SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
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 registrant's (Zip code)
principal executive offices)
914-921-7200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.0001 par value NASDAQ
SECURITIED REGISTERED PURSUANT TO SECTION 12(g) of the Act: NONE
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
1943 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 |x|
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the closing sale price of common stock on
September_15, 1998 as reported on NASDAQ, was approximately $29 million. Shares
of common stock held by each officer and director and by each person who owns 5%
or more of the outstanding common stock have been excluded in that such persons
may be deemed affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of September 15, 1998, Registrant had outstanding 17,787,150 shares of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy statement to be
filed no later than October 28, 1998 pursuant to Regulation 14A, are
incorporated by reference in Items 10 through 13 of Part III of this Annual
Report on Form 10-K.
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MOBIUS MANAGEMENT SYSTEMS, INC.
FISCAL YEAR 1998 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I.
ITEM 1. Business.....................................................
ITEM 2. Properties...................................................
ITEM 3. Legal Proceedings............................................
ITEM 4. Submission of Matters to a Vote of Security Holders..........
PART II.
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters..........................................
ITEM 6. Selected Consolidated Financial Data..........................
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk...
ITEM 8. Financial Statements and Supplementary Data..................
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure..........................
PART III.
ITEM 10. Directors and Executive Officers of the Registrant...........
ITEM 11. Executive Compensation.......................................
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management........................................
ITEM 13. Certain Relationships and Related Transactions...............
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K..........................................
SIGNATURES
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FORWARD LOOKING STATEMENTS
Statements contained in this annual 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, those discussed in "Factors Affecting Future Performance" in
Item 1. Business. Mobius accepts no obligation to update these forward-looking
statements and does not intend to do so.
ITEM 1. BUSINESS
Mobius Management Systems, Inc. (together with its consolidated
subsidiaries, "Mobius" or the "Company") is a leading provider of 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 government entities
use our software to facilitate customer service and other mission-critical
functions. Our software products store, retrieve and present computer and
non-computer generated documents, such as text, images, video or audio
recordings, customer statements, checks, external correspondence and remittance
forms. Our products can be used by a single department, multiple departments or
centrally by an entire enterprise.
Mobius was incorporated in New York in 1981 and reincorporated in
Delaware in 1997. In March 1993, we established our first foreign subsidiary,
Mobius- U.K. and subsequently expanded our direct sales force to France,
Germany, Italy, Sweden, Australia and Switzerland. Our company headquarters are
located at 120 Old Post Road, Rye, NY 10580 and our telephone number is (914)
921-7200.
Industry Background
Organizations need to retain information for long periods of time to
meet operational, regulatory and legal requirements or to satisfy customer and
other inquiries. For example, credit card companies store a record of each
charge transaction; brokerage firms store records of every trade; and telephone
companies store records of individual telephone calls.
Organizations need to quickly and accurately retrieve such information
to improve customer service, meet legal requirements and reach more informed
business decisions. Customers have become dependent upon organizations to
accurately account for transaction and other information. Customers demand rapid
and consistent access to their records; in recent years this has expanded to
include self-service via the Internet.
Traditional approaches (paper, microfiche, relational databases) are
usually cumbersome and do not lend themselves to a fully integrated,
comprehensive information management system solution. Moreover, many
organizations maintain a number of discrete, non-integrated systems, each of
which provides access to only a portion of the organization's stored
information. When the organization needs to access all information about a
particular customer or transaction, these disparate systems make retrieval
costly and time consuming. Mobius seeks to fill the need for integrated system
solutions capable of storing, retrieving and presenting all information relevant
to a customer or transaction, regardless of format or storage site.
<PAGE>
Products
Mobius' products can be divided into server products, which act as hosts on
central processing computers (or networks) and client products, that access the
hosts software whenever host resources are needed. Our primary products are
ViewDirect, which stores and retrieves documents; DocumentDirect, which enables
document viewing; DocumentDirect for the Internet, the viewing application which
makes information available over the Internet and corporate intranets;
DocumentDirect Application Suite, a series of industry-specific application
templates for document viewing; and DocuAnalyzer, a data mining tool. In
addition, Mobius offers INFOPAC-Tapesaver for managing large tape storage
facilities and INFOPAC-ABS which is a data center quality control product.
Server Products
ViewDirect. ViewDirect stores and presents virtually any record of a
business transaction, including computer-generated reports; print-formatted
documents, such as customer statements; scanned images; transparent or undefined
transactions created in other environments; and associated documents, created
for display devices such as generic Internet browsers. ViewDirect provides
direct on-line access to information stored on disk, tape or optical devices. It
supports both host-based and network-based implementations, scaling from the
desktop to the department to the largest enterprise server.
Client Products
DocumentDirect. DocumentDirect is a Windows-based full-function viewer.
It provides a common "dashboard" through which the user is able to access any
type or number of documents stored in ViewDirect archives. DocumentDirect can
simultaneously display documents of diverse formats and facilitates the
annotation and reformatting of documents.
DocumentDirect for the Internet. DocumentDirect for the Internet is
designed to provide secure, self-service access to documents over the Internet
and corporate intranets. DocumentDirect for the Internet makes all the documents
in ViewDirect archives available for viewing via Internet browsers.
DocumentDirect Application Suite. DocumentDirect Application Suite is
designed to be used by a clerk or customer service representative who needs fast
access to documents in a well-defined, highly customized environment. It
comprises a seris of templates that meet a wide range of verticle industry
application needs in banking, insurance, financial services, telecommunications
and healthcare.
DocuAnalyzer. DocuAnalyzer is a Windows-based data mining product that
makes the data in the ViewDirect archive available for analysis without
re-keying. It simplifies the conversion of character data into a table format to
help with "drill-down", analysis, graphing and creation of new reports. Mobius
licenses DocuAnalyzer from a third party for resale.
Other Products
INFOPAC-TapeSaver. INFOPAC-TapeSaver is an enterprise server-based
software product that is designed to optimize the utilization of tape and tape
devices. Following user-defined rules, the product automatically consolidates
datasets, eliminating wasted space and freeing up tape cartridges.
INFOPAC-TapeSaver improves the efficiency of robotic tape devices by ensuring
that every cartridge is filled to its useful capacity and that high-activity
datasets are available for automated mounting.
INFOPAC-ABS. INFOPAC-ABS (Automated Balancing System) is an enterprise
server-based data integrity and quality control software tool. Data in computer
systems, databases, and end user applications originates from many sources. Due
to the large number of input sources, computer systems can and do become
unsynchronized. INFOPAC-ABS provides cross-application balancing of numerical
data resident in databases, files and reports to detect and assist in the
correction of out-of-balance situations. INFOPAC-ABS is used in Year 2000
conversions to audit applications, verify the accuracy of output and load
databases that include dates beyond 2000.
<PAGE>
Sales and Marketing
We sell and market our products primarily through a direct sales force
based in Chicago, with additional sales offices in Atlanta, GA; Boston, MA;
Dallas, TX; Denver, CO; Falls Church, VA; Fountain Valley, CA; Houston, TX;
Lawrenceville, NJ; Madison, WI; Minneapolis, MN; Rye, NY and St. Louis, MO.
In March 1993, we established our first foreign subsidiary, Mobius UK,
in England. In fiscal 1995, we established three more subsidiaries in France,
Germany and Italy. During this past fiscal year, we established two additional
subsidiaries in Sweden and Australia. In July 1998, Mobius established an
additional subsidiary in Switzerland. These subsidiaries provide Mobius with an
international direct sales force.
Customer Satisfaction
Mobius provides twenty-four hour, seven-day-a-week support services for all
of our products through our United States and European support centers (based in
New York and England, respectively). Complex diagnostics and product corrections
are provided exclusively through the United States support center. First line
support services for customers outside North America and England are typically
provided by our subsidiaries. In addition, Mobius has trained and certified five
professional service organizations--independent companies located across North
America and Europe--to provide customers with post sale assistance for our
products and on-site implementation services, if necessary.
Research and Development
We intend to continue to make substantial investments in research and
development to maintain and enhance our product lines. We believe that Mobius'
future success will, in large part, depend on its ability to maintain and
improve current products and develop new products that meet the emerging needs
of the marketplace. Our research and development efforts focus on designing and
developing reliable and easy-to-use products. Our product development cycle
(from funding a product development project until the new product is shipped to
the marketplace) typically is less than six months in order to take advantage of
market opportunities and be responsive to customer demands. Larger projects are
broken down so that a specific product or product enhancement can be available
in the marketplace as quickly as possible. We divide our development team into
groups delineated by product functionality and we employ advanced Rapid
Application Development ("RAD") tools to facilitate short development cycles for
functional enhancements while maintaining product reliability.
Employees
As of June 30, 1998, Mobius employed 335 people; 183 Sales and
Marketing employees, 40 Customer Satisfaction, 70 Research and Development
employees and 42 General and Administrative employees. None of the our employees
are represented by a labor union or is subject to a collective bargaining
agreement. The Company has not experienced any work stoppages and believes it
has a good relationship with its employees. We believe that our future success
will depend to a significant extent upon our ability to attract, train and
retain highly skilled technical, management, sales and marketing personnel.
There can be no assurance that we will be successful in attracting or retaining
such personnel, and such a failure could have a material adverse effect on our
business, operating results and financial condition.
Customers
No single customer accounted for 10% or more of consolidated revenues
in fiscal years 1996, 1997 or 1998.
<PAGE>
Competition
The market for the Company's products is intensely competitive, subject
to rapid change and significantly affected by new product introductions and
other market activities of industry participants. "Factors Affecting Future
Performance" below, includes a description of the competitive environment in
which we do business.
<PAGE>
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.
<PAGE>
ITEM 2. PROPERTIES
Mobius is headquartered in Rye, New York, where we lease an aggregate of
approximately 43,700 square feet of space. Administrative, marketing, product
development and customer support and service operations are located in the Rye
space. Sales operations are based in Chicago. We lease an aggregate of
approximately 44,956 additional square feet of space domestically and
internationally for our other sales offices. We believe that these facilities
are adequate to meet our current needs and that suitable additional space will
be available as needed to accommodate physical expansions of corporate
operations and for additional sales and service field offices.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in litigation relating to claims
arising out of our operations in the normal course of business. We are not a
party to any legal proceedings, the adverse outcome of which, individually or in
the aggregate, would have a material adverse effect on our business, operating
results and financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1998.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
During this past fiscal year, we granted in the aggregate 1,248,500 options
to purchase shares of our common stock pursuant to our benefit plans. The per
share exercise prices for these options ranged from $5.28 to $11.00, with a
weighted average exercise price of $8.88 per share. In addition, during this
past fiscal year we issued in the aggregate 194,500 shares of our common stock
upon the exercise by certain employees of vested stock options. 80,000 of these
shares were originally issued as Class A non-voting common stock and converted
to common stock on a one to one basis upon the consummation of our initial
public offering. The aggregate consideration received by Mobius for all 194,500
shares was $243,125 ($1.25 per share). We believe that such issuance was made
based upon the exemption for the registration requirements of the Securities Act
contained in Section 3(b) of the Securities Act because the subject securities
were issued pursuant to a compensatory benefit plan pursuant to Rule 701 under
the Securities Act. Restrictive legends were placed on the stock certificates
evidencing such shares of stock.
On April 27, 1998, the Securities and Exchange Commission declared
effective our Registration Statement on Form S-1 (File No. 333-47117), and our
common stock is traded in the NASDAQ National Market. To date, we have not used
any of the proceeds of the offering. The proceeds are currently invested in
short-term, investment-grade, interest-bearing securities.
According to records of our transfer agent, we had approximately 24
stockholders of record as of August 31, 1998. Because many of such shares are
held by brokers and other institutions on behalf of stockholders, we are unable
to estimate the total number of stockholders represented by the record holders.
The high and low sales price of our common stock from April 27, 1998 (initial
public offering) to June 30, 1998 were $19.75 and $11.50.
We have never paid any cash dividends on our common stock and do not
anticipate paying any cash dividends in the foreseeable future. Our current loan
agreement with a bank prohibits the payment of dividends without the bank's
consent. We currently intend to retain future earnings to fund the development
and growth of our business. Payment of future dividends, if any, will be at the
discretion of our Board of Directors after taking into account various factors,
including our financial condition, operating results, current and anticipated
cash needs and plans for expansion.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the
captions "Consolidated Statement of Income Data" and "Consolidated Balance Sheet
Data" as of and for each of the years in the five year period ended June 30,
1998 are derived from the consolidated financial statements of Mobius, which
statements have been audited by KPMG Peat Marwick LLP, independent certified
public accountants. The consolidated financial statements as of June 30, 1997
and 1998 and for each of the years in the three year period ended June 30, 1998,
and the report thereon, are included elsewhere in this Form 10-K. The data set
forth below should be read in conjunction with, and are qualified by reference
to, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto,
included elsewhere in this Form 10-K.
<PAGE>
<TABLE>
<CAPTION>
Years Ended June 30,
1994 1995 1996 1997 1998
------- ------- ------- ------- -------
Consolidated Statement of Income Data
(in thousands, except per share data):
<S> <C> <C> <C> <C> <C>
Revenues:
Software license revenues $10,604 $12,729 $18,769 $26,112 $37,929
Maintenance and other revenues 7,050 9,676 12,189 15,215 18,598
------- ------- ------- ------- -------
Total revenues 17,654 22,405 30,958 41,327 56,527
Costs of revenues:
Software license revenues 841 614 626 1,336 1,443
Maintenance and other revenues 1,556 2,049 2,716 2,923 3,593
------- ------- ------- ------- -------
Total costs of revenues 2,397 2,663 3,342 4,259 5,036
------- ------- ------- ------- -------
Gross profit 15,257 19,742 27,616 37,068 51,491
Operating expenses:
Sales and marketing 9,687 12,523 15,136 21,971 28,171
Research and development 2,669 3,478 4,600 5,904 7,925
General and administrative 1,911 2,063 2,832 4,350 6,430
Stock compensation expense -- -- -- -- 642
------- ------- ------- ------- -------
Total operating expenses 14,267 18,064 22,568 32,225 43,168
------- ------- ------- ------- -------
Income from operations 990 1,678 5,048 4,843 8,323
License and other interest income 186 375 339 922 1,871
Interest expense (61) (58) (41) (22) (14)
Foreign currency transaction gains (losses) 31 34 (72) (12) (15)
------- ------- ------- ------- -------
Income before income taxes and change
in accounting for income taxes 1,146 2,029 5,274 5,731 10,165
Provision for income taxes 507 880 2,657 3,348 5,500
Accretion on Preferred Stock -- -- -- -- 102
------- ------- ------- ------- -------
Income before cumulative effect of change
in accounting for income taxes 639 1,149 2,617 2,383 4,563
Cumulative effect of change in accounting
for income taxes(1) 194 -- -- -- --
------- ------- ------- ------- -------
Net income available to common stock $ 833 $ 1,149 $ 2,617 $ 2,383 $ 4,563
======= ======= ======= ======= =======
Basic earnings per share(2) $ 0.06 $ 0.08 $ 0.17 $ 0.17 $ 0.38
Basic weighted average shares outstanding(2) 15,000 15,000 15,000 14,318 12,156
Diluted earnings per share(2) $ 0.06 $ 0.08 $ 0.17 $ 0.15 $ 0.27
Diluted weighted average
shares outstanding(2) 15,000 15,000 15,000 15,882 16,738
Consolidated Balance Sheet Data
(in thousands):
Total assets $9,422 $12,713 $18,446 $28,502 $78,800
Total long term obligations 421 479 1,639 5,176 8,776
Convertible preferred stock -- -- -- 11,898 --
Stockholders' equity (deficit) 1,465 2,586 5,226 (4,344) 46,122
<FN>
(1) Represents cumulative effect of change in accounting for the adoption
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes".
(2) For a description of the basic and diluted earnings per share ("EPS")
calculations and the basic and diluted weighted average shares
outstanding, see Note 2 of Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In this section, readers are given a more detailed assessment of
Mobius' operating results and changes in financial position over the past three
years. This section should be read in conjunction with our Consolidated
Financial Statements and related Notes. Please note that references in this
section to "this year" and "last year" refer to our fiscal years ended June 30,
1998 and June 30, 1997, respectively.
Overview
Mobius 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 our
products to facilitate customer service and other mission-critical functions.
Founded in 1981, we provided information storage, retrieval and presentation
products and support, as well as consulting services throughout our first
decade. In 1991, we decided to focus primarily on developing and marketing
software products and, as a result, sold our consulting services business.
In April 1998, Mobius' registration statement was declared effective
for our initial public offering ("IPO") of 2.5 million shares of common stock at
a price of $14.50 per share. Further detail about the IPO is provided in the
"Liquidity and Capital Resources" section below and in Notes 7 and 8 of the
Notes to the Consolidated Financial Statements.
Mobius' total revenues have increased over each of the past three
fiscal years, from $31.0 million in fiscal 1996 to $41.3 million in fiscal 1997
and to $56.5 million in fiscal 1998. We derive our revenues primarily from
server and client product license fees and related annual maintenance fees. This
year 67.1% of our total revenues were generated by software license fees and
32.9% were generated by maintenance and other fees.
License revenues of ViewDirect and DocumentDirect products have
historically accounted for a majority of our license revenues and for a
significant portion of our total revenues. This year license revenues for these
products accounted for approximately 84.3% of license revenues and approximately
56.6% of total revenues. Last year license revenues for these products accounted
for approximately 79.5% of license revenues and approximately 50.3% of total
revenues. We anticipate that in the foreseeable future that license revenue from
these products will continue to account for a significant portion of license and
total revenues.
Our growing customer base has led to continued growth in maintenance
and other revenues from $15.2 million last year to $18.6 million this year.
Except for the involvement of systems engineers during the sales cycle, Mobius
does not provide implementation services and has trained and certified a group
of independent professional services organizations to provide such services.
International revenues more than doubled this year to $7.2 million from
$3.2 million last year. We intend to expand our international sales activities
as part of our business strategy. The majority of Mobius' current international
revenues are derived from the operations of our seven wholly-owned subsidiaries
and through agents. We receive a royalty that is a percent of agent or
subsidiary sales of software licenses and maintenance contracts to international
customers. Our subsidiaries conduct business in the currency of the country in
which they operate, exposing Mobius to currency fluctuations and currency
transaction losses or gains which are outside of Mobius' control. To date, all
of these subsidiaries have operated at a loss, which cannot be consolidated for
United States income tax purposes. Consequently, we have a substantially higher
effective tax rate than the U.S. Federal and State statutory rates as no benefit
has been provided for the foreign losses. To the extent that we are successful
at bringing our foreign subsidiaries to profitability, we will have effective
tax rates that are below the statutory rates as a result of realizing the
benefit of the tax loss carryforwards currently being generated outside of the
United States. In addition, to the extent that Mobius uses different tax
structures for new foreign subsidiaries which would permit consolidation of
losses for U.S. tax purposes, the effective tax rate will approach the U.S.
Federal and State statutory rates.
Capitalization of internally developed software costs is required once
technological feasibility is established. The period between achieving
technological feasibility, which we have defined as the establishment of a
working model, and the general availability of such software has been short and,
therefore, software development costs qualifying for capitalization have been
insignificant. Accordingly, we have not capitalized any software development
costs and we currently do not anticipate having significant development costs
that are eligible for capitalization for the foreseeable future. Software
development costs are included in research and development and are expensed as
incurred. For more information on our capitalization of software development
costs see Note 2 of Notes to Consolidated Financial Statements.
Results of Operations
The following table sets forth certain items from our Consolidated
Statement of Income as a percentage of total revenues for the fiscal years
indicated:
Years Ended June 30,
1996 1997 1998
----- ----- -----
Revenues:
Software license revenues 60.6% 63.2% 67.1
Maintenance and other revenues 39.4 36.8 32.9
----- ----- -----
Total revenues 100.0 100.0 100.0
Costs of revenues:
Software license revenues 2.0 3.2 2.5
Maintenance and other revenues 8.8 7.1 6.4
----- ----- -----
Total costs of revenues 10.8 10.3 8.9
----- ----- -----
Gross profit 89.2 89.7 91.1
Operating expenses:
Sales and marketing 48.9 53.2 49.9
Research and development 14.9 14.3 14.0
General and administrative 9.1 10.5 11.4
Stock compensation expense -- -- 1.1
----- ----- -----
Total operating expenses 72.9 78.0 76.4
----- ----- -----
Income from operations 16.3 11.7 14.7
License and other interest income 1.1 2.3 3.3
Interest expense (0.1) (0.1) --
Foreign currency transaction
gains(losses) (0.2) -- --
----- ----- -----
Income before income taxes 17.1 13.9 18.0
Provision for income taxes 8.6 8.1 9.7
Accretion on Preferred Stock -- -- 0.2
----- ----- -----
Net income available to common stock 8.5% 5.8% 8.1%
===== ===== =====
<PAGE>
Year Ended June 30, 1996 Compared to Year Ended June 30, 1997 Compared
to Year Ended June 30, 1998
Revenues. Total revenues increased 33.5% from $31.0 million in fiscal
1996 to $41.3 million in fiscal 1997 and 36.8% to $56.5 million in fiscal 1998.
Domestic revenues increased 38.2% from $27.6 million in fiscal 1996 to $38.2
million in fiscal 1997 and increased 29.2% to $49.3 million in fiscal 1998.
International revenues decreased 4.9% from $3.3 million in fiscal 1996 to $3.2
million in fiscal 1997 and increased 127.6% to $7.2 million in fiscal 1998. Our
total revenues have increased primarily because we sold more licenses for our
products to new and existing customers.
Software license revenues increased 39.1% from $18.8 million in fiscal
1996 to $26.1 million in fiscal 1997 and increased 45.3% to $37.9 million in
fiscal 1998. These increases were primarily attributable to increased sales of
licenses for ViewDirect and DocumentDirect products.
Maintenance and other revenues increased 24.8% from $12.2 million in
fiscal 1996 to $15.2 million in fiscal 1997 and increased 22.2% to $18.6 million
in fiscal 1998. The increases in maintenance and other revenues during these
years were primarily attributable to the growth in the amount of licensed
software covered by maintenance agreements and to a lesser extent, increases in
the maintenance fees charged by the Company. Other revenues for all periods were
not significant.
Costs of Revenues.
The costs of software license revenues increased 113.4% from $0.6
million in fiscal 1996 to $1.3 million in fiscal 1997 and increased 8.0% to $1.4
million in fiscal 1998, representing 3.3%, 5.1% and 3.8%, respectively, of
software license revenues in those years. The costs of software license revenue
as a percentage of software license revenues decreased in fiscal 1998 primarily
due to increased license revenues from products that were developed exclusively
by the Company and therefore do not require royalty payments.
The costs of maintenance and other revenues increased 7.6% from $2.7
million in fiscal 1996 to $2.9 million in fiscal 1997 and increased 22.9% to
$3.6 million in fiscal 1998, representing 22.3%, 19.2% and 19.3%, respectively,
of maintenance and other revenues in those years. The increases in costs of
maintenance and other revenues were primarily attributable to increased staffing
and personnel-related costs.
Operating Expenses.
Sales and marketing expenses increased 45.2% from $15.1 million in
fiscal 1996 to $22.0 million in fiscal 1997 and increased 28.2% to $28.2 million
in fiscal 1998. Sales and marketing expenses have increased primarily because we
paid more commissions and bonuses for selling more software licenses, hired
additional sales personnel and increased our personnel-related costs.
Research and development expenses increased 28.3% from $4.6 million in
fiscal 1996 to $5.9 million in fiscal 1997 and increased 34.2% to $7.9 million
for fiscal 1998, representing 14.9%, 14.3% and 14.0%, respectively, of total
revenues in those years. The increases in research and development expenses were
primarily attributable to increased staffing and personnel-related costs for
technical staff.
General and administrative expenses increased 53.6% from $2.8 million
in fiscal 1996 to $4.4 million in fiscal 1997 and increased 47.8% to $6.4
million in fiscal 1998. The increases were generally attributable to increased
professional services fees and costs for additional personnel.
Stock compensation expense of $642,000 was due to certain stock option
grants made in fiscal 1998 at below fair market value. In total, $2.7 million of
expense relating to these 1998 option grants will be recognized over the next
five years. For further information see Note 9 of the Notes to the Consolidated
Financial Statements.
License and other interest income; interest expense; foreign currency
transaction gains (losses).
License and other interest income was $0.3 million,$0.9 million and $1.9 million
in fiscal 1996, 1997, and 1998, respectively. The increase from fiscal 1996 to
fiscal 1998 was primarily due to the increase in the number of new
installment contracts and to a lesser extent, increased earnings on higher cash
balances during fiscal 1997 and 1998.
Interest expense decreased from $41,000 in fiscal 1996 to $22,000 in
fiscal 1997 and to $14,000 in fiscal 1998. The decreases were primarily due to
reductions in the principal balances associated with the Company's capital
leases.
Foreign currency transaction losses were $72,000, $12,000 and $15,000
in fiscal 1996, 1997 and 1998, respectively. Due to declining foreign currency
fluctuations in the foreign jurisdictions within which the Company does
business, these losses have been minimal.
Provision for Income Taxes. The provision for income taxes was $2.7
million in fiscal 1996, $3.3 million in fiscal 1997 and $5.5 million in fiscal
1998. The Company had effective tax rates of approximately 50.4%, 58.4% and
54.1% in fiscal years 1996, 1997 and 1998, respectively. The difference between
these rates and the U.S. Federal and State statutory rates is primarily
attributable to not being able to consolidate foreign subsidiary losses for tax
purposes. The changes in the effective tax rate from fiscal 1996 to fiscal 1998
principally reflect the impact of changes in the amount of operating losses of
the Company's foreign subsidiaries. For more information see Note 6 of Notes to
Consolidated Financial Statements.
Selected Quarterly Operating Results
The following table presents certain consolidated statement of income
data for the eight fiscal quarters in the period ended June 30, 1998. In
management's opinion, this unaudited information has been prepared on the same
basis as the audited Consolidated Financial Statements appearing elsewhere in
this Form 10-K and includes all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the information for the
quarters presented, when read in conjunction with the audited Consolidated
Financial Statements and Notes thereto included elsewhere herein. Fourth quarter
and year end 1998 data differ from previously released information as a result
of entries made during the 1998 year end audit. The results of operations for
any quarter are not necessarily indicative of results for any future period.
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended
Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1996 1996 1997 1997 1997 1997 1998 1998
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Software license revenues $3,714 $6,525 $5,237 $10,636 $5,697 $8,596 $8,075 $15,561
Maintenance and other revenues 3,522 3,637 4,087 3,969 4,183 4,595 4,816 5,004
------ ------ ------ ------ ------ ------ ------ ------
Total revenues 7,236 10,162 9,324 14,605 9,880 13,191 12,891 20,565
Costs of revenues:
Software license revenues 308 220 276 532 366 312 217 548
Maintenance and other revenues 639 802 751 731 692 862 866 1,173
------ ------ ------ ------ ------ ------ ------ ------
Total costs of revenues 947 1,022 1,027 1,263 1,058 1,174 1,083 1,721
------ ------ ------ ------ ------ ------ ------ ------
Gross profit 6,289 9,140 8,297 13,342 8,822 12,017 11,808 18,844
Operating expenses:
Sales and marketing 3,616 5,564 5,255 7,536 4,700 6,097 6,566 10,808
Research and development 1,367 1,443 1,533 1,561 1,681 1,869 1,975 2,400
General and administrative 722 1,189 1,136 1,303 1,462 1,542 1,740 1,686
Stock compensation expense -- -- -- -- -- -- 313 329
------ ------ ------ ------ ------ ------ ------ ------
Total operating expenses 5,705 8,196 7,924 10,400 7,843 9,508 10,594 15,223
------ ------ ------ ------ ------ ------ ------ ------
Income from operations 584 944 373 2,942 979 2,509 1,214 3,621
License and other interest income 140 188 223 371 325 507 541 498
Interest expense (7) (4) (4) (7) (4) (2) (3) (5)
Foreign currency transaction gains
(losses) 1 -- (8) (5) (3) (3) (5) (4)
------ ------ ------ ------ ------ ------ ------ ------
Income before income taxes 718 1,128 584 3,301 1,297 3,011 1,747 4,110
Provision for income taxes 351 692 354 1,951 750 1,605 979 2,166
Accretion on Preferred Stock -- -- -- -- -- 102 -- --
------ ------- ------ ------- ------ ------ ------ -------
Net income available to common stock $ 367 $ 436 $ 230 $ 1,350 $ 547 $1,304 $ 768 $ 1,944
====== ======= ====== ======= ====== ====== ====== =======
As a Percentage of Total Revenues
Revenues:
Software license revenues 51.3% 64.2% 56.2% 72.8% 57.7% 65.2% 62.6% 75.7%
Maintenance and other revenues 48.7 35.8 43.8 27.2 42.3 34.8 37.4 24.3
----- ----- ----- ----- ----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Costs of revenues:
Software license revenues 4.3 2.2 3.0 3.6 3.7 2.4 1.7 2.7
Maintenance and other revenues 8.8 7.9 8.0 5.0 7.0 6.5 6.7 5.7
----- ----- ----- ----- ----- ----- ----- -----
Total costs of revenues 13.1 10.1 11.0 8.6 10.7 8.9 8.4 8.4
----- ----- ----- ----- ----- ----- ----- -----
Gross profit 86.9 89.9 89.0 91.4 89.3 91.1 91.6 91.6
Operating expenses:
Sales and marketing 50.0 54.7 56.4 51.6 47.6 46.2 51.0 52.5
Research and development 18.8 14.2 16.4 10.7 17.0 14.2 15.3 11.7
General and administrative 10.0 11.7 12.2 8.9 14.8 11.8 13.5 8.2
Stock compensation expense -- -- -- -- -- -- 2.4 1.6
----- ----- ----- ----- ----- ----- ----- -----
Total operating expenses 78.8 80.6 85.0 71.2 79.4 72.2 82.2 74.0
----- ----- ----- ----- ----- ----- ----- -----
Income from operations 8.1 9.3 4.0 20.2 9.9 18.9 9.4 17.6
License and other interest income 1.9 1.8 2.4 2.5 3.2 3.8 4.2 2.4
Interest expense (0.1) -- -- (0.1) -- -- -- --
Foreign currency transaction gains(losses) -- -- (0.1) -- -- 0.1 -- --
----- ----- ----- ----- ----- ----- ----- -----
Income before income taxes 9.9 11.1 6.3 22.6 13.1 22.8 13.6 20.0
Provision for income taxes 4.8 6.8 3.8 13.4 7.6 12.2 7.6 10.5
Accretion on Preferred Stock -- -- -- -- -- 0.7 -- --
----- ----- ----- ----- ----- ----- ----- -----
Net income available to common stock 5.1% 4.3% 2.5% 9.2% 5.5% 9.9% 6.0% 9.5%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
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 our competitors, changes in
customer budgets, competitive conditions in the industry and general domestic
and international economic conditions. Our license revenues typically peak
during our fourth fiscal quarter and to a lesser extent in our second fiscal
quarter. These fluctuations are caused primarily by customer purchasing patterns
and our 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 the factors described above.
<PAGE>
Liquidity and Capital Resources
Since its inception, Mobius has funded its operations principally
through cash flows from operating activities and, to a lesser extent, bank
financings and capital leases. As of June 30, 1998, Mobius had cash and cash
equivalents of $42.2 million, an increase of $36.5 million from the $5.7 million
held at June 30, 1997. Our cash position was improved primarily by the proceeds
from our IPO.
Net cash provided by operating activities was $2.7 million, $2.5
million and $5.2 million in fiscal 1996, 1997 and 1998, respectively. Software
license installments, which, in total, increased 68.3% from $12.5 million at the
end of fiscal 1997 to $21.0 million at end of fiscal 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 to 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 has increased 52.6% from $11.2 million at
the end of fiscal 1997 to $17.0 million at the end of fiscal 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.
These increases are primarily due to increases in the amount of licensed
software covered by maintenance agreements and, to a lesser extent, increases in
the fees charged to customers for maintenance.
Cash used in investing activities, consisting primarily of capital
expenditures for the purchase of computer equipment and software used in product
development and customer support, was $0.6 million, $1.0 million and $1.8
million in fiscal 1996 1997 and 1998, respectively. In additional in fiscal
1998, Mobius made expenditures for leasehold improvements for our new corporate
headquarters.
Cash used in financing activities in fiscal 1996 was $0.3 million and
primarily was for the repayment of capital lease obligations and the retirement
of notes payable. Last year, we raised $12.0 million in a private placement of
Series A Convertible Preferred Stock and repurchased $11.9 million of common
stock. This year, cash provided by financing activities was $33.1 million. In
April 1998, the Securities and Exchange Commission declared effective our
Registration Statement for our initial public offering of 2,500,000 shares of
common stock at a price of $14.50 per share. The net proceeds to Mobius was
$33.0 million after deducting the underwriting discount and offering expenses
payable by Mobius. As a result of the IPO, our 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.
Mobius 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
Mobius to maintain certain financial ratios and provides for certain negative
covenants by Mobius 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. There were no
borrowings outstanding at June 30, 1998 and the line of credit expires on
October 20, 1998. Mobius intends to obtain a renewal of the line of credit.
We believe that the net proceeds from the IPO, combined with our
existing cash balances, our line of credit and cash flows expected from future
operations, will be sufficient to meet our capital requirements for at least 12
months.
Inflation
Inflation has not had a significant impact on the Company's operating
results to date, nor does the Company expect it to have a significant impact in
the future.
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 the
Company's 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 is not expected to be material to
Mobius.
Recent Accounting Pronouncements
In October 1997, the AICPA issued SOP 97-2, "Software Revenue
Recognition", which supersedes SOP 91-1. SOP 97-2 generally requires revenue
earned on software arrangements involving multiple elements, such as additional
software products, upgrades or enhancements, rights to exchange or return
software, postcontract customer support, or services, including elements
deliverable only on a when-and-if-available basis, to be allocated to the
various elements of such sale based on "vendor-specific objective evidence of
fair values" allocable to each such element. If sufficient vendor-specific
objective evidence of fair market values does not exist, revenue from the sale
could be deferred until such sufficient evidence exists, or until all elements
have satisfied the requirements for revenue recognition.
On March 31, 1998, the AICPA issued SOP 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2, Software Revenue Recognition". SOP
98-4 defers for one year the application of what is considered vendor-specific
objective evidence of the fair value of the various elements in a multiple
element arrangement. All other provisions of SOP 97-2 remain in effect. The
Company will adopt SOP 97-2 for software transactions entered into beginning
July 1, 1998. The Company believes such adoption will not have a material effect
on its fiscal 1999 operations.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 130 will require companies
to report comprehensive income and SFAS No. 131 will require companies to report
segment information as it is used internally to evaluate segment performance.
These statements merely provide for additional disclosure requirements and will
be adopted by Mobius starting in fiscal 1999.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits." SFAS No. 132 standardizes the disclosure requirements for pensions
and other postretirement benefits. This statement is effective for fiscal years
beginning after December 15, 1997.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 requires companies to recognize all derivatives as assets or liabilities
measured at their fair value. Gains and losses resulting from changes in the
values of those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. This statement is
effective for fiscal years beginning after June 15, 1999 and based on current
events the Company does not believe the adoption would have a material effect on
its financial position or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements are included in Item 14 (a)(1). Selected
Quarterly Financial Data is included in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 28, 1998
pursuant to Regulation 14A of the General Rules and Regulations under Securities
Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 28, 1998
pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 28, 1998
pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 28, 1998
pursuant to Regulation 14A.
<PAGE>
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report................................................
Consolidated Balance Sheets as of June 30, 1997 and 1998....................
Consolidated Statements of Income for the Years Ended June 30, 1996,
1997 and 1998..........................................................
Consolidated Statements of Stockholders' Equity for the Years Ended
June 30, 1996, 1997, and 1998..........................................
Consolidated Statements of Cash Flows for the Years Ended June 30,
1996, 1997, and 1998...................................................
Notes to Consolidated Financial Statements..................................
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mobius Management Systems, Inc.:
We have audited the consolidated financial statements of Mobius Management
Systems, Inc. and subsidiaries as listed in the accompanying index. In
connection with our audits of the consolidated financial statements we also
audited the financial statement schedule listed in the index at Item 14. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
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 Mobius
Management Systems, Inc. and subsidiaries as of June 30, 1997 and 1998 and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 1998, 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 PEAT MARWICK LLP
July 28, 1998
Stamford, CT
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and per share data)
June 30,
1997 1998
------- -------
ASSETS
Current assets:
Cash and cash equivalents $ 5,672 $42,222
Accounts receivable, net of allowance
for doubtful accounts of $308
and $612 respectively 7,793 10,733
Software license installments,
current portion 4,615 7,330
Other current assets 474 1,682
------- -------
Total current assets 18,554 61,967
Software license installments,
non-current portion, net of
allowance for doubtful accounts
of $413 and $767, respectively 7,871 13,686
Property and equipment, net 1,990 2,932
Other assets 87 215
-------- --------
Total assets $ 28,502 $ 78,800
======== ========
LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 6,593 $ 9,471
Deferred maintenance revenue 7,494 11,408
Deferred income taxes 1,551 2,054
Other liabilities 134 969
-------- -------
Total current liabilities 15,772 23,902
Deferred maintenance revenue,
non-current portion 3,661 5,616
Deferred income taxes 1,420 3,124
Capital lease obligations, less
current portion 95 36
Convertible preferred stock, $.01 par
value; 40,910 and 0 shares outstanding, respectively 11,898 --
Stockholders' (deficit) equity:
Common stock $.0001 par value;
authorized 40,000,000 shares;
issued 15,000,000 and 17,694,500
shares, respectively;
outstanding 10,909,000 and
17,694,500 shares, respectively 1 2
Additional paid-in capital -- 47,994
Retained earnings 7,636 12,199
Deferred stock compensation -- (2,076)
Cumulative foreign currency
translation adjustment 19 3
Treasury stock, at cost, 4,091,000
and 4,091,000 shares, respectively (12,000) (12,000)
-------- --------
Total stockholders' (deficit) equity (4,344) 46,122
-------- --------
Total liabilities, preferred stock
and stockholders' equity $ 28,502 $ 78,800
======== ========
See accompanying notes to consolidated financial
statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
Years Ended June 30,
1996 1997 1998
------- ------- --------
Revenues:
Software license revenues $18,769 $26,112 $37,929
Maintenance and other revenues 12,189 15,215 18,598
------- ------- -------
Total revenues 30,958 41,327 56,527
Costs of revenues:
Software license revenues 626 1,336 1,443
Maintenance and other revenues 2,716 2,923 3,593
------- ------- -------
Total costs of revenues 3,342 4,259 5,036
------- ------- -------
Gross profit 27,616 37,068 51,491
Operating expenses:
Sales and marketing 15,136 21,971 28,171
Research and development 4,600 5,904 7,925
General and administrative 2,832 4,350 6,430
Stock compensation expense -- -- 642
------- ------- -------
Total operating expenses 22,568 32,225 43,168
------- ------- -------
Income from operations 5,048 4,843 8,323
License and other interest income 339 922 1,871
Interest expense (41) (22) (14)
Foreign currency transaction losses (72) (12) (15)
------- ------- -------
Income before income taxes 5,274 5,731 10,165
Provision for income taxes 2,657 3,348 5,500
Accretion on Preferred Stock -- -- 102
------- ------- -------
Net income available to common stock $ 2,617 $ 2,383 $ 4,563
======= ======= =======
Basic earnings per share $ 0.17 $ 0.17 $ 0.38
Basic weighted average shares
outstanding 15,000 14,318 12,156
Diluted earnings per share $ 0.17 $ 0.15 $ 0.27
Diluted weighted average
shares outstanding 15,000 15,882 16,738
See accompanying notes to consolidated financial
statements.
<PAGE>
<TABLE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
<CAPTION>
Cumulative
Foreign Total
Additional Currency Stockholders'
Common Stock Paid in Retained Deferred Translation Treasury Stock (Deficit)
Shares Amount Capital Earnings Compensation Adjustment Shares Amount Equity
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995 16,727 $ 2 $ 77 $2,689 $ - $(51) 1,727 $ (131) $2,586
Net Income - - - 2,617 - - - - 2,617
Unrealized translation gain - - - - - 23 - - 23
------------------------------------------------------------------------------------------------
Balance at June 30, 1996 16,727 2 77 5,306 - (28) 1,727 (131) $5,226
- - - 2,383 - - - - 2,383
Net Income
Unrealized translation gain - - - - - 47 - - 47
Retirement of treasury stock (1,727) (1) (77) (53) - - (1,727) 131 -
Shares repurchased in
connection with issuance
of preferred stock (4,091) - - - - - 4,091 (12,000) (12,000)
------------------------------------------------------------------------------------------------
Balance at June 30, 1997 10,909 1 - 7,636 - 19 4,091 (12,000) (4,344)
Net Income - - - 4,563 - - - - 4,563
Unrealized translation gain - - - - - (16) - - (16)
Issuance of common stock 2,500 - 33,034 - - - - - 33,034
Conversion of preferred
stock 4,091 1 11,999 - - - - - 12,000
Conversion of Class A
common stock 80 - 100 - - - - - 100
Exercise of stock options 115 - 143 - - - - - 143
Deferred compensation - - 2,718 - (2,718) - - - -
Amortization of stock
compensation - - - - 642 - - - 642
------------------------------------------------------------------------------------------------
Balance at June 30, 1998 17,695 $ 2 $47,994 $12,199 $(2,076) $ 3 4,091 $(12,000) $46,122
================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended June 30,
1996 1997 1998
Cash flows provided by operating activities:
Net income $ 2,617 $ 2,383 $ 4,563
Adjustments to reconcile net
income to net cash provided
by operating activities:
Deferred income taxes 700 1,857 2,207
Depreciation and amortization 381 406 760
Stock compensation expense -- -- 642
Accretion of Preferred Stock -- -- 102
Loss on disposal of fixed assets -- -- 78
Change in operating assets
and liabilities:
Accounts receivable, net (56) (465) (2,940)
Software license installments (3,673) (7,497) (8,530)
Other assets (21) (235) (1,236)
Accounts payable and accrued expenses 1,059 2,112 2,878
Other liabilities (179) (94) 835
Deferred maintenance revenue 1,837 4,002 5,869
------ ------ ------
Total adjustments 48 86 665
------ ------ ------
Net cash provided by operating
activities 2,665 2,469 5,228
------ ------ ------
Cash flows used in investing activities:
Capital expenditures (628) (1,039) (1,780)
------ ------ ------
Cash flows (used) provided
by financing activities:
Cash received from sale of preferred
stock, net of issuance costs -- 11,898 --
Cash received from sale of common stock -- -- 33,713
Payments relating to sale of common stock -- -- (679)
Cash received from exercise of stock options -- -- 143
Cash payment for repurchase of common stock -- (12,000) --
Payments on capital lease obligations (55) (150) (59)
Payments on notes payable (269) -- --
------ ------ ------
Net cash (used) provided by financing
activities (324) (252) 33,118
------ ------ ------
Effect of exchange rate changes on
cash and cash equivalents 23 47 (16)
------ ------ ------
Net change in cash and cash equivalents 1,736 1,225 36,550
Cash and cash equivalents at beginning
of period 2,711 4,447 5,672
------- ------- -------
Cash and cash equivalents at end of period $ 4,447 $ 5,672 $42,222
======= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 41 $ 22 $ 14
Income taxes 1,779 1,544 2,419
Capital lease obligations incurred 219 -- --
See accompanying notes to consolidated financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
Mobius Management Systems, Inc., together with its wholly-owned
subsidiaries (the "Company"), is a provider of enterprise software products
designed to optimize the storage, retrieval and presentation of large volumes of
transactional information.
The Company was incorporated in the State of New York in 1981 and in
1997 the Company was reincorporated in the State of Delaware. In March 1993, the
Company established its first wholly-owned subsidiary, Mobius UK and
subsequently expanded its direct sales force to France, Germany, Italy, Sweden,
Switzerland and Australia.
(2) Significant Accounting Policies
Principles of consolidation
The Company and its subsidiaries are consolidated for financial
statement purposes after the elimination of all significant intercompany
transactions.
Revenue recognition
Revenue from software license contracts includes license fees related
to long-term licenses, typically 5 or 15 years, and fees for term license
contracts, which are generally 3 to 5 years. Such license revenue and
maintenance and service revenue are recognized in accordance with Statement of
Position 91-1, "Software Revenue Recognition."
Revenue from executed software license contracts is recognized upon
delivery of the software to the customer if no significant vendor obligations
remain and collection of the resulting receivable is probable. Software license
revenue includes the present value of future payments under non-cancelable
license arrangements which provide for payment in installments generally over
periods from 3 to 5 years. A portion of the discount is recognized as interest
income over the term of the arrangement.
Revenue on maintenance contracts is recognized on a straight-line basis
over the term of the maintenance contract, generally twelve months, except for
maintenance on term license contracts, which extends to the contract term. The
unearned portion of maintenance revenue is classified as deferred maintenance
revenue.
When the software license contract includes maintenance, the Company
unbundles maintenance revenue from the initial license fee and recognizes it
ratably over the maintenance period, starting from the inception of the software
license agreement. The unearned portion of such maintenance revenue is
classified as deferred maintenance revenue with amounts extending beyond
one-year reported as non-current.
Software Development Costs
Statement of Financial Accounting Standards No. 86 (SFAS No. 86)
requires the capitalization of certain software development costs once
technological feasibility is established. The capitalized costs are then
amortized on a straight-line basis over the estimated product life, or on the
ratio of current revenues to total projected product revenues, whichever is
greater.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company determines technological feasibility based on the working
model method. The period between establishment of a working model and the
general availability of its software has historically been short and,
accordingly, software development costs qualifying for capitalization have been
insignificant. As a result, the Company has expensed all software development
costs.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed on
a straight-line basis over the estimated life of the related asset, ranging from
three to seven years. Assets acquired under capital leases are depreciated on a
straight-line basis over the shorter of the asset's life or the respective
lease.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS
No. 109 requires using the asset and liability method of accounting for income
taxes. Under this method, 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 are recognized for deductible
temporary differences, net operating loss carryforwards, and tax credit
carryforwards if it is more likely than not that the tax benefits will be
realized. A valuation allowance is established if it is more likely than not
that a deferred tax asset will not be realized.
Foreign Currency Translation
Balance sheet accounts of the Company's foreign subsidiaries are
translated into U.S. dollars at exchange rates in effect at the balance sheet
date. Revenues, costs and expenses are translated into U.S. dollars at average
rates for the year. Gains or losses that result from translation are shown as a
separate component of stockholders' equity. Net gains and losses resulting from
foreign exchange transactions are included in the determination of net income.
Cash Equivalents
The Company considers investments with maturities at the date of
purchase of three months or less to be cash equivalents. At June 30, 1997 and
1998, cash equivalents were comprised of overnight deposits and money market
investments with financial institutions.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of substantially all of the trade accounts
receivables and software license installments. The Company sells its products to
a large number of customers in diversified industries across many domestic and
international geographies.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS 107) defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties. The fair value of the Company's
cash and cash equivalents, accounts receivable, software license installments,
accounts payable, accrued expenses and deferred maintenance amounts approximate
their carrying value.
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>
Years Ended June 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 $2,383 $4,563
====== ======
Weighted average shares
outstanding 14,318 12,156
Basic EPS $0.17 $0.38
===== =====
Diluted EPS:
Net income $2,383 $4,563
====== ======
Dilutive effect of
convertible securities 682 3,428
Dilutive effect of
stock options 882 1,154
------ ------
Diluted EPS 15,882 $0.15 16,738 $0.27
====== ===== ====== =====
</TABLE>
There were no reconciling items impacting the numerator or denominator
for the basic and diluted earnings per share calculation for fiscal 1996.
Stock Based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", and elected to continue to apply the provisions of Accounting
Principles Board (APB) Opinion No. 25 in determining measurement of compensation
expense and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair value-based method, as defined in SFAS No. 123, had been applied. As
such, compensation expense is generally recorded on the date of grant only if
the current fair market value of the underlying stock exceeded the exercise
price.
<PAGE>
Recent Accounting Pronouncements
In October 1997, the AICPA issued SOP 97-2, "Software Revenue
Recognition", which supersedes SOP 91-1. SOP 97-2 generally requires revenue
earned on software arrangements involving multiple elements, such as additional
software products, upgrades or enhancements, rights to exchange or return
software, postcontract customer support, or services, including elements
deliverable only on a when-and-if-available basis, to be allocated to the
various elements of such sale based on "vendor-specific objective evidence of
fair values" allocable to each such element. If sufficient vendor-specific
objective evidence of fair market values does not exist, revenue from the sale
could be deferred until such sufficient evidence exists, or until all elements
have satisfied the requirements for revenue recognition.
On March 31, 1998, the AICPA issued SOP 98-4, "Deferral of the
Effective Date of a Provision of SOP 97-2, Software Revenue Recognition". SOP
98-4 defers for one year the application of what is considered vendor-specific
objective evidence of the fair value of the various elements in a multiple
element arrangement. All other provisions of SOP 97-2 remain in effect. The
Company will adopt SOP 97-2 for software transactions entered into beginning
July 1, 1998. The Company believes such adoption will not have a material effect
on its fiscal 1999 operations.
In June 1997, the Financial Accounting Standards Board issued SFAS No.
130, "Reporting Comprehensive Income" and No. 131, "Disclosures about Segments
of an Enterprise and Related Information". SFAS No. 130 will require companies
to report comprehensive income and SFAS No. 131 will require companies to report
segment information as it is used internally to evaluate segment performance.
These statements merely provide for additional disclosure requirements and will
be adopted by Mobius starting in fiscal 1999.
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 132, "Employers' Disclosures about Pensions and Other Post Retirement
Benefits." SFAS No. 132 standardizes the disclosure requirements for pensions
and other postretirement benefits. This statement is effective for fiscal years
beginning after December 15, 1997.
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 requires companies to recognize all derivatives as assets or liabilities
measured at their fair value. Gains and losses resulting from changes in the
values of those derivatives would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. This statement is
effective for fiscal years beginning after June 15, 1999 and based on current
events the Company does not believe the adoption would have a material effect on
its financial position or results of operations.
(3) Software License Installments
The Company offers extended payment terms to some of its 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. At June 30, 1997 and 1998 the
effective weighted average discount rate used for software license installments
was 7.59% and 7.61%, respectively. The discount is amortized to interest income
using the interest method over the term of the license contract.
The present values of software license installments to be received
after June 30, 1998 are as follows (in thousands):
Year Ended:
June 30, 1999 $ 9,081
June 30, 2000 7,172
June 30, 2001 5,521
June 30, 2002 3,089
June 30, 2003 331
-------
Total minimum payments to be received 25,194
Less unearned interest income (3,411)
Less allowance for doubtful accounts (767)
-------
Present value of software
license installments, net 21,016
Less current portion, net (7,330)
-------
Non-current portion, net $13,686
=======
(4) Property and Equipment
Property and equipment consists of the following (in thousands):
June 30,
1997 1998
------- -------
Furniture, fixtures and office equipment $ 700 $ 508
Computer equipment 2,985 4,410
Leasehold improvements 315 544
------- -------
4,000 5,462
Less accumulated depreciation and amortization (2,010) (2,530)
------- -------
Property and equipment, net $ 1,990 $ 2,932
======= =======
Depreciation and amortization expense on property and equipment,
including capital leases, was $381,000, $406,000 and $760,000 for the twelve
months ended June 30, 1996, 1997 and 1998, respectively. The net book value of
equipment under capital leases included in property and equipment at June 30,
1997 and 1998 was $175,000 and $140,000, respectively.
(5) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following
(in thousands):
June 30,
1997 1998
------ ------
Accounts payable $1,002 $ 801
Compensation and related benefits 4,196 4,872
Royalty payable 680 1,318
Other 715 2,480
------ ------
$6,593 $9,471
====== ======
(6) Income Taxes
Income before provision for income taxes is as follows (in thousands):
Years Ended June 30,
1996 1997 1998
Domestic income $6,072 $ 7,923 $13,261
Foreign losses (798) (2,192) (3,096)
------ ------- -------
$5,274 $ 5,731 $10,165
====== ======= =======
The components of the provision for income taxes for the years ended
June 30, 1996, 1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended June 30,
1996 1997 1998
Current Deferred Total Current Deferred Total Current Deferred Total
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $1,577 $573 $2,150 $1,200 $1,521 $2,721 $2,704 $1,807 $4,511
State 336 127 463 276 336 612 542 400 942
Foreign 44 -- 44 15 -- 15 47 -- 47
-------------------------------------------------------------------------------------------------
$1,957 $700 $2,657 $1,491 $1,857 $3,348 $3,293 $2,207 $5,500
=================================================================================================
</TABLE>
The following table reconciles the Federal statutory corporate rate of 34%
to the effective income tax rate for the years ended June 30, 1996, 1997 and
1998:
Years Ended June 30,
1996 1997 1998
------------------------------------
Federal statutory corporate rate 34% 34% 34%
State income taxes, net of
Federal benefit 6 6 6
Losses of foreign subsidiaries 6 14 11
Research credit - (1) -
Other 4 5 3
-- -- --
50% 58% 54%
== == ==
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):
June 30,
1997 1998
-----------------------
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts $ 216 $ 401
Foreign net operating loss carryforwards 1,677 3,067
-------- -------
1,893 3,468
Valuation allowance (1,677) (3,067)
-------- -------
Net deferred tax assets 216 401
Deferred tax liabilities:
Software license installments 3,111 5,376
Depreciation 76 203
-------- -------
Net deferred tax liability $ 2,971 $ 5,178
======== =======
The valuation allowance increased by $328,000, $969,000 and $1,390,000
for the years ended June 30, 1996, 1997 and 1998 primarily due to uncertainty of
realization of net operating losses incurred by certain foreign subsidiaries.
The Company will reduce the valuation allowance when it is concluded that it is
more likely than not that these deferred tax assets will not be realized.
The expiration of net operating loss carryforwards varies by foreign
jurisdiction; some begin to expire in fiscal 2000 and others extend
indefinitely.
<PAGE>
(7) Common Stock
Common Stock
The Company has authorized 40,000,000 shares of common stock with a $.0001
par value. This includes 1,727,200 shares of common stock that were retired
during 1997, having previously been held in treasury stock.
On May 12, 1997, as part of the Preferred Stock Agreement (see note 8) the
Company repurchased 4,091,000 shares of common stock, $.0001 par value, from its
founders for $12,000,130. Such amount is being held in treasury stock at June
30, 1998.
In April 1998, the Company sold 2,500,000 shares of common stock at a
price of $14.50 per share in an Initial Public Offering ("IPO"). The net
proceeds to the Company were $33,034,000 after deducting the underwriting
discount and offering expenses payable by the Company. As a result of the IPO,
the Company's outstanding Series A Convertible Preferred Stock and Class A
Non-Voting Common Stock were converted into an aggregate of 4,171,000 shares of
common stock.
Class A Non-Voting Common Stock
The Company had authorized 5,000,000 shares of Class A Non-Voting
Common Stock with a $.0001 par value. During fiscal 1998, 80,000 shares were
issued. Such shares of the Class A Non-Voting Common Stock were converted to
common stock upon completion of the IPO. In connection with the IPO, this class
of common stock was retired and no shares remain authorized or outstanding
Stock Split
On February 19, 1998, 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.
(8) Preferred Stock
The Company has authorized 200,000 shares of Preferred Stock with a par
value of $.01. Before any shares are issued, the Board of Directors shall fix
the specific provisions of the shares including the designation of series,
voting rights, dividend features, redemption and liquidation provision and other
features.
On May 12, 1997, the Company entered into a Stock Purchase Agreement
(the "Agreement") whereby certain investors purchased 40,910 shares of the
Preferred Stock that the Board of Directors designated as Series A Convertible
Preferred Stock ("Convertible Preferred Stock") for $12,000,130.
Such Convertible Preferred Stock was converted into 4,091,000 shares of
the Company's common stock upon completion of the IPO.
<PAGE>
(9) Stock Option and Employee Stock Plans
1996 Stock Incentive Plan
In November 1996, the Company adopted a stock incentive plan (the
"Plan") pursuant to which the Company's Board of Directors may grant stock
options to officers, employees, directors and consultants. The Plan authorizes
grants of options to purchase up to 3,480,000 shares of authorized but unissued
common stock. Stock options are granted with an exercise price equal to the
stock's fair market value at the date of grant as determined by the Company's
Board of Directors. Stock options generally vest as to 20% of the shares subject
thereto on the first anniversary of the date of grant and the remainder vest
ratably over the subsequent 16 quarters.
1998 Non-Employee Directors' Stock Option Plan
In February 1998, the Board of Directors and stockholders of the
Company approved and adopted the Directors' Plan. The purpose of the Directors'
Plan is to provide an incentive to the Company's non-employee directors to serve
on the Board of Directors and to maintain and enhance the Company's long-term
performance. The Directors' Plan provides for the issuance of a total of 250,000
authorized and unissued shares of common stock, treasury shares and/or shares
acquired by the Company for purposes of the Directors' Plan.
The Directors' Plan provides for initial grants (i.e. upon adoption of
the Directors' Plan or upon a non-employee director's initial election to the
Board of Directors) of non-qualified stock options to purchase 10,000 shares of
common stock. At each annual meeting thereafter, each non-employee director will
receive an option to purchase 10,000 shares. Each option granted under the
Directors' Plan will have a term of ten years and will become exercisable upon
grant. The exercise price of each option granted under the Directors' Plan will
equal the fair market value of a share of common stock on the date of grant.
1998 Employee Stock Purchase Plan ("ESPP")
In February 1998, the Board of Directors and stockholders of the
Company approved and adopted the ESPP. The purpose of the ESPP is to provide
eligible employees who wish to acquire common stock of the Company the
opportunity to purchase shares from the Company with accumulated payroll
deductions. The ESPP is intended to constitute an "employee stock purchase plan"
under section 423 of the Internal Revenue Code. The ESPP provides for the
issuance of an aggregate of up to 300,000 authorized and unissued shares of
common stock, treasury shares and/or shares acquired by the Company for the
purposes of the ESPP. As of June 30, 1998, no shares have been issued under this
plan.
Stock option activity during the periods indicated was as follows:
Weighted
Average
Number of Exercise
Shares Price
--------- --------
Balance at June 30, 1996 -- --
Granted 2,045,500 $1.25
Exercised -- --
Forfeited -- --
Expired -- --
---------
Balance at June 30, 1997 2,045,500 1.25
Granted 1,248,500 8.88
Exercised (194,500) 1.25
Forfeited (702,000) 1.43
Expired -- --
---------
Balance at June 30, 1998 2,397,500 $5.17
=========
At June 30, 1997 and 1998, the range of exercise price was $1.25 and
$1.25- $11.00, respectively. At June 30, 1997 and 1998, the weighted average
remaining contractual life of outstanding options was 8.92 and 8.87 years,
respectively.
At June 30, 1998, the number of options exercisable was 399,650 and the
weighted average exercise price of the exercisable options was $3.41. There were
no options exercisable at June 30, 1997.
At June 30, 1998, there were 918,000 shares available for grant under the
1996 Stock Incentive Plan and 220,000 shares available for grant under the 1998
Non-Employee Directors' Stock Option Plan.
The Company applies APB Opinion No. 25 in measuring compensation
expense for options issued under the Plan. In January, February and March 1998,
the Company granted 350,000, 340,000 and 43,000 stock options, respectively,
under the 1996 Stock Incentive Plan at exercise prices of $9.86, $11.00 and
$11.00 per share, respectively. In February 1998, the Company issued 30,000
stock options under the 1998 Non-Employee Directors' Stock Option Plan at $11.00
per share. The Company subsequently determined that these options were granted
at exercise prices below the fair market value of $14.00 per share. 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 year ended June 30, 1998, the Company recorded $642,000 as compensation
expense. Additional compensation expense is expected to be $1,055,000, $558,000,
$288,000, $130,000 and $45,000 for the years ended June 30, 1999, 2000, 2001,
2002 and 2003, respectively.
If the Company had determined compensation cost based on the
fair value on the grant date for its stock options under SFAS No. 123, the
Company's net income and earnings per share would have been reduced to the
amounts indicated below.
Year Ended
June 30,
1997 1998
------ ------
Net income and earnings per share
as would be reported under SFAS No. 123:
Net income $2,317 $4,209
Basic earnings per share $ 0.16 $0.35
Diluted earnings per share $ 0.15 $0.25
The per share weighted average fair value of stock options granted
during the year ended June 30, 1997 and 1998 was $0.80 and $5.93 on the date of
grant using the modified Black Scholes option pricing model, respectively. All
the grants assumed no volatility, expected dividend yield of 0.0%, and an
expected life of 7 years. The assumed risk free interest rate on the date of
grants were 6.5% in fiscal 1997 and ranged between 5.7% and 6.8% in fiscal 1998.
(10) Employee Savings Plan and Executive Incentive Plan
In fiscal 1995, the Company established a savings plan that qualifies
under Section 401(k) of the Internal Revenue Code. Under the plan, participating
U.S. employees may defer up to 20% of their pre-tax compensation, but not more
than Internal Revenue Code limitations. The Company, at the discretion of the
Board of Directors, may match the employee contributions. No matching
contributions were made in the years ended June 30, 1996, 1997 and 1998.
In February 1998, the Board of Directors and stockholders of the
Company have approved and adopted the Mobius Management Systems, Inc. Executive
Incentive Plan (the "Incentive Plan"). The Incentive Plan is administered by the
Compensation Committee of the Board. Participation in the Incentive Plan is
limited to those executives and key employees who, in the judgment of the
Compensation Committee, are in a position to have a significant impact on the
performance of the Company.
Awards under the Incentive Plan are based upon the extent to which
performance goals established by the Compensation Committee for a designated
performance period are satisfied. Performance goals are related to criteria
which include net earnings, operating income, earnings per share, cash flow,
absolute and/or relative return on equity or assets, pre-tax profits, earning
growth, revenue growth, comparison to peer companies, any combination of the
foregoing or any other criteria as the Compensation Committee deems appropriate.
The Compensation Committee may provide that the bonuses payable to participants
will vary based upon different levels of achievement of the applicable goals.
The Incentive Plan also provides for grants of discretionary bonuses. As of June
30, 1998, there were no awards made under the Incentive Plan.
<PAGE>
(11) Lease Commitments
The Company has operating leases for its office facilities which expire
on various dates through fiscal 2008 and provide for escalation and additional
payments relating to operating expenses. The Company leases some of its computer
and office equipment under capital leases expiring on various dates through
fiscal 2000.
The following is a schedule of future minimum lease payments for
capital and operating leases as of June 30, 1998 (in thousands):
Capital Operating
Leases Leases
Year Ended:
June 30, 1999 $ 65 $ 1,773
June 30, 2000 37 1,648
June 30, 2001 -- 1,612
June 30, 2002 -- 1,285
June 30, 2003 -- 1,181
Thereafter -- 5,281
---- -------
Total minimum lease payments 102 $12,780
=======
Less interest component (7)
----
Present value of minimum lease payments 95
Less current portion (59)
----
Non-current portion $ 36
====
Rental expense for all operating leases was approximately $873,000,
$1,046,000 and $1,521,000 for the years ended June 30, 1996, 1997 and 1998,
respectively.
<PAGE>
(12) Geographic Area Information and Foreign Operations
United
States Foreign(a) Eliminations Total
------------------------------------------
Year Ended June 30, 1996:
Revenue:
From unaffiliated customers(b) $27,617 3,341 -- $30,958
Between geographic areas(c) 899 -- (899) --
------- ------ ----- -------
Total Revenue $28,516 3,341 (899) $30,958
======= ====== ===== =======
Net income $ 3,029 (412) -- $ 2,617
Identifiable assets $18,975 2,889 (3,418) $18,446
Year Ended June 30, 1997:
Revenue:
From unaffiliated customers(b) $38,149 3,178 -- $41,327
Between geographic areas(c) 942 -- (942) --
------- ------ ----- -------
Total Revenue $39,091 3,178 (942) $41,327
======= ====== ===== =======
Net income $ 4,888 (2,505) -- $ 2,383
Identifiable assets $31,304 3,758 (6,560) $28,502
Year Ended June 30, 1998:
Revenue:
From unaffiliated customers(b) $49,294 7,233 -- $56,527
Between geographic areas(c) 1,819 -- (1,819) --
------- ----- ------- -------
Total Revenue $51,113 7,233 (1,819) $56,527
======= ====== ======= =======
Net income $ 6,755 (2,192) $ 4,563
Identifiable assets $81,284 9,028 (11,512) $78,800
(a) The Company operates wholly-owned subsidiaries in the United Kingdom,
Italy, Germany, France, Sweden, Switzerland and Australia. Includes
international sales with agents.
(b) Includes royalties paid to the Company and to its subsidiaries by
agents. Royalties from agents are a percentage of the license and
maintenance fees paid by customers to such agents.
(c) Represents royalties from foreign subsidiaries. Royalties from foreign
subsidiaries are a percentage of the license and maintenance fees paid
by customers to such foreign subsidiaries.
(13) Commitments and Contingencies
Revolving Line of Credit
The Company has available as of June 30, 1998 with Silicon Valley Bank
a revolving line of credit of $5,000,000 for working capital purposes, bearing
interest at the prime rate. At June 30, 1998 there were no borrowings on the
line and the agreement expires on October 20, 1998. The line of credit is
secured by certain assets of the Company.
The agreement contains certain financial restrictions and covenants
which, among other things, includes provisions for maintaining a minimum amount
of cash, net worth and profitability.
Letter of Credit
At June 30, 1998, the Company has a letter of credit for $500,000 under the
above line of credit with Silicon Valley Bank in connection with the lease on
its corporate office.
<PAGE>
(a)(2) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts and Reserves:
SCHEDULE II
MOBIUS MANAGEMENT SYSTEMS, INC.
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
Additions
Balance at Charged to Charges Balance
beginning costs and to other at end
Description of period expenses accounts Deductions of period
<S> <C> <C> <C> <C> <C>
Year ended June 30, 1996:
Deductions from asset account:
Allowance for doubtful accounts 80 575 -- (232) 423
Year ended June 30, 1997:
Deductions from asset account:
Allowance for doubtful accounts 423 817 -- (519) 721
Year ended June 30, 1998:
Deductions from asset account:
Allowance for doubtful accounts 721 1,199 -- (541) 1,379
</TABLE>
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or the
notes thereto.
<PAGE>
(a)(3) Exhibits
Exhibit No. Description
3.1* -- Form of Second Amended and Restated Certificate of Incorporation
of the Registrant.
3.2* -- Form of Restated By-Laws of the Registrant.
4.1* -- Specimen certificate representing the Common Stock.
10.1* -- Mobius Management Systems, Inc. 1996 Stock Incentive Plan.
10.2* -- Amendment No. 1 to Mobius Management Systems, Inc. 1996 Stock
Incentive Plan.
10.3* -- Mobius Management Systems, Inc. 1998 Employee Stock Purchase Plan.
10.4* -- Mobius Management Systems, Inc. 1998 Non-Employee Director Stock
Option Plan.
10.5* -- Mobius Management System, Inc. 1998 Executive Incentive Plan.
10.6* -- Form of Grantee Option Agreement.
10.7* -- Lease dated December 4, 1997 by and between Old Boston Post Road
Associates LLC and the Registrant.
10.8* -- Lease dated February 14, 1983 by and between American National
Bank and Trust Company of Chicago and the Registrant.
10.9* -- Stock Purchase Agreement dated as of May 12, 1997 by and among
the Registrant and the other parties listed on the signature pages
thereto.
10.10* -- Stockholders' Agreement dated as of May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.11* -- Registration Rights Agreement dated May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.12* -- Employment Agreement between the Registrant and Mitchell Gross,
dated February 26, 1998.
10.13* -- Employment Agreement between the Registrant and Joseph Albracht,
dated February 26, 1998.
10.14* -- Severance Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.
10.15* -- Option Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.
10.16* -- Letter Agreement, dated as of December 28, 1997 between the
Registrant and Joseph Tinnerello.
10.17* -- Stockholder Agreement, dated as of December 30, 1997 between the
Registrant and Joseph Tinnerello.
10.18* -- Loan and Security Agreement dated as of October 21, 1997 between
Silicon Valley Bank and the Registrant.
10.19* -- Software Assets Purchase Agreement dated as of December 10,
1990 among the Registrant, Compucept of Nevada and Software
Assist Corporation.
10.20* -- OEM Agreement between the Registrant and CDP Communications, Inc.
dated as of October 15, 1993.
10.21* -- Source Code License and Amendment to OEM Agreement between the
Registrant and CDP Communications Inc. dated as of August 12,1997.
10.22* -- Amendment#1 to License and Amendment to OEM Agreement between the
Registrant and CDP Communications, Inc. dated November 21, 1997.
<PAGE>
Exhibit No. Description
21.1* -- Subsidiaries of the Registrant.
23.1 -- Consent of KPMG Peat Marwick LLP.
27.1 -- Financial Data Schedule (EDGAR only)
* Filed as an exhibit to Mobius' Registration Statement on Form S-1
(Registration Number 333-47117) or an amendment thereto and incorporated herein
by reference to the same exhibit number.
<PAGE>
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.
MOBIUS MANAGEMENT SYSTEMS, INC.
By: /s/ Mitchell Gross
Mitchell Gross
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer and
Director)
Date: September 23, 1998
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act
of 1934, this report has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title(s) Date
/s/ Mitchell Gross Chairman of the Board, Chief September 23, 1998
Mitchell Gross Executive Officer, President
(Principal Executive Officer
and Director)
/s/ Joseph J. Albracht Executive Vice President, Chief September 23, 1998
Joseph J. Albracht Operating Officer, Secretary
and Director
/s/ E. Kevin Dahill Vice President, Finance, Chief September 23, 1998
E. Kevin Dahill Financial Officer and Treasurer
(Principal Financial
and Accounting Officer)
/s/ Peter J. Barris Director September 23, 1998
Peter J. Barris
/s/ Edward F. Glassmeyer Director September 23, 1998
Edward F. Glassmeyer
/s/ Kenneth P. Kopelman Director September 23, 1998
Kenneth P. Kopelman
<PAGE>
(a)(3) Exhibits
Exhibit No. Description
3.1* -- Form of Second Amended and Restated Certificate of Incorporation
of the Registrant.
3.2* -- Form of Restated By-Laws of the Registrant.
4.1* -- Specimen certificate representing the Common Stock.
10.1* -- Mobius Management Systems, Inc. 1996 Stock Incentive Plan.
10.2* -- Amendment No. 1 to Mobius Management Systems, Inc. 1996 Stock
Incentive Plan.
10.3* -- Mobius Management Systems, Inc.1998 Employee Stock Purchase Plan.
10.4* -- Mobius Management Systems, Inc. 1998 Non-Employee Director Stock
Option Plan.
10.5* -- Mobius Management System, Inc. 1998 Executive Incentive Plan.
10.6* -- Form of Grantee Option Agreement.
10.7* -- Lease dated December 4, 1997 by and between Old Boston Post Road
Associates LLC and the Registrant.
10.8* -- Lease dated February 14, 1983 by and between American National
Bank and Trust Company of Chicago and the Registrant.
10.9* -- Stock Purchase Agreement dated as of May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.10* -- Stockholders' Agreement dated as of May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.11* -- Registration Rights Agreement dated May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.12* -- Employment Agreement between the Registrant and Mitchell Gross,
dated February 26, 1998.
10.13* -- Employment Agreement between the Registrant and Joseph Albracht,
dated February 26, 1998.
10.14* -- Severance Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.
10.15* -- Option Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.
10.16* -- Letter Agreement, dated as of December 28, 1997 between the
Registrant and Joseph Tinnerello.
10.17* -- Stockholder Agreement, dated as of December 30, 1997 between the
Registrant and Joseph Tinnerello.
10.18* -- Loan and Security Agreement dated as of October 21, 1997 between
Silicon Valley Bank and the Registrant.
10.19* -- Software Assets Purchase Agreement dated as of December 10,
1990 among the Registrant, Compucept of Nevada and Software
Assist Corporation.
10.20* -- OEM Agreement between the Registrant and CDP Communications, Inc
dated as of October 15, 1993.
10.21* -- Source Code License and Amendment to OEM Agreement between the
Registrant and CDP Communications Inc.dated as of August 12,1997.
10.22* -- Amendment#1 to License and Amendment to OEM Agreement between
the Registrant and CDP Communications, Inc.dated
November 21,1997.
<PAGE>
Exhibit No. Description
21.1* -- Subsidiaries of the Registrant.
23.1 -- Consent of KPMG Peat Marwick LLP.
27.1 -- Financial Data Schedule (EDGAR only)
* Filed as an exhibit to Mobius' Registration Statement on Form S-1
(Registration Number 333-47117) or an amendment thereto and incorporated herein
by reference to the same exhibit number.
<PAGE>
EXHIBIT 23.1
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
Mobius Management Systems, Inc.
We consent to incorporation by reference in the registration statement (No.
33-57695) on Form S-8 of Mobius Management Systems, Inc. of our report dated
July 28, 1998 relating to the consolidated balance sheets of Mobius Management
Systems, Inc. and subsidiaries as of June 30, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended June 30, 1998, and the related
schedule, which report appears in the June 30, 1998, annual report on Form 10-K
of Mobius Management Systems, Inc.
KPMG Peat Marwick LLP
Stamford, CT
September 25, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial Information
extracted from the Balance Sheet and Income Statement for
the twelve months ended June 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> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-1-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1.0
<CASH> 42,222
<SECURITIES> 0
<RECEIVABLES> 11,345
<ALLOWANCES> 612
<INVENTORY> 0
<CURRENT-ASSETS> 61,967
<PP&E> 5,462
<DEPRECIATION> 2,530
<TOTAL-ASSETS> 78,800
<CURRENT-LIABILITIES> 23,902
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 46,120
<TOTAL-LIABILITY-AND-EQUITY> 78,800
<SALES> 56,527
<TOTAL-REVENUES> 56,527
<CGS> 5,036
<TOTAL-COSTS> 28,171
<OTHER-EXPENSES> 14,997
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14
<INCOME-PRETAX> 10,165
<INCOME-TAX> 5,500
<INCOME-CONTINUING> 4,563
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,563
<EPS-PRIMARY> 0.38
<EPS-DILUTED> 0.27
</TABLE>
