MOLDFLOW CORP - 10-Q Quarterly Report

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Costs associated with the development of computer software and related products are expensed prior to establishing technological feasibility, as defined by Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed,” and capitalized thereafter until commercial release of the software products.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. Investors are cautioned that all forward-looking statements involve risks and uncertainties, and actual results may differ materially from those discussed as a result of various factors, including those factors described in “Risk Factors and Important Factors That May Affect Future Results” beginning on page 30. Readers should not place undue reliance on our forward-looking statements. We do not undertake any obligation to update any of our forward-looking statements to reflect events occurring after the date of this report.

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

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

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

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

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

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


	•	license fees for our packaged software,

	•	product fees for our collaborative manufacturing management systems and hot runner process control systems, and

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

Product revenue. Our product revenue includes both license fees for our packaged software and product fees for our manufacturing management systems and hot runner process control systems. Typically, our customers pay an up-front, one-time fee for all of our products. For our packaged software products, the amount of the fee depends upon the number and type of software modules licensed and the number of the customers’ employees or other users who can access the software product simultaneously. Our MPA product is subject to the terms of a “click-wrapped” software license agreement that is included as part of each customer’s installation process. For sales of our other packaged software products, we generally require a signed license agreement. For our manufacturing management and hot runner process control systems, the amount of the fee depends upon the number and type of software modules licensed with the system, if any, and the system’s hardware components. We generally require a signed license agreement for sales of our manufacturing management systems that have embedded software functionality. In addition, we receive royalty payments from developers of other software products related to the bundling of our software with their design software programs.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The demand for our products is largely driven by the demand for the products in our primary end markets. Many of these end markets, particularly the automotive, telecommunications and electronics industries experienced severe economic declines which significantly and adversely affected our business in fiscal 2002 and 2003. While general economic trends have improved in some geographic markets, a revived or continued general economic slowdown in these or other markets will materially and adversely affect us by decreasing our revenue as compared to prior years, or by lowering our revenue growth.

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


	•	seasonal slowdowns, in particular, in our first fiscal quarter, in many of the markets in which we sell our products,

	•	changes in the mix of products and services we provide as sales of our Manufacturing Solutions products and our services will result in lower gross margins and may result in a longer selling cycle, which effect may be more significant following the acquisition of AMSI, which will result in a higher percentage of sales coming from our Manufacturing Solutions products as compared to our Design Analysis Solutions products,

	•	the timing and magnitude of capital expenditures, including costs relating to the expansion of our operations and infrastructure, and planned program spending, such as that required for major marketing initiatives or tradeshows,

	•	the timing and magnitude of our tax expense, resulting from the globally distributed nature of our selling and research and development operations that may lead to increased taxable income in certain jurisdictions that may not be offset by losses in other tax jurisdictions,

	•	introductions of new services or enhancements by us and our competitors and changes in our and our competitors’ pricing policies,

	•	currency fluctuations, and

	•	timing and integration of acquisitions, particularly the acquisition of AMSI which will require time and focus by our management team and may lead to disruptions in our business.

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


	•	rapid technological advances,

	•	evolving industry standards,

	•	changes in end-user requirements,

	•	intense competition,


	•	technically complex products,

	•	frequent new product introductions, and

	•	evolving offerings by product manufacturers.

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

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

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

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

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 cannot be certain that our pending United States and foreign patent applications will result in issued patents or that the claims allowed are or will be sufficiently broad to protect our technology,

	•	third parties may design around our patented technologies or seek to challenge or invalidate our patented technologies,

	•	patents of others may have an adverse effect on our ability to do business,

	•	the contractual provisions that we rely on, in part, to protect our trade secrets and proprietary knowledge may be breached, and we may not have adequate remedies for any breach and our trade secrets and proprietary information may be disclosed to the public,

	•	our trade secrets may also become known without breach of such agreements or may be independently developed by competitors,

	•	foreign countries, including some of those in which we do business, may reduce or limit the protection of our intellectual property rights, and

	•	the cost of enforcing the protection of our intellectual property rights may reduce our future profitability.

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


	•	decreased liquidity resulting from longer accounts receivable collection cycles typical of certain foreign countries,

	•	decreased revenue on foreign sales resulting from possible foreign currency exchange and conversion issues,

	•	lower productivity resulting from difficulties managing our sales, support and research and development operations across many countries,

	•	decreased earnings based on changes in tax regulations in foreign jurisdictions or the timing of required tax payments in foreign jurisdictions that may not yet, or ever, be offset by tax benefits arising from losses in other jurisdictions,

	•	lost revenue resulting from difficulties associated with enforcing agreements and collecting receivables through foreign legal systems,

	•	lost revenue resulting from the imposition by foreign governments of trade protection measures, and

	•	higher cost of sales resulting from import or export licensing requirements.

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

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

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

Our Manufacturing Solutions products 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.

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


	•	revenues and operating results failing to meet the expectations of securities analysts or investors in any quarter,

	•	downward revisions in securities analysts’ estimates or changes in general market conditions,

	•	changes in our senior management personnel,

	•	distribution or sale of shares of our common stock by insiders or affiliated persons, including the shares received by the selling stockholder in connection with the acquisition of AMSI, a portion of which have been registered for resale on Form S-3 and could therefore be sold at any time,

	•	technological innovations by competitors or in competing technologies,

	•	a decrease in the demand for our common stock,

	•	investor perception of our industry or our prospects, and

	•	general technology or economic trends.

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

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

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

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

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

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

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

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.


	(a) On January 23, 2004, Moldflow Corporation issued 349,288 shares of its common stock, par value $0.01 per share (the “Securities”), to the Timothy and Deborah Triplett Family Trust (the “Stockholder”) as partial consideration for the acquisition of all of the outstanding stock of American MSI Corporation.

	(b) See (a) above.

	(c) See (a) above.

	(d) The Stockholder was an “accredited investor” as that term is defined in Regulation D of the Securities Act of 1933 (the “Securities Act”), as amended and the Securities were issued in reliance on the exemption from registration set forth in Section 4 of the Securities Act.

	(e) Not applicable.

	(f) Not applicable.


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


	* Previously filed as an exhibit to the Company’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on February 10, 2004 and incorporated by reference thereto.

	** This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1934 or the Securities Exchange Act of 1934.

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

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

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.


	By:	/s/ A. ROLAND THOMAS



	A. Roland Thomas
	President and Chief Executive Officer

	MOLDFLOW CORPORATION


	By:	/s/ SUZANNE E. MACCORMACK



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


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


		Page
		Number

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


			March 27,			June 30,
			2004			2003


			(In thousands)
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	47,868		$	38,320
	Marketable securities			1,481			13,820
	Accounts receivable, net			9,200			6,147
	Inventories			958			313
	Prepaid expenses			2,500			2,189
	Other current assets			2,778			2,509

		Total current assets		64,785			63,298
Fixed assets, net				4,299			3,891
Acquired intangible assets, net				2,120			685
Goodwill				18,726			9,670
Other assets				2,345			1,933

		Total assets	$	92,275		$	79,477

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
	Accounts payable		$	2,576		$	1,684
	Accrued expenses			7,228			5,732
	Other current liabilities			2,091			1,707
	Deferred revenue			9,327			8,551

		Total current liabilities		21,222			17,674
Deferred revenue				907			513
Other long-term liabilities				1,281			641

		Total liabilities		23,410			18,828

Stockholders’ equity:
	Common stock			106			102
	Additional paid-in capital			67,377			62,867
	Treasury stock			—			(926	)
	Accumulated deficit			(2,569	)		(4,090	)
	Accumulated other comprehensive income			3,951			2,696

		Total stockholders’ equity		68,865			60,649

		Total liabilities and stockholders’ equity	$	92,275		$	79,477



		Three Months Ended						Nine Months Ended

		March 27,			March 29,			March 27,			March 29,
		2004			2003			2004			2003


		(In thousands, except per share data)
		(Unaudited)
Revenue:
	Product	$	7,574		$	4,579		$	17,041		$	12,491
	Services		5,716			4,894			16,391			14,209

	Total revenue		13,290			9,473			33,432			26,700

Costs and expenses:
	Cost of product revenue		1,778			829			3,021			2,164
	Cost of services revenue		1,457			323			3,020			886
	Research and development		1,695			1,567			4,823			4,341
	Selling and marketing		5,038			4,778			13,922			13,406
	General and administrative		2,188			1,878			6,219			5,330
	Restructuring charges		508			438			508			438
	Amortization of acquired intangible assets		126			176			347			494

	Total operating costs and expenses		12,790			9,989			31,860			27,059

Income (loss) from operations			500			(516	)		1,572			(359	)
Interest income, net			321			263			879			834
Other income (loss), net			(18	)		(106	)		(52	)		(168	)

	Income (loss) before income taxes		803			(359	)		2,399			307
Provision for income taxes			294			225			878			675

	Net income (loss)	$	509		$	(584	)	$	1,521		$	(368	)

Net income (loss) per common share:
	Basic	$	0.05		$	(0.06	)	$	0.15		$	(0.04	)
	Diluted	$	0.05		$	(0.06	)	$	0.14		$	(0.04	)
Shares used in computing net income (loss) per common share:
	Basic		10,411			9,997			10,173			10,026
	Diluted		11,001			9,997			10,746			10,026



		Nine Months Ended

		March 27,			March 29,
		2004			2003


		(In thousands)
		(Unaudited)
Cash flows from operating activities:
Net income (loss)		$	1,521		$	(368	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation of fixed assets		1,055			1,051
	Amortization of acquired intangible assets		371			494
	Amortization of capitalized software development costs		202			100
	Provisions for doubtful accounts		109			94
	Foreign exchange losses		35			142
	Write-off of assets due to restructuring activities		—			471
	Other non-cash charges to income (loss)		8			80
Changes in operating assets and liabilities, net of effects of acquisitions:
	Accounts receivable		(1,132	)		(787	)
	Inventories, prepaid expenses, and other current assets		577			476
	Other assets		64			(174	)
	Accounts payable		(41	)		457
	Accrued expenses and other liabilities		180			(1,673	)
	Deferred revenue		479			1,107

	Net cash provided by operating activities		3,428			1,470

Cash flows from investing activities:
	Purchases of fixed assets		(1,032	)		(1,004	)
	Capitalization of software development costs		(442	)		(318	)
	Sales and maturities of marketable securities		12,340			(944	)
	Acquisition of businesses, net of cash acquired		(7,091	)		(895	)

	Net cash provided by (used in) investing activities		3,775			(3,161	)

Cash flows from financing activities:
	Proceeds from collection of notes receivable from stockholder		—			16
	Issuance of common stock		1,047			325
	Repurchase of common stock		—			(909	)

	Net cash provided by (used in) financing activities		1,047			(568	)

Effect of exchange rate changes on cash and cash equivalents			1,298			748

Net increase (decrease) in cash and cash equivalents			9,548			(1,511	)
Cash and cash equivalents, beginning of period			38,320			47,634

Cash and cash equivalents, end of period		$	47,868		$	46,123

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents



	Three Months Ended


	March 27, 2004					March 29, 2003

				Weighted Average					Weighted Average
	Shares			Exercise Price		Shares			Exercise Price

Outstanding at beginning of period		2,795,167		$	9.41		2,481,330		$	9.35
Granted		111,300			11.94		6,900			6.95
Exercised		(149,187	)		4.78		(3,379	)		2.07
Canceled		(82,396	)		8.98		(26,018	)		13.44

Outstanding at end of period		2,674,884		$	9.77		2,458,833		$	9.31

Weighted average fair value of options granted				$	7.98				$	6.86


Cash and cash equivalents		$	439
Accounts receivable			1,557
Inventories			867
Other current assets			44
Property and equipment			213
Customer base			560
Developed technology			1,000
Non-compete agreements			200
Backlog of customer orders			40
Long-term deferred tax assets			656
Goodwill			9,032

	Total assets acquired		14,608
Current liabilities			(1,966	)
Long-term deferred tax liabilities			(720	)

		$	11,922


5.	Derivative Financial Instruments and Hedging Activities



		March 27, 2004							June 30, 2003

		Gross					Net		Gross					Net
		Carrying		Accumulated			Carrying		Carrying		Accumulated			Carrying
		Amount		Amortization			Amount		Amount		Amortization			Amount


		(In thousands)
Acquired intangible assets:
	Customer base	$	986	$	(221	)	$	765	$	421	$	(116	)	$	305
	Developed technology		1,675		(681	)		994		675		(533	)		142
	Backlog of customer orders		40		(13	)		27		—		—			—
	Non-compete agreements		1,411		(1,077	)		334		1,205		(967	)		238

Total		$	4,112	$	(1,992	)	$	2,120	$	2,301	$	(1,616	)	$	685


	Estimated
	Amortization
	Expense

	(In thousands)
Fiscal Year
2004 (remainder)	$	158
2005		432
2006		319
2007		314
2008		298
2009		246
2010		223
2011		130

Total future amortization expense	$	2,120


	Employee
	Severance
	Costs

Restructuring charges	$	508
Cash payments		(52	)

Balance at March 27, 2004	$	456



	Non-Cash Charges								Charges Requiring Cash Payments

			Write-off of		Write-off				Employee			Lease
	Write-off of		Intangible		of Other				Severance			Termination			Other
	Inventories		Asset		Assets		Total		Costs			Costs			Costs			Total

Restructuring charge in fiscal 2003	$	179	$	217	$	75	$	471	$	79		$	45		$	22		$	146

Revision of estimated liability										1			(34	)		—			(33	)
Cash payments										(49	)		(11	)		(22	)		(82	)

Balance at June 30, 2003										31			—			—			31
Cash payments										(31	)		—			—			(31	)

Balance at March 27, 2004									$	—		$	—		$	—		$	—


	Accrued Lease
	Termination
	Costs

	(In thousands)
Balance at June 30, 2003	$	596
Cash payments		(76	)
Foreign exchange impact		52

Balance at March 27, 2004	$	572


12.	Contingencies, Commitments and Guarantor Arrangements


Item 2.	*Management’s Discussion and Analysis of Financial Condition and Results of Operations*


Item 1.	*Unaudited Financial Statements*


1.	Basis of Presentation and Nature of Business


2.	Stock Plans and Stock-based Employee Compensation


4.	Acquisition of American MSI Corporation


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


	*A general economic slowdown, particularly in our end markets, may impact our results.*


	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.


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


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


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


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


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


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


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


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


	*We make estimates in determining our worldwide income tax provision.*


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


Item 3.	*Quantitative and Qualitative Disclosures About Market Risk*


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


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