ANSOFT CORP, 10-K, 1999-07-23

ANSOFT CORP
10-K, 1999-07-23
PREPACKAGED SOFTWARE

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K

ANNUAL REPORT
(Mark one)

[x] Annual report pursuant to section 13 or 15(d) of the securities
exchange act of 1934 [fee required] for the fiscal year ended April 30,
1999 or
[ ] Transition report pursuant to section 13 or 15(d) of the securities
exchange act of 1934 [no fee required]for the transition period from
________ to ________

Commission file number 000-27874

ANSOFT CORPORATION
(Exact name of registrant as specified in its charter)

Delaware 72-1001909
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)

Four Station Square, Suite 200
Pittsburgh, Pennsylvania 15219-1119
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (412) 261-3200

Securities registered pursuant to Section 12(b) of the act: None

Securities registered pursuant to Section 12(g) of the act:
Common stock, par value $.01 per share

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

As of July 15, 1999, the aggregate market value of voting common stock held by
non-affiliates of the registrant, based upon the last reported sale price for
the registrant's Common Stock on the Nasdaq National Market on such date, as
reported in The Wall Street Journal, was $40,819,013.

The number of shares of the registrant's Common Stock outstanding as of the
close of business on July 15, 1999 was 11,685,663.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the definitive Proxy Statement of Ansoft Corporation (the
"Company") to be furnished in connection with the solicitation of proxies by the
Company's Board of Directors for use at the 1999 Annual Meeting of Stockholders
(the "Proxy Statement") are incorporated by reference into Part III of this
Annual Report on Form 10-K to the extent provided herein. Except as specifically
incorporated by reference herein, the Proxy Statement is not to be deemed filed
as part of this Annual Report on Form 10-K.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
Item of Form 10-K Page
- ----------------- ----
<S> <C> <C>
Part I
1. Business 2
2. Properties 11
3. Legal Proceedings 11
4. Submission of Matters to a Vote of Security Holders 11
4.(a) Executive Officers of the Registrant 11

Part II
5. Market for Registrant's Common Stock, Preferred Stock and
Warrants, and Related Stockholders Matters 12
6. Selected Consolidated Financial Data 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
8. Financial Statements and Supplementary Data 21
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosures 20

Part III
Part III information will appear in Item 4(a) of Part I of Form 10-K and in the
Registrant's Proxy Statement in connection with its Annual Meeting of
Stockholders. Such Proxy Statement will be filed with the Securities and
Exchange Commission and such information is incorporated herein by this
reference as of the date of such filing.

Part IV
14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 35
Signatures 36
</TABLE>

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PART I

ITEM 1. BUSINESS

Ansoft Corporation ("Ansoft" or the "Company") develops, markets and
supports electronic design automation ("EDA") software based on fundamental
electromagnetic principles. The Company's software is used by engineers in the
design of high performance electronic devices and systems, such as cellular
phones, communications systems, computer circuit boards and motors. As the
marketplace demands higher levels of system performance and miniaturization, the
need to model accurately the electromagnetic interaction in communications,
computer devices and electromechanical components and systems is becoming
increasingly important, yet traditional EDA tools do not provide accurate
modeling of electromagnetic interaction. By using the Company's software,
companies can more easily predict electromagnetic interaction in such systems
and components, thus reducing time-to-market and simultaneously lowering design
and manufacturing costs. The Company's products are used by design engineers in
a wide range of industries, particularly the rapidly evolving wireless
communications and RF (radio frequency) markets as well as the semiconductor,
computer, automotive and consumer electronics industries.

INDUSTRY BACKGROUND

In recent years, engineers have used EDA software to automate the previously
manual, time-consuming and error-prone design process, resulting in dramatic
increases in productivity and efficiency. EDA software can be used in each of
the three phases of the electronic design process: Logic Design and Synthesis,
which provides an outline of the system's overall architecture; Functional
Design and Analysis, which encompasses the specification of desired
functionality, functional design, simulation and analysis; and Physical Design
and Verification, which involves the creation of physical layout (i.e.,
placement and routing) and verification that the design meets required
specifications.

As the marketplace demands higher levels of system performance and
miniaturization, the need to model accurately the electromagnetic interaction in
communication and computing devices and electromechanical components is becoming
increasingly important. The design requirement to fit more devices and
interconnections into smaller spaces results in increased electromagnetic
interaction. Moreover, high performance systems, with frequencies of
approximately 500 MHz and beyond, exhibit a high level of electromagnetic
interaction causing the degradation of the quality of electrical signals. In
addition, the electromagnetic radiation emitted by electronic products is
regulated by the Federal Communications Commission ("FCC") and equivalent
regulatory bodies in Europe and Japan, and commercialization of these products
is contingent upon meeting government-specified electromagnetic compatibility
requirements. These problems are exacerbated by time-to-market pressures and the
need to reduce design and development costs.

While traditional EDA tools have become more sophisticated, they lack the
requisite degree of precision in modeling electromagnetic interactions in
components and systems. As a result, the current process for designing and
manufacturing wireless and electronic components and systems is often iterative,
time-consuming and inaccurate. Designs are generated, devices and systems are
developed, prototypes are manufactured, performance is measured and assessed and
designs are then refined to meet the original performance specifications. This
entire process is typically repeated a number of times, lengthening the design
process, increasing costs and resulting in lost market opportunities.

THE ANSOFT SOLUTION

The Company's software products allow design engineers to model component
level and system level electromagnetic interaction which the Company believes is
crucial to the effective design of electronic systems and components. The
Company's products apply electromagnetic principles, derived from Maxwell's
Equations, to more accurately model electromagnetic interaction. By using Ansoft
software products to analyze electromagnetic interaction, the Company believes
that end users of its products are able to reduce the time-to-market for their
products, lower the risks of design failure and eliminate costly and
time-consuming product redesign. Ansoft's software products may be used as an
independent design platform or integrated with complementary EDA tools within a
customer's existing design environment. The Company's research and development
team has broad expertise in electromagnetic simulation, electrical engineering,
applied mathematics and software development, enabling Ansoft to continue to
advance its electromagnetics-based EDA software.

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ANSOFT STRATEGY

Ansoft's objective is to become a leading worldwide supplier of EDA
software. Using its proprietary electromagnetic technology as a primary
competitive advantage, the Company pursues its objectives through the following
strategies: leveraging its technology leadership to solve emerging
electromagnetic design issues in high performance electrical devices and
systems; capitalizing on the growing need for electromagnetic analysis in
increasingly compact and complex electronic and electromechanical components and
systems operating at higher speeds; and expanding its broad range of product
applications to address emerging customer design requirements.

PRODUCTS

The Company's high-frequency software enables users to design RF ICs,
antenna and radar systems and microwave components. The Company's signal
integrity software enables users to design computer interconnects, IC Packaging
structures and electronic systems by accurately capturing the degradation in
signal quality due to higher clock speeds and smaller physical dimensions. The
Company's Maxwell Eminence software combines both HF and SI functionality. The
Company's electromechanical software products enable designers of
electromechanical components and systems to optimize the electrical performance
of their designs while increasing manufacturing yields. Ansoft products are
available for Unix-based workstations and personal computers running Microsoft
Windows 95 and Windows NT.

Ansoft High Frequency Software

Our High Frequency products address the complete simulation needs of the
RF, Microwave or High Frequency design engineer. Our tools allow for the
evaluation of the physics of individual components, and then the engineer can
easily combine circuit and/ or system simulation to clearly evaluate design
concerns. high-frequency software enables users to design RF ICs, antenna and
radar systems and microwave components.

Ansoft's Serenade Design Environment

Ansoft HFSS is a 3D structure electromagnetic field simulator for high
frequency, RF & wireless design needs. Ansoft HFSS brings the power of the
finite element method (FEM) to the engineer's desktop by leveraging
advanced techniques such as automatic adaptive mesh generation and
refinement, tangential vector finite elements, and Adaptive Lanczos Pade
Sweep (ALPS). HFSS automatically computes multiple adaptive solutions until
a user-defined convergence criterion is met. The U.S. list price of Ansoft
HFSS 6.0 is $41,900.

Ensemble is a Method of Moments (MoM) simulation software package for the
design and simulation of RF and wireless circuit and planar antennas for
customers in the communications markets. MoM lends itself well to layered
media such as PCB, MMIC, and planar antenna structures. Ensemble allows
designers to utilize the power of full wave planar simulation by offering
an easy-to-use interface, advanced simulation features, and integration
with other products in the Serenade Design Environment. The U.S. list price
of Ensemble is $16,900.

Harmonica is a linear and nonlinear circuit simulator. Harmonica offers
full linear and nonlinear analysis features, including integrated schematic
capture, tuning, optimization, statistical analysis, and design centering
(yield optimization). Libraries of commercial components feature over
100,000 active and passive devices, allowing easy access to standard
transistors, diodes, resistors, capacitors, and inductors from major
manufacturers. In addition, utilities are included to speed the process of
transmission line design, matching network extraction, and filter synthesis
for both lumped and distributed designs. The U.S. list price of this
product ranges from $9,900 to $21,900.

Symphony is a wireless and wired system simulator. Symphony adds efficient
analog, digital, and mixed-mode (analog and digital) system analysis
capabilities to the Environment. Users can quickly construct a system by
including blocks from libraries of built-in analog RF and digital signal
processing (DSP) components. Trade-offs between different design approaches
can be rapidly investigated at an early stage to reduce design cycle time
and avoid costly redesigns due to RF and DSP system interactions. The U.S.
list price of this product is $11,900 to $28,900.

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AnsoftLinks links customers and their designs directly to our computational
analysis tools. This capability is available for either HP EEsof Series IV,
Cadence Allegro, or Xynetix Encore BGA technologies. HP EEsof Series IV
high-frequency circuit designs can be directly translated into Ansoft's
Serenade Design Environment. Designs are automatically converted into
Serenade projects using IFF files and a specialized neutral format. Linear
and nonlinear translations are fully supported. The U.S. list price of this
product is $4,900.

Ansoft Signal Integrity Software

Our Signal Integrity products address the complete simulation needs of the
High Speed Electronics design engineer. Our tools allow for the evaluation of
the physics from the chip level through to the board level, and the coupling
concerns of IC packaging, cables, connectors, and interconnects. The engineer
can combine field effects with circuit simulation to clearly evaluate the design
ramifications of higher clock speeds and smaller physical dimensions.

Maxwell Eminence combines the functionality of the Company's high frequency
and signal integrity products to enable designers of wireless communication
systems to design RF components and sub-systems and to evaluate the
interaction between the digital and RF portions of communications systems.
This product allows system designers to model critical path PCB emissions,
evaluate component level electromagnetic interference and to study
shielding effectiveness enabling them to design for FCC and other
regulatory guidelines proactively. The U.S. list price of this product is
$64,900.

Maxwell EZ2D Calculator is the first ever, extremely easy-to-use 2D field
solver. Maxwell EZ2D Calculator automatically and adaptively creates the
mesh and solves Maxwell's equations to calculate the characteristic
impedances, velocities, and cross talk between all conductors. This tool
combines the ease of a spreadsheet with the accuracy of a field solver to
calculate all the line parameters for a PCB, MCM or IC stackup. The U.S.
list price of this product is $4,900.

Spicelink (SI 2D and SI 3D) is a 2D or 3D structure electromagnetic field
simulator. SI 2D is a suite of tools which extracts the electrical circuit
model of either 2D or 3D interconnect and performs a SPICE simulation for
signal integrity analysis. This suite has been compiled to increase the
productivity of engineers involved in the physical design of interconnects
for high speed digital applications. The U.S. list price of this product is
$34,900.

ParICs is an automated 2D and 3D structure generation modeling tool. It is
a vital component of our software solution for your complex IC package
design needs. The ParICs Physical IC Modeler is an easy to use modeling
tool which allows you to generate geometric models of complex IC packages
in minutes. The desired structures come from common JEDEC leaded package
libraries. These structures can then be used in our complete suite of
signal integrity tools for design, electrical characterization and product
documentation.

Pacific Numerix Solutions. Pacific Numerix Electronic Design Validation
System (EDVS) is a powerful tool suite that provides virtual
design-to-manufacturing prototyping and is best of breed in signal
integrity and EMI/EMC analysis at all levels: IC, first-level packaging,
PCB, and system. Moreover, Pacific Numerix offers a complementary best of
breed mechanical analysis tool suite including thermal, vibration, fatigue,
and solder simulation. The U.S. list price of these products ranges from
$27,000 to $80,000.

Ansoft EM Software

Our Electromagnetic/ Electromechanical products address the simulation needs of
the Low Frequency design engineer. Our tools allow for the evaluation of the
physics of devices whose components include permanent magnets, DC current
carrying conductors, AC current carrying conductors, time varying excitations,
and nonlinear soft irons or steels. The engineer can evaluate design concerns by
easily computing the force, torque, or inductance, or by observing the actual
field solution. Additional capabilities allow for the comprehensive handling of
motion, mechanical components, and back emf's.

Maxwell 3DFS is a 3D structure electromagnetic field simulator. Maxwell
3DFS uses electromagnetic field simulation to accurately predict product
performance from physical design information. Using technology specifically
designed for electromagnetic analysis, the Maxwell 3DFS allows designers to
experiment with various three dimensional geometries, materials and
excitation levels to shorten design cycles while saving prototyping
dollars. The U.S. list price of this product ranges from $15,120 to
$29,900.

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Maxwell 2DFS is a 2D structure electromagnetic field simulator. Maxwell
2DFS is a comprehensive, easy-to-use software tool for design problems
requiring an accurate, two-dimensional representation of the electric or
magnetic field behavior. Maxwell 2D quickly obtains critical device
parameters such as force, torque, induction and saturation effects from the
physical design information on PCs and UNIX workstations. The integrated
parametric analysis module automatically evaluates change in geometry,
material and electrical parameters allowing all design options to be
thoroughly explored within a single simulation. The U.S. list price of this
product ranges from $3,900 to $9,900.

EMSS is an Electromechanical system simulator. EMSS is a single integrated
solution for analyzing the interaction of currents, voltages, and
mechanical loads and motion within an electromechanical device. This system
engineering environment provides fundamental analytical understanding and
accurately predicts the performance and interactions of control system
components and subsystems using your desktop computer. Electric machines,
sensors, transformers, and actuators are a few of the many devices that may
be simulated with EMSS. This virtual prototype of the complete system
behavior dramatically reduces costs and shortens the design cycle. The U.S.
list price of this product ranges from $15,920 to $19,900.

EMAS is a 2D and 3D Electromagnetic Finite Element (FEM) simulation and
analysis software for a wide range of DC, AC, time domain, and coupled
electromagnetic/ electromechanical applications. EMAS abilities include a
comprehensive sensitivity to nonlinear and anisotropic materials.
Technologies include nonlinear transients, coupled Electromagnetic/
Mechanical solutions, coupled Electromagnetic/ Thermal solutions.
Additional capabilities include 1D, 2D, tetra, quadra, penta element types.
The U.S. list price of this product ranges from $19,900 to $44,900.

PEmag is our 2D power electronics parameter simulator. PEmag, part of
Ansoft's Maxwell Designer suite of software, performs advanced
electromagnetic and signal analysis of inductors and transformers.
Classical design methods rely on build-test iterations until appropriate
behavior of the component is achieved. PEmag eliminates this costly design
methodology by accurately simulating magnetic behavior including the
effects of frequency, geometry and material. The magnetic behavior obtained
is automatically output to an electric circuit model. The U.S. list price
of this product is $4,900.

RESEARCH AND DEVELOPMENT

Ansoft has a team of research engineers focused on the mathematical and
physical underpinnings of the Company's simulation algorithms. Dr. Zoltan
Cendes, a founder of the Company, serves as the technical leader of the group.
By virtue of over 15 years of research and development by Dr. Cendes prior to
the Company's inception in 1984, and by its internal research and development
staff thereafter, Ansoft has pioneered the following technologies: automatic and
adaptive convergence to solutions, asymptotic waveform evaluation for spectral
domain solutions, transfinite elements, basis evaluation state-space techniques
and fast multipole acceleration algorithms.

The Company continually seeks to design and develop new technologies,
products and interfaces based on its core electromagnetic expertise. This effort
includes releasing improved versions of its products on a regular basis as well
as developing new products. The Company assigns an interdisciplinary team of
personnel from research and development, software development, documentation,
quality assurance, customer support and marketing to each product development
project. Ansoft develops cooperative relationships with major customers with
respect to beta-testing its new products or enhancements and implementing
suggestions for new product features. The Company also maintains cooperative
relationships with the major hardware vendors on which the Company's products
operate. The Company believes that its team approach and cooperative
relationships allow it to design products that respond on a timely basis to
emerging trends in computing, graphics and networking technologies.

As of April 30, 1999, the Company's product development group consisted of
91 employees. The Company seeks to hire experts in the fields of electromagnetic
engineering, high speed circuit simulation, applied mathematics and software
development.

During fiscal 1999, 1998 and 1997, research and development expenses were
$8.4 million, $7.3 million and $3.0 million, respectively.

SALES AND MARKETING

Ansoft markets and sells its products worldwide through its direct sales
force and distributors. The Company hires application

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engineers with significant industry experience who can analyze the needs of its
customers and gain technical insight into the development of future products and
enhancements to existing products. The Company's application engineers work with
the direct sales force to provide on-site support during critical stages of the
user's benchmark, evaluation and implementation processes. The Company generates
sales leads through customer referrals, advertising in trade publications and on
the World Wide Web. In addition, the Company participates in industry trade
shows and organizes seminars to promote and expand the adoption of its products.

Direct. In North America, the Company maintains sales and support offices in
Arizona, Northern and Southern California, Florida, Massachusetts, Michigan, New
Jersey, Ohio, Pennsylvania, Texas, Wisconsin, and a telemarketing sales group
operating from its Pittsburgh headquarters. In Asia, the Company maintains
direct sales and support offices in Japan, Korea, Singapore, Taiwan, and China.
In Europe, the Company maintains sales and support offices in England, Germany,
France, and Italy. As of April 30, 1999, the Company had a direct sales force of
46 representatives, supported by 75 employees in application engineering,
marketing and sales administration.

The Company also has distribution agreements with various international
distributors. The Company supports its distributors and their customers with
technical, sales and management personnel.

CUSTOMERS

The Company has significant breadth in its installed base with over 500
customers in the communications, semiconductor, automotive/industrial, computer,
consumer electronics and defense/aerospace industries. No single customer in the
Company's installed base accounted for more than 10% of total revenue within any
of the past three fiscal years. The following table lists a representative
sample of the Company's current worldwide end-user customers by industry.

<TABLE>
<CAPTION>
COMMUNICATIONS SEMICONDUCTOR AUTOMOTIVE/INDUSTRIAL
-------------- ------------- ---------------------
<S> <C> <C>
Motorola Intel ABB
Ericsson Anam Semiconductor Chrysler
Andrew Corporation Applied Materials Cutler Hammer
GEC-Marconi Amkor Electronics Daimler Benz
Hughes ETRI Delphi Packard
Italtel S.p.A. Harris Semiconductor Dupont
Lucent Technologies LG Eaton
Metawave Communications Molex Ford Motor
Celwave VLSI General Motors
Qualcomm Teradyne Honda
Rockwell Texas Instruments Hyundai
Siemens Triquint Semiconductor Nissan
EMS Robert Bosch
Nortel Wolff Controls
ST Microelectronics
</TABLE>

<TABLE>
<CAPTION>
COMPUTER CONSUMER ELECTRONICS DEFENSE/AEROSPACE
-------- -------------------- -----------------
<S> <C> <C>
Fujitsu Daewoo Electronics Raytheon
Hitachi Kyocera Bell Helicopter
Honeywell General Electric Boeing
IBM Matsushita Jet Propulsion Laboratory
NEC Mitsubishi Lawrence Livermore Lab.
Seagate Nikon Lockheed-Martin
Tektronix Phillips Northrop Grumman
Sharp Allied Signal
Sony TRW
Toshiba US Naval Research
Laboratory
</TABLE>

CUSTOMER SERVICE AND SUPPORT

Sales of the Company's software include one year of customer support
services; thereafter annual one year maintenance contracts may be purchased.
Customer support services include on-line and telephone support for design
engineers and on-site and in-house training on all products. Customers with
maintenance agreements receive all product enhancement releases without
additional charge. Product upgrades that add significant new functionality are
provided to customers for an additional fee.

The Company offers a variety of training programs for customers ranging from
introductory level courses to advanced training.

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COMPETITION

The EDA software industry is highly competitive and is characterized by
continuing advances in products and technologies. In general, competition comes
from major EDA vendors, many of which have a longer operating history,
significantly greater financial, technical and marketing resources, greater name
recognition and a larger installed customer base than the Company. These
companies also have established relationships with current and potential
customers of the Company. The Company competes directly with certain major EDA
vendors and privately-held companies which also provide products based on
electromagnetic principles derived from Maxwell's Equations. There can be no
assurance that the major EDA vendors and other EDA companies will not expand and
develop new products in the electromagnetics-based EDA market. The Company also
competes, on a limited basis, with the internal development groups of its
existing and potential customers, many of whom design and develop customized
design tools for their particular needs. In addition, the EDA industry has
become increasingly concentrated in recent years as a result of acquisitions,
and further concentration within the EDA industry could result in increased
competition for the Company. The Company's software products currently compete
with certain software offerings from Hewlett-Packard Corporation ("HP"). In
1989, the Company entered into a distribution arrangement with Hewlett-Packard
Corporation ("HP") under which HP formerly distributed the Company's HFSS
product on an exclusive basis (the "HP Agreement"). The HP Agreement has since
expired, and HP has no right to distribute the Company's HFSS product. Ansoft
currently sells HFSS through its own sales force and other distributors. There
can be no certainty that the Company will be able to compete successfully
against HP. The failure of the Company to compete successfully against current
and future competitors would have a material adverse effect on the Company's
business, operating results and financial condition. Ansoft believes that its
current products compete effectively on the basis of product functionality,
solution speed and accuracy, reliability, price, ease of use and technical
support for applications which require accurate modeling of electromagnetic
interaction. However, there is no assurance that the Company will not face
competitive technologies that could hinder its future prospects.

PROPRIETARY RIGHTS

The Company is heavily dependent on its proprietary software technology. The
Company relies on a combination of non-competition and confidentiality
agreements with its employees, license agreements, copyrights, trademarks and
trade secret laws to establish and protect proprietary rights to its technology.
The Company does not hold any patents. All Ansoft software is shipped with a
security lock which limits software access to authorized users. In addition, the
Company does not license or release its source code. Effective copyright and
trade secret protection of the Company's proprietary technology may be
unavailable or limited in certain foreign countries.

Compact Software(R), Maxwell(R), Harmonica(R), Ensemble(R), ParICs(R), and
Serenade(R), are registered United States trademarks of Ansoft.

EMPLOYEES

As of April 30, 1999, the Company had a total of 227 employees, including 91
in research and development, 121 in sales, marketing, and customer support
services and 15 in administration. None of the Company's employees is
represented by a collective bargaining agreement, nor has the Company
experienced any work stoppage. The Company considers its relations with its
employees to be good. Many of the Company's employees are highly skilled, and
there is no assurance that the Company will be able to attract and retain
sufficient technical personnel in the future.

ADDITIONAL RISK FACTORS

Uncertainty of Broad Market Acceptance. Historically, substantially all of
the Company's revenue has been derived from the licensing and support of its
electromagnetic analysis software. To date, there has been a limited market for
electromagnetic analysis software. The failure of this market to develop or the
slow development of this market would have a material adverse effect on the
Company's business, operating results and financial condition. The Company
believes that a number of factors will be necessary for its products to achieve
broad market acceptance. These factors include increased demand for performance,
miniaturization and manufacturing yield in the communications, computer and
electronics industries; integration of its products with existing design systems
and complementary EDA software; and user familiarity with the Company's products
and capabilities. A decreased demand for electromagnetic analysis software as a
result of competition, technological change or other factors would have a
material adverse effect on the Company's business, operating results and
financial condition. There can be no assurance that markets for the Company's
products will develop further or, if they do, that the Company's products will
achieve broad market acceptance. See "Business--

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Products" and "Business--Research and Development."

History of Losses; Future Operating Results Uncertain. The Company has
incurred net losses in each fiscal year since its founding with the exception of
fiscal 1998 and 1996. There can be no assurance that the Company's revenue and
net income will grow or be sustained in future periods or that the Company will
remain profitable in any future period. Future operating results will depend on
many factors, including the degree and the rate of growth of the markets in
which the Company competes and the accompanying demand for the Company's
products, the level of product and price competition, the ability of the Company
to develop and market new products and to control costs, the ability of the
Company to expand its direct sales force and the ability of the Company to
attract and retain key personnel. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Potential Fluctuations in Quarterly Results. The Company's quarterly
operating results have varied in the past and may in the future vary
significantly depending on factors such as increased competition, the timing of
new product announcements and changes in pricing policies by the Company or its
competitors, market acceptance of new and enhanced versions of the Company's
products, the size and timing of significant license purchases, the cancellation
of maintenance agreements, the mix of direct and indirect sales, future
acquisitions, changes in operating expenses and changes in general economic
factors. The sales cycle associated with licensing the Company's products is
typically lengthy and subject to a number of significant risks over which the
Company has little or no control, including customers' budgetary constraints and
internal acceptance reviews. Due to the foregoing factors, and particularly the
variability of the size and timing of significant license purchases, quarterly
revenue and operating results are difficult to forecast.

As is common in the software industry, the Company frequently ships more
product in the third month of each quarter than in either of the first two
months of the quarter, and shipments in the third month are higher at the end of
that month. This pattern is likely to continue. The concentration of sales in
the last month of the quarter makes the Company's quarterly financial results
difficult to predict. Also, any failure of sufficient business to materialize or
a disruption in the Company's production or shipping near the end of a quarter
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the Company's business has been
seasonal, with revenues in the first fiscal quarter typically lower than those
in the fourth quarter of the preceding fiscal year.

The Company's expense levels are based, in part, on its expectations as to
future revenue levels. If revenue levels are below expectations, it could have a
material adverse effect on the Company's business, operating results and
financial condition. In particular, net income, if any, may be
disproportionately affected by a reduction in revenue because only a small
portion of the Company's expenses varies with revenue. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations."

Limited Trading History of Common Stock; Potential Volatility of Stock
Price. The Company's Common Stock first became publicly traded on April 3, 1996
after the Company's initial public offering at $8.50 per share. The market price
of the Common Stock has and could continue to fluctuate substantially due to a
variety of factors, including quarterly fluctuations in results of operations,
adverse circumstances affecting the introduction or market acceptance of new
products and services offered by the Company, announcements of new products and
services by competitors, changes in the EDA environment, changes in earnings
estimates by analysts, changes in accounting principles, sales of Common Stock
by existing holders, loss of key personnel and other factors. The market price
for the Company's Common Stock may also be affected by the Company's ability to
meet securities or industry analysts' expectations, and any failure to meet such
expectations, even if minor, could have a material adverse effect on the market
price of the Company's Common Stock. In addition, the stock market is subject to
extreme price and volume fluctuations. This volatility has had a significant
effect on the market prices of securities issued by many companies for reasons
unrelated to the operating performance of these companies. In the past,
following periods of volatility in the market price of a company's securities,
securities class action litigation has often been instituted against such a
company. Any such litigation instituted against the Company could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect on the Company's business, operating
results and financial condition. See "Price Range of Common Stock."

Risks Associated with Acquisitions. The Company's strategy includes the
acquisition of businesses, products and technologies that are complementary to
those of the Company. Promising acquisitions are difficult to identify and
complete for a number of reasons, including competition among prospective
buyers. In furtherance of this strategy, in fiscal 1999 Ansoft acquired a
majority interest in Pacific Numerix Corporation ("Pacific Numerix"), in fiscal
1997 and 1998 the Company acquired three businesses, Compact Software, Inc.
("Compact"), the Electronic Business Unit (the "EBU") of MacNeal Schwendler
Company ("MSC") and Boulder Microwave Technologies, Inc. ("Boulder"). There can
be no assurance that the Company will be able to complete future acquisitions or
that the Company will be able to successfully integrate these and any future
acquired businesses. The failure of the Company to integrate any acquired
businesses could have a material adverse effect on the Company's business,
operating results and financial

8
<PAGE> 10

condition. In order to finance any future acquisitions, it may be necessary for
the Company to raise additional funds through public or private financings. Any
equity or debt financing, if available at all, may be on terms which are not
favorable to the Company and, in the case of equity financing, may result in
dilution to the Company's stockholders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources--Acquisitions."

Risks Associated with Company Investments. The Company invested a portion of
the proceeds of its initial and secondary public offerings in certain long-,
medium- and short-term investment grade, interest-bearing securities, and
currently holds $22.2 million (as valued on its balance sheet as of April 30,
1999) in such securities. The value of the Company's investment in such
instruments is subject to the normal risks of interest-bearing investments. Over
time, the level of interest rates available in the market changes. As prevailing
interest rates fall, the prices of securities that trade on a yield basis tend
to rise. Conversely, when prevailing interest rates rise, bond prices generally
will fall. Generally, the longer the maturity of a fixed-income security, the
higher its yield and the greater its price volatility. As a consequence, the
value of the instruments held by the Company could fluctuate substantially over
time, depending upon long-term and short-term trends and interest rates. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

Dependence on Proprietary Technology. The Company's success is heavily
dependent upon its proprietary software technology. The Company does not
currently have any patents and relies principally on trade secret and copyright
laws and contractual protections to establish and protect its proprietary
rights. However, there can be no assurance that the steps taken by the Company
will prevent misappropriation or infringement of its technology. Moreover, third
parties could independently develop competing technologies that are
substantially equivalent to the Company's technologies. Although the Company
believes that its products and proprietary rights do not infringe patents and
proprietary rights of third parties, there can be no assurance that infringement
claims, regardless of merit, will not be asserted against the Company in the
future or that any such assertion will not result in costly litigation or
require the Company to obtain a license to intellectual property rights of such
third parties. In addition, there can be no assurance that such licenses will be
available on reasonable terms or at all, which could have a material adverse
effect on the Company's business, operating results and financial condition. See
"Business--Proprietary Rights."

Dependence on Key Personnel. The Company's future operating results depend
in large part upon the continued services of its key technical and management
personnel, including Dr. Zoltan J. Cendes, a founder, Chairman of the Board of
Directors and Chief Technology Officer of the Company. The Company does not have
employment contracts with Dr. Cendes or any other executive officer. The Company
also believes that its future success will also depend in large part on its
ability to continue to attract and retain highly-skilled technical, marketing
and management personnel. The competition for such personnel, as well as for
qualified EDA engineers, is intense. There can be no assurance that the Company
will be able to continue to attract and retain the qualified technical and other
personnel necessary for the development of its business. The Company maintains
key-man life insurance with respect to Dr. Cendes in the amount of $5,000,000.
See "Business--Research and Development," and "--Employees" and "Management."

Use of Distributors and Shift in Distribution Model. A significant portion
of the Company's license and service revenue results from a limited number of
international distributors. During fiscal 1999, 1998 and 1997, revenue from
international distributors accounted for approximately 10%, 19%, and 19%,
respectively, of the Company's total revenue. In addition, pursuant to the HP
Agreement, HP formerly distributed the Company's HFSS product on an exclusive
basis. The HP Agreement has since expired, and HP has no right to distribute the
Company's HFSS product. Ansoft currently sells through its own sales force and
other distributors. During fiscal 1998 and 1997, revenue from the HP Agreement
accounted for approximately 3% and 12%, respectively, of the Company's total
revenue.

The Company's distributors are not obligated to purchase products from the
Company and may also represent other products. There can be no assurance that
the Company's current international distributors will continue to market,
service and support the Company's products effectively, that they will choose to
continue to license such products or that they will not devote greater resources
to marketing or licensing products of other companies.

The Company has recently shifted its distribution model to the use of direct
sales personnel in Asia and other foreign markets. There can be no assurance
that this transition will not result in dislocations or delays in penetration in
these markets or that the recent shift will not result in start-up costs and
other expenses. These expenses may be incurred before a commensurate level of
revenues are generated in these markets. Failure to generate a requisite level
of revenues in light of these expenses could have a material adverse effect on
the Company's business, operating results and financial condition. See
"Business--Sales and Marketing."

Risks Associated with International Licensing. International license and
service revenue accounted for 52%, 48% and 41% of total product revenue in
fiscal 1999, 1998 and 1997, respectively. The Company expects that international
license and service revenue will

9
<PAGE> 11

continue to account for a significant portion of its revenue. The majority of
the Company's international sales are priced in foreign currencies which the
Company does not hedge and as such the Company's revenues and profits from such
sales are subject to fluctuation due to variable foreign currency exchange
rates. International licenses involve a number of inherent risks, including
fluctuations in foreign currency exchange rates, variability of foreign economic
conditions, changing restrictions imposed by United States export laws, the
impact of recessionary environments in economies outside the United States,
generally longer receivables collection periods, unexpected changes in and
compliance with regulatory requirements, reduced protection for intellectual
property rights in some countries, tariffs and other trade barriers. The
Company's future international sales may be subject to additional risks
associated with international operations, including currency exchange
fluctuations, tariff regulations and requirements for export, which licenses may
on occasion be delayed or difficult to obtain. See "Business--Sales and
Marketing."

Management of Growth. The Company's business has experienced rapid growth in
recent years which has placed and could continue to place a significant strain
on the Company's managerial and other resources. Revenues have grown from $6.2
million in fiscal 1995 to $24.4 million in fiscal year 1999, and the number of
employees has grown from 69 in April 1996 to 227 as of April 30, 1999. The
Company's ability to manage growth effectively will require it to continue to
improve its operational and financial systems, hire and train new employees and
add additional space, both domestically and internationally. The Company's
success abroad will depend in part on its ability to manage its foreign
operations. There can be no assurance that such efforts can be accomplished
successfully. The failure to manage growth effectively or to generate sufficient
increased revenues necessary to cover any higher costs resulting from such
growth could have a material adverse effect on the Company's business, operating
results and financial condition. See "Business."

Susceptibility to Changing Economic Factors. The Company is dependent upon
the communications, semiconductor, automotive/industrial, computer, consumer
electronics and defense/aerospace industries. Because these industries are
characterized by technological change, short product life cycles, fluctuations
in manufacturing capacity and pricing and gross margin pressure, they have from
time to time experienced sudden economic downturns. During these periods,
capital spending is commonly curtailed and the number of design projects often
decreases. Since the Company's sales are dependent upon capital spending trends
and new design project in these industries, negative factors affecting these
industries could have a material adverse effect on the Company's business,
operating results and financial condition.

Risk of Product Defects. Complex software products, such as those offered by
the Company, may contain defects, undetected errors or failures when introduced
or when new versions are released. There can be no assurance that, despite
testing by the Company, errors will not be found in new products or versions
after commencement of commercial shipments, resulting in loss of market share or
failure to achieve market acceptance. Any such occurrence could have a material
adverse effect upon the Company's business, operating results and financial
condition.

Concentration of Stock Ownership. The directors and executive officers of
the Company and their affiliates beneficially own approximately 51% of the
Company's outstanding Common Stock. As a result, these stockholders are able to
exercise control over all matters requiring stockholder approval, including the
election of directors and approval of significant corporate transactions. Such
concentration of ownership may have the effect of delaying, deterring or
preventing a change in control of the Company.

Effect of Certain Charter Provisions, Antitakeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law. The Company's Board of Directors has the
authority to issue up to 1,000,000 shares of Preferred Stock without any further
vote or action by the Company's stockholders. The rights of the holders of the
Common Stock will be subject to, and may be adversely affected by, the rights of
the holders of any Preferred Stock that may be issued in the future. The
issuance of Preferred Stock, while providing desirable flexibility in connection
with certain corporate purposes, could have the effect of making it more
difficult for a third party to acquire a majority of the outstanding voting
stock of the Company. The Company currently has no plans to issue shares of
Preferred Stock. Further, certain provisions of the Company's Certificate of
Incorporation and Bylaws and of Delaware law could delay or make more difficult
a merger, tender offer or proxy contest involving the Company.

10
<PAGE> 12

ITEM 2. PROPERTIES

The Company occupies approximately 23,000 square feet of space at its
headquarters in Pittsburgh, Pennsylvania under a lease expiring in 2006. The
Company also leases sales and support offices in Arizona, California, Colorado,
New Jersey, Wisconsin, Europe and Asia. The Company's current aggregate annual
rental expenses for these facilities is approximately $1.3 million. Ansoft
believes that its existing facilities are adequate for its current needs and
that suitable additional space will be available when needed.

ITEM 3. LEGAL PROCEEDINGS

The Company is not a party to any litigation and is not aware of any
threatened litigation, unasserted claims or assessments that could have material
adverse effect on the Company's business, consolidated operating results or
financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable

ITEM 4.(a) OFFICERS OF THE REGISTRANT

OFFICERS

The following table sets forth certain information concerning each of the
officers of the Company:

<TABLE>
<CAPTION>
NAME AGE TITLE
----------------------- ------- --------------------------------------
<S> <C> <C>
Zoltan J. Cendes, Ph.D... 53 Chief Technology Officer
Nicholas Csendes......... 55 President, and Chief Executive Officer
Padmanabhan Premkumar.... 35 Vice President-Marketing
Jack Parkes.............. 39 Vice President-Engineering
Anthony L. Ryan.......... 31 Chief Financial Officer
</TABLE>

Dr. Zoltan J. Cendes is a founder of Ansoft and has served as Chairman of
the Board of Directors of the Company and its chief research scientist since its
formation in 1984. Since 1982, Dr. Cendes has been a university professor in
electrical and computer engineering at Carnegie Mellon University. Dr. Cendes
has lectured throughout North America, Europe and Asia on the topic of
electromagnetics and finite element analysis and has published over 100
publications on these topics. Dr. Cendes directs the research efforts of Ansoft.

Nicholas Csendes is a founder of Ansoft and has served as President, Chief
Executive Officer and Secretary since 1992 and a director since 1984. Mr.
Csendes was a senior investment officer with Sun Life of Canada, a major
international financial institution focusing on the sale of life insurance and
retirement products ("Sun Life"), for over 15 years. Since 1985, Mr. Csendes has
been involved with various public and private companies including a
publicly-held interactive software company, and has been an officer, director
and a controlling stockholder of American Banner Resources, Inc. ("ABR"), a
privately-held holding company with various interests in real estate and public
and private securities.

Padmanabhan Premkumar joined Ansoft in 1989. From 1991 to 1995, Mr.
Premkumar was in charge of Ansoft's software development programs as Vice
President-Development. Since 1995, Mr. Premkumar has been Vice
President-Marketing, responsible for product planning, marketing and
commercialization of existing software product enhancements and the commercial
development of new products. Prior to joining Ansoft, Mr.
Premkumar was a research associate in the Robotics Laboratory at the University
of Toledo.

Jack Parkes joined Ansoft in 1990. In May 1997, Mr. Parkes was appointed
Vice President-Engineering. Mr. Parkes joined Ansoft in 1990 with over 10 years
of experience in electrical engineering. Prior to joining Ansoft, Mr. Parkes was
a senior design and development engineer with Loral Corporation ("Loral") and,
prior to joining Loral, with Texas Instruments, Inc.

Anthony L. Ryan joined Ansoft in 1995 as corporate controller. In May 1997,
Mr. Ryan was appointed Chief Financial Officer. From 1991 to 1995, Mr. Ryan
worked as a certified public accountant with KPMG LLP, an international
accounting firm.

11
<PAGE> 13

Dr. Zoltan J. Cendes and Mr. Nicholas Csendes are brothers. There are no
other family relationships between the executive officers of the Company.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

The Company's Common Stock has been traded on the Nasdaq National Market
under the symbol ANST since April 3, 1996. The following table sets forth, for
the periods indicated, the range of high and low last reported sale prices for
the Common Stock as reported on the Nasdaq National Market.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
FISCAL YEAR ENDED APRIL 30, 2000
1st Quarter (through June 30, 1999).............. $ 10.000 $ 7.125

FISCAL YEAR ENDED APRIL 30, 1999
1st Quarter...................................... 13.750 8.375
2nd Quarter...................................... 6.563 5.125
3rd Quarter...................................... 6.250 4.875
4th Quarter...................................... $ 8.000 $ 6.125

FISCAL YEAR ENDED APRIL 30, 1998
1st Quarter...................................... 9.000 4.875
2nd Quarter...................................... 23.250 8.375
3rd Quarter...................................... 16.688 10.000
4th Quarter...................................... $ 15.375 $ 11.375
</TABLE>

The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain the earnings from operations for use in the
operation of its business and does not anticipate paying cash dividends with
respect to its Common Stock in the foreseeable future. The payment of any future
dividends will be determined by the Board of Directors in light of the then
current conditions, including the Company's earnings and financial condition.

On July 15, 1999, the Company had approximately 148 shareholders of record, of
which certain of the recordholders were registered clearing agencies holding
common stock on behalf of participants of such clearing agencies.

ITEM 6. SELECTED CONDENSED CONSOLIDATED FINANCIAL DATA

The selected condensed consolidated financial data presented below for the
five years ended April 30, 1999 are derived from the Company's Consolidated
Financial Statements and related Notes thereto which have been audited by KPMG
LLP, independent certified public accountants. The operating results are not
necessarily indicative of the results to be expected for any other interim
period or any future fiscal year. The selected condensed consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related Notes thereto appearing elsewhere herein.

12
<PAGE> 14

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
--------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Revenue
License ................ $ 17,847 $ 19,974 $ 11,950 $ 7,995 $ 5,921
Service and other ...... 6,628 6,309 2,238 700 233
-------- -------- -------- -------- --------
Total revenue ..... 24,475 26,283 14,188 8,695 6,154
-------- -------- -------- -------- --------
Costs and expenses
Sales and marketing .... 17,061 12,643 7,939 5,007 3,935
Research and development 8,391 7,299 2,993 1,766 1,462
General and
administrative ....... 2,937 2,322 1,647 1,269 1,046
Amortization ........... 1,691 1,495 407 -- --
Acquired in process
research and
development .......... -- -- 8,754 -- --
-------- -------- -------- -------- --------
Total costs and
expenses ........ 30,080 23,759 21,740 8,042 6,443
-------- -------- -------- -------- --------
Income (loss) from
operations ............... (5,605) 2,524 (7,552) 653 (289)
Interest income (expense),
net ...................... 1,587 549 682 35 (16)
-------- -------- -------- -------- --------
Income (loss) before income
taxes .................... (4,018) 3,073 (6,870) 688 (305)
Income taxes benefit ....... 1,210 1,000 420 612 --
-------- -------- -------- -------- --------
Net income (loss) .......... $ (2,808) $ 4,073 $ (6,450) $ 1,300 $ (305)
======== ======== ======== ======== ========
Basic net income (loss) per
share .................... $ (0.25) $ 0.42 $ (0.81) $ 0.21 $ (0.06)
======== ======== ======== ======== ========
Diluted net income (loss)
per share ................ $ (0.25) $ 0.39 $ (0.81) $ 0.19 $ (0.06)
======== ======== ======== ======== ========
Weighted average shares
Outstanding - basic ...... 11,310 9,681 7,955 6,235 5,528
Weighted average shares
Outstanding - diluted .... 11,310 10,521 7,955 6,873 5,528
</TABLE>

<TABLE>
<CAPTION>
APRIL 30,
--------------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents....... $ 2,489 $ 20,677 $ 312 $ 10,728 $ 116
Working capital (deficit)....... 16,699 27,579 (1,936) 11,931 593
Total assets.................... 52,630 49,180 21,951 15,391 1,792
Total stockholders' equity...... 40,863 45,520 14,917 14,291 1,161
</TABLE>

13
<PAGE> 15

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

OVERVIEW

Ansoft Corporation ("Ansoft" or the "Company") develops, markets and
supports electronic design automation ("EDA") software based on fundamental
electromagnetic principles. The Company's software is used by engineers in the
design of high performance electronic devices and systems, such as cellular
phones, communications systems, computer circuit boards and motors. As the
marketplace demands higher levels of system performance and miniaturization, the
need to model accurately the electromagnetic interaction in communications,
computer devices and electromechanical components and systems is becoming
increasingly important, yet traditional EDA tools do not provide accurate
modeling of electromagnetic interaction. By using the Company's software,
companies can more easily predict electromagnetic interaction in such systems
and components, thus reducing time to market and simultaneously lowering design
and manufacturing costs. The Company's products are used by design engineers in
a wide range of industries, particularly the rapidly evolving wireless
communications and RF (radio frequency) markets as well as the semiconductor,
computer, automotive and consumer electronics industries.

License revenue consists principally of revenue from the licensing of the
Company's software and is generally recognized when the software has been
shipped and there are no significant remaining obligations. Service revenue
consists of maintenance fees for providing system updates, user documentation
and technical support for software products, and is recognized ratably over the
term of the maintenance agreement. Other revenue consists primarily of revenue
earned on development contracts with government-sponsored entities. Revenue
under these arrangements is recognized as the service is performed.

In accordance with Statement of Financial Accounting Standards (SFAS) No.
86, the Company has evaluated the establishment of technological feasibility of
its various products during the development phase. Due to the dynamic changes in
the market, the Company has concluded that it cannot determine, with any
reasonable degree of accuracy, technological feasibility until the development
phase of the project is nearly complete. The time period during which costs
could be capitalized from the point of reaching technological feasibility until
the time of general product release is generally very short and, consequently,
the amounts that could be capitalized pursuant to SFAS No. 86 are not material
to the Company's financial position or results of operations. Therefore, the
Company charges all research and development expenses to operations in the
period incurred.

Effective April 28, 1999, the Company acquired a majority interest in
Pacific Numerix. Effective July 24, 1996, April 9, 1997 and August 8, 1997, the
Company acquired the EBU, Compact, and Boulder, respectively. The cost of these
acquisitions has been allocated on the basis of the estimated fair value of the
assets acquired and the liabilities assumed. The allocation of the EBU and
Compact acquisitions resulted in charges of $3.1 million and $5.7 million
recorded, respectively, in fiscal 1997 based on the future expected cash flows
of certain acquired in process research and development that had not reached
technological feasibility. The acquisitions have been accounted for as
purchases, and their respective financial results have been included in the
accompanying consolidated financial statements since the date of their
respective acquisitions.

14
<PAGE> 16
RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, the percentage of
total revenue of each item in the Company's consolidated statements of
operations:

PERCENTAGE OF REVENUE

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
----------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Revenue
License ..................... 73% 76% 84%
Service and other ........... 27 24 16
---- ---- ----
Total revenue ............. 100 100 100
---- ---- ----
Costs and expenses
Sales and marketing ......... 70 48 56
Research and development .... 34 28 21
General and administrative .. 12 9 12
Amortization ................ 7 5 3
Acquired in process research
and development............ -- -- 62
---- ---- ----

Total costs and expenses .. 123 90 153
---- ---- ----
Income (loss) from operations.. (23) 10 (53)
Interest, net ................. 7 2 5
---- ---- ----
Income (loss) before income
taxes.......................... (16) 12 (48)
Income taxes benefit .......... 5 4 3
---- ---- ----
Net income (loss) ............. (11)% 16% (45)%
==== ==== ====
</TABLE>

YEAR ENDED APRIL 30, 1999 COMPARED WITH YEAR ENDED APRIL 30, 1998

Revenue. Total revenue for the year ended April 30, 1999 decreased 7% to
$24.5 million from $26.3 million in the previous fiscal year. The decrease in
total revenue is attributable to a decrease in license revenue in North America
and Asia and to the completion of a research and development cost sharing
contract during 1998. License revenue during the year ended April 30, 1999
decreased 11% to $17.8 million from $20.0 million during the previous fiscal
year. Service and other revenue increased by 5% to $6.6 million for the year
ended April 30, 1999, as compared with $6.3 million in the previous year. The
increase in service and other revenue is attributable to the continued growth of
the installed base of customers and increased focus on marketing annual
maintenance agreements. This increase was reduced by a decrease in revenue
recognized under research and development cost sharing agreements.

International revenue, principally from Asia, accounted for 52% and 48% of
the Company's total product revenue in the years ended April 30, 1999 and 1998,
respectively. The Company's future international sales may be subject to
additional risks associated with international operations, including currency
exchange fluctuations, tariff regulations and requirements for export, which
licenses may on occasion be delayed or difficult to obtain.

Sales and Marketing Expenses. Sales and marketing expenses consist of
salaries, commissions paid to internal sales and marketing personnel and
international distributors, promotional costs and related operating expenses.
Sales and marketing expenses increased by 35% to $17.1 million in the year ended
April 30, 1999, as compared to $12.6 million in the previous fiscal year. The
increase is primarily attributable to the Company's shift in its distribution
model to the use of direct sales personnel in Asia and other foreign markets, as
well as increased marketing efforts, including advertising in trade publications
and increased participation in industry trade shows. Sales and marketing
expenses represented 70% and 48% of total revenue in the years ended April 30,
1999 and 1998, respectively. The Company expects to increase sales and marketing
expenditures both domestically and internationally as part of its continuing
effort to expand its markets, introduce new products, build marketing staff and
programs and expand its international presence. The Company expects that sales
and marketing expenses will decrease as a percentage of sales although increase
in absolute dollars in future periods.

Research and Development Expenses. Research and development expenses include
all costs associated with the development of

15
<PAGE> 17

new products and enhancements to existing products. Research and development
expenses for the year ended April 30, 1999 increased 15% to $8.4 million, as
compared to $7.3 million for the previous fiscal year. The increase is due to
increased research and development personnel primarily as a result of the
acquisitions. Research and development expenses represented 34% and 28% of total
revenue in the years ended April 30, 1999 and 1998, respectively. The Company
anticipates that research and development expenses will increase in absolute
dollars in future periods.

General and Administrative Expenses. General and administrative expenses for
the year ended April 30, 1999 increased 26% to $2.9 million, as compared to $2.3
million for the previous fiscal year. The increase is due to additional costs
required to support the increase in operations, including the hiring of
additional administrative personnel. General and administrative expenses
represented 12% and 9% of total revenue in the years ended April 30, 1999 and
1998, respectively. The Company anticipates that general and administrative
expenses will increase in absolute dollars in future periods.

Amortization Expense. Amortization expense for the year ended April 30, 1999
increased to $1.7 million, as compared to $1.5 million for the previous fiscal
year. The increase is due to recording amortization of additional intangible
assets acquired in recent years.

Interest (net). Interest income (net) for the year ended April 30, 1999
increased to $1.6 million, compared to $549,000 for the previous fiscal year.
Interest income increased due to the higher net investment balance made
available from the proceeds from the public offering of 2.3 million shares in
March of 1998.

Income Taxes. In the year ended April 30, 1999, the Company recorded a net
income tax benefit of $1.2 million, resulting from the recognition of deferred
tax assets in accordance with the Financial Accounting Standards Board's SFAS
No. 109, "Accounting for Income Taxes." The Company's net deferred tax asset of
$3.1 million as of April 30, 1999, consists primarily of net operating loss
carryforwards for federal income tax purposes, which are available to offset
future taxable income, and expire in increments beginning in April 2004, through
April 2019. Valuation allowances are established when necessary to reduce
deferred tax assets to the amounts expected to be realized.

YEAR ENDED APRIL 30, 1998 COMPARED WITH YEAR ENDED APRIL 30, 1997

Revenue. Total revenue for the year ended April 30, 1998 increased 85% to
$26.3 million from $14.2 million in the previous fiscal year, primarily due to
increases in license revenue. License revenue during the year ended April 30,
1999 increased 67% to $20.0 million from $12.0 million during the previous
fiscal year. The growth of license revenue is attributable to the continued
increase in sales of existing Ansoft products as well as sales of the expanded
suite of products offered by Ansoft as a result of the acquisitions. Service and
other revenue increased by 182% to $6.3 million for the year ended April 30,
1998, as compared with $2.2 million in the previous year. The increase in
service and other revenue is attributable to an increase in revenue recognized
under research and development cost sharing agreements as well as the continued
growth of the installed base of customers and increased focus on marketing
annual maintenance agreements.

International revenue, principally from Asia, accounted for 48% and 41% of
the Company's total product revenue in the years ended April 30, 1998 and 1997,
respectively.

In 1989, the Company entered into a distribution arrangement with
Hewlett-Packard Corporation ("HP") under which HP formerly distributed the
Company's HFSS product on an exclusive basis (the "HP Agreement"). The HP
Agreement has since expired, and HP has no right to distribute the Company's
HFSS 4.0 product. Ansoft currently sells the latest version of its HFSS product,
Ansoft HFSS 6.0, through its own sales force and other distributors. Revenue
from the HP Agreement accounted for 3% and 12% of total revenue in the years
ended April 30, 1998 and 1997, respectively.

Sales and Marketing Expenses. Sales and marketing expenses increased by 59%
to $12.6 million in the year ended April 30, 1998, as compared to $7.9 million
in the previous fiscal year. The increase is attributable to an increase in the
Company's sales force as a result of the acquisitions as well as increased
marketing efforts, including advertising in trade publications and increased
participation in industry trade shows. Sales and marketing expenses represented
48% and 56% of total revenue in the years ended April 30, 1998 and 1997,
respectively.

16
<PAGE> 18

Research and Development Expenses. Research and development expenses for the
year ended April 30, 1998 increased 144% to $7.3 million, as compared to $3.0
million for the previous fiscal year. The increase is due to increased research
and development personnel primarily as a result of the acquisitions. Research
and development expenses represented 28% and 22% of total revenue in the years
ended April 30, 1998 and 1997, respectively.

General and Administrative Expenses. General and administrative expenses for
the year ended April 30, 1998 increased 41% to $2.3 million, as compared to $1.6
million for the previous fiscal year. The increase is due to additional costs
required to support the increase in operations, including the hiring of
additional administrative personnel. General and administrative expenses
represented 9% and 12% of total revenue in the years ended April 30, 1998 and
1997, respectively.

Amortization Expense. Amortization expense for the year ended April 30, 1998
increased to $1.5 million, as compared to $407,000 for the previous fiscal year.
The increase is due to recording amortization of intangible assets acquired in
Fiscal 1997 for a full fiscal year and to recording amortization of the
additional intangible assets acquired during fiscal 1998.

Interest (net). Interest income for the year ended April 30, 1999 decreased
to $709,000, compared to $902,000 for the previous fiscal year. Interest income
decreased due to the use of cash in partial payment for the fiscal 1998 and
fiscal 1997 acquisitions. Interest expense for the year ended April 30, 1998
decreased to $160,000, compared to $220,000 for the previous fiscal year.
Interest expense decreased due to decreased borrowing by the Company.

Income Taxes. In the year ended April 30, 1999, the Company recorded a net
income tax benefit of $1.0 million, resulting from the recognition of previously
unrecognized deferred tax assets in accordance with the Financial Accounting
Standards Board's SFAS No. 109, "Accounting for Income Taxes."

QUARTERLY RESULTS OF OPERATIONS

The following table presents unaudited quarterly results in dollar amounts
and as a percentage of total revenue for each quarter of fiscal 1999 and fiscal
1998. The information has been prepared on a basis consistent with the Company's
annual consolidated financial statements and, in the opinion of management,
contains all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the information for such periods. The
Company's quarterly results have been in the past, and may be in the future,
subject to fluctuations due to increased competition, the timing of new product
announcements, changes in pricing policies by the Company or its competitors,
market acceptance of new and enhanced versions of the Company's products and the
size and timing of significant licenses. The Company believes that results of
operations for the interim periods are not necessarily indicative of the results
to be expected for any future period. The Company's business has been seasonal,
with revenues in the first fiscal quarter typically lower than the fourth
quarter of the preceding fiscal year.

17
<PAGE> 19

<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------------
FISCAL 1999 FISCAL 1998
--------------------------------------------------------------------------------------------
APRIL 30, JAN. 31, OCT. 31, JULY 31, APRIL 30, JAN. 31, OCT. 31, JULY 31,
1999 1999 1998 1998 1998 1998 1997 1997
--------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
License...................... $ 5,862 $ 4,769 $ 3,977 $ 3,239 $ 6,064 $ 5,005 $ 4,891 $ 4,016
Service and other............ 1,868 1,321 1,524 1,915 1,755 1,840 1,393 1,319
-------- ------- ------- ------- ------- ------- ------- -------
Total Revenue.............. 7,730 6,090 5,501 5,154 7,819 6,845 6,284 5,335
-------- ------- ------- ------- ------- ------- ------- -------
Costs and expenses
Sales and marketing.......... 4,470 4,267 4,072 4,252 4,079 3,145 2,867 2,557
Research and development..... 2,186 2,033 2,106 2,066 1,949 1,976 1,864 1,510
General and administrative... 757 706 695 635 655 600 597 470
Amortization................. 545 434 434 422 410 395 376 314
-------- --------- --------- --------- ------- --------- --------- ---------
Total costs and expenses... 7,958 7,440 7,307 7,375 7,093 6,116 5,704 4,851
-------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations.. (228) (1,350) (1,806) (2,221) 726 729 580 484
Interest income (expense)...... 389 404 416 379 254 108 96 91
-------- --------- --------- --------- ------- --------- --------- ---------
Income (loss) before taxes..... 161 (946) (1,390) (1,842) 980 837 676 575
Income tax benefit............. (30) 290 400 550 370 240 220 170
--------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)............ $ 131 $ (656) $ (990) $(1,292) $ 1,350 $ 1,077 $ 896 $ 745
======== ======= ======= ======= ======= ======= ======= =======
Basic net income (loss) per $ 0.01 $ (0.06) $ (0.09) $ (0.11) $ 0.13 $ 0.12 $ 0.10 $ 0.08
======== ======= ======= ======= ======= ======= ======= =======
share..........................
Diluted net income (loss) per $ 0.01 $ (0.06) $ (0.09) $ (0.11) $ 0.12 $ 0.11 $ 0.09 $ 0.08
======== ======= ======= ======= ======= ======= ======= =======
share..........................
Weighted average number of shares
outstanding - basic ......... 11,032 11,231 11,453 11,524 10,639 9,205 9,130 8,989
Weighted average number of shares
outstanding - diluted ....... 11,800 11,231 11,453 11,524 11,589 10,187 10,121 9,621
</TABLE>

<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUE
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue
License...................... 76% 78% 72% 63% 78% 73% 77% 75%
Service and other............ 24 22 28 37 22 27 23 25
---- ---- ---- ---- ---- ---- ---- ----
Total Revenue.............. 100 100 100 100 100 100 100 100
---- ---- ---- ---- ---- ---- ---- ----
Costs and expenses
Sales and marketing.......... 58 70 74 83 52 46 46 48
Research and development..... 28 33 38 40 25 29 30 28
General and administrative... 10 12 13 15 8 9 9 9
Amortization................. 7 7 8 5 5 6 6 6
Acquired in process research
and development............ -- -- -- -- -- -- -- --
---- ---- ---- ---- ---- ---- ---- ----
Total costs and expenses... 103 122 133 143 91 89 91 91
---- ---- ---- ---- ---- ---- ---- ----
Income (loss) from operations.. (3) (22) (33) (43) 9 11 9 9
Interest income ............... 5 7 8 7 3 1 2 2
---- ---- ---- ---- ---- ---- ---- ----
Income (loss) before taxes..... 2 (15) (25) (36) 12 12 11 11
Income tax benefit............. -- 4 7 11 5 4 3 3
---- ---- ---- ---- ---- ---- ---- ----
Net income (loss).............. 2% (11)% (18)% (25)% 17% 16% 14% 14%
==== ==== ==== ==== ==== ==== ==== ====
</TABLE>

LIQUIDITY AND CAPITAL RESOURCES

As of April 30, 1999, the Company had $2.5 million in cash and cash
equivalents. Net cash (used in) provided by operating activities was ($1.9)
million, $2.2 million and $403,000 in fiscal 1999, 1998, and 1997, respectively.

Net cash used in investing activities, consisting primarily of purchases of
marketable securities, was $19.8 million, $3.3 million, and $15.1 million in
fiscal 1999, 1998, and 1997, respectively. Capital expenditures, consisting
primarily of purchases of computer equipment, were $2.5 million, $1.5 million
and $811,000 in fiscal 1999, 1998 and 1997, respectively.

Net cash provided by financing activities includes the purchase of $4.2
million of treasury shares in fiscal 1999 and the proceeds from the issuance of
Common Stock of $25.7 million in fiscal 1998. In addition, during fiscal 1999
the Company borrowed $7.4 million on its secured line of credit. In fiscal 1998
the Company repaid $4.2 million on its secured line of credit with a financial
institution.

As of April 30, 1999, the Company had working capital of $16.7 million. The
Company has available a $10.0 million secured line of credit from a domestic
financial institution at an interest rate equal to LIBOR plus an applicable
margin rate. The line of credit is secured by the marketable securities held
with the institution. As of April 30, 1999, $7.4 million was the outstanding
balance on the line of credit. The Company believes that the available funds
will be sufficient to meet its anticipated cash needs for working capital and
capital expenditures for at least the next twelve months. Thereafter, if cash
generated from operations is insufficient to satisfy the

18
<PAGE> 20

Company's liquidity requirements, the Company may seek additional funds through
equity or debt financing. There can be no assurance that additional financing
will be available or that, if available, such financing will be on terms
favorable to the Company.

Acquisitions. On July 24, 1996, the Company acquired the EBU for $5.6
million in cash. On April 9, 1997, the Company acquired all of the outstanding
capital stock of Compact for $3.0 million in cash and 1.3 million shares of the
Company's Common Stock. On August 11, 1997, the Company acquired Boulder by the
merger of Boulder with and into the Company, in consideration for $743,000 in
cash and 108,000 shares of the Company's Common Stock. On April 28th, 1999,
Ansoft acquired the majority of the outstanding stock of Pacific Numerix for
377,000 shares and $600,000 in cash. The acquisitions were accounted for as a
purchases, and the financial results of the acquired entities have been included
in the accompanying consolidated financial statements since the respective date
of the acquisition.

EFFECTS OF INFLATION

To date, inflation has not had a material impact on the Company's
consolidated financial results.

RECENT ACCOUNTING PRONOUNCEMENTS

In June, 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". The Company
does not expect this pronouncement to impact the consolidated financial
statements because the Company has not entered into derivative or hedging
transactions.

YEAR 2000 ISSUES

The Company has recently evaluated the products the Company currently
supports to determine if they are Year 2000 ready. Most of the Company's
products do not rely on knowledge of the date (date-sensitive data) for
performance or functionality. The Company's products only use date-sensitive
data with respect to the licensing of the Company's products.

State Of Readiness. The results of this evaluation revealed that most
of the Company's supported products are Year 2000 ready. The Company plans to
offer patches or upgrades to the supported products currently not Year 2000
ready.

During 1998, an evaluation of the Company's internal support systems
was done to determine if they are Year 2000 ready to support the Company's
operations beyond the year 2000. The Company currently uses third party software
systems and applications, some of which are not Year 2000 ready. The Company has
the intention to stop using these software products or upgrade or replace them
as part of the Company's growth plans.

Although the Company's intention was to replace or upgrade these
systems prior to June 30, 1999, the work will be extended to December 31, 1999.
The failure by the Company to complete such work prior to December 31, 1999
could have a material adverse effect on the Company's business, financial
condition and operations.

Costs. The Company does not have a project tracking system that tracks
the cost and time that its own internal employees spend on the Year 2000
project. Based on the Company's assessment, the cost incurred to date has not
had a material impact to the Company's results of operations. The Company
expects that costs directly related to Year 2000 in excess of normal upgrade and
maintenance costs would not exceed approximately $100,000 for both costs
incurred to date and future costs. However, there is no assurance that the costs
may not exceed this amount.

Risks. The Company is requesting its vendors to provide Year 2000
compliance certificates for all its internal support systems. However, the
Company only intends to perform testing on its critical internal support
systems. Inoperability related to Year 2000 problems of internal systems that
are certified Year 2000 ready by the vendor and not tested by the Company could
have an adverse impact to the Company's operational efficiency.

The patches or upgrades provided by the Company as the remedies to make
its products Year 2000 ready may not be accepted by the customer, which could
have an adverse impact on the Company's business.

The Company believes that the purchasing patterns of customers and
potential customers may be affected by Year 2000 issues as companies expend
significant resources to correct or patch their current software systems for
Year 2000 readiness. These expenditures may result in reduced funds available to
purchase software products such as those offered by

19
<PAGE> 21

the Company, which could result in a material adverse effect on the Company's
business, financial condition and results of operation. In addition, the Company
does not have any meaningful data as to the state of its customers' Year 2000
readiness.

Contingency Plans. The Company does not presently have a contingency
plan for handling Year 2000 problems that are not detected and corrected prior
to their occurrences. Upon completion of testing and implementation activities,
the Company will be able to assess the areas requiring contingency planning and
expects to develop appropriate planning at that time. Any failure of the Company
to address any unforeseen Year 2000 problems could adversely affect the
Company's business, financial condition and results of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Interest Rate Risk. The Company's exposure to market risk for changes in
interest rates relates primarily to its investment portfolio. The Company
mitigates its risk by diversifying its investments among high credit quality
securities and limits the amount of credit exposure to any one issuer. The
Company does not hedge any interest rate exposures.

Foreign Currency Risk. The Company transacts business in various foreign
currencies. Accordingly, the Company is subject to exposure from adverse
movements in foreign currency exchange rates. As of April 30, 1999, the Company
had no hedging contracts outstanding. The Company assesses the need to utilize
financial instruments to hedge currency exposures on an ongoing basis.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE

None. There has not been a change of accountants in the past 24 months nor
has any disagreement on any matter of accounting principles or practices been
reported on Form 8-K during the same period.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

The statements contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" which are not historical are
"forward looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. These forward-looking statements represent the
Company's present expectations or beliefs concerning future events. The Company
cautions that such statements are qualified by important factors that could
cause actual results to differ materially from those in the forward looking
statements including those factors identified in "Additional Risk Factors."
Results actually achieved thus may differ materially from expected results
included in these statements.

20
<PAGE> 22

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. 22
Consolidated Balance Sheets as of April 30, 1999 and 1998................ 23
Consolidated Statements of Operations for the years ended April 30, 1999,
1998 and 1997......................................................... 24
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the years ended April 30, 1999, 1998 and 1997.............. 25
Consolidated Statements of Cash Flows for the years ended April 30, 1999,
1998 and 1997......................................................... 26
Notes to Consolidated Financial Statements............................... 27
</TABLE>

21
<PAGE> 23

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Ansoft Corporation:

We have audited the accompanying consolidated balance sheets of Ansoft
Corporation and subsidiaries as of April 30, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and comprehensive
income and cash flows for each of the years in the three-year period ended April
30, 1999. In connection with our audits of the consolidated financial
statements, we have also audited the financial statement schedule listed at Item
14(a). These consolidated financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and schedule based on our
audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ansoft
Corporation and subsidiaries as of April 30, 1999 and 1998, and the results of
their operations and their cash flows for each of the years in the three-year
period ended April 30, 1999, in conformity with generally accepted accounting
principles. Also in our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects, the information set forth
therein.

KPMG LLP

Pittsburgh, Pennsylvania
May 26, 1999

22
<PAGE> 24

ANSOFT CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
April 30, April 30,
1999 1998
--------- ---------
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 2,489 $ 20,677
Marketable securities 16,461 --
Accounts receivable, net of allowance for doubtful accounts
of $175 and $150, respectively 8,645 7,465
Deferred income taxes 126 2,145
Prepaid expenses and other assets 709 536
-------- --------
Total current assets 28,430 30,823
Plant and equipment 4,663 3,097
Marketable securities 5,730 6,703
Other asset 475 260
Deferred taxes - non current 2,993 --
Intangible assets 10,339 8,297
-------- --------
Total assets $ 52,630 $ 49,180
======== ========

Liabilities and stockholders' equity
Current liabilities
Line of credit $ 7,446 $ --
Accounts payable 329 534
Income taxes 174 286
Accrued expenses 404 264
Accrued wages 150 347
Deferred revenue 3,228 1,813
-------- --------
Total current liabilities 11,731 3,244
Deferred taxes - non current -- 237
Other liabilities 143 179
-------- --------
Total liabilities 11,874 3,660

Minority Interest (107) --

Stockholders' equity
Preferred stock, par value $0.01 per share; 1,000 shares
authorized, no shares outstanding -- --
Common stock, par value $0.01 per share; 25,000 authorized; issued
11,658 and 11,516 shares, respectively 116 115
Additional paid-in capital 51,490 50,728
Treasury stock 283 shares (1,556) --
Other accumulated comprehensive income (loss) (1,013) 43
Accumulated deficit (8,174) (5,366)
-------- --------
Total stockholders' equity 40,863 45,520

Total liabilities and stockholders' equity $ 52,630 $ 49,180
======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

23
<PAGE> 25

ANSOFT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
--------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Revenue
License.......................... $17,847 $19,974 $11,950
Service and other................ 6,628 6,309 2,238
------- ------- -------
Total revenue............... 24,475 26,283 14,188
Cost and expenses
Sales and marketing.............. 17,061 12,643 7,939
Research and development......... 8,391 7,299 2,993
General and administrative....... 2,937 2,322 1,647
Amortization..................... 1,691 1,495 407
Acquired in process research
and development................ -- -- 8,754
------- ------- -------
Total costs and expenses.... 30,080 23,759 21,740
------- ------- -------
Income (loss) from operations...... (5,605) 2,524 (7,552)
Interest income.................... 1,693 709 902
Interest expense................... (106) (160) (220)
------- ------- -------
Income (loss) before income taxes (4,018) 3,073 (6,870)
Income tax benefit................. 1,210 1,000 420
------- ------- -------
Net income (loss)........... $(2,808) $ 4,073 $(6,450)
======= ======= =======
Basic net income (loss) per share.. $ (0.25) $ 0.42 $ (0.81)
======= ======= =======
Diluted net income (loss) per
share............................ $ (0.25) $ 0.39 $ (0.81)
======= ======= =======
Weighted average shares
outstanding used in basic
calculation...................... 11,310 9,681 7,955
Weighted average shares ======= ======= =======
outstanding used in diluted
calculation...................... 11,310 10,521 7,955
======= ======= =======
</TABLE>

See accompanying notes to consolidated financial statements.

24
<PAGE> 26

ANSOFT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
OTHER
COMMON STOCK ADDITIONAL TREASURY STOCK ACCUMULATED
COMPREHENSIVE ------------------- PAID-IN -------------------- ACCUMULATED COMPREHENSIVE
INCOME (LOSS) SHARES AMOUNT CAPITAL SHARES AMOUNT DEFICIT INCOME (LOSS)
------------- -------- -------- ---------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1996..... -- 7,636 $ 76 $ 17,204 -- -- $ (2,989) --
Issuance of common stock.... -- 1,353 14 7,106 -- -- -- --
Net loss ................... (6,450) -- -- -- -- -- (6,450) --
Unrecognized loss on
Marketable securities..... (44) -- -- -- -- -- -- (44)
-------- -------- -------- -------- -------- -------- -------- --------
$ (6,494)
Balance, April 30, 1997..... 8,989 $ 90 $ 24,310 -- -- $ (9,439) $ (44)
Issuance of common stock.... 2,527 25 26,418 -- -- -- --
Net income ................. 4,073 -- -- -- -- -- 4,073 --
Unrecognized gain on
Marketable securities..... 87 -- -- -- -- -- -- 87
-------- -------- -------- -------- ------- -------- -------- --------
$ 4,160
Balance, April 30, 1998..... 11,516 $ 115 $ 50,728 -- -- $ (5,366) $ 43
Purchase of treasury stock.. -- -- -- -- (656) (3,728) -- --
Issuance of common stock.... -- 142 1 762 373 2,172 -- --
Net loss.................... (2.808) -- -- -- -- -- (2,808) --
Foreign currency
translation............... (23) -- -- -- -- -- -- (23)
Unrecognized loss on
Marketable securities..... (1,033) -- -- -- -- -- -- (1,033)
-------- -------- -------- -------- ------- -------- -------- --------
$ (3,864)
Balance, April 30, 1999..... 11,658 $ 116 $ 51,490 (283) $ (1,556) $ (8,174) $ (1,013)
</TABLE>

See accompanying notes to consolidated financial statements.

25
<PAGE> 27

ANSOFT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
------------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities
Net income (loss) ..................... $ (2,808) $ 4,073 $ (6,450)
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation .......................... 983 640 299
Amortization .......................... 1,691 1,495 429
Acquired in process research and
development ......................... -- -- 8,754
Deferred taxes ........................ (1,211) (465) (420)
Changes in assets and liabilities
Accounts receivable ................... (1,180) (3,336) (1,971)
Prepaid expenses and other assets ..... (173) (254) (191)
Other long-term assets ................ (251) (257) 10
Accounts payable ...................... (205) 385 (196)
Accrued wages and expenses ............ (169) (778) (13)
Deferred revenue ...................... 1,415 653 152
-------- -------- --------
Net cash provided (used) by operating
activities............................. (1,908) 2,156 403
-------- -------- --------
Cash flows from investing activities
Purchases of plant and equipment ...... (2,549) (1,532) (811)
Investment in acquired businesses ..... (770) (2,285) (8,600)
Sale of marketable securities ......... -- 534 5,878
Purchases of marketable securities .... (16,521) -- (11,614)
-------- -------- --------
Net cash used in investing activities ... (19,840) (3,283) (15,147)
-------- -------- --------
Cash flows from financing activities
Proceeds from line of credit, net ..... 7,446 (4,208) 4,208
Purchase of treasury stock ............ (4,177) -- --
Proceeds from the issuance of common
stock, net .......................... 314 25,700 120
-------- -------- --------
Net cash provided by financing activities 3,583 21,492 4,328
-------- -------- --------
Net increase (decrease) in cash and cash
Equivalents ........................... (18,165) 20,365 (10,416)
Effect of exchange rate changes on
cash ................................ (23) -- --
Cash and cash equivalents at beginning of
Period ................................ 20,677 312 10,728
-------- -------- --------
Cash and cash equivalents at end of
period ................................ $ 2,489 $ 20,677 $ 312
======== ======== ========

Supplemental disclosures of cash flow
Information
Cash paid for interest ................ $ 106 $ 160 $ 221
======== ======== ========
Cash paid for income taxes ............ $ 44 $ 80 $ 13
======== ======== ========
Plant and equipment acquired through
assumption of liability ............. $ 203 $ 179 $ --
======== ======== ========
</TABLE>

See accompanying notes to consolidated financial statements.

26
<PAGE> 28

ANSOFT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Business

Ansoft is a leading developer of electronic design automation ("EDA")
software. Its products are used by engineers in the design of high performance
electrical devices and systems, such as cellular phones, satellite
communications, computer circuit boards, motors and ABS braking systems.

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries, from the date of inception or acquisition. All
intercompany transactions have been eliminated. Effective July 24, 1996, April
9, 1997 and August 8, 1997, the Company acquired the Electronic Business Unit
(the "EBU") of The MacNeal Schwendler Company ("MSC"), Compact Software Inc.
("Compact"), and Boulder Microwave Technologies, Inc. ("Boulder"), respectively.
The Company acquired the majority interest in Pacific Numerix Corporation
("Pacific Numerix") on April 28, 1999.

Use of Estimates

The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenues
and expenses and disclosure of contingent assets and liabilities. The estimates
and assumptions used in the accompanying financial statements are based on
management's evaluation of the relevant facts and circumstances as of the date
of the financial statements. Actual results may differ from those estimates.

Cash Equivalents

Cash equivalents include only highly liquid debt instruments purchased with
original maturity dates of three months or less.

Marketable Securities

Marketable Securities consist of corporate bonds and government agency
issues and are classified as of April 30, 1999 and 1998, as available for sale.
Marketable securities available for sale are recorded at fair market value based
on quoted market prices and any unrecorded gains or losses are recorded as a
separate component of stockholders' equity. Costs of investments sold are
determined on the basis of specific identification.

Plant and Equipment

Plant and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation for financial reporting purposes is computed using
the straight-line method based upon the estimated useful lives of the assets
which range from three to seven years. Assets acquired under capital leases and
leasehold improvements are amortized over their useful life or the lease term,
as appropriate.

Intangible Assets

Intangible assets consist mainly of customer lists, established workforce,
and purchased technology which are being amortized on a straight line basis over
seven, three and three years, respectively. Purchased technology represents
acquired software which has been fully developed, achieved technological
feasibility, reached commercial viability, and is generating revenue. The
carrying value of intangible assets are reviewed whenever circumstances occur
which indicate that the carrying value may not be recoverable.

27
<PAGE> 29

Revenue Recognition

Revenue consists primarily of fees for licenses of the Company's software
products, maintenance and customer support.

Software Revenue. Prior to May 1, 1998, the Company complied with the
American Institute of Certified Public Accountants' (AICPA) Statement of
Position (SOP) 91-1,"Software Revenue Recognition". Revenue from the sale of
software licenses was recognized after shipment of the products and fulfillment
of acceptance terms, if any, providing that no significant vendor and
post-contract support obligations remained and collection of the related
receivable was probable. Any remaining insignificant vendor or post-contract
support obligations were accrued at the time the revenue was recognized. In the
first quarter of fiscal 1999, the Company adopted the provisions of the AICPA
SOP 97-2, "Software Revenue Recognition" (SOP 97-2). SOP 97-2 generally requires
revenue earned on software arrangements involving multiple elements to be
allocated to each element based on the relative fair values of the elements. The
revenue allocated to software products generally is recognized after shipment of
the products and fulfillment of acceptance terms. The effect of adopting SOP
97-2 was not material.

Service and Other Revenue. Maintenance revenue is deferred and recognized
ratably over the term of the maintenance agreement, which is typically 12
months. Revenue from customer training, support and other services is recognized
as the service is performed. Other revenue consists primarily of revenue earned
on development contracts with government-sponsored entities. Revenue under these
arrangements is recognized as the service is performed.

Software Development Costs

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. Valuation allowances are established
when necessary to reduce deferred tax assets to the amounts expected to be
realized.

Net Income (Loss) Per Share

"Basic earnings (loss) per share" is calculated based upon the weighted
average number of common shares actually outstanding, and "diluted earnings per
share" is calculated based upon the weighted average number of common shares
outstanding and other potential common shares if they are dilutive.

28
<PAGE> 30
The following is a reconciliation of the numerators and denominators of the
basic and diluted EPS computations for the years presented:

<TABLE>
<CAPTION>
Income Per share
(loss) Shares amount
-------- ------ ---------
<S> <C> <C> <C>
Fiscal year ended April 30, 1999
--------------------------------
Basic net income (loss) per share... $ (2,808) 11,310 $ (0.25)

Effect of dilutive securities:
Stock options.................... -- -- $ --
-------- ------ =======

Diluted net income (loss) per
share............................... $ (2,808) 11,310 $ (0.25)
======== ====== =======

Fiscal year ended April 30, 1998
--------------------------------
Basic net income (loss) per share $ 4,073 9,681 $ 0.42
Effect of dilutive securities:
Stock options.................... -- 840 $ (0.03)
-------- ====== =======
Diluted net income (loss) per
share............................... $ 4,073 10,521 $ 0.39
======== ====== =======

Fiscal year ended April 30, 1997
--------------------------------
Basic net income (loss) per share... $ (6,450) 7,955 $ (0.81)

Effect of dilutive securities:
Stock options.................... -- -- $ --
-------- ------ -------
Diluted net income (loss) per
share............................... $ (6,450) 7,955 $ (0.81)
======== ====== =======
</TABLE>

Stock Based Compensation

The Company accounts for stock-based compensation in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards (SFAS) No. 123 "Accounting for Stock-Based Compensation." This
statement permits a company to choose either a fair value based method of
accounting for its stock-based compensation arrangements or the APB Opinion 25
intrinsic value based method adding pro forma disclosures of net income and
earnings per share computed as if the fair value based method had been applied
in the financial statements. The Company has elected to retain APB Opinion 25
method of accounting for stock-based compensation with annual pro forma
disclosures of net income and earnings per share.

Comprehensive Income

In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 130 "Reporting Comprehensive Income,"
which was adopted by the Company in the first quarter of fiscal 1999. SFAS No.
130 establishes rules for the reporting and display of comprehensive income and
its components; however, the adoption of this Statement had no impact on the
Company's results of operations or stockholders' equity. SFAS No. 130 requires
companies to report a new, additional measure of income on the income statement
or to create a new financial statement that has the new measure of income on it.
"Comprehensive income" includes foreign currency translation gains and losses
and other unrealized gains and losses that have been previously excluded from
net income and reflected instead in equity. The Company has reported the
components of comprehensive income on its consolidated statements of
stockholders' equity.

2. ACQUISITIONS AND RELATED INTANGIBLE ASSETS

On July 24, 1996, the Company acquired the EBU for $5,600 in cash. On April
9, 1997, the Company acquired all of the outstanding capital stock of Compact
for $3,000 in cash and 1,273 shares of the Company's Common Stock. On August 11,
1997, the Company acquired Boulder by the merger of Boulder with and into the
Company, in consideration for $743 in cash and 108 shares of the Company's
Common Stock. On April 28th, 1999, Ansoft acquired the majority of the
outstanding stock of Pacific Numerix for $3,221, consisting of 373 shares and
$600 in cash. The cost of these acquisitions has been allocated on the basis of
the estimated fair value of the assets acquired and the liabilities assumed. The
allocation of the EBU and Compact acquisitions resulted in charges of $3,100 and
$5,700 recorded, respectively, in fiscal 1997 based on the future expected cash
flows of certain acquired in process research and development that had not
reached technological feasibility. The acquisitions have been accounted for as
purchases, and their respective financial results have been included in the
accompanying consolidated financial statements since the date of their
respective acquisitions.

The following unaudited pro forma summary presents information as if the
acquisition of Pacific Numerix occurred at the beginning of the periods
presented. The pro forma information is provided for information purposes only.
It is based on historical information and does not necessarily reflect the
actual results that would have occurred, nor is it necessarily indicative of
future results of operations of the combined enterprise.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
---------------------------
1999 1998
------- -------
<S> <C> <C>
Revenue...................... $26,864 $29,562
Pro forma net income (loss).. $(4,553) $ 3,357
Pro forma net income (loss)
per diluted common share... $ (0.39) $ 0.31
</TABLE>

3. PLANT AND EQUIPMENT

Plant and equipment consist of the following:

<TABLE>
<CAPTION>
APRIL 30,
-------------------
1999 1998
------- -------
<S> <C> <C>
Computers and equipment...... $ 6,237 $ 4,232
Furniture and fixtures....... 903 628
Leasehold improvements....... 389 120
------- -------
7,529 4,980
Less allowances for
depreciation and
amortization........... 2,866 1,883
------- -------

$ 4,663 $ 3,097
======= =======
</TABLE>

29
<PAGE> 31
4. INTANGIBLE ASSETS

Intangible assets consist of the following:

<TABLE>
<CAPTION>
APRIL 30,
-------------------
1999 1998
------- -------
<S> <C> <C>
Customer list................ $10,281 $ 8,146
Established work force....... 1,679 1,206
Purchased technology......... 1,398 273
Goodwill..................... 574 574
------- -------
13,932 10,199
Less allowances for
amortization............... 3,593 1,902
------- -------
$10,339 $ 8,297
======= =======
</TABLE>

5. MARKETABLE SECURITIES

Marketable securities, classified as available for sale, are summarized as
follows:

<TABLE>
<CAPTION>
UNREALIZED
AMORTIZED GAIN MARKET
COST (LOSS) VALUE
------- ----- -------
<S> <C> <C> <C>
April 30, 1999
Marketable Securities... $23,181 $(990) $22,191

April 30, 1998
Marketable Securities... $ 6,660 $ 43 $ 6,703
</TABLE>

The carrying values of marketable securities as of April 30, 1999, by
maturity is shown below:

<TABLE>
<S> <C>
Due in less than one year.. $16,461
Due in one to five years... 1,664
Due in five to ten years... 4,067
-------
$22,191
=======
</TABLE>

Gross realized gains (losses) on sales of securities in fiscal 1999, 1998
and 1997 were immaterial.

6. LINE OF CREDIT

The Company has available a $10,000 secured line of credit from a
domestic financial institution at an interest rate equal to LIBOR plus an
applicable margin rate. The line of credit is secured by the marketable
securities held with the institution. As of April 30, 1999, $7,400 was the
outstanding balance on the line of credit and the weighted average interest
rate was 4.52%.

7. LEASES

The Company leases its corporate headquarters in Pittsburgh, Pennsylvania,
and other facilities under operating lease agreements which expire over the next
six years. Rental expense incurred by the Company under operating lease
agreements totaled $1,281, $978 and $548 for the years ended April 30, 1999,
1998 and 1997, respectively. The future minimum lease payments for such
operating leases as of April 30, 1999, are:

<TABLE>
<CAPTION>
YEAR ENDING APRIL 30,
----------------------
<S> <C>
2000............ 1,025
2001............ 915
2002............ 872
2003............ 817
2004............ 629
Thereafter...... 1,126
-------
$ 5,384
=======
</TABLE>

30
<PAGE> 32

8. STOCKHOLDERS' EQUITY

In February 1998, the Company closed its public offering of 2,300 shares of
Common Stock. The net proceeds of the offering were approximately $25,500, after
deducting applicable costs and expenses.

In April 1996, the Company closed its initial public offering of 1,500
shares of common stock at $8.50 per share. The net proceeds of the offering were
approximately $11,400, after deducting applicable costs and expenses.

9. COMMON STOCK OPTIONS

The Company's 1988 Stock Option Plan (1988 Plan) authorizes the issuance of
850 shares of Common Stock for the grant of incentive or nonstatutory stock
options to employees and directors. Under the terms of the 1988 Plan, options to
purchase Common Stock are granted at no less than the stock's estimated fair
market value at the date of the grant and may be exercised during specified
future periods as determined by the Board of Directors. The 1988 Plan provides
that the options shall expire no more than ten years after the date of the
grant.

In March 1995, the Board of Directors approved a 1995 Stock Option Plan
(1995 Plan) that authorized the issuance of up to 350 shares of Common Stock for
the grant of incentive or no statutory stock options to employees and directors.
The Board of Directors approved an additional 1,850 shares of Common Stock for
grant. Under the terms of the 1995 Plan, options to purchase Common Stock are
granted at no less than the stock's estimated fair market value at the date of
the grant and may be exercised during specified future periods as determined by
the Board of Directors. The 1995 Plan provides that the options shall expire no
more than ten years after the date of the grant.

Shares underlying outstanding options under the 1988 Plan and the 1995 Plan are
as follows:

<TABLE>
<CAPTION>
SHARES UNDERLYING
OUTSTANDING OPTIONS
------------------------
SHARES PRICE
-------- ------------
<S> <C> <C>
Outstanding, April 30, 1996... 835 $1.00--$2.00
Granted..................... 270 $5.00--$6.50
Exercised................... (80) $1.14--$2.00
Canceled.................... (33) $2.00--$5.38
------- ------------
Outstanding, April 30, 1997... 992 $1.00--$6.50
======= ============
Granted..................... 544 $5.00--$16.63
Exercised................... (121) $1.00--$5.38
Canceled.................... (100) $2.00--$10.13
------- -------------
Outstanding, April 30, 1998... 1,515 $1.00--$16.63
======= =============
Granted..................... 1,135 $5.06--$5.56
Exercised................... (142) $1.14--$5.38
Canceled.................... (426) $2.00--$16.63
------- -------------
Outstanding, April 30, 1999... 2,073 $1.14--$6.00
======= =============
</TABLE>

Options to purchase 822 shares of Common Stock were exercisable as of April
30, 1999 and options to purchase 728 shares of Common Stock were available for
future grant as of April 30, 1999.

In addition to the options described above, the Chairman of the Board of
Directors received an option to purchase 200 shares of Common Stock at an
exercise price of $5.00 per share in April 1995. At that time, such exercise
price was considered to be above the estimated fair market value. As of April
30, 1998, all such options were still outstanding and unexercised. The options
expire ten years after the date of the grant.

As permitted under Statement of Financial Accounting Standards No. 123
("SFAS 123"), "Accounting for Stock-Based Compensation," the Company has elected
to follow Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and related Interpretations, in accounting for
stock-based awards to employees. Under APB 25, because the exercise price of the
Company's employee stock options generally equals the market price of the
underlying stock on the date of grant, no compensation expense has been
recognized in the Company's consolidated financial statements during fiscal
1999, 1998 or 1997.

31
<PAGE> 33

Pro forma information regarding net income and earnings (loss) per share is
required by SFAS 123. This information is required to be determined as if the
Company had accounted for its employee stock options (including shares issued
under the Stock Purchase Plan, collectively called "options") granted subsequent
to April 30, 1995 under the fair value method prescribed by SFAS 123. The fair
value of options granted in fiscal years 1999, 1998 and 1997, reported below has
been estimated at the date of grant using a Black-Scholes option pricing model
with the following weighted average assumptions:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
-------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Risk-free rate (%)
Low............................ 4.05 5.79 5.55
High........................... 5.67 6.42 6.54
Volatility (%).................... 54.00 34.00 55.92
Expected Life (in Years).......... 9.66 10.0 10.0
Dividend Yield (%)................ 0.00 0.00 0.00
</TABLE>

The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's options have characteristics significantly different from those of
traded options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in the opinion of management, the
existing models do not necessarily provide a reliable single measure of the fair
value of its options. However, based solely on this analysis, the weighted
average estimated fair value of employee stock options granted during 1999, 1998
and 1997 was $3.57, $5.82 and $3.94 per share, respectively.

For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information follows (unaudited):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED APRIL 30,
---------------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Pro forma net income (loss)............ $(3,742) $ 3,373 $(6,711)
Pro forma net income (loss) per common
share................................ $ (0.33) $ 0.32 $ (0.84)
</TABLE>

Because the Company anticipates making additional grants and options vest
over several years, the effects on pro forma disclosures of applying SFAS 123
are not likely to be representative of the effects on pro forma disclosures of
future years. SFAS 123 is applicable only to options granted subsequent to April
30, 1995.

The following table summarizes information about stock options outstanding
as of April 30, 1999:

<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------
OPTIONS EXERCISABLE
WEIGHTED- -------------------------
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE EXERCISABLE AVERAGE
EXERCISE AT APRIL 30, CONTRACTUAL EXERCISE AT APRIL 30, EXERCISE
PRICES 1999 LIFE PRICE 1999 PRICE
-------- ------------ ----------- --------- ------------ --------
<S> <C> <C> <C> <C> <C>
$1.14--$2.00 405 4.74 $1.82 377 $1.81
$3.50--$5.00 575 6.90 $4.86 334 $4.76
$5.06--$6.00 1,093 9.10 $5.20 111 $5.34
</TABLE>

32
<PAGE> 34

10. EXPORT SALES, MAJOR CUSTOMERS AND CREDIT RISK

Export sales, principally to Asia, accounted for 52%, 48% and 41% of total
product revenue in 1999, 1998 and 1997, respectively. Included in export sales
to Asia were sales to Japan, which accounted for approximately 16%, 16% and 13%
of total revenue in fiscal 1999, 1998, and 1997, respectively. No other foreign
country accounted for more than 10% of total revenue during these periods.

The Company entered into a distribution arrangement with Hewlett-Packard
Corporation ("HP") under which HP formerly distributed the Company's HFSS
product on an exclusive basis (the "HP Agreement"). The HP Agreement has since
expired, and HP has no right to distribute the Company's HFSS 4.0 product. The
Company currently sells the latest version of its HFSS product, Ansoft HFSS 6.0,
through its own sales force and other distributors. Revenue from the HP
Agreement accounted for 3% and 12% of total revenue in fiscal 1998 and 1997,
respectively.

The Company markets its software products to customers throughout the world
directly and through distributors and generally does not require collateral.
However, letters of credit are obtained from certain international customers
prior to shipment. The Company performs ongoing credit evaluations of its
customers and maintains an allowance for potential credit losses. The Company
believes that it has adequately provided for credit losses.

11. INCOME TAX

The provisions for income taxes consists of the following:

<TABLE>
<CAPTION>
APRIL 30,
---------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Current:
Federal ......... $ -- $ 333 $ --
Foreign ......... -- -- --
State ........... -- 95 --
------- ------- -------
Total ........ -- 428 --
Deferred:
Federal ......... (1,057) (1,447) (316)
State ........... (153) 19 (104)
------- ------- -------
Total ........ (1,210) (1,428) (420)
------- ------- -------
Total benefit for
income taxes .... $(1,210) $(1,000) $ (420)
======= ======= =======
</TABLE>

The Company's actual income tax expense (benefit) differs from the expected
income tax expense (benefit) computed by applying the statutory federal income
before income taxes as a result of the following:

<TABLE>
<CAPTION>
APRIL 30,
-----------------------------
1999 1998 1997
------ -------- --------
<S> <C> <C> <C>
Income tax expense (benefit) at
statutory rate............................ $(1,366) $ 1,044 $ (2,335)
State income tax, net of federal
offset.................................... (101) 142 (419)
Net deductible intangible assets............ -- -- --
Expiration of state net operating
losses.................................... -- 241 61
Change in valuation allowance............... 43 (2,857) 2,258

Reduction in state deferred tax due
to decrease in state effective tax rate... 243 --
Other, net.................................. 214 187 15
------- -------- --------
Actual income tax benefit................... $(1,210) $ (1,000) $ (420)
======= ======== ========
</TABLE>

In addition to the income tax expense (benefit) reported above, a deferred
tax liability of $640 was recorded during the fiscal year ended April 30, 1998
in connection with the acquisition of Boulder.

33
<PAGE> 35

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are presented below:

<TABLE>
<CAPTION>
APRIL 30,
--------------------
1999 1998
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforward ........................ $ 3,295 $ 2,089
Allowance for doubtful accounts ........................ 66 56
Alternative minimum tax credit carryforward ............ 86 --

Foreign Tax Credit carryforward ........................ --
Intangible Assets ...................................... 71 --
Net Unrealized Losses on Available for Sale Securities.. 340 -----
------- -------
Total gross deferred tax assets .......................... 3,858 $ 2,145
Less valuation allowance ................................. 383 --
------- -------
Net deferred tax assets .................................. 3,475 2,145
------- -------
Deferred tax liabilities:
Intangible assets ...................................... (61)
Property, plant, and equipment ......................... (356) (176)
------- -------
Total gross deferred tax liability ....................... (356) (237)
------- -------
Net deferred taxes ....................................... $ 3,119 $ 1,908
======= =======
</TABLE>

The valuation allowance for deferred tax assets as of May 1, 1998 and 1997
was $0 and $2,857, respectively. The net change in the total valuation allowance
for the years ended April 30, 1999 and April 30, 1998 was an increase of $383
and a decrease of $2,857, respectively. Management evaluates the recoverability
of the deferred tax assets and the level of the valuation on a quarterly basis.
In assessing the realizability of the deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income,
and tax planning strategies in making this assessment.

An additional gross deferred tax benefit of $340 was generated in the year
ended April 30, 1999 with respect to unrealized losses on available for sale
securities. Since the use of the unrealized loss is limited to offsetting
capital gains, management placed a valuation of $340 upon this deferred tax
asset, and no benefit was reported in stockholder's equity or income.

As of April 30, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of $9,100 which are available to offset future
federal taxable income, if any, through April 30, 2019.

11. EMPLOYEE BENEFIT PLAN

The Company has a 401(k) savings and retirement plan which covers its
full-time employees who have attained the age of 21 and have completed six
months of service. Eligible employees make voluntary contributions to the plan
up to 15% of their annual compensation. The Company is not required to
contribute, nor has it contributed, to the 401(k) Plan.

12. COMMITMENTS AND CONTINGENCIES

The Company is not a party to any litigation and is not aware of any
threatened litigation, unasserted claims or assessments that could have a
material adverse effect on the Company's business, consolidated operating
results or consolidated financial condition.

34
<PAGE> 36

PART IV

ITEM 14. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) documents filed as part of this report:

1. Financial statements. The following consolidated financial statements of the
company are filed as part of this annual report on form 10-k.

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report............................................................................... 22
Consolidated Balance Sheets as of April 30, 1999 and 1998.................................................. 23
Consolidated Statements of Operations for the years ended April 30, 1999, 1998 and 1997.................... 24
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the years
ended April 30, 1999, 1998 and 1997...................................................................... 25
Consolidated Statements of Cash Flows for the years ended April 30, 1999, 1998 and 1997.................... 26
Notes to Consolidated Financial Statements................................................................. 27

2. Financial Statement Schedule:

Schedule II--Valuation and Qualifying Accounts for the years ended April 30, 1999, 1998 and 1997................ 37
</TABLE>

Financial statement schedules not listed above have been omitted because
they are inapplicable, are not required under applicable provisions of
Regulation S-X, or the information that would otherwise be included in such
schedules is contained in the registrant's financial statements or accompanying
notes.

2. Exhibits. The Exhibits listed below are filed or incorporated by reference as
part of this Annual Report on Form 10-K.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ ----------------------------------------------------------------------
<C> <S>
1.1 Underwriting Agreement (incorporated by reference from Registration
Statement No. 333-40189)
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference from Registration Statement No. 333-40189)
3.2 Certificate of Amendment to the Company's Amended and Restated Certificate of
Incorporation (incorporated by reference from Registration Statement No. 333-40189)
3.3 Bylaws of the Company (incorporated by reference from Registration Statement
No. 333-1398).
5.1 Opinion of Buchanan Ingersoll Professional Corporation regarding the legality of the
shares of common stock of Ansoft Corporation being registered (incorporated by reference
from Registration Statement No. 333-40189)
10.1 1988 Stock Option Plan of the Company (incorporated by reference from Registration
Statement No. 333-1398).
10.2 1995 Stock Option Plan of the Company (incorporated by reference from Registration
Statement No. 333-1398).
10.3 Zoltan Cendes Stock Option Agreement, dated April 30, 1995 (incorporated by
reference from Registration Statement No. 333-1398).
10.4 Office Lease Agreement between Commerce Court Associates and the Company dated June 7, 1989
(incorporated by reference from Registration Statement No. 333-1398).
10.5 Amendment No. 1 to Office Lease Agreement between Commerce Court Associates
and the Company dated March 17, 1994 (incorporated by reference from Registration
Statement No. 333-1398).
10.6 Software Distribution Agreement, by and between the Company and Hewlett-Packard, dated January
1, 1994 (incorporated by reference from Registration Statement No. 333-1398).
10.7 First Amendment to Software Distribution Agreement, by and between the Company and
Hewlett-Packard, dated May 9, 1995 (incorporated by reference from Registration
Statement No. 333-1398).
10.8 Second Amendment to Software Distribution Agreement, by and between the Company and
Hewlett-Packard, dated September 7, 1995 (incorporated by reference from Registration
Statement No. 333-1398).
10.9 Underwriting Agreement dated April 3, 1996 by and between Registrant and
Janney Montgomery Scott Inc. and Pennsylvania Merchant Group Ltd., as
representatives for the Underwriters identified therein (incorporated by reference from
Registration Statement No. 333-1398).
10.10 Jacob K. White Stock Option Agreement dated February 1, 1996, as amended (incorporated by
reference from Registration Statement No. 333-40189)
10.11 John N. Whelihan Stock Option Agreement dated February 1, 1996, as amended.
(incorporated by reference from Registration Statement No. 333-40189)
10.12 Asset Purchase Agreement by and between Ansoft Corporation and The MacNeal-Schwendler
Corporation dated as of July 24, 1996 for the Electronic Business Unit (incorporated by
reference from the Company's Current Report filed on Form 8-K dated August 9, 1996, as
amended by the Company's Current Report filed on
</TABLE>

35
<PAGE> 37

<TABLE>
<C> <S>
Form 8-K/A dated October 8, 1997).
10.13 Stock Purchase Agreement by and between Ansoft Corporation and Dr. Ulrich L.
Rohde and Dr. Meta Rohde dated as of April 9, 1997 (incorporated by reference from
the Company's Current Report filed on Form 8-K dated April 22, 1997, as amended
by the Company's Current Report filed on Form 8-K/A dated June 26, 1997).
10.14 Registration Rights Agreement between the Company and Dr. Ulrich L. Rohde
and Dr. Meta Rohde dated as of April 9, 1997.
21.1 Subsidiaries of the registrant (incorporated by reference from the Company's Annual Report on
Form 10-K for the fiscal year ended April 30, 1997).
23.1 Consent of Buchanan Ingersoll Professional Corporation (incorporated by
reference from Registration Statement No. 333-40189)
24.1 Powers of Attorney (incorporated by reference from Registration Statement No. 333-40189)
*27.1 Financial Data Schedule.
</TABLE>

*Filed herewith

(b) Reports on Form 8-K filed during the last quarter of fiscal 1999.

None.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized on July 16, 1999

ANSOFT CORPORATION

By /s/ NICHOLAS CSENDES
--------------------
Nicholas Csendes
President

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on July 16, 1999.

SIGNATURE TITLE

/s/ NICHOLAS CSENDES Director and President and Chief
----------------------------- Executive Officer (Principal
Nicholas Csendes Executive Officer)

/s/ ZOLTAN J. CENDES Director and Chief Technology
----------------------------- Officer and Chairman of the Board
Zoltan J. Cendes of Directors

/s/ THOMAS A.N. MILLER Director
-----------------------------
Thomas A.N. Miller

/s/ ULRICH L. ROHDE Director
-----------------------------
Ulrich L. Rohde

/s/ JOHN N. WHELIHAN Director
-----------------------------
John N. Whelihan

/s/ JACOB WHITE Director
-----------------------------
Jacob White

/s/ ANTHONY L. RYAN Chief Financial Officer (Principal
----------------------------- Financial and Accounting Officer)
Anthony L. Ryan

36
<PAGE> 38

Schedule II-Valuation and Qualifying Accounts
(In thousands)

<TABLE>
<CAPTION>
Balance as of Additions Balance as of
the Beginning Charged to Costs the End of
of the Period and Expenses Deductions the Period
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Year ended April 30, 1999
Allowance for doubtful
accounts 150 25 -- 175

Year ended April 30, 1998
Allowance for doubtful
accounts 125 25 -- 150

Year ended April 30, 1997
Allowance for doubtful
accounts 125 -- -- 125
</TABLE>

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STATEMENT OF
INCOME FOR YEAR ENDED APRIL 30, 1998 AND THE BALANCE SHEET AT APRIL 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> APR-30-1999
<CASH> 2,489
<SECURITIES> 22,191
<RECEIVABLES> 8,820
<ALLOWANCES> 175
<INVENTORY> 0
<CURRENT-ASSETS> 28,430
<PP&E> 4,663
<DEPRECIATION> 983
<TOTAL-ASSETS> 52,630
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0
0
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</TABLE>