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 September 30, 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 |X| NO ||
Number of shares outstanding of the issuer's common stock
as of November 11, 1998
Class Number of Shares Outstanding
Common Stock, par value $0.0001 per share 17,787,650
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1998 and September 30, 1998
Consolidated Statements of Operations
Three months ended September 30, 1997 and 1998
Consolidated Statement of Stockholders' Equity
Three months ended September 30, 1998
Consolidated Statements of Cash Flows
Three months ended September 30, 1997 and 1998
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures
About Market Risk
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>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and per share data)
September 30,
June 30, 1998
1998 (Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 42,222 $ 45,573
Accounts receivable, net of allowance
for doubtful accounts of $612, and
$788 respectively 10,733 7,104
Software license installments, current portion 7,330 8,837
Other current assets 1,682 1,806
-------- --------
Total current assets 61,967 63,320
Software license installments,
non-current portion, net of allowance for
doubtful accounts of $767 and $904 respectively 13,686 13,112
Property and equipment, net 2,932 3,080
Other assets 215 220
-------- --------
Total assets $ 78,800 $ 79,732
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 9,471 $ 6,891
Deferred maintenance revenue 11,408 13,317
Deferred income taxes 2,054 1,864
Other liabilities 969 1,748
-------- -------
Total current liabilities 23,902 23,820
-------- -------
Deferred maintenance revenue,
non-current portion 5,616 4,997
Deferred income taxes 3,124 3,272
Capital lease obligations, less current portion 36 21
Stockholders' equity:
Common stock $.0001 par value; authorized 40,000,000
shares; issued and outstanding 17,694,500 and
17,787,150, shares, respectively 2 2
Additional paid-in capital 47,994 48,102
Deferred compensation (2,076) (1,714)
Retained earnings 12,199 13,090
Cumulative foreign currency translation adjustment 3 142
Treasury stock, at cost, 4,091,000
and 4,091,000 shares, respectively (12,000) (12,000)
-------- --------
Total stockholders' equity 46,122 47,622
-------- --------
Total liabilities and stockholders' equity $ 78,800 $ 79,732
======== ========
See accompanying notes to consolidated financial
statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
Three Months Ended
September 30,
1997 1998
Revenues:
Software license revenues $ 5,697 $10,169
Maintenance and other revenues 4,183 5,587
------- -------
Total revenues 9,880 $15,756
------- -------
Costs of revenues:
Software license revenues 366 311
Maintenance and other revenues 692 1,304
------- -------
Total costs of revenues 1,058 1,615
------- -------
Gross profit 8,822 14,141
------- -------
Operating expenses:
Sales and marketing 4,700 8,346
Research and development 1,681 2,571
General and administrative 1,462 1,654
Stock compensation expense - 323
------- -------
Total operating expenses 7,843 12,894
------- -------
Income from operations 979 1,247
License and other interest income 325 672
Interest expense (4) (7)
Foreign currency transaction losses (3) (33)
------- -------
Income before income taxes 1,297 1,879
Provision for income taxes 750 988
------- -------
Net income available to common stock $ 547 $ 891
======= =======
Basic earnings per share $ 0.05 $ 0.05
Basic weighted average shares
outstanding 10,909 17,747
Diluted earnings per share $ 0.03 $ 0.05
Diluted weighted average
shares outstanding 16,510 18,724
See accompanying notes to consolidated financial
statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Cumulative
Foreign
Additional Currency Total
Common Stock Paid in Retained Deferred Translation Treasury Stock Stockholders'
Shares Amount Capital Earnings Compensation Adjustment Shares Amount Equity
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1998 17,695 $ 2 $47,994 $12,199 $(2,076) $ 3 4,091 $(12,000) $46,122
Net income - - - 891 - - - - 891
Unrealized translation gain - - - - - 139 - - 139
Stock options exercised 92 - 147 - - - - - 147
Change in deferred compensation - - (39) - 362 - - - 323
-------------------------------------------------------------------------------------------
Balance at September 30, 1998 17,787 $ 2 $48,102 $13,090 $(1,714) $142 4,091 $(12,000) $47,622
===========================================================================================
</TABLE>
See accompanying notes to consolidated
financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
September 30,
1997 1998
Cash flows from operating activities:
Net income $ 547 $ 891
Adjustments to reconcile net
income to net cash provided
by operating activities:
Deferred income taxes 613 (42)
Depreciation and amortization 155 264
Stock compensation expense -- 323
Change in operating assets and liabilities:
Accounts receivable, net 1,866 3,629
Software license installments (1,694) (933)
Other assets (471) (129)
Accounts payable and accrued expenses (2,850) (2,580)
Other liabilities (91) 810
Deferred maintenance revenue 3,068 1,290
------- -------
Total adjustments 596 2,632
------- -------
Net cash provided by operating activities 1,143 3,523
------- -------
Cash flows used in investing activities:
Capital expenditures (134) (412)
------- -------
Cash flows from financing activities:
Cash Received from exercise of stock options -- 116
Payments on capital lease obligations (14) (15)
------- -------
Net cash (used in) provided by financing activities (14) 101
------- -------
Effect of exchange rate changes on
cash and cash equivalents (80) 139
------- -------
Net change in cash and cash equivalents 915 3,351
Cash and cash equivalents at beginning
of period 5,672 42,222
------- -------
Cash and cash equivalents at end of period $ 6,587 $45,573
======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 4 $ 7
Income taxes 223 200
See accompanying notes to consolidated
financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements as of June 30, 1998 and
September 30, 1998 and for the three month periods ended September 30, 1997 and
1998 have been prepared in accordance with the requirements of the Securities
and Exchange Commission (SEC) for interim reporting. As permitted under those
rules, certain footnotes or other financial information that are normally
required by generally accepted accounting principles (GAAP) can be condensed or
omitted.
Revenues, expenses, assets and liabilities vary during the year and GAAP
requires us to make estimates and assumptions in preparing our interim financial
statements. We have made our best effort in establishing good faith estimates
and assumptions, however actual results may differ.
We are responsible for the financial statements included in this Form 10-Q.
These financial statements include all normal and recurring adjustments that are
necessary for the fair presentation of our financial position, results of
operations and changes in cash flow. These statements should be read in
conjunction with the consolidated financial statements and notes in our latest
Form 10-K.
(2) Earnings Per Share
Basic EPS is computed by dividing income available to common stockholders by the
weighted average number of shares of common stock 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. Stock options were dilutive instruments in both
periods and our Series A Convertible Preferred Stock was dilutive for the three
months ended September 30, 1997.
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 September 30,
1997 1998
-------------- --------------- ------------ ------------- --------------- -----------
Net Income Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income $547 $891
==== ====
Weighted average shares
outstanding 10,909 17,747
Basic EPS $0.05 $0.05
===== =====
Diluted EPS:
Net income $547 $891
==== ====
Dilutive effect of
convertible securities 4,091 -
Dilutive effect of
stock options 1,510 977
------ ------
Diluted EPS 16,510 $0.03 18,724 $0.05
====== ===== ====== =====
</TABLE>
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(3) Software License Installments
We offer extended payment terms to some of our customers. For software license
contracts of 15 years, the related financing period is generally 5 years. For
software installment contracts of 3 to 5 years, the payments are generally
spread ratably over the term. Software license installments are discounted at a
market rate of interest at the date the software license contract revenue is
recognized. The discount is amortized to interest income using the interest
method over the term of the license contract.
(4) Property and Equipment
Property and equipment consist of the following (in thousands):
June 30, September 30,
1998 1998
----- ------
Furniture, fixtures and office equipment $ 508 $ 564
Computer equipment 4,410 4,745
Leasehold improvements 544 574
------ ------
5,462 5,883
Less accumulated depreciation and amortization (2,530) (2,803)
------ ------
Property and equipment, net $2,932 $3,080
====== ======
Depreciation and amortization expense on property and equipment, including
capital leases, was $156,000 and $264,000 for the three month period ended
September 30, 1997 and September 30, 1998, respectively.
(5) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in thousands):
June 30, September 30,
1998 1998
------ ------
Accounts payable $ 801 $ 647
Compensation and related benefits 4,872 2,180
Royalty payable 1,318 1,418
Other 2,480 2,646
------ ------
$9,471 $6,891
====== ======
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(6) Stock Incentive Plan
In January, February and March 1998 we granted 350,000, 370,000 and 53,000 stock
options, respectively, under our 1996 Stock 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. We
subsequently determined that these options were granted at exercise prices below
the fair market value of $14.00 per share, the low end of our preliminary range
of per share prices for our Initial Public Offering. As a result, for the three
months ended September 30, 1998, we recognized $323,000 of compensation expense
related to these stock options. We expect to recognize an additional
compensation expense of approximately $1,714,000 in future periods. This
compensation expense will be amortized over the respective option holders'
service periods, adjusted for option holders' terminations.
(7) Subsequent Events
Our revolving line of credit expired on October 20, 1998. We are in negotiations
to extend, expand or replace our line of credit for working capital. We expect
that the new line of credit will be secured by certain assets and may contain
certain financial restrictions and covenants such as maintaining minimum amounts
of cash, net worth and profitability. In connection with the lease of our
corporate headquarters, we have a $500,000 letter of credit with Silicon Valley
Bank. We are in the process of decreasing this letter of credit to $275,000 in
compliance with the terms of our lease.
<PAGE>
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this section, readers are given a more detailed assessment of our operating
results and changes in financial position. This section should be read in
conjunction with our Consolidated Financial Statements and Notes. Please note
that references in this section to "last year's quarter" and "this quarter"
refer to our fiscal quarter ended September 30, 1997 and 1998, respectively.
our quarterly revenues and operating results have varied substantially from
quarter to quarter in the past, and are likely to continue to do so in the
future. Certain factors underlying such fluctuations, as well as a number of
other factors relevant to a reader's understanding of this Management Discussion
and Analysis, are set forth under the heading "Factors Affecting Future
Performance" contained in our Form 10-K, the full text of which is incorporated
in this Form 10-Q by this reference. 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 our 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 economic and
business conditions, the demand for our goods and services, and technological
advances and competitive factors in the markets in which we compete. These risks
and uncertainties are described in detail from time to time in our filings with
the Securities and Exchange Commission, including our Form 10-K filed on
September 28, 1998. We accept no obligation to update these forward-looking
statements and do not intend to do so.
Overview
We are 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 our products to
facilitate customer service and other mission-critical functions.
<PAGE>
Results of Operations
The following table presents our Consolidated Statements of Income as a
percentage of total revenues for the periods indicated:
Three Months Ended
September 30,
1997 1998
-------------------
(Unaudited)
Revenues:
Software license revenues 57.7% 64.5%
Maintenance and other revenues 42.3 35.5
----- -----
Total revenues 100.0 100.0
Costs of revenues:
Software license revenues 3.7 2.0
Maintenance and other revenues 7.0 8.3
----- -----
Total costs of revenues 10.7 10.3
----- -----
Gross profit 89.3 89.7
Operating expenses:
Sales and marketing 47.6 53.0
Research and development 17.0 16.3
General and administrative 14.8 10.5
Stock compensation expense - 2.0
----- -----
Total operating expenses 79.4 81.8
----- -----
Income from operations 9.9 7.9
Miscellaneous income, net 3.2 4.0
----- -----
Income before income taxes 13.1 11.9
Provision for income taxes 7.6 6.2
----- -----
Net income available to common stock 5.5% 5.7%
===== =====
Three Months Ended September 30, 1997 Compared to Three Months Ended
September 30, 1998
Revenues.
o Software license revenues increased 78.5% from $5.7 million in last
year's quarter to $10.2 million this quarter. The increase was
primarily attributable to increased sales of the ViewDirect and
DocumentDirect products.
o Maintenance and other revenues increased 33.6% from $4.2 million in
last year's quarter to $5.6 million this quarter. 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.
o Total revenues increased 59.5% from $9.9 million in last year's
quarter to $15.8 million this quarter. U.S. revenues increased 42.2%
from $8.9 million in last year's quarter to $12.7 million this quarter.
Our international revenues increased 224.0% from $941,000 in last
year's quarter to $3.0 million this quarter. Our total revenues
have increased primarily because we have sold more licenses for
our products to new and existing customers.
<PAGE>
Costs of Revenues.
o Costs of license revenues consist primarily of royalties and sublicense
fees. The costs of license revenues decreased 15.0% from $366,000 in last
year's quarter to $311,000 this quarter, representing 6.4% and 3.1%,
respectively, of license revenues in those periods. This decrease was a
result of changes in the mix of products subject to royalties and a
decrease in the number of software components subject to royalties.
o Costs of maintenance and other revenues consist primarily of customer
support staff costs. The costs of maintenance and other revenues increased
88.4% from $692,000 in last year's quarter to $1.3 million this
quarter, representing 16.5% and 23.3% of maintenance and other
revenues, respectively. This increase was primarily attributable to
increased staffing and related personnel costs.
Operating Expenses.
o Sales and marketing. These expenses consist primarily of the cost of
personnel associated with the selling and marketing of our products,
including salaries, commissions, bonus and travel and entertainment costs.
Sales and marketing expenses also include the cost of branch sales offices,
marketing, promotional materials and advertising. Sales and marketing
expenses increased 77.6% from $4.7 million in last year's quarter to $8.3
million this quarter. This increase was primarily attributable to hiring
more sales staff, which increased personnel related costs.
o Research and development. These 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 52.9% from $1.7 million in last year's quarter to $2.6 million
this quarter. The increase is primarily attributable to increased staffing
and personnel-related costs. We believe that a significant level of
research and development expenses will be required to maintain our
competitive position in the future.
o General and administrative. These expenses 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 13.1%
from $1.5 million in last year's quarter to $1.7 million this quarter. This
increase is primarily due to hiring additional personnel and was offset by
a decrease in professional fees this quarter, as compared to last year's
quarter. We expect general and administrative expenses to increase in
fiscal 1999 as a result of adding personnel needed to support our continued
expansion of our operations.
License and other interest income; interest expense; foreign currency
transaction gains (losses). License and other interest income consists of
interest on cash balances and a portion of license payments under installment
contracts allocated to interest based on a discount rate. License and other
interest income increased from $325,000 in last year's quarter to $672,000 this
quarter primarily as a result of the earnings on higher cash balances.
Interest expense consists primarily of costs associated with our capital lease
obligations. Foreign currency losses consist of realized transaction losses
relating to foreign currency exchange rate fluctuations. Both interest expense
and foreign currency transaction losses were not material in last year's quarter
and this quarter.
<PAGE>
Provision for Income Taxes. The provision for income taxes was $750,000 in last
year's quarter and $988,000 this quarter. The effective tax rates for these
respective periods were 57.8% and 52.6%. The difference between these rates and
the U.S. Federal statutory rate is primarily attributable to not being able to
consolidate foreign subsidiary losses for income tax purposes. The effective tax
rate has decreased as a result of a decrease in the amount of certain foreign
subsidiary operating losses that can be consolidated for income tax purposes and
some foreign subsidiary tax operating profits being offset by prior period tax
operating losses.
Liquidity and Capital Resources
Since our inception, we have funded our operations principally through cash
flows from operating activities and, to a lesser extent, bank financings and
capital leases. As of September 30, 1998, we had cash and cash equivalents of
$45.6 million, an increase of $3.4 million from the $42.2 million held at June
30, 1998.
Net cash provided by operating activities was $1.1 million and $3.5 million in
the first three months of fiscal 1998 and 1999, respectively. Our cash position
was improved by collection efforts, resulting in lower days sales outstanding.
Software license installments, which, in total, increased 4.4% from $21.0
million at June 30, 1998 to $21.9 million this quarter represent payments due
from customers for license fees that are paid over 3-5 year terms.
Our cash position has also benefited from increases in deferred maintenance
revenue, which in total, has increased 7.6% from $17.0 million at June 30, 1998
to $18.3 million this quarter. 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 $134,000 in last year's quarter and $412,000 this quarter.
Net cash used in financing activities was $14,000 in last year's quarter and
related to the repayment of capital leases. Net cash provided by financing
activities was $101,000 this quarter due to cash received from the exercise of
stock options.
Our revolving line of credit expired on October 20, 1998. We are in negotiations
to extend, expand or replace our line of credit for working capital. We expect
that the new line of credit will be secured by certain assets and may contain
certain financial restrictions and covenants such as maintaining minimum amounts
of cash, net worth and profitability. In connection with the lease of our
corporate headquarters, we have a $500,000 letter of credit with Silicon Valley
Bank. We are in the process of decreasing this letter of credit to $275,000 in
compliance with the terms of our lease.
We believe that our existing cash balances and cash flows expected from future
operations will be sufficient to meet our capital requirements for at least 12
months.
Year 2000 Compliance
Many currently installed operating systems and software products are coded to
accept only two digit entries in the date code field. These date code fields
need additional digits to distinguish 21st century dates from 20th century
dates. As a result, computer systems and/or software used by many companies may
need to be upgraded to comply with such "Year 2000" requirements. Significant
uncertainty exists in the software industry concerning the potential effects
associated with such compliance. Since our products are designed for long-term
storage and retrieval of data with end of life dates well beyond 2000, we
believe that our products are and have been Year 2000 compliant. There can be no
assurance that our products will not experience Year 2000 compliance
difficulties, or that third party products, including operating systems, that
are not Year 2000 compliant will not have a detrimental effect on the operation
of our products.
We believe that the purchasing patterns of our customers and potential customers
may be significantly affected by Year 2000 issues. Many companies are expending
significant resources to correct or modify their current software systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase software products such as those offered by the Company. Conversely,
Year 2000 issues may cause other companies to accelerate purchases, thereby
causing an increase in short-term demand and a consequent decrease in long-term
demand for software products.
Additionally, Year 2000 compliance issues could cause a significant number of
companies, including our customers, to re-evaluate their current systems' needs,
and as a result, consider switching to other systems or suppliers. This could
have a material adverse effect on our business, operating results and financial
condition.
Management has initiated a Company-wide program to prepare our internal computer
systems and applications (such as our accounting and word processing programs)
for Year 2000 compliance. We expect to incur internal staff costs as well as
other expenses necessary during the course of such efforts and we expect to both
replace some systems and upgrade others. Maintenance or modification costs will
be expensed as incurred. The total cost of this effort is still being evaluated,
but we do not expect the cost to be material.
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
None
Item 2 - Changes in Securities and Use of Proceeds
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) On April 27, 1998, the Securities and Exchange Commission declared effective
our Registration Statement on Form S-1 (File No. 333-47117) with respect to our
initial public offering. To date, we have not used any of the approximately $33
million of proceeds from the offering. The proceeds are currently invested in
short term, investment grade, interest bearing securities.
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
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 (EDGAR only)
99.1 Factors Affecting Future Performance
* Filed as an exhibit to Mobius' Registration Statement on Form S-1
(File No. 333-47117) or an amendment thereto and incorporated herein by
reference to the same exhibit number.
(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: November 13, 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
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 (EDGAR only)
99.1 -- Factors Affecting Future Performance
* Filed as an exhibit to Mobius' Registration Statement on Form S-1 (File
No. 333-47117) or an amendment thereto and incorporated herein by reference to
the same exhibit number.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial Information extracted
from the Balance Sheet and Income Statement for the three months
ended September 30, 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.
<MULTIPLIER> 1,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1.0
<CASH> 45,573
<SECURITIES> 0
<RECEIVABLES> 7,892
<ALLOWANCES> 788
<INVENTORY> 0
<CURRENT-ASSETS> 63,320
<PP&E> 5,883
<DEPRECIATION> 2,803
<TOTAL-ASSETS> 79,732
<CURRENT-LIABILITIES> 23,820
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 47,620
<TOTAL-LIABILITY-AND-EQUITY> 79,732
<SALES> 15,756
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<OTHER-EXPENSES> 4,548
<LOSS-PROVISION> 0
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<INCOME-PRETAX> 1,879
<INCOME-TAX> 988
<INCOME-CONTINUING> 891
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</TABLE>
The following is an excerpt from our Form 10-K filed on September 28, 1998.
We accept no obligation to update these forward-looking statements and do
not intend to do so.
FACTORS AFFECTING FUTURE PERFORMANCE
Fluctuations in Period to Period Results; Seasonality; Uncertainty of
Future Operating Results
Our quarterly revenues and operating results have varied significantly
in the past and are likely to vary substantially from quarter to quarter in the
future. Quarterly revenues and operating results are expected to fluctuate as a
result of a variety of factors, including lengthy product sales cycles, changes
in the level of operating expenses, demand for our products, introductions of
new products and product enhancements by Mobius or its competitors, changes in
customer budgets, competitive conditions in the industry and general domestic
and international economic conditions.
The timing, size and nature of individual license transactions are
important factors in the Company's quarterly operating results. Many of our
license transactions involve large dollar commitments by customers, and the
sales cycles for these transactions are often lengthy and unpredictable. There
can be no assurance that we will be successful in closing large license
transactions within the fiscal quarter in which they are budgeted, if at all.
We have often recognized a substantial portion of our revenue in the
last month of the quarter and often in the last week of that month. As a result,
license fees in any quarter are often substantially dependent on orders booked
and shipped in the last month or last week of that quarter. Accordingly, delays
in the closing of sales near the end of a quarter could cause quarterly revenues
and, to a greater degree, net income, to fall substantially short of anticipated
levels.
Our business has experienced and is expected to continue to experience
significant seasonality, with revenues typically peaking primarily in our fourth
(June) fiscal quarter and to a lesser extent in our second (December) fiscal
quarter. These fluctuations are caused primarily by customer purchasing patterns
and the Company's sales force incentive programs, which recognize and reward
sales personnel on the basis of achievement of annual and other periodic
performance quotas, as well as by the factors described above.
We recognize revenue in accordance with Statement of Position ("SOP")
91-1, "Software Revenue Recognition", issued by the American Institute of
Certified Public Accountants ("AICPA"). For transactions occurring on or after
July 1, 1998, we will be required to recognize revenue in accordance with SOP
97-2, "Software Revenue Recognition", issued by the AICPA in October 1997, which
supersedes SOP 91-1. For a discussion of the possible effect the adoption of
SOP 97-2 may have on our financial results in general, and the recognition of
revenues in specific periods in particular, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
Due to all of the foregoing factors and other factors described below,
revenues for any period are subject to significant variation, and we believe
that period-to-period comparisons of our operating results are not necessarily
meaningful. Such comparisons may not be reliable indicators of future
performance.
Technological Change
The market for our software is characterized by a high degree of
technological change, frequent new product introductions, evolving industry
standards and changes in customer demands. The introduction of competitive
products embodying new technologies and the emergence of new industry standards
could render our existing products obsolete and unmarketable. Our future success
will depend in part on our ability to enhance existing products and to develop
and introduce new products to meet diverse and evolving customer requirements
and keep pace with technological developments and emerging industry standards
such as new operating systems, hardware platforms, user interfaces and storage
media. The development of new products or enhanced versions of existing products
and services entails significant technical risks. There can be no assurance that
we will be successful in developing and marketing product enhancements or new
products that respond to technological change or evolving industry standards,
that the Company will not experience difficulties that could delay or prevent
the successful development, introduction, implementation and marketing of these
products and enhancements, or that any new products and product enhancements we
may introduce will achieve market acceptance.
Product Concentration
To date, a substantial portion of our revenues have been attributable
to the licensing of our ViewDirect and DocumentDirect software and the provision
of related maintenance services. We currently expect this to continue for the
foreseeable future. As a result, factors adversely affecting the pricing of, or
demand for, these products and services, such as competition or technological
change, could have a material adverse effect on our business, operating results
and financial condition.
Competition
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. We think the most important competitive
factors in the market for storage, retrieval and presentation software are
scalability, breadth of supported operating systems and document formats, ease
of use, product reputation, quality, performance, price, sales and marketing
effort and customer service. We currently encounter direct competition from a
number of public and private companies including Computer Associates
International, Computron Software, Inc., FileNet Corporation, International
Business Machines Corp., Eastman Kodak Co., New Dimension Software Ltd., and RSD
S.A. Due to the relatively low barriers to entry in the software market,
additional competition from other established and emerging companies is likely
as the market for storage, retrieval and presentation software continues to
develop and expand. Some of these companies are substantially larger than Mobius
and have significantly greater financial, technical and marketing resources, and
a larger installed base of customers, than Mobius. Some of such competitors also
have extensive direct and indirect channels of distribution. As a result, they
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements, or to devote greater resources to the development,
promotion and sale of their products than Mobius. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves with prospective customers. Accordingly, it is
possible that new competitors or alliances among competitors may emerge and
rapidly acquire significant market share. Increased competition may result in
price reductions, reduced gross margins and loss of market share, any of which
would have a material adverse effect on the Company's business, operating
results and financial condition. There can be no assurance that Mobius will be
able to compete successfully against current or future competitors or that
competitive pressures will not have a material adverse effect on our business,
operating results and financial condition.
<PAGE>
International Sales and Operations
We believe that our revenues and future operating results will depend
in part on our ability to increase sales in international markets. Our
international subsidiaries have not been profitable to date, and we expect
achieving profitability will require significant management attention and
financial resources. There can be no assurance that we will be able to maintain
or increase international market demand for our products or hire additional
qualified personnel who will successfully be able to market our products
internationally. Our international sales are subject to the general risks
inherent in doing business abroad, including unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs and difficulties of
localizing products for foreign countries, lack of acceptance of localized
products in foreign countries, longer accounts receivable payment cycles,
difficulties in managing international operations, potentially adverse tax
consequences, restrictions on the repatriation of earnings, the burdens of
complying with a wide variety of foreign laws and economic instability. There
can be no assurance that such factors will not have a material adverse effect on
our future international revenues and, consequently, on our business, operating
results and financial condition.
An increase in the value of the U.S. dollar relative to foreign
currencies could make our products more expensive, and, therefore, potentially
less competitive in those markets. Although we do not currently engage in
international currency hedging transactions, we are exploring the possibility of
doing so in the future. To the extent that the U.S. dollar strengthens against
foreign currencies in international markets in which we maintain operations, our
net assets that are denominated in such foreign currencies will be devalued,
resulting in a foreign currency translation loss. For more information on our
international operations, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in Item 7 and Notes 2 and 12 of Notes to
Consolidated Financial Statements.
Expansion of Indirect Channels
To date, sales through indirect sales channels have been immaterial. We
intend to invest resources to develop these channels; however, if our efforts do
not generate sufficient license revenues our operating results will be
negatively impacted. Our ability to achieve revenue growth in the future will be
affected by our success in expanding existing and establishing additional
relationships with strategic partners. We expect to receive lower unit prices
when selling through indirect channels, therefore, if we are successful in
selling products through indirect channels; our gross margins as a percentage of
revenue will decrease.
Extended Payment Risk
Terms of sale are a competitive factor in our markets. We offer
extended payment terms to some of our customers, generally three years for
server products and five years for client products. The license revenue for
these extended payment agreements is recorded at the time of sale as the present
value of the contract payments expected over the life of the agreement, net of
bundled maintenance fees. Interest income from these agreements is recognized
over the term of the financing based on the discount rate used by the Company to
determine present value. Although we have established reserves against possible
future bad debts and we believe that these installment contracts are enforceable
and that ultimate collection is probable, there can be no assurances that
customers will not default under such financing arrangements, or that any such
default would not have a material adverse effect on the Company's business,
operating results and financial condition. For more information on these
extended payment agreements see Notes 2 and 3 of Notes to Consolidated Financial
Statements.
<PAGE>
Protection of Intellectual Property
Our success is heavily dependent upon our confidential and proprietary
intellectual property. We have no patents or patent applications pending
covering any aspect of our software products. We rely primarily on a combination
of confidentiality agreements, copyright, trademark and trade secret laws and
confidentiality procedures to protect our proprietary rights. Trade secret and
copyright laws afford only limited protection to Mobius. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our products or obtain and use information that we regard as proprietary. In
addition, the laws of some foreign countries do not protect our proprietary
rights to as great an extent as do the laws of the United States. There can be
no assurance that our means of attempting to protect our proprietary rights will
be adequate or that our competitors will not independently develop similar or
competitive technology.
Our products are generally provided to customers in object code format
only. However, we enter into arrangements with our customers that releases the
source code to the customer upon the occurrence of certain events, such as
bankruptcy or insolvency of Mobius or certain material breaches of the license
agreement by Mobius. In the event of any release of the source code pursuant to
these arrangements, the customer's license is generally limited to use of the
source code to maintain, support and configure our software products.
Notwithstanding such provision, the delivery of source code to customers may
increase the likelihood of misappropriation or other misuse of our intellectual
property.
We are not aware that any of our products infringe the proprietary
rights of third parties. There can be no assurance, however, that third parties
will not claim infringement by Mobius with respect to current or future
products. Defense of any such claims, with or without merit, could be
time-consuming, result in costly litigation, cause product shipment delays or
require Mobius to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
Mobius or at all, which could have a material adverse effect on our business,
operating results and financial condition.
Dependence on Licensed Technology
We rely on certain software and other information that we license from
third parties, including software that is used to perform certain functions in
our products. Although we believe that there are alternatives for these
products, any significant interruption in the availability of such third-party
software could have a material adverse impact on our sales unless and until we
can replace the functionality provided by these products. In addition, we are to
a certain extent dependent upon such third parties' abilities to enhance their
current products, to develop new products on a timely and cost-effective basis
and to respond to emerging industry standards and other technological changes.
There can be no assurance that we would be able to replace the functionality
provided by the third party software currently offered in conjunction with our
products in the event that such software becomes obsolete or incompatible with
future versions of our products or is otherwise not adequately maintained or
updated. The absence of or any significant delay in the replacement of that
functionality could have a material adverse effect on our business, operating
results and financial condition.
Risk of Product Defects; Product Liability
Software products as complex as those offered by Mobius frequently
contain defects, especially when first introduced or when new versions are
released. Although we conduct extensive product testing, we have in the past
discovered software defects in certain of our new products and enhancements
after their introduction. We could in the future lose, or delay recognition of,
revenues as a result of software errors or defects. We believe that our
customers and potential customers are highly sensitive to defects in our
software. Although our business has not been materially adversely affected by
any such errors to date, there can be no assurance that, despite testing by
Mobius and by current and potential customers, errors will not be found in new
products or releases after commencement of commercial shipments, resulting in
loss of revenue or delay in market acceptance, diversion of development
resources, damage to our reputation, or increased service and warranty costs,
any of which could have a material adverse effect on our business, operating
results and financial condition.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. However,
it is possible that the limitation of liability provisions contained in our
license agreements may not be effective under the laws of certain jurisdictions.
Although we have not experienced any product liability claims to date, the sale
and support of products by Mobius may entail the risk of such claims, and there
can be no assurance that Mobius will not be subject to such claims in the
future. We do not maintain product liability insurance. A successful product
liability claim brought against Mobius could have a material adverse effect on
our business, operating results and financial condition.
Year 2000 Compliance
Many currently installed operating systems and software products are
coded to accept only two digit entries in the date code field. These date code
fields need additional digits to distinguish 21st century dates from 20th
century dates. As a result, computer systems and/or software used by many
companies may need to be upgraded to comply with such "Year 2000" requirements.
Significant uncertainty exists in the software industry concerning the potential
effects associated with such compliance. For a discussion on Year 2000
compliance by Mobius and how Year 2000 compliance may effect our future
performance, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations" in Item 7.
Management of Growth; Dependence on Senior Management and Other Key Employees
Our ability to effectively manage our future growth, if any, will
require us to continue to improve our operational, financial and management
controls, accounting and reporting systems, and other internal processes. There
can be no assurance that we will be able to make such improvements in an
efficient or timely manner or that any such improvements will be sufficient to
manage our growth, if any. If we are unable to manage growth effectively, our
business, operating results and financial condition would be materially
adversely affected.
Our success depends to a significant extent upon our senior management
and certain other key employees of Mobius. The loss of the service of senior
management or other key employees could have a material adverse effect on
Mobius. Furthermore, we believe that our future success will also depend to a
significant extent upon our ability to attract, train and retain highly skilled
technical, management, sales and marketing personnel. Competition for such
personnel is intense, and we expect that such competition will continue for the
foreseeable future. We have from time to time experienced difficulty in locating
candidates with appropriate qualifications. The failure to attract or retain
such personnel could have a material adverse effect on our business, operating
results and financial condition.
