SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-24077
Mobius Management Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3078745
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
120 Old Post Road, Rye, New York 10580 (Address of
principal executive offices) (zip code)
(914) 921-7200
(Registrant's telephone number, including area code)
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 | | NO |X|
Number of shares outstanding of the issuer's common stock as of June 8, 1998
Class Number of Shares Outstanding
Common Stock, par value $0.0001 per share 17,694,000
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX
Page
PART I FINANCIAL INFORMATION Number
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1997 and March 31, 1998
Consolidated Statements of Operations
Three and nine months ended March 31, 1997 and 1998
Consolidated Statements of Cash Flows
Nine months ended March 31, 1997 and 1998
Notes to Consolidated Interim Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of
Securities Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
Item 1 - Financial Statements
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and per share data)
March 31,
June 30, 1998
1997 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 5,672 $ 9,669
Accounts receivable, net of allowance
for doubtful accounts of $308, and
$503 respectively 7,793 3,142
Software license installments, current portion 4,615 5,756
Other current assets 474 1,941
------- ------
Total current assets 18,554 20,508
Software license installments,
non-current portion, net of allowance for
doubtful accounts of $413 and $722 respectively 7,871 12,409
Property and equipment, net 1,990 2,583
Other assets 87 101
-------- --------
Total assets $ 28,502 $ 35,601
======== ========
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 6,593 $ 4,304
Deferred maintenance revenue 7,494 10,416
Deferred income taxes 1,551 1,753
Other liabilities 134 205
------ ------
Total current liabilities 15,772 16,678
Deferred maintenance revenue,
non-current portion 3,661 5,619
Deferred income taxes 1,420 2,651
Capital lease obligations, less current portion 95 52
Convertible preferred stock, $.01 par
value; 40,910 shares outstanding 11,898 12,000
Stockholders' equity (deficit):
Common stock $.0001 par value; authorized
40,000,000 shares; issued 15,000,000 and
15,000,000, shares respectively; outstanding,
10,909,000, and 10,909,000 shares, respectively 1 1
Additional paid-in capital - 2,718
Deferred compensation - (2,405)
Retained earnings 7,636 10,255
Cumulative foreign currency
translation adjustment 19 32
Treasury stock, at cost, 4,091,000
and 4,091,000 shares, respectively (12,000) (12,000)
------- -------
Total stockholders' equity (deficit) (4,344) (1,399)
------- -------
Total liabilities, preferred stock
and stockholders' equity $ 28,502 $ 35,601
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
Three months Ended Nine months Ended
March 31, March 31,
1997 1998 1997 1998
<S> <C> <C> <C> <C>
Revenues:
Software license revenues $ 5,237 $ 8,075 $15,476 $22,368
Maintenance and other revenues 4,087 4,816 11,246 13,594
------ ------ ------ ------
Total revenues 9,324 12,891 26,722 35,962
Costs of revenues:
Software license revenues 276 217 804 895
Maintenance and other revenues 751 866 2,192 2,420
----- ----- ----- -----
Total costs of revenues 1,027 1,083 2,996 3,315
Gross profit 8,297 11,808 23,726 32,647
Operating expenses:
Sales and marketing 5,255 6,566 14,435 17,363
Research and development 1,533 1,975 4,343 5,525
General and administrative 1,136 1,740 3,047 4,744
Stock compensation expense - 313 - 313
----- ------ ------ ------
Total operating expenses 7,924 10,594 21,825 27,945
Income from operations 373 1,214 1,901 4,702
License and other interest income 223 541 551 1,373
Interest expense (4) (3) (15) (9)
Foreign currency transaction losses (8) (5) (7) (11)
----- ----- ----- -----
Income before income taxes 584 1,747 2,430 6,055
Provision for income taxes 354 979 1,397 3,334
Accretion on Preferred Stock -- -- - 102
----- ----- ----- -----
Net income available to common stock $ 230 $ 768 $1,033 $2,619
===== ===== ====== ======
Basic earnings per share $ 0.02 $ 0.07 $ 0.07 $ 0.24
Basic weighted average shares
outstanding 15,000 10,909 15,000 10,909
Diluted earnings per share $ 0.01 $ 0.05 $ 0.07 $ 0.16
Diluted weighted average
shares outstanding 15,853 16,435 15,350 16,277
Pro forma data (unaudited):
Pro forma basic earnings
per share $ 0.17
Pro forma basic weighted
average shares outstanding 15,080
Pro forma diluted earnings
per share $ 0.16
Pro forma diluted weighted
average shares outstanding 16,321
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited,in thousands, except share data)
Cumulative
Foreign Total
Additional Currency Stockholders'
Common Stock Paid in Deferred Retained Translation Treasury Stock Equity
Shares Amount Capital Compensation Earnings Adjustment Shares Amount (Deficit)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1997 10,909,000 $ 1 $ - $ - $7,636 $19 4,091,000 $(12,000) $(4,344)
Net Income - - - - 2,619 - - - 2,619
Unrealized translation gain - - - - - 13 - - 13
Deferred compensation - - 2,718 (2,718) - - - - -
Amortization of deferred
compensation - - - 313 - - - - 313
-------------------------------------------------------------------------------------------------
Balance at March 31, 1998 10,909,000 $ 1 $2,718 $(2,405) $10,255 $32 4,091,000 $(12,000) $(1,399)
=================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
March 31,
1997 1998
Cash flows from operating activities:
Net income $1,033 $2,619
Adjustments to reconcile net
income to net cash provided
by operating activities:
Deferred income taxes 962 1,433
Depreciation and amortization 220 508
Stock compensation expense - 313
Accretion of Preferred Stock - 102
Change in operating assets
and liabilities:
Accounts receivable, net 151 4,651
Software license installments (3,098) (5,679)
Other assets (1,149) (1,481)
Accounts payable and accrued expenses 50 (2,289)
Other liabilities (172) 71
Deferred maintenance revenue 2,933 4,880
----- -----
Total adjustments (103) 2,509
----- -----
Net cash provided by operating activities 930 5,128
Cash flows used in investing activities:
Capital expenditures (589) (1,101)
Cash flows used in financing activities:
Payments on capital lease obligations (135) (43)
Effect of exchange rate changes on
cash and cash equivalents 38 13
----- -----
Net change in cash and cash equivalents 244 3,997
Cash and cash equivalents at beginning
of period 4,447 5,672
----- -----
Cash and cash equivalents at end of period $4,691 $9,669
===== =====
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 15 $ 9
Income taxes $1,259 $1,804
See accompanying notes to consolidated financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited consolidated financial statements of Mobius
Management Systems, Inc. (the "Company") presented herein have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, the financial statements do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. These consolidated interim statements should be read in
conjunction with the consolidated financial statements and notes thereto for the
year ended June 30, 1997 and the six months ended December 31, 1997, included in
the Company's Registration Statement on Form S-1 filed with the Securities and
Exchange Commission on April 27, 1998.
These financial statements include all adjustments (consisting of normal
recurring adjustments) which management believes to be necessary for the fair
presentation of the financial position, results of operations and changes in
cash flow for the periods presented. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amount of
revenues and expenses during the reported period. Despite management's best
effort to establish good faith estimates and assumptions, actual results may
differ.
(2) Earnings Per Share
Effective December 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128
stipulates that the calculation of earnings per share (EPS) be shown for all
historical periods as Basic EPS and Diluted EPS. Basic EPS is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding during the period. The computation of Diluted EPS
is similar to the computation of Basic EPS except that it gives effect to all
potentially dilutive instruments that were outstanding during the period. Such
dilutive instruments include stock options, the conversion of Series A
Convertible Preferred Stock, and the conversion of the Class A Non-Voting Common
Stock.
The following is a reconciliation of the numerators and denominators for the
basic and diluted EPS calculations (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended March 31,
1997 1998
---------------------------------------------------------------------
Net Shares Per Net Shares Per
Income Share Income Share
(Numerator) (Denominator) Amount (Numerator)(Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income $230 $768
==== ====
Weighted average
shares outstanding 15,000 10,909
Basic EPS $0.02 $0.07
===== =====
Diluted EPS:
Net income $230 $768
==== ====
Dilutive effect of
convertible securities - 4,171
Dilutive effect of
stock options 853 1,355
------ ------
Diluted EPS 15,853 $0.01 16,435 $0.05
====== ===== ====== =====
</TABLE>
<PAGE>
(2) Earnings Per Share (continued)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1997 1998
------------- -------------- ----------- ------------ --------------- ----------
Net Per Net Per
Income Shares Share Income Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income $1,033 $2,619
====== ======
Weighted average
shares outstanding 15,000 10,909
Basic EPS $0.07 $0.24
===== =====
Diluted EPS:
Net income $1,033 $2,619
====== ======
Dilutive effect of
convertible securities - 4,127
Dilutive effect of
stock options 350 1,241
------ ------
Diluted EPS 15,350 $0.07 16,277 $0.16
====== ===== ====== =====
</TABLE>
(3) Property and Equipment
Property and equipment consist of the following (in thousands):
March 31,
1998
Furniture, fixtures and office equipment $ 1,145
Computer equipment 3,525
Leasehold improvements 421
-----
5,091
Less accumulated depreciation and amortization (2,508)
-----
Property and equipment, net $ 2,583
=====
Depreciation and amortization expense on property and equipment, including
capital leases, was $962,000 and $1,433,000 for the nine month periods ended
March 31, 1997 and March 31, 1998, respectively.
(4) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
March 31,
1998
Accounts payable $ 737
Compensation and related benefits 1,729
Royalty payable 905
Other 932
-----
$4,303
=====
(5) Common Stock
The Board of Directors authorized a 100-to-one stock split of the
Company's common stock. All common share and per share amounts have been
retroactively adjusted in the accompanying consolidated financial statements to
reflect the stock split.
<PAGE>
(6) Stock Incentive Plan
In January, February and March 1998 the Company granted 350,000, 370,000 and
53,000 stock options, respectively, under the 1996 Incentive Plan at an exercise
price of $9.86, $11.00 and $11.00 per share, respectively which were deemed by
the Board of Directors to be fair market values for the shares on these dates.
The Company subsequently determined that these options were granted at exercise
prices below the fair market value of $14.00 per share, the low end of the
Company's Initial Public Offering ("IPO") range. As a result, and assuming that
all such options vest in accordance with their terms, the Company expects to
incur total compensation expense of approximately $2,718,000, which will be
amortized over the respective option holders' service periods. For the three and
nine months ended March 31, 1998, $313,000 of compensation expense was
recognized.
(7) Initial Public Offering
In April 1998, the Company sold 2,500,000 shares of common stock at a price of
$14.50 per share in the IPO. The net proceeds to the Company were $33,112,500
after deducting the underwriting discount and estimated offering expenses
payable by the Company. As a result of the IPO, the Company's outstanding Series
A Convertible Stock and Class A Non-Voting Common Stock were converted into an
aggregate of 4,171,000 shares of Common Stock.
(8) Pro forma Earnings Per Share (unaudited)
Pro forma basic earnings per share is calculated by dividing income
available to common stockholders by the pro forma weighted average number of
common shares outstanding for the period. Pro forma diluted earnings per share
is calculated by dividing income available to common stockholders by the pro
forma weighted average number of common shares and potential common shares
outstanding for the period. Both the pro forma basic and diluted weighted
average shares include the conversion of the Series A Convertible Preferred
Stock and the Class A Non-Voting Common Stock into Common Stock. The following
is a reconciliation of the numerators and denominators for the pro forma basic
and pro forma diluted EPS calculation (in thousands, except per share data):
Nine Months Ended
March 31, 1998
Net Per
Income Shares Share
(Numerator)(Denominator) Amount
Pro forma basic EPS:
Net income $2,619
======
Weighted average shares outstanding 10,909
Common shares expected to be issued for
conversion of Preferred Stock 4,091
Common shares expected to be issued for
conversion of Class A Non-Voting Common Stock 80
------
Pro forma basic EPS 15,080 $0.17
=====
Pro forma diluted EPS
Net income $2,619
======
Dilutive effect of stock options 1,241
------
Pro forma diluted EPS 16,321 $0.16
====== =====
If the assumed conversion of the Series A Convertible Preferred Stock
and the Class A Non-Voting Common Stock into Common Stock had occurred as of
March 31, 1998, total stockholder's equity would have increased to $10,601,000.
The pro forma basic and diluted earnings per share giving effect to the
2,500,000 shares in the offering would be $0.14 for the nine months ended March
31, 1997 based on the pro forma basic and diluted weighted average shares
outstanding of 18,821,000 for the nine months ended March 31, 1997.
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto, and the other financial
information included in the Company's registration statement on Form S-1 dated
April 27, 1998. Statements contained in this quarterly report, other than
historical financial results, may contain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve risks and uncertainties. In particular, any statements
contained herein regarding expectations with respect to future sales and
profitability, as well as product development and/or introductions, are subject
to known and unknown risks, uncertainties and contingencies, many of which are
beyond the Company's control, which may cause actual results, performance or
achievements to differ materially from those projected or implied in such
forward-looking statements. Factors that might affect actual results,
performance or achievements include, among other things, overall econcomic and
business conditions, the demand for the Company's goods and services, and
technological advances and competitive factors in the markets in which the
Company competes. These risks and uncertainties are described in detail from
time to time in Mobius's filings with the Securities and Exchange Commission,
including its registration statement on Form S-1 dated April 27, 1998. Mobius
accepts no obligation to update these forward-looking statements and does not
intend to do so.
Overview
The Company is a leading provider of enterprise software products
designed to optimize the storage, retrieval and presentation of large volumes of
transactional information. Major financial services, healthcare, manufacturing,
retail and telecommunications companies and governmental entities use the
Company's products to facilitate customer service and other mission-critical
functions. Founded in 1981, the Company provided information storage, retrieval
and presentation products and support, as well as consulting services throughout
its first decade. In 1991, the Company decided to focus primarily on developing
and marketing software products and, as a result, sold its consulting services
business.
<PAGE>
Results of Operations
The following table sets forth certain items from the Company's
Consolidated Statement of Income as a percentage of total revenues for the
periods indicated:
Three Months Nine Months
Ended Ended
March 31, March 31,
1997 1998 1997 1998
(Unaudited)
Revenues:
Software license revenues 56.2% 62.6% 57.9% 62.2%
Maintenance and other revenues 43.8 37.4 42.1 37.8
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Costs of revenues:
Software license revenues 3.0 1.7 3.0 2.5
Maintenance and other revenues 8.0 6.7 8.2 6.7
---- ---- ---- ----
Total costs of revenues 11.0 8.4 11.2 9.2
Gross profit 89.0 91.6 88.8 90.8
Operating expenses:
Sales and marketing 56.4 51.0 54.0 48.3
Research and development 16.4 15.3 16.3 15.4
General and administrative 12.2 13.5 11.4 13.2
Stock compensation expense - 2.4 - 0.9
---- ---- ---- ----
Total operating expenses 85.0 82.2 81.7 77.8
Income from operations 4.0 9.4 7.1 13.0
License and other interest income 2.3 4.2 2.0 3.8
---- ---- ---- ----
Income before income taxes 6.3 13.6 9.1 16.8
Provision for income taxes 3.8 7.6 5.2 9.2
Accretion on Preferred Stock - - - 0.3
---- ---- ---- ----
Net income available to common stock 2.5% 6.0% 3.9% 7.3%
==== ==== ==== ====
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1998
Revenues. Total revenues, consisting principally of software license
revenues and maintenance and other revenues, increased 38.3% from $9.3 million
in the first three months of fiscal 1997 to $12.9 million in the first three
months of fiscal 1998. Domestic revenues increased 40.3% from $8.4 million in
the first three months of fiscal 1997 to $11.8 million in the same period in
fiscal 1998. International revenues increased 20.3% from $946,000 in the
first three months of fiscal 1997 to $1.1 million in the same period in fiscal
1998.
Software license revenues increased 54.2% from $5.2 million in the
first three months of fiscal 1997 to $8.1 million in the comparable period of
fiscal 1998. The increase was primarily attributable to increased sales of the
ViewDirect and DocumentDirect products.
Maintenance and other revenues increased 17.8% from $4.1 million for
the first three months of fiscal 1997 to $4.8 million in the first three months
of fiscal 1998. The increase was primarily attributable to the growth of the
number and size of software licenses covered by maintenance contracts. Other
revenues for both periods were not significant.
<PAGE>
Costs of Revenues. Costs of license revenues consist primarily of
royalties and sublicense fees. The costs of license revenues decreased 21.4%
from $276,000 in the first three months of fiscal 1997 to $217,000 in the
comparable period of fiscal 1998, representing 5.3% and 2.7%, respectively, of
license revenues in those periods. The decrease in the costs of license revenues
was primarily related to a decrease in the royalty fees for the
INFOPAC-TapeSaver product.
Costs of maintenance and other revenues consist primarily of customer
support staff costs. The costs of maintenance revenues increased 15.3% from
$751,000 in the first three months of fiscal 1997 to $866,000 in the first three
months of fiscal 1998, representing 18.4% and 18.0% of maintenance revenues,
respectively. The increase in the costs of maintenance and other revenues is
primarily attributable to increased staffing, bad debt reserves and personnel
related costs.
Operating Expenses. Sales and marketing expenses consist primarily of
the cost of personnel associated with the selling and marketing of the Company's
products, including salaries, commissions, bonus and travel and entertainment
costs. Sales and marketing expenses also include the cost of branch sales
offices, marketing and promotional materials and advertising. Sales and
marketing expenses increased 24.9% from $5.3 million in the first three months
of fiscal 1997 to $6.6 million in the comparable period of fiscal 1998. This
increase was primarily attributable to increased commissions and the cost of
travel and entertainment associated with increased revenues and expenses for
additional sales staff and personnel related costs, offset by a decrease in
subcontractor fees.
Research and development expenses consist primarily of personnel costs
attributable to the development of new software products and the enhancement of
existing products. Research and development expenses increased 28.8% from $1.5
million in the first three months of fiscal 1997 to $2.0 million in the
comparable period of fiscal 1998. The increase is primarily attributable to
increased staffing and personnel-related costs. The Company believes that a
significant level of research and development expenses will be required to
maintain its competitive position in the future.
General and administrative expenses primarily consist of personnel
costs related to management, accounting, human resources, network services,
administration and associated overhead costs, as well as fees for professional
services. General and administrative expenses increased 53.2% from $1.1 million
in the first three months of fiscal 1997 to $1.7 million in the comparable
period of fiscal 1998. The increase primarily reflects additional personnel
related costs as a result of the Company's expanded operations. The Company
expects general and administrative expenses to increase in fiscal 1998 as a
result of the costs associated with the regulatory and communication
requirements applicable to public companies.
License and other interest income; interest expense; foreign currency
transaction gains (losses). License and other interest income consists primarily
of the portion of license payments under installment contracts allocated by the
Company to interest based on a discount rate. License and other interest income
increased from $223,000 in the first three months of fiscal 1997 to $541,000 in
the comparable period of fiscal 1998 as a result of the larger balances of
software license installments.
Interest expense consists primarily of costs associated with the
Company's capital lease obligations. Foreign currency transaction losses consist
of income or expenses associated with the valuation of the Company's non-dollar
denominated assets held by its foreign subsidiaries. Both interest expense and
foreign currency transaction losses were not material in the third quarter of
each of fiscal years 1997 and 1998.
Provision for Income Taxes. The provision for income taxes was $354,000
for the first three months of fiscal 1997 and $979,000 for the comparable period
of fiscal 1998. The effective tax rates for these respective periods were 60.6%
and 56.0%. The difference between these rates and the applicable statutory rates
is primarily attributable to the unrecognized tax benefit related to operating
losses of the Company's foreign subsidiaries.
Nine Months Ended March 31, 1997 Compared to Nine Months Ended March 31, 1998
Revenues. Total revenues, consisting principally of software license
revenues and maintenance and other revenues, increased 34.6% from $26.7 million
in the first nine months of fiscal 1997 to $36.0 million in the first nine
months of fiscal 1998. Domestic revenues increased 33.2% from $24.1 million in
the first nine months of fiscal 1997 to $32.1 million in the same period in
fiscal 1998. International revenues increased 47.1% from $2.6 million in the
first nine months of fiscal 1997 to $3.9 million in the same period in fiscal
1998.
Software license revenues increased 44.5% from $15.5 million in the
first nine months of fiscal 1997 to $22.4 million in the comparable period of
fiscal 1998. The increase was primarily attributable to increased sales of the
ViewDirect and DocumentDirect products and, to a lesser extent, the INFOPAC- ABS
product and DocuAnalyzer.
Maintenance and other revenues increased 20.9% from $11.2 million for
the first nine months of fiscal 1997 to $13.6 million in the first nine months
of fiscal 1998. The increase was primarily attributable to the growth of the
installed base of customers with maintenance contracts, and, to a lesser extent,
increases in the fees charged by the Company. Other revenues for both periods
were not significant.
Costs of Revenues. Costs of license revenues consist primarily of
royalties and sublicense fees. The costs of license revenues increased 11.3%
from $804,000 in the first nine months of fiscal 1997 to $895,000 in the
comparable period of fiscal 1998, representing 5.2% and 4.0%, respectively, of
license revenues in those periods. The increase in the costs of license revenues
was primarily related to increased sales of DocuAnalyzer, which require the
Company to pay third party royalty fees.
The costs of maintenance and other revenues consist primarily of
customer support staff costs. The costs of maintenance revenues increased 10.4%
from $2.2 million in the first nine months of fiscal 1997 to $2.4 million in the
first nine months of fiscal 1998, representing 19.5% and 17.8% of maintenance
revenues, respectively. The increase in the costs of maintenance and other
revenues is primarily attributable to increased staffing and personnel-related
costs.
Operating Expenses. Sales and marketing expenses consist primarily of
the cost of personnel associated with the selling and marketing of the Company's
products, including salaries, commissions, bonus and travel and entertainment.
Sales and marketing expenses also include the cost of branch sales offices, bad
debts, marketing and promotional materials, tradeshows and advertising. Sales
and marketing expenses increased 20.3% from $14.4 million in the first nine
months of fiscal 1997 to $17.4 million in the comparable period of fiscal 1998.
This increase was primarily attributable to increased commissions and travel and
entertainment expenses associated with increased revenues and expenses for
additional sales staff and personnel related costs, offset by a decrease in
subcontractor expenses.
Research and development expenses consist primarily of personnel costs
attributable to the development of new software products and the enhancement of
existing products. Research and development expenses increased 27.2% from $4.3
million in the first nine months of fiscal 1997 to $5.5 million in the
comparable period of fiscal 1998. The increase is primarily attributable to
increased staffing and personnel related costs. The Company believes that a
significant level of research and development expenses will be required to
maintain its competitive position in the future.
General and administrative expenses primarily consist of personnel
costs related to management, accounting, human resources, network
services,administration and associated overhead costs, as well as fees for
professional services. General and administrative expenses increased 55.7% from
$3.0 million in the first nine months of fiscal 1997 to $4.7 million in the
comparable period of fiscal 1998. The increase primarily reflects additional
personnel related costs as a result of the Company's expanded operations. The
Company expects general and administrative expenses to increase in fiscal 1998
as a result of the costs associated with the regulatory and communication
requirements applicable to public companies.
License and other interest income; interest expense; foreign currency
transaction gains (losses). License and other interest income consists primarily
of the portion of license payments under installment contracts allocated by the
Company to interest based on a discount rate. License and other interest income
increased from $551,000 in the first nine months of fiscal 1997 to $1.4 million
in the comparable period of fiscal 1998 as a result of larger balance of
software license installments.
Interest expense consists primarily of costs associated with the
Company's capital lease obligations. Foreign currency transaction losses consist
of income or expenses associated with the valuation of the Company's non-dollar
denominated assets held by its foreign subsidiaries. Both interest expense and
foreign currency transaction losses were not material in the first nine months
of each of fiscal years 1997 and 1998.
Provision for Income Taxes. The provision for income taxes was $1.4
million for the first nine months of fiscal 1997 and $3.3 million for the
comparable period of fiscal 1998. The effective tax rates for these respective
periods were 57.5% and 55.1%. The difference between these rates and the
applicable statutory rates is primarily attributable to the unrecognized tax
benefit related to operating losses of the Company's foreign subsidiaries.
Liquidity and Capital Resources
Since its inception, the Company has funded its operations principally
through cash flows from operating activities and, to a lesser extent, bank
financings and capital leases. As of March 31, 1998, the Company had cash and
cash equivalents of $9.7 million, an increase of $4.0 million from the $5.7
million held at June 30, 1997.
Net cash provided by operating activities was $930,000 and $5.1 million
in the first nine months of fiscal 1997 and 1998, respectively. The Company's
cash position was improved by diligent collection efforts, resulting in lower
accounts receivable per dollar of revenue, offset by the increase in software
license installments. Software license installments, which, in total, increased
45.5% to $18.2 million at the nine months ended March 31, 1998 represent
payments due from customers for license fees that are paid over the term of the
installment agreement. These payments are typically made over 3-5 year terms.
Since payments are made over multiple reporting periods, software license
installments will increase with the increase in license revenue if the
percentage of licenses sold on this basis remains relatively stable, as it has
over the past 3 years.
The Company's cash position has also benefited from increases in
deferred maintenance revenue, which in total, has increased 43.7% to $16.0
million for the nine months ended March 31, 1998. Deferred maintenance revenue
represents the unrecognized portion of maintenance billings and the unrecognized
portion of maintenance revenue unbundled from customer license agreements which
are recognized ratably over the term of the agreement, or the first year of the
license agreement. These increases are primarily due to increases in license
fees, the increase in the number of customers covered by maintenance agreements
and, to a lesser extent, increases in the fees charged to customers for
maintenance.
Cash used in investing activities, consisting of capital expenditures
for the purchase of computer equipment and software used in product development
and customer support, was $589,000 and $1.1 million in the first nine months of
fiscal 1997 and 1998, respectively.
Cash used in financing activities, consisting of repayment of capital lease
obligations, was $135,000 and $43,000 for the first nine months of fiscal 1997
and 1998, respectively.
The Company currently has a $5.0 million line of credit for working
capital purposes secured by certain assets of the Company. The line of credit
requires the Company to maintain certain financial ratios and provides for
certain negative covenants by the Company including, among others, restrictions,
subject to the qualifications and limitations contained therein, on the
Company's ability to (i) dispose of a substantial part of its business or
property; (ii) change its business; (iii) materially change the Company's
ownership or management; (iv) merge or consolidate with any other business
organization, or acquire all or substantially all of the capital stock or
property of another person; (v) incur any indebtedness or encumbrances, other
than indebtedness or encumbrances specifically permitted by the line of credit;
and (vi) make any other distribution with respect to any capital stock of the
Company. The line of credit expires on October 20, 1998.
In April 1998, the Company sold 2,500,000 shares of common stock at a
price of $14.50 per share in the IPO. The net proceeds to the Company was
$33,112,500 after deducting the underwriting discount and estimated offering
expenses payable by the Company.
The Company believes that the net proceeds from the IPO, combined with
its existing cash balances, its line of credit and cash flows expected from
future operations, will be sufficient to meet the Company's capital requirements
for at least 12 months.
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities and Use of Proceeds
None
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
On February 25, 1998, in a Written Consent in lieu of a meeting of the
stockholders of the Company, a majority of the holders of the then outstanding
securities of the Company approved: (i) the Second Amended and Restated
Certificate of Incorporation of the Company; (ii) the Amended and Restated
By-laws of the Company; (iii) the Company's 1998 Employee Stock Purchase Plan
(the "Purchase Plan") and the reservation of 300,000 shares of Common Stock
which may be issued thereunder; (iv) the Company's 1998 Executive Compensation
Plan; (v) the Company's 1998 Director Incentive Plan (the "Director's Plan") and
the reservation of 250,000 shares of Common Stock which may be issued
thereunder; and (vi) the amendment to the Company's 1996 Stock Incentive Plan
(the "Incentive Plan") which, (a) increased the maximum number of shares of
Common Stock authorized for issuance thereunder from 3,000,000 to 3,480,000, (b)
reserved an additional 480,000 shares of Common Stock for issuance thereunder,
and ( c ) increased the number of shares the Board of Directors of the Company
is authorized to add to the Incentive Plan on an annual basis from 1% to 3% of
the then outstanding shares of Common Stock.
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
3.1* Form of Second Amended and Restated Certificate of Incorporation
of the Registrant.
3.2* Form of Amended and Restated By-Laws of the Registrant.
4.1* Specimen certificate representing the Common Stock
27 Financial Data Schedule
* Filed as an exhibit to the Registration Statement on Form S-1
(File No. 333-47117) and incorporated herein by reference.
(b) Reports on Form 8-K
Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: June 9, 1998
MOBIUS MANAGEMENT SYSTEMS, INC.
By: /s/ E. Kevin Dahill
E. Kevin Dahill
Vice President, Finance, Chief Financial
Officer and Treasurer (Principal
Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description Page no.
3.1* Form of Second Amended and Restated Certificate of Incorporation
of the Registrant.
3.2* Form of Amended and Restated By-Laws of the Registrant.
4.1* Specimen certificate representing the Common Stock
27 Financial Data Schedule
* Filed as an exhibit to the Registration Statement on Form S-1
(File No. 333-47117) and incorporated herein by reference.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial Information extracted
from the Balance Sheet and Income Statement for the nine months
ended March 31, 1998 for Mobius Management Systems, Inc. and
is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
<CIK> 0001025148
<NAME> MOBIUS MANAGEMENT SYSTEMS, INC.
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-1-1997
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