, depending on the amount of the valuation. At March 30, 2002, instruments with fair values of $446,000 and $(370,000) were
recorded as components of other current assets and other current liabilities, respectively. Net unrealized gains on these instruments of $127,000 were included in accumulated other comprehensive
income. During the three and nine month periods ended March 30, 2002, gains of $123,000 and $199,000, respectively, were recorded as components of other income and expense on the effective
portion of options that were settled. For the three-month and nine-month periods ended March 30, 2002, a gain of $31,000 was recognized on the ineffective portion of these options.

6

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4.    Acquisition of Côntrole Processus Industriels

On January 9, 2003, the Company acquired substantially all of the assets and the ongoing operations of Côntrole Processus Industriels
s.a.r.l. ("CPI"), a provider of production monitoring systems to the French plastics industry, for a cash purchase price of $802,000. In addition, the Company paid $93,000 of costs directly related to
the acquisition. The Company believes that the acquisition of CPI will increase the Company's presence in the European product monitoring market allowing it to better serve its customers. For this
reason the purchase price exceeds the fair value of net tangible and intangible assets, resulting in goodwill. The results of CPI have been included in the Company's consolidated financial statements
since the date of the acquisition.

The
purchase price has been allocated to the assets acquired and liabilities assumed at their estimated fair values as of the date of the acquisition, based upon estimates made by
management of the Company. Certain of the acquired assets were intangible in nature, including the acquired customer base and non-compete agreements, the fair values of which were
determined through generally accepted valuation methodologies. The excess of the total purchase price over the amounts allocated to the assets acquired and liabilities assumed was recorded as
goodwill. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of the acquisition. The allocation of the purchase price is subject to
refinement.

At March 29,
2003(in thousands)Inventories

$
36Property and equipment


53Non-compete covenants


100Customer base


85Goodwill


843Total assets acquired


1,117Current liabilities


(222
)Net assets acquired

$
895


The
estimated useful life of the acquired customer base and non-compete covenants is 42 months and 12 months, respectively. No portion of the goodwill or other
intangible assets is expected to be deductible for tax purposes.

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

7

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as
of the beginning of the periods presented and should not be construed as representative of future operations.

|                                    |         | Nine Months Ended
|----------------------------------- | ------- | -----------------
|
|
|Revenue                             |         | $                
|Net income (loss)                   |         |                  
|Net income (loss) per common share: |         |                  
|                                    | Basic   |                  
|                                    | Diluted |                  

5.    Intangible Assets

Intangible assets acquired in the Company's acquisitions 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 the intangible assets.

In
March 2003, the Company initiated a corporate restructuring plan that resulted in the impairment of certain developed technology originally acquired in the fiscal 2001 purchase
of Branden Technologies Inc. (see Note 9). A charge of $217,000 was recorded to write-off the net carrying value of this developed technology, which was related to the
Company's EZ-Track product. Amortization expense for intangible assets, other than goodwill, for the three months ended March 29, 2003 and March 30, 2002 was $176,000 and
$164,000, respectively. Amortization expense for intangible assets, other than goodwill, for the nine months ended March 29, 2003 and March 30, 2002 was $494,000 and $492,000,
respectively.

The
components of other intangible assets are as follows (in thousands):

|                         |                        | March 29, 2003 |       | June 30, 2002
|------------------------ | ---------------------- | -------------- | ----- | -------------
|
|Other intangible assets: |                        |                |       |              
|                         | Customer base          |                | $     | 415          
|                         | Developed technology   |                |       | 675          
|                         | Non-compete agreements |                |       | 1,200        
|                         |                        |                |       |              
|Total                    |                        | $              | 2,290 |              
|                         |                        |                |       |              

8

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The
following table summarizes the expected remaining amortization of other intangible assets as of March 29, 2003:

Fiscal year

Estimated amortization expense(in thousands)2003 (remainder)

$
1052004


3652005


1492006


722007


50Thereafter


46Total future amortization expense

$
787


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 prior to the first quarter of fiscal 2002 were not significant. The Company established technological
feasibility of Moldflow Plastics Insight version 3.0 ("MPI 3.0") in the first quarter of fiscal 2002 and released the product commercially in November 2001. In accordance with SFAS
No. 86, research and development costs of $602,000 were capitalized as a component of fixed assets. In the second quarter of fiscal 2003, the net carrying value of these costs was reclassified
from fixed assets to other assets.

In
the nine months ended March 29, 2003, the Company established technological feasibility of three additional products. Research and development costs of $170,000 were
capitalized in the second fiscal quarter related to MPI 4.0 and Shotscope 2.6, both of which were commercially released in December 2002. Research and development costs of $148,000 were
capitalized in the three months ended March 29, 2003 related to Moldflow Manufacturing Solutions ("MMS") 1.0, which was commercially released in March 2003. All such costs have been
included in other assets and are being amortized to cost of product revenue over a five-year period. At March 29, 2003, gross capitalized software development costs totaled $920,000
and accumulated amortization of capitalized development costs totaled $170,000. Related amortization expense for the three months and nine months ended March 29, 2003 was $40,000 and $103,000,
respectively.

9

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7.    Common Stock, Treasury Stock and Stock Plans

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 2001, the Company reacquired 50,000 shares for $464,000, an average cost of $9.28 per share. In September 2002, the Company reacquired an additional 194,165 shares of its
outstanding common stock for $909,000, an average cost of $4.68 per share. As of March 29, 2003, 58,748 of these shares were reissued under the Company's Employee Stock Purchase Plan and
185,417 shares remained in treasury.

On
November 19, 2002, the stockholders of the Company approved an amendment to the Company's 2000 Stock Option and Incentive Plan (the "2000 Option Plan") authorizing the Company
to issue up to an additional 1,500,000 shares of common stock pursuant to various stock incentive awards under the 2000 Option Plan.

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

|                                               |  | Three Months Ended
|---------------------------------------------- |  | ------------------
|
|
|Outstanding at beginning of period             |  |                   
|Granted                                        |  |                   
|Exercised                                      |  |                   
|Canceled                                       |  |                   
|                                               |  |                   
|Outstanding at end of period                   |  |                   
|                                               |  |                   
|Weighted average fair value of options granted |  | $                 

|                                               |  | Nine Months Ended
|---------------------------------------------- |  | -----------------
|
|
|Outstanding at beginning of period             |  |                  
|Granted                                        |  |                  
|Exercised                                      |  |                  
|Canceled                                       |  |                  
|                                               |  |                  
|Outstanding at end of period                   |  |                  
|                                               |  |                  
|Options exercisable at end of period           |  |                  
|Weighted average fair value of options granted |  | $                
|Options available for future grant             |  |                  

No
compensation cost has been recognized for employee stock-based awards for the three and nine months ended March 29, 2003. Had compensation cost been determined based on the
fair value at the grant dates, the Company's net income (loss) would have been the pro forma amounts indicated in the table below. Because options vest over several years and additional option grants
are expected to

10

---

be
made in future years, the pro forma results are not representative of the pro forma results for future years.

|                              |                   | Three Months Ended                                                                                                                  |        | Nine Months Ended |       
|----------------------------- | ----------------- | ----------------------------------------------------------------------------------------------------------------------------------- | ------ | ----------------- | ------
|
|
|Net income (loss) as reported |                   | $                                                                                                                                   | (584   | )                 | $     
|                              |                   |                                                                                                                                     |        |                   |       
|                              | Less:             |                                                                                                                                     |        |                   |       
|                              |                   | Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effects |        |                   | (1,373
|                              |                   |                                                                                                                                     |        |                   |       
|Pro forma net loss            |                   | $                                                                                                                                   | (1,957 | )                 | $     
|                              |                   |                                                                                                                                     |        |                   |       
|Net income (loss) per share:  |                   |                                                                                                                                     |        |                   |       
|                              | Basicas reported |                                                                                                                                     | $      | (0.06             | )     
|                              | Basicpro forma   |                                                                                                                                     | $      | (0.20             | )     
|Dilutedas reported           |                   | $                                                                                                                                   | (0.06  | )                 | $     
|Dilutedpro forma             |                   | $                                                                                                                                   | (0.20  | )                 | ($    

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
2003

Fiscal
2002Dividend yield



Volatility

92.72
%
73.88
%Risk-free interest rate

3.1
%
4.5
%Expected option life (in years)

5.1

4.4


On
January 29, 2003, the Board of Directors of the Company adopted a Shareholder Rights Plan and declared a dividend distribution of one preferred stock purchase right (a "Right")
for each outstanding share of the Company's common stock to shareholders of record as of the close of business on January 30, 2003. Initially, these rights will not be exercisable and will
trade with the shares of the Company's common stock. Each share of common stock newly issued after that date also will carry with it one Right. Under the Shareholder Rights Plan, a Right generally
will become exercisable if a person becomes an "acquiring person" by acquiring 15% or more of the common stock of the Company or if a person commences a tender offer that could result in that person
owning 15% or more of the common stock of the Company. If a person becomes an "acquiring person," each holder of a Right (other than the acquiring person) would be entitled to purchase, at the
then-current exercise price, such number of shares of preferred stock which are equivalent to shares of the Company's common stock having a value of twice the exercise price of the Right.
If the Company is acquired in a merger or other business combination transaction after any such event, each holder of a Right would then be entitled to purchase, at the then-current
exercise price, shares of the acquiring company's common stock having a value of twice the exercise price of the Right.

11

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8.    Comprehensive Income

Comprehensive income is comprised of net income (loss) and other comprehensive income and losses. Other comprehensive income includes certain changes in equity
that are excluded from net income, 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.

The
following table presents the calculation of comprehensive income:

|                                   |                                                                                           | Three Months Ended |      | Nine Months Ended |  
|---------------------------------- | ----------------------------------------------------------------------------------------- | ------------------ | ---- | ----------------- | -
|
|
|Net income (loss)                  |                                                                                           | $                  | (584 | )                 | $
|                                   |                                                                                           |                    |      |                   |  
|Other comprehensive income (loss): |                                                                                           |                    |      |                   |  
|                                   | Changes in fair value of marketable securities, net of related tax effect                 |                    |      | 1                 |  
|                                   | Changes in value of financial instruments designated as hedges, net of related tax effect |                    |      | 226               |  
|                                   | Foreign currency translation adjustment                                                   |                    |      | 884               |  
|                                   |                                                                                           |                    |      |                   |  
|                                   | Other comprehensive income                                                                |                    |      | 1,111             |  
|                                   |                                                                                           |                    |      |                   |  
|Comprehensive income               |                                                                                           | $                  | 527  |                   | $
|                                   |                                                                                           |                    |      |                   |  

9.    Restructuring Plans

March 2003 Plan

In March 2003, the Company initiated a corporate restructuring plan (the "March 2003 plan") related to its acquisition of CPI (see Note 4).
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,
all such items deemed impaired by the acquisition of a similar product in connection with the CPI transaction. Activities under the March 2003 plan are expected to be complete within six months.

As
a result of the March 2003 plan, the Company recorded pre-tax charges and related accruals in the three months ended March 29, 2003 of $617,000. 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 restructuring
charges in the Company's Condensed Consolidated Statement of Operations. The Company expects to incur additional charges related to these actions in its fourth fiscal quarter; however, these amounts
are not expected to be significant.

12

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

|                          |  | Non-cash charges |     | Charges requiring cash payments |   |    
|------------------------- |  | ---------------- | --- | ------------------------------- | - | ---
|
|Restructuring charge      |  | $                | 179 |                                 | $ | 217
|Cash payments             |  |                  |    |                                 |   |   
|                          |  |                  |     |                                 |   |    
|Balance at March 29, 2003 |  |                  |    |                                 |   |   
|                          |  |                  |     |                                 |   |    

April 2002 Plan

In April 2002, the Company enacted a corporate restructuring plan (the "April 2002 plan"). The April 2002 plan was enacted 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 were completed as of March 29, 2003. 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 March 29, 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 (in thousands):

|                                              |  | Employee
severance costs |     | Lease
termination costs |   | Other
costs |   | Total |     
|--------------------------------------------- |  | ------------------------ | --- | ----------------------- | - | ----------- | - | ----- | ----
|Balance at June 30, 2002                      |  | $                        | 31  |                         | $ | 642         |   | $     | 124 
|Cash payments                                 |  |                          | (26 | )                       |   | (83         | ) |       | (115
|Foreign exchange impact and other adjustments |  |                          | (5  | )                       |   | 35          |   |       | (9  
|                                              |  |                          |     |                         |   |             |   |       |     
|Balance at March 29, 2003                     |  | $                        |    |                         | $ | 594         |   | $     |    
|                                              |  |                          |     |                         |   |             |   |       |     

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 March 29, 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 March 29, 2003, the Company had employed
$1.9 million of the available borrowing base through outstanding foreign exchange contracts and letters of credit. These advances do not incur interest charges. As of March 29, 2003,
there were no loans advanced against the facility, and the remaining available borrowing base was $3.0 million.

13

---

Certain
subsidiaries of the Company have established credit facilities with two separate financial institutions primarily for the purposes of establishing foreign exchange contracts.
Advances against these facilities bear interest at the institutions' published rates plus 2% per annum. These credit facilities are unsecured. Advances against these facilities are guaranteed by the
Company. There were no advances against these facilities as of March 29, 2003.

Certain
subsidiaries of the Company have established other credit facilities totaling $177,000 with two separate financial institutions for general working capital requirements and
foreign exchange contracts. Advances against these facilities bear interest at the institutions' published rates, plus 1.5% per annum. Advances against one of these facilities are secured by a
$127,000 term deposit and the assets of a subsidiary of the Company. There were no advances against these facilities as of March 29, 2003.

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 design and manufacturing
industry.

Geographic
information regarding the Company's operations follows (in thousands):

|                                     |                | Three Months Ended |                      | Nine Months Ended
|------------------------------------ | -------------- | ------------------ | -------------------- | -----------------
|
|Revenue from unaffiliated customers: |                |                    |                      |                  
|                                     | Asia/Australia |                    |                      |                  
|                                     |                | Product            |                      | $                
|                                     |                | Services           |                      |                  
|                                     |                |                    |                      |                  
|                                     |                |                    | Total Asia/Australia |                  
|                                     |                |                    |                      |                  
|                                     | Americas       |                    |                      |                  
|                                     |                | Product            |                      |                  
|                                     |                | Services           |                      |                  
|                                     |                |                    |                      |                  
|                                     |                |                    | Total Americas       |                  
|                                     |                |                    |                      |                  
|                                     | Europe         |                    |                      |                  
|                                     |                | Product            |                      |                  
|                                     |                | Services           |                      |                  
|                                     |                |                    |                      |                  
|                                     |                |                    | Total Europe         |                  
|                                     |                |                    |                      |                  
|                                     | Consolidated   |                    |                      |                  
|                                     |                | Product            |                      |                  
|                                     |                | Services           |                      |                  
|                                     |                |                    |                      |                  
|                                     |                |                    | Total consolidated   |                  
|                                     |                |                    |                      |                  

Revenue
from unaffiliated customers in Japan for the three months ended March 29, 2003 and March 30, 2002 was $2.7 million and $2.0 million (28% and 21% of
total revenue), respectively. Revenue from unaffiliated customers in Japan for the nine months ended March 29, 2003 and

14

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March 30,
2002 was $6.3 million and $5.6 million (24% and 21% of total revenue), respectively. Substantially all of the revenue in the Americas region is derived from the United
States.

March 29,
2003

June 30,
2002(in thousands)Fixed assets, net:Asia/Australia

$
1,671

$
1,707Americas


1,541


1,562Europe


634


524Total consolidated

$
3,846

$
3,793


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

12.    Contingencies, Commitments and Guarantor Arrangements

In November 2002, the Financial Accounting Standards Board ("FASB") issued FIN No. 45 "Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of Others an interpretation of FASB Statements No. 5, 57, and 107 and rescission of FASB Interpretation No. 34." The
Interpretation requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken by issuing the guarantee. The Interpretation also
requires additional disclosures to be made by a guarantor in its interim and annual financial statements about its obligations under certain guarantees it has issued. The accounting requirements for
the initial recognition of guarantees became applicable on a prospective basis for guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for all
guarantees outstanding, regardless of when they were issued or modified as of December 15, 2002. The adoption of FIN No. 45 did not have a material effect on the Company's consolidated
financial statements.

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 March 29, 2003.

The
Company 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

15

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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, which, as of March 29, 2003, was $44,000. The following table describes changes to the liability for the nine months ended March 29, 2003 (in thousands):

Balance at June 30, 2002

$
13Additional accruals


31Settlements made


Balance at March 29, 2003

$
44


16

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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 27. 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 Moldflow Plastics Insight ("MPI") series for in-depth mold design and our Moldflow Plastics
Advisers ("MPA") series for part design and high-level mold design. Our Manufacturing Solutions allow plant engineers and managers to automate production and maintain and optimize
manufacturing conditions throughout the manufacturing process. Through April 2003, our Manufacturing Solutions
included three products: Moldflow Plastics Xpert, Moldflow Shotscope and EZ-Track. Our Moldflow Plastics Xpert ("MPX") series for production set-up, optimization, control and
monitoring was introduced in fiscal 1999. Shotscope is a shop floor product that monitors, analyzes and assists in the scheduling of injection molding production processes. EZ-Track
provides real-time, plant-wide production monitoring and reporting. Both Shotscope and EZ-Track were launched under the Moldflow brand in fiscal 2001. In
April 2003, we introduced Moldflow Manufacturing Solutions ("MMS") 1.0, which integrates our MPX and Shotscope applications on a common platform. MMS 1.0 is a collaborative manufacturing
management ("CMM") system for the plastics injection molding and metal die casting industries that captures and makes available extensive process and production data for use in real-time
business performance management. CMM is the framework for organizing and controlling the key business processes of a manufacturing enterprise.

On
January 9, 2003, the Company acquired substantially all of the assets and the ongoing operations of Côntrole Processus Industriels s.a.r.l. ("CPI"), a provider
of production monitoring systems to the French plastics industry, for $895,000 of cash, including direct acquisition costs. We believe that the acquisition of CPI will increase our presence in the
European product monitoring market, allowing us to better serve our customers.

17

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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; and hedge accounting. 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, 2002.

Results of Operations

We generate revenue from two principal sources:



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. In the three and

18

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nine
months ended March 29, 2003, cost of product revenue also included a charge to write-off certain inventory in connection with our March 2003 restructuring plan.

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

Research and development.We employ a development staff to develop new products and enhance our existing products. Product
development expenditures, which include salaries, benefits, travel 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. We established technological feasibility of MPI 3.0 in the first quarter of fiscal 2002 and released the product commercially in November 2001. In accordance with SFAS
No. 86, research and development costs of $602,000 were capitalized related to MPI 3.0. In the second quarter of fiscal 2003, we established technological feasibility of MPI 4.0 and Shotscope
2.6 resulting in the capitalization of $170,000 of research and development costs. In the third quarter of fiscal 2003, we established technological feasibility of MMS 1.0 resulting in the
capitalization of $148,000 of research and development costs. All such capitalized costs are being amortized to cost of product revenue over five years, the estimated economic life of the related
products.

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, insurance and
other costs of our executive management, finance, information technology, human resources and administrative support activities.

Restructuring charges.In the three months ended March 29, 2003, we incurred charges related to actions we took to
restructure our business. The restructuring was a result of our January 2003 acquisition of CPI, and was enacted to integrate CPI's operations into our existing operations and to incorporate
CPI's products into our current production monitoring product line. This restructuring plan included the involuntary termination of four technical employees, a reduction of space at a leased facility,
the write-off of inventory and other assets and the write-off of certain intangible assets. All such charges and expense, except the charge to write-off
inventories, have been included as restructuring charges.

Amortization of other intangible assets.These costs represent the amortization of other intangible assets recorded in
connection with our acquisitions. These assets include developed technology, customer base 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.

19

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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. 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 |       | Nine Months Ended |      
|-------------------------- | --------------------------------------- | ------------------ | ----- | ----------------- | -----
|
|Revenue:                   |                                         |                    |       |                   |      
|                           | Product                                 |                    | 48.3  | %                 | 53.0 
|                           | Services                                |                    | 51.7  |                   | 47.0 
|                           |                                         |                    |       |                   |      
|                           | Total revenue                           |                    | 100.0 | %                 | 100.0
|                           |                                         |                    |       |                   |      
|Costs and expenses:        |                                         |                    |       |                   |      
|                           | Cost of product revenue                 |                    | 8.8   | %                 | 6.4  
|                           | Cost of services revenue                |                    | 3.4   |                   | 3.7  
|                           | Research and development                |                    | 16.5  |                   | 18.7 
|                           | Selling and marketing                   |                    | 50.4  |                   | 49.2 
|                           | General and administrative              |                    | 19.8  |                   | 17.3 
|                           | Restructuring charges                   |                    | 4.6   |                   |     
|                           | Amortization of other intangible assets |                    | 1.9   |                   | 1.7  
|                           |                                         |                    |       |                   |      
|                           | Total operating expenses                |                    | 105.4 |                   | 97.0 
|                           |                                         |                    |       |                   |      
|                           | Income (loss) from operations           |                    | (5.4  | )                 | 3.0  
|Interest income, net       |                                         | 2.8                |       | 3.0               |      
|Other income (loss), net   |                                         | (1.1               | )     | 1.9               |      
|                           |                                         |                    |       |                   |      
|                           | Income (loss) before income taxes       |                    | (3.7  | )                 | 7.9  
|Provision for income taxes |                                         | 2.4                |       | 2.6               |      
|                           |                                         |                    |       |                   |      
|                           | Net income (loss)                       |                    | (6.1  | %)                | 5.3  
|                           |                                         |                    |       |                   |      

20

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Three Months Ended March 29, 2003 compared to Three Months Ended March 30, 2002

Revenue.Total revenue for the three months ended March 29, 2003 was $9.5 million, slightly increased from
$9.4 million for the three months ended March 30, 2002. In the same period, product revenue decreased 8%, or $424,000, to $4.6 million from $5.0 million. The following
table sets forth our product revenue by product group:

Three Months EndedMarch 29,
2003

March 30,
2002(in thousands,
except percentage data)Product revenue:Design Optimization Solutions

$
3,952

$
4,203Manufacturing Solutions


627


800Total

$
4,579

$
5,003Percentage of total product revenue:Design Optimization Solutions


86.3
%

84.0
%Manufacturing Solutions


13.7


16.0Total


100.0
%

100.0
%


The
decrease in product revenue in the third quarter of fiscal 2003 was a result of the continued economic slowdown experienced in the markets we address. Demand for our products is
largely driven by the demand for the end products of our customers. The industries in which many of our customers operate, including the consumer products, telecommunications and electronics
industries have been among those most severely impacted by the prolonged economic slowdown. As such, these companies have typically reduced their spending on capital items including spending on our
products. A continuation of this general economic slowdown could materially and adversely affect us in the future by continuing to decrease our revenue.

Product
revenue from our Design Optimization Solutions for the three months ended March 29, 2003 decreased $251,000, or 6%, to $4.0 million from $4.2 million for the
three months ended March 30, 2002. Product revenue from our Manufacturing Solutions for the three months ended March 29, 2003 decreased $173,000, or 22%, to $627,000 from $800,000 for
the three months ended March 30, 2002. We believe that the general economic slowdown described above resulted in fewer investments being made in new product designs and molds, particularly in
the automotive, electronics and consumer markets, which form a significant part of our customer base, which decreased our Design Optimization Solutions product revenue. We believe the decrease
in product revenue from our Manufacturing Solutions is due to the nature of the product line, which is typically characterized by longer selling cycles and higher sales prices than our Design
Optimization Solutions.

We
added 77 new customers in the third quarter of fiscal 2003, compared to 122 new customers in the same period of fiscal 2002. Sales to new customers represented 40% of total product
revenues in the third quarter of fiscal 2003, compared to 42% in the same period of fiscal 2002. We sold 130 seats of Design Optimization Solutions products and 112 seats of Manufacturing Solutions
products in the third quarter of fiscal 2003, compared to 191 seats and 103 seats, respectively, in the corresponding period of fiscal 2002. Pricing of individual products within these product
families can vary greatly, and the mix of products sold during a given period can significantly impact our average sales price per seat. As such, we do not believe that average sales prices per seat
provide a meaningful measure of our business.

Services
revenue increased 10%, or $452,000, to $4.9 million for the three months ended March 29, 2003, from $4.4 million for the three months ended March 30,
2002. This increase was

21

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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 March 29, 2003 and March 30, 2002.

Cost of revenue.The cost of product revenue increased 37%, or $224,000, to $829,000 for the three months ended
March 29, 2003, from $605,000 for the three months ended March 30, 2002. Included in the three months ended March 29, 2003 was a charge of $179,000 to write-off
certain inventory in conjunction with our acquisition of CPI. The remaining increase was primarily attributable to increased employee expenses, commission expenses to third parties and royalty costs,
partially offset by decreased cost of materials due to the decline in revenues from our Manufacturing Solutions products.

The
cost of services revenue decreased 7%, or $23,000, to $323,000 for the three months ended March 29, 2003, from $346,000 for the three months ended March 30, 2002. This
decrease was primarily due to reduced compensation expense resulting from the decrease in headcount under the April 2002 restructuring plan.

Research and development.Research and development expenses decreased 11%, or $198,000, to $1.6 million for the three
months ended March 29, 2003, from $1.8 million for the three months ended March 30, 2002. This decrease was primarily due to the impact of our elimination of 12 technical
positions under our April 2002 restructuring plan and our capitalization of $148,000 of research and development costs in accordance with SFAS No. 86 related to our development of MMS
1.0. The impact of the reduction of four technical positions in conjunction with our March 2003 restructuring plan was largely offset by our acquisition of the operations of CPI, which added 8
technical positions.

Selling and marketing.Selling and marketing expenses increased 3%, or $127,000, to $4.8 million for the three months
ended March 29, 2003, from $4.7 million for the three months ended March 30, 2002. This increase was primarily due to increased employee expenses, resulting in part from
unfavorable foreign exchange movements, and increased professional service fees, partially offset by reduced spending on promotional activities.

General and administrative.General and administrative expenses increased 15%, or $248,000, to $1.9 million for the
three months ended March 29, 2003, from $1.6 million for the three months ended March 30, 2002. The increase was primarily due to increased employee expenses, resulting in part
from unfavorable foreign exchange movements, and increases in professional service fees, including the cost of audit and other accounting services, partially offset by reductions in bad debt expense.

Restructuring charges.In the three months ended March 29, 2003, we incurred charges related to our restructuring plan
enacted to integrate CPI's operations into our operations and to incorporate CPI's products into our current production monitoring product line. These charges are more fully described in the section
below titled, "Restructuring."

Amortization of other intangible assets.These costs represent the amortization of other intangible assets recorded in
connection with our acquisitions, including developed technology and protective covenants. Amortization expense increased 7%, or $12,000, to $176,000 for the three months ended March 29, 2003,
from $164,000 for the three months ended March 30, 2002. The increase was due to our acquisition of CPI in January 2003, which resulted in the addition of $185,000 of new intangible
assets. This increase was partially offset by the reduction in amortization expense that resulted from 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.

22

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Interest income, net.Interest income, net decreased 9%, or $25,000, to $263,000 for the three months ended March 29,
2003 from $288,000 for the three months ended March 30, 2002. The decrease was primarily the result of declining interest rates and the conversion of marketable securities to cash and other
highly liquid instruments.

Other income (loss), net.Net other income (loss) decreased 160%, or $284,000, to a loss of $106,000 for the three months
ended March 29, 2003, from income of $178,000 for the three months ended March 30, 2002. Net other income (loss) includes realized and unrealized foreign exchange gains and losses on
intercompany account balances and realized and unrealized gains and losses on our foreign exchange derivative instruments.

Provision for income taxes.The provision for income taxes decreased 9%, or $23,000, to $225,000 for the three months ended
March 29, 2003, from $248,000 for the three months ended March 30, 2002. In spite of our overall net loss, 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.

Nine Months Ended March 29, 2003 compared to Nine Months Ended March 30, 2002

Revenue.Total revenue for the nine months ended March 29, 2003 was $26.7 million, slightly decreased from
$26.8 million for the nine months ended March 30, 2002. In the same period, product revenue decreased 10%, or $1.4 million, to $12.5 million from $13.9 million. The
following table sets forth our product revenue by product group:

Nine Months EndedMarch 29,
2003

March 30,
2002(in thousands,
except percentage data)Product revenue:Design Optimization Solutions

$
9,968

$
11,607Manufacturing Solutions


2,523


2,326Total

$
12,491

$
13,933Percentage of total product revenue:Design Optimization Solutions


80.0
%

83.3
%Manufacturing Solutions


20.0


16.7Total


100.0
%

100.0
%


The
aforementioned economic declines in the industries of our primary customers, partially offset by increased sales of our Manufacturing Solutions, resulted in the decrease in total
product revenue in the first nine months of fiscal 2003. We believe that the general economic slowdown described above resulted in fewer investments being made in new product designs and molds,
particularly in the automotive, electronics and consumer markets, which form a significant part of our customer base, which decreased our Design Optimization Solutions product revenue. These
same economic pressures compel plastic part manufacturers to seek to reduce costs to improve their profitability. We believe that this has resulted in the transfer of manufacturing operations to low
labor cost economies and increased use of factory automation solutions to optimize manufacturing processes and production capacity, which increased market acceptance of our Manufacturing Solutions
products and related product revenue.

We
added 231 new customers in the nine months ended March 29, 2003, compared to 328 new customers in the same period of fiscal 2002. Sales to new customers represented 38% of
total product revenue in the nine months ended March 29, 2003, which was unchanged from the same period of

23

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fiscal
2002. We sold 316 seats of Design Optimization Solutions products and 239 seats of Manufacturing Solutions products in the nine months ended March 29, 2003, compared to 600 seats and 218
seats, respectively, in the corresponding period.

Services
revenue increased 11%, or $1.4 million, to $14.2 million for the nine months ended March 29, 2003, from $12.9 million for the nine months ended
March 30, 2002. This was primarily based on the sale of maintenance contracts, which is the result of historical growth in our customer base arising from license sales.

No
customer accounted for more than 10% of our total revenue during the nine-month periods ended March 29, 2003 and March 30, 2002.

Cost of revenue.The cost of product revenue increased 13%, or $253,000, to $2.2 million for the nine months ended
March 29, 2003, from $1. 9 million for the nine months ended March 30, 2002. Included in the nine months ended March 29, 2003 was a charge of $179,000 to
write-off certain inventory in conjunction with our acquisition of CPI. Net of this charge, the remaining increase was primarily attributable to higher hardware costs resulting from
increased sales of our Manufacturing Solutions, partially offset by reduced product documentation costs, third party royalties and employee expenses.

The
cost of services revenue decreased 10%, or $103,000, to $886,000 for the nine months ended March 29, 2003 from $989,000 for the nine months ended March 30, 2002. This
decrease was primarily due to reduced compensation expenses resulting from our April 2002 restructuring plan.

Research and development.Research and development expenses decreased 6%, or $253,000, to $4.3 million for the nine
months ended March 29, 2003, from $4.6 million for then nine months ended March 30, 2002. This decrease was primarily due to the elimination of 12 technical positions pursuant to
our April 2002 restructuring plan, the effects of which were largely offset by the decrease in the amount of capitalized costs related to software product development. In the nine months ended
March 29, 2003, $318,000 of costs were capitalized in accordance with SFAS No. 86, as compared to $602,000 of costs in the nine months ended March 30, 2002.

Selling and marketing.Selling and marketing expenses decreased 3%, or $452,000, to $13.4 million for the nine months
ended March 29, 2003, from $13.9 million for the nine months ended March 30, 2002. This
decrease was a primarily due to the elimination of 17 sales and marketing positions pursuant to our April 2002 restructuring plan and, to a lesser extent, a reduction in spending on marketing
programs.

General and administrative.General and administrative expenses increased 6%, or $284,000, to $5.3 million for the
nine months ended March 29, 2003, from $5.0 million for the nine months ended March 30, 2002. The increase was primarily the result of increases in employee costs and professional
service fees, partially offset by a reduction in headcount.

Restructuring charges.In the nine months ended March 29, 2003, we incurred charges related to our restructuring plan
enacted to integrate CPI's operations into our operations and to incorporate CPI's products into our current production monitoring product line. These charges are more fully described in the section
below titled, "Restructuring."

Amortization of other intangible assets.Amortization of other intangible assets of $494,000 for the nine months ended
March 29, 2003 was relatively unchanged from the nine months ended March 30, 2002.

Interest income, net.Interest income, net, decreased 27%, or $309,000, to $834,000 for the nine months ended
March 29, 2003, from $1.1 million for the nine months ended March 30, 2002. The decrease was primarily the result of lower interest rates earned on invested balances.

24

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Other income (loss).Other income (loss) decreased 112%, or $1.6 million, to a loss of $168,000 for the nine months
ended March 29, 2003, from income of $1.4 million for the nine months ended March 30, 2002. Net income (loss) includes realized and unrealized foreign exchange gains and losses on
intercompany account balances and realized and unrealized gains and losses on our foreign exchange derivative instruments. The nine months ended March 30, 2002 also included realized gains of
$1.1 million on the sale of certain real estate and investments.

Provision for income taxes.Our provision for income taxes decreased 16%, or $129,000, to $675,000 for the nine months ended
March 29, 2003 from $804,000 for the nine months ended March 30, 2002. In spite of our overall net loss, 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.

Liquidity and Capital Resources

Historically, we have financed our operations and met our capital expenditure requirements primarily through funds generated from operations, sales of our capital
stock and borrowings from lending institutions. As of March 29, 2003, our primary sources of liquidity consisted of our total cash and cash equivalents balance of $46.1 million, our
marketable securities balance of $4.2 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 March 29, 2003, we had employed $1.9 million of available
borrowings through outstanding foreign exchange contracts and letters of credit. The remaining available borrowings were $3.0 million. In addition to our primary working capital line of credit,
we also utilize domestic and foreign banking institutions to provide liquidity to our subsidiaries. We also have relationships with other banking institutions in order to facilitate foreign currency
and hedging transactions. As of March 29, 2003, we had no outstanding debt.

Net
cash provided by operating activities was $1.5 million for the nine months ended March 29, 2003. Cash was generated by net loss as adjusted for non-cash
charges, decreases in inventories, prepaid expenses and other current assets and increases in accounts payable and deferred revenues, partially offset by increases in accounts receivable and other
non-current assets and decreases in accrued expenses. Net cash provided by operating activities was $3.5 million for the nine months ended March 30, 2002. Cash was provided
by net income as adjusted for non-cash charges, and increases in accounts payable and deferred revenues and decreases in accounts receivable, prepaid expenses and other current assets,
partially offset by gains realized on the sale of certain assets, increases in other non-current assets and decreases in accrued expenses.

Net
cash used in investing activities was $3.2 million for the nine months ended March 29, 2003. Cash paid to acquire CPI, including direct acquisition costs, was $895,000.
Cash was also used in the purchase of fixed assets and marketable securities and the capitalization of software development costs. Net cash provided by investing activities was $12.5 million
for the nine months ended March 30, 2002. Cash was generated from the proceeds of sales and maturities of our marketable securities and proceeds from the sale of certain assets, offset by
purchases of fixed assets and the capitalization of software development costs.

Net
cash of $568,000 was used in financing activities during the nine months ended March 29, 2003, reflecting the impact of the Company's share repurchase program, under which the
Company purchased 194,165 shares of common stock at a cost of $909,000. In the corresponding period of fiscal 2002, net cash of $83,000 was used in financing activities, reflecting 50,000 shares of
common stock purchased by the Company under the repurchase program at a cost of $464,000. In both periods, this use of cash was partially offset by exercises of stock options, the collection of
shareholder loans and proceeds received for common stock under the Company's Employee Stock Purchase Plan.

25

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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, 2002, have not changed significantly.

Restructuring

March 2003 Plan

In March 2003, we initiated a corporate restructuring plan (the "March 2003 plan") related to our acquisition of 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, all such items deemed
impaired by the acquisition of a similar product in connection with the CPI transaction. Activities under the March 2003 plan are expected to be complete within six months.

As
a result of the March 2003 plan, we recorded pre-tax charges and related accruals in the three months ended March 29, 2003 of $617,000. 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 restructuring charges
in our Condensed Consolidated Statement of Operations. We expect to incur additional charges related to these actions in its fourth fiscal quarter; however, these amounts are not expected to be
significant.

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

|                          |  | Non-cash charges |     | Charges requiring cash payments |   |    
|------------------------- |  | ---------------- | --- | ------------------------------- | - | ---
|
|Restructuring charge      |  | $                | 179 |                                 | $ | 217
|Cash payments             |  |                  |    |                                 |   |   
|                          |  |                  |     |                                 |   |    
|Balance at March 29, 2003 |  |                  |    |                                 |   |   
|                          |  |                  |     |                                 |   |    

April 2002 Plan

In April 2002, we enacted a corporate restructuring plan (the "April 2002 plan"). The April 2002 plan was enacted to resize the Company and
to reduce our overhead costs. The April 2002 plan included the involuntary termination of 37 employees, the closing of certain leased offices and the reduction of size of other leased offices.
All significant activities under the April 2002 plan were completed as of March 29, 2003. As a result of the April 2002 plan, we recorded pre-tax charges and related
accruals in fiscal 2002 of $1.3 million. The remaining accrual balances as of March 29, 2003

26

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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 (in
thousands):

|                                              |  | Employee
severance costs |     | Lease
termination costs |   | Other
costs |   | Total |     
|--------------------------------------------- |  | ------------------------ | --- | ----------------------- | - | ----------- | - | ----- | ----
|Balance at June 30, 2002                      |  | $                        | 31  |                         | $ | 642         |   | $     | 124 
|Cash payments                                 |  |                          | (26 | )                       |   | (83         | ) |       | (115
|Foreign exchange impact and other adjustments |  |                          | (5  | )                       |   | 35          |   |       | (9  
|                                              |  |                          |     |                         |   |             |   |       |     
|Balance at March 29, 2003                     |  | $                        |    |                         | $ | 594         |   | $     |    
|                                              |  |                          |     |                         |   |             |   |       |     

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

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

The demand for our products is largely driven by the demand for the products in our primary end markets. Many of these end markets, particularly the automotive,
telecommunications, and electronics industries have experienced severe economic declines over the past eighteen months which significantly and adversely affected our business in fiscal 2002 and in the
first three quarters of fiscal 2003. A continuation of this general economic slowdown will materially and adversely affect us by decreasing our revenue as compared to prior years, or by lowering our
revenue growth rates when compared to those experienced prior to fiscal 2002. In addition, world political events 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 of purchasing by 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 products in our Manufacturing Solutions group 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 new 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 provide 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.

27

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

We have experienced significant 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:



In
addition, like many software companies, we usually record a significantly larger percentage of our quarterly revenue in the third month of the fiscal quarter. Accordingly, our
quarterly results are often difficult to predict prior to the final days of the quarter.

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

Our industry is characterized by:



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.

28

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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 mergers, acquisitions and strategic relationships in the future. We may not be able to identify suitable candidates, and, if we do identify
suitable candidates, we may not be able to make such business combinations on commercially acceptable terms or at all. If we merge with or acquire another company, such as CPI, we will only receive
the anticipated benefits if we successfully integrate any such 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, a business combination may not produce the revenues, earnings or business synergies
that we anticipated. If we fail to integrate the business of CPI or any other target business effectively or if key employees of that business leave, the anticipated benefits of the transaction would
be jeopardized. The time, capital, management and other resources spent on a business combination that failed to meet our expectations could cause our business and financial condition to be materially
and adversely affected. In addition, mergers and acquisitions can involve nonrecurring 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 domestic and foreign patents
and other intellectual property protection. If any element of our products or services violates third-party proprietary rights, we might not be able to obtain licenses on commercially reasonable terms
to continue offering our products or services without substantial re-engineering and any effort to undertake such re-engineering might not be successful. In addition, any claim
of infringement could cause us to incur substantial costs defending against the claim, even if the claim is invalid, and could distract our management from our business. Any judgment against us could
require us to pay substantial damages and could also include an injunction or other court order that could prevent us from offering our products and services.

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

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

We
face the following risks in protecting our intellectual property:



29

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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:



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 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

30

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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 could experience substantial declines and our management's attention may be diverted from more productive tasks.

The stock market has experienced extreme price and volume fluctuations. In addition, the per share price of our common stock has experienced significant
volatility in the past twelve months. Many factors may cause the market price for our common stock to decline, including:



In
the past, companies that have experienced volatility in the market price of their stock have been the subjects of securities class action litigation. We may be involved in securities
class action litigation in the future. Such litigation often results in substantial costs and a diversion of management's attention and resources and could harm our business, financial condition and
results of operations.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We develop our products in research centers in Australia, Europe 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

31

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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 new Rule 13a-15 under the Securities Exchange Act of 1934, within the 90 days prior to the date of this report, we carried out an evaluation
under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. 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 the date of completion of the
evaluation, 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 connection with the new rules, we will continue to
review and document our disclosure controls and procedures, including our internal controls and procedures for 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.



None.

32

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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



3.1

Certificate of Designations, Preferences and Rights of a Series of Preferred Stock of Moldflow Corporation classifying and designating the Series A Junior Participating Cumulative Preferred Stock.(1)4.1

Shareholder Rights Agreement, dated as of January 29, 2003, between Moldflow Corporation and EquiServe Trust Company, as Rights Agent.(1)99.1

Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.99.2

Certificate pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.


---

On April 24, 2003 the Company filed a Form 8-K disclosing the financial results for the fiscal quarter ended March 29, 2003.

On
February 3, 2003 the Company filed a Form 8-K disclosing the adoption of a Shareholder Rights Plan.

33

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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:                 
|                  |  | MOLDFLOW CORPORATION
|                  |  | By:                 
|Date: May 9, 2003 |  |                     

34

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CERTIFICATIONS

I, A. Roland Thomas, certify that:



|                                                                           |  | 
|-------------------------------------------------------------------------- |  | 
|Date: May 9, 2003                                                          |  | 
|/s/A. ROLAND THOMASA. Roland Thomas, President and Chief Executive Officer |  | 

35

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I, Suzanne E. Rogers MacCormack, certify that:



|                                                                                                                                                |  | 
|----------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|Date: May 9, 2003                                                                                                                               |  | 
|/s/SUZANNE E. ROGERS MACCORMACKSuzanne E. Rogers MacCormack, Executive Vice President
of Finance and Administration and Chief Financial Officer |  | 

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