SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-24077
Mobius Management Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3078745
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
120 Old Post Road, Rye, New York 10580
(Address of principal executive offices) (zip code)
(914) 921-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO ||
Number of shares outstanding of the issuer's common stock as of November 12,1999
Class Number of Shares Outstanding
Common Stock, par value $0.0001 per share 17,976,962
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1999 and September 30, 1999
Consolidated Statements of Operations
Three months ended September 30, 1998 and 1999
Consolidated Statement of Stockholders' Equity
Three months ended September 30, 1999
Consolidated Statements of Cash Flows
Three months ended September 30, 1998 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Securities Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and per share data)
September 30,
June 30, 1999
1999 (Unaudited)
--------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 33,546 $ 33,104
Marketable securities, at market 9,362 9,328
Accounts receivable, net of allowance for
doubtful accounts of $860 and $864,
respectively 12,631 9,631
Software license installments, current portion 10,603 9,765
Other current assets 2,281 2,709
-------- -------
Total current assets 68,423 64,537
Software license installments, non-current portion,
net of allowance for doubtful accounts of $812
and $826, respectively 12,778 11,937
Investment, at cost 1,501 910
Property and equipment, net 6,039 7,267
Other assets 460 448
-------- --------
Total assets $ 89,201 $ 85,099
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,892 $ 11,996
Deferred maintenance revenue 12,840 14,037
Deferred income taxes 3,293 2,973
Other liabilities 36 21
-------- --------
Total current liabilities 30,061 29,027
Deferred maintenance revenue 3,811 3,433
Deferred income taxes 3,801 3,438
Stockholders' equity:
Common stock $.0001 par value; authorized
40,000,000 shares; issued 21,996,150 and
22,014,150 shares, respectively; outstanding
17,905,150 and 17,923,150 shares, respectively 2 2
Additional paid-in capital 48,409 48,436
Retained earnings 16,497 13,654
Deferred stock compensation (982) (816)
Accumulated other comprehensive income (398) (75)
Treasury stock, at cost, 4,091,000
and 4,091,000 shares, respectively (12,000) (12,000)
-------- --------
Total stockholders' equity 51,528 49,201
-------- --------
Total liabilities and stockholders' equity $ 89,201 $ 85,099
======== ========
See accompanying notes to consolidated financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
Three Months Ended
September 30,
1998 1999
Revenues:
Software license revenues $10,169 $ 6,430
Maintenance and other revenues 5,587 6,953
------- -------
Total revenues 15,756 13,383
Costs of revenues:
Software license revenues 311 185
Maintenance and other revenues 1,304 1,634
------- -------
Total costs of revenues 1,615 1,819
------- -------
Gross profit 14,141 11,564
------- -------
Operating expenses:
Sales and marketing 8,346 9,742
Research and development 2,571 2,959
General and administrative 1,654 2,962
Stock compensation expense 323 166
------- -------
Total operating expenses 12,894 15,829
------- -------
Income (loss) from operations 1,247 (4,265)
License and other interest income 672 726
Interest expense (7) (1)
Foreign currency transaction (losses) gains (33) 46
Investment impairment - (591)
------- -------
Income (loss) before income taxes 1,879 (4,085)
Provision (benefit) for income taxes 988 (1,242)
------- -------
Net income (loss) $ 891 $(2,843)
======= =======
Basic earnings (loss) per share $ 0.05 $(0.16)
Basic weighted average shares
outstanding 17,747 17,916
Diluted earnings (loss) per share $ 0.05 $(0.16)
Diluted weighted average
shares outstanding 18,724 17,916
See accompanying notes to consolidated financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Accumulated
Other Total
Additional Comprehensive Stockholders'
Common Stock Paid-in Retained Deferred Income, net Treasury Stock (Deficit)
Shares Amount Capital Earnings Compensation of tax Shares Amount Equity
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1999 17,905 2 $48,409 $16,497 $(982) $(398) 4,091 $(12,000) $51,528
Net loss - - - (2,843) - - - - (2,843)
Change in other comprehensive
income, net of tax - - - - - 323 - - 323
------
Comprehensive loss - - - - - - - - (2,520)
Stock options exercised 18 - 27 - - - - - 27
Change in deferred compensation - - - - 166 - - - 166
===========================================================================================
Balance at September 30, 1999 17,923 $ 2 $48,436 $13,654 $ (816) $ (75) 4,091 $(12,000) $49,201
===========================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
September 30,
1998 1999
Cash flows provided by operating activities:
Net income (loss) $ 891 $ (2,843)
-------- --------
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Deferred income taxes (42) (683)
Depreciation and amortization 264 561
Stock compensation expense 323 166
Impairment of investment -- 591
Change in operating assets
and liabilities:
Accounts receivable, net 3,629 3,000
Software license installments (933) 1,679
Other assets (129) (358)
Accounts payable and accrued expenses (2,580) (1,896)
Other liabilities 810 (15)
Deferred maintenance revenue 1,290 819
-------- --------
Total adjustments 2,632 3,864
-------- --------
Net cash provided by operating activities 3,523 1,021
-------- --------
Cash flows used in investing activities:
Capital expenditures (412) (1,789)
-------- --------
Net cash used in investing activities (412) (1,789)
-------- --------
Cash flows (used) provided by financing activities:
Cash received from exercise of stock options 116 22
Payments on capital lease obligations (15) --
-------- --------
Net cash provided by financing activities 101 22
Effect of exchange rate changes on
cash and cash equivalents 139 304
-------- --------
Net change in cash and cash equivalents 3,351 (442)
Cash and cash equivalents at beginning
of period 42,222 33,546
-------- --------
Cash and cash equivalents at end of period $ 45,573 $ 33,104
======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 7 $ 1
Income taxes $ 200 $ -
See accompanying notes to consolidated financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements at June 30, 1999 and
September 30, 1999 and for the three month periods ended September 30, 1998 and
1999, have been prepared in accordance with the requirements of the Securities
and Exchange Commission (SEC) for interim reporting. Under those rules, certain
footnotes or other financial information that are normally required by generally
accepted accounting principles (GAAP) can be condensed or omitted.
Revenues, expenses, assets and liabilities vary during the year and GAAP
requires the Company to make estimates and assumptions in preparing the interim
financial statements. The Company has made their best effort in establishing
good faith estimates and assumptions, however, actual results may differ.
Mobius is responsible for the financial statements included in this Form 10-Q.
These financial statements include all normal and recurring adjustments that are
necessary for the fair presentation of Mobius's financial position, results of
operations and changes in cash flow. These statements should be read in
conjunction with the consolidated financial statements and notes in Mobius's
latest Form 10-K.
(2) Earnings Per Share
Effective December 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128
stipulates that the calculation of earnings per share (EPS) be shown for all
historical periods as Basic EPS and Diluted EPS. Basic EPS is computed by
dividing income available to common shareholders by the weighted average number
of common shares outstanding during the period. The computation of Diluted EPS
is similar to the computation of Basic EPS except that it gives effect to all
potentially dilutive instruments that were outstanding during the period. Such
dilutive instruments include stock options.
The following is a reconciliation of the numerators and denominators
for the Basic and Diluted EPS calculations (in thousands, except per share
data):
<TABLE>
<CAPTION>
Three Months Ended September 30,
1998 1999
------------------------------------- ----------------------------------------
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(loss) $891 $(2,843)
==== =======
Weighted average shares
outstanding 17,747 17,916
Basic earnings(loss)
per share $0.05 $(0.16)
===== ======
Diluted earnings(loss)
per share:
Net income(loss) $891 $(2,843)
==== =======
Dilutive effect of
stock options 977 -
------ ------
Diluted earnings (loss)
per share 18,724 $0.05 17,916 $(0.16)
====== ===== ====== ======
</TABLE>
For the three months ended September 30, 1999 options were not included
in the Diluted EPS calculation because their effect was anti-dilutive. There
were no anti-dilutive shares for the three months ended September 30, 1998.
<PAGE>
(3) Marketable Securities
Marketable securities are categorized as available-for-sale securities,
as defined by Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities". Unrealized holding gains
and losses are reflected as a net amount in a separate component of
stockholders' equity until realized. For the purpose of computing realized gains
and losses, cost is identified on a specific identification basis. There were no
realized gains and losses for the three months ended September 30, 1999. As of
June 30, 1999 and September 30, 1999, the unamortized investment premium and
unrealized holding gains and losses were insignificant.
(4) 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. The discount is amortized to
interest income using the interest method over the term of the license contract.
(5) Property and Equipment
Property and equipment consists of the following (in thousands):
June 30 September 30,
1999 1999
------- ------------
Furniture, fixtures and office equipment $ 939 $ 1,025
Computer equipment 7,803 9,291
Leasehold improvements 1,153 1,415
------ -------
9,895 11,731
Less accumulated depreciation and amortization (3,856) (4,464)
------ -------
Property and equipment, net $6,039 $ 7,267
======= =======
Depreciation and amortization expense on property and equipment,
including capital leases, was $264,000 and $561,000 for the three months ended
September 30, 1998 and 1999, respectively. At June 30, 1998 and September 30,
1999 there was $214,000 of equipment under capital leases included in property
and equipment with accumulated depreciation of $104,000 and $112,000
respectively.
(6) Non-Current Investments
In June 1999, the Company invested $1,501,000 in equity securities of a
privately-held, information technology company. This investment was accounted
for under the cost method. The Company has and will continue to regularly review
the assumptions underlying the operating performance and cash flow forecasts of
this technology company to assess this investment's recoverability. As of
September 30, 1999, events and circumstances have indicated that this investment
is impaired, therefore a $591,000 impairment loss has been recorded.
<PAGE>
(7) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
June 30, September 30,
1999 1999
------- ------------
Accounts payable $ 2,179 $ 1,850
Compensation and related benefits 5,897 5,456
Royalties payable 1,358 1,172
Other 4,458 3,518
------- -------
$13,892 $11,996
======= =======
(8) Stock Incentive Plan
In January, February and March 1998 the Company granted 350,000 370,000
and 53,000 stock options, respectively, under the 1996 Stock Incentive Plan at
an exercise price of $9.86, $11.00 and $11.00 per share, respectively, which
were deemed by the Board of Directors to be fair market values for the shares on
these dates. The Company subsequently determined that these options were granted
at exercise prices below the fair market value of $14.00 per share, the low end
of the range of per share prices for the Company's initial public offering
("IPO") in April 1998. As a result, the Company recognized compensation expense
of $323,000 and $166,000 for the three months ended September 30, 1998 and 1999,
respectively. There is approximately $381,000, $264,000, $134,000 and $37,000 of
expense relating to these 1998 option grants to be recognized in fiscal years
2000, 2001, 2002 and 2003, respectively, subject to adjustments for option
holder terminations.
(9) Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the disclosure of comprehensive income, which
includes net income, foreign currency translation adjustments and unrealized
gains and losses on marketable securities classified as available-for-sale.
Comprehensive income for the quarters ended September 30, 1998 and 1999 is as
follows:
Three Months ended
September 30,
1998 1999
------ -------
Net income (loss) $ 891 $(2,843)
Unrealized marketable securities gain, net of tax -- 7
Unrealized translation gain, net of tax 139 316
------ -------
Comprehensive income, net of tax $1,030 $(2,520)
====== =======
<PAGE>
(10) Commitments and Contingencies
In compliance with the lease of the corporate headquarters, the
Company's landlord holds a letter of credit with Silicon Valley Bank for
$275,000. This letter of credit is secured by a certificate of deposit.
(11) Sale of INFOPAC-Tapesaver
In January 1999, the Company sold the INFOPAC-TapeSaver product to a
third party for approximately $3.0 million. Under the terms of the sale, the
buyer assumed responsibility for maintenance support for all existing TapeSaver
licenses. As a result of this arrangement, the Company will recognize $3.0
million of license revenue as the buyer makes payments over the next five years,
and approximately $1.0 million of maintenance revenue through December 31, 1999.
For the three months ended September 30, 1999, the Company recognized $157,000
of license revenue and $180,000 of maintenance revenue related to this
arrangement. Future license revenue will be variable through December 31, 1999
as the buyer sells TapeSaver products to customers and will be $112,500 each
quarter thereafter for the remaining four year term of the contract.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In this section, readers are given a more detailed assessment of
Mobius's operating results and changes in financial position. This section
should be read in conjunction with the Company's Consolidated Financial
Statements and Notes. Please note that references in this section to "last
year's quarter" and "this quarter" refer to the Company's fiscal quarters ended
September 30, 1998 and 1999, respectively. Mobius's quarterly revenues and
operating results have varied substantially from quarter to quarter in the past,
and are likely to continue to do so in the future. Certain factors underlying
such fluctuations, as well as a number of other factors relevant to a reader's
understanding of this Management Discussion and Analysis, are set forth under
the heading "Factors Affecting Future Performance" contained in the Company's
Form 10-K filed on September 28, 1999, the full text of which is incorporated in
this Form 10-Q by this reference and filed as an exhibit hereto.
Statements contained in this quarterly report, other than historical
financial results, may contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks and uncertainties. In particular, any statements contained herein
regarding expectations with respect to future sales and profitability, as well
as product development and/or introductions, are subject to known and unknown
risks, uncertainties and contingencies, many of which are beyond the Company's
control, which may cause actual results, performance or achievements to differ
materially from those projected or implied in such forward-looking statements.
Factors that might affect actual results, performance or achievements include,
among other things, overall economic and business conditions, the demand for
Mobius's goods and services, and technological advances and competitive factors
in the markets in which Mobius competes. These risks and uncertainties are
described in detail from time to time in the Company's filings with the
Securities and Exchange Commission, including the Company's Form 10-K. Mobius
accepts no obligation to update these forward-looking statements and does not
intend to do so.
Overview
Mobius is a leading provider of software products designed to provide
network- and Web-based access to present and distribute large volumes of diverse
enterprise information. Major financial services, healthcare, manufacturing,
retail and telecommunications companies and governmental entities use the
Company's products to record transactions, facilitate customer service, billing
and other mission-critical functions.
<PAGE>
Results of Operations
The following table sets forth certain items from the Company's
Consolidated Statement of Income as a percentage of total revenues for the
fiscal years indicated:
Three Months Ended
September 30,
1998 1999
--------------------
(Unaudited)
Revenues:
Software license revenues 64.5% 48.0%
Maintenance and other revenues 35.5 52.0
----- -----
Total revenues 100.0 100.0
Costs of revenues:
Software license revenues 2.0 1.4
Maintenance and other revenues 8.3 12.2
----- -----
Total costs of revenues 10.3 13.6
----- -----
Gross profit 89.7 86.4
Operating expenses:
Sales and marketing 53.0 72.8
Research and development 16.3 22.1
General and administrative 10.5 22.1
Stock compensation expense 2.0 1.2
----- -----
Total operating expenses 81.8 118.2
----- -----
Income (loss) from operations 7.9 (31.8)
License and other interest income 4.3 5.4
Interest expense (.1) --
Foreign currency transaction(losses)gains (.2) .3
Investment impairment -- (4.4)
----- -----
Income (loss) before income taxes 11.9 (30.5)
Provision (benefit) for income taxes 6.2 (9.3)
----- -----
Net income (loss) 5.7% (21.2)%
===== =====
Three Months Ended September 30, 1998 Compared to Three Months Ended
September 30, 1999
Revenues.
o Total revenues decreased 15.1% from $15.8 million in last year's quarter to
$13.4 million this quarter. Domestic revenues decreased 16.8% from $12.5
million in last year's quarter to $10.4 million this quarter. International
revenues decreased 9.1% from $3.3 million in last year's quarter to $3.0
million this quarter. Total revenues decreased primarily because of a
deferral of purchase decisions in the domestic market and a weakness in
sales in Europe. The Company anticipates continued softness in license
revenues for the next two quarters. Mobius believes that the overall market
demand for the Company's products remains strong and that license revenue
growth will resume in the second half of fiscal 2000.
o Software license revenues decreased 36.8% from $10.2 million in last year's
quarter to $6.4 million this quarter. This decrease was primarily
attributable to decreased sales of licenses in the United States and
Europe. Mobius believes that Year 2000 issues have significantly affected
the purchasing patterns of its customers and potential customers. Many
companies have expended significant resources to correct or modify their
current software systems for Year 2000 compliance. These expenditures have
resulted in reduced funds available to purchase software products such as
those that Mobius offers.
o Maintenance and other revenues increased 24.4% from $5.6 million in last
year's quarter to $7.0 million this quarter. This increase in maintenance
revenue was 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 both quarters were not significant.
Costs of Revenues.
o Cost of license revenues consist primarily of the cost of royalties and
sublicense fees. The costs of software license revenues decreased 40.5%
from $311,000 in last year's quarter to $185,000 this quarter, representing
3.1% and 2.9% respectively, of software license revenues in those quarters.
The costs of software license revenue as a percentage of software license
revenues decreased from last year's quarter to this quarter primarily due
to increased license revenues from products that were developed exclusively
by the Company and therefore do not require royalty payments.
o Costs of maintenance and other revenues consist primarily of customer
support staff costs. The costs of maintenance and other revenues increased
25.3% from $1.3 million in last year's quarter to $1.6 million this
quarter, representing 23.3% and 23.5% respectively, of maintenance and
other revenues in those quarters. The increases in costs of maintenance and
other revenues were primarily attributable to increased staffing and
personnel-related costs.
Operating Expenses.
o Sales and marketing expenses consist primarily of the cost of personnel
associated with the selling and marketing of Mobius's products, including
salaries, commissions, performance based bonuses and travel and
entertainment costs. Sales and marketing costs also include the cost of
branch sales offices, marketing, promotional materials and advertising.
These expenses increased 16.7% from $8.3 million in last year's quarter to
$9.7 million this quarter, representing 53.0% and 72.8%, respectively, of
total revenues in those quarters. Sales and marketing expenses have
increased primarily because the Company hired additional sales and
marketing personnel and expanded branch sales office facilities, offset by
a decrease in sales commissions as a result of decreased sales of software
licenses.
o Research and development expenses consist primarily of personnel costs
attributable to the development of new software products and the
enhancement of existing products. Research and development expenses
increased 15.1% from $2.6 million in last year's quarter to $3.0 million
this quarter, representing 16.3% and 22.1%, respectively, of total revenues
in those quarters. The increases in research and development expenses were
primarily attributable to increased staffing and personnel-related costs
for technical staff.
o General and administrative expenses consist of personnel costs related to
management, accounting, human resources, network services, administration
and associated overhead costs, as well as fees for professional services.
General and administrative expenses increased 79.1% from $1.7 million in
last year's quarter to $3.0 million this quarter, representing 10.5% and
22.1%, respectively, of total revenues in those quarters. The increase was
primarily attributable to additional personnel costs and increased
professional services to assist in enhancing and improving the Company's
infrastructure as a basis for future growth.
o Stock compensation expense was the result of issuing options in 1998 that
were deemed to be below market value. Stock compensation expense decreased
48.6% from $323,000 to $166,000. This expense will continue to decrease as
this expense is amortized over the option holder's vesting periods, subject
to adjustments for option holder terminations. See footnote 8 in the
consolidated financial statements for further information.
License and other interest income; interest expense; foreign currency
transaction gains (losses). License and other interest income was $672,000 and
$726,000 in last year's quarter and this quarter, respectively. During both
quarters interest expense was insignificant. Foreign currency transaction losses
were $33,000 in last year's quarter and foreign currency transaction gains were
$46,000 this quarter. These losses and gains are the result of foreign currency
fluctuations in the foreign jurisdictions within which the Company does
business.
Investment Impairment. In June 1999, Mobius invested $1,501,000 in
equity securities of a privately-held, information technology company. As of
September 30, 1999, events and circumstances have indicated that this investment
is impaired therefore a $591,000 impairment loss was recorded. The Company has
and will continue to regularly review the assumptions underlying the operating
performance and cash flow forecasts of this technology company to assess this
investment's recoverability.
Provision for Income Taxes. The provision for income taxes was $988,000
in last year's quarter compared to a tax benefit of $1.2 million in this
quarter. The provision (benefit) for taxes as a percentage of income (loss)
before taxes was 52.6% and (30.4)% for last year's quarter and this quarter,
respectively. The change in the effective tax rate from last year's quarter to
this quarter primarily reflects a statutory tax benefit for the loss in the
United States offset by limitations on the tax benefit which can be taken in
this quarter from losses in the Company's foreign subsidiaries.
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. In April 1998, the Company completed its initial public offering,
which generated net proceeds of $33.0 million. As of September 30, 1999, Mobius
had cash and cash equivalents of $33.1 million, a decrease of $400,000 from the
$33.5 million held at June 30, 1999. In addition, Mobius had marketable
securities of $9.4 million and $9.3 million as of June 30, 1999 and September
30, 1999, respectively.
Net cash provided by operating activities was $3.5 million in last
year's quarter and $1.0 million this quarter. Mobius's primary sources of cash
during this year's quarter were decreased software license installments,
decreased accounts receivable and increased deferred maintenance revenue. These
sources were offset by a net loss and decreases in accounts payable and accrued
expenses. Net software license installments decreased 7.2% from $23.4 million at
June 30, 1999 to $21.7 million at September 30, 1999. Net accounts receivable
decreased 23.8% from $12.6 million at June 30, 1999 to $9.6 million at September
30, 1999. Deferred maintenance revenue increased 4.9% from $16.7 million at June
30, 1999 to $17.5 million at September 30, 1999.
Cash used in investing activities, consisting of capital expenditures
to purchase computer equipment and complete leasehold improvements, was $412,000
and $1.8 million in last year's quarter and this quarter, respectively.
Cash provided by financing activities was $101,000 in last year's quarter
and $22,000 this quarter, primarily due to cash received from the exercise of
stock options.
During this year's quarter, Mobius recorded approximately $400,000 in
sales and marketing expenses and $350,000 in research and development expenses
related to the marketing, development and testing of a new business-to-consumer
transaction-based Internet offering. The Company plans to make a official
announcement about this at a later date. Mobius anticipates that it will
continue to incur additional costs related to the this consumer focused Internet
opportunity for at least the next year.
The Company believes that its existing cash balances and cash flows
expected from future operations will be sufficient to meet the Company's capital
requirements for at least 12 months. In compliance with the lease of the
Company's corporate headquarters in Rye, NY, the landlord holds a letter of
credit with Silicon Valley Bank for $275,000. This letter of credit is secured
by a certificate of deposit.
In January 1999, the Company sold the INFOPAC-TapeSaver product to a
third party for approximately $3.0 million. Under the terms of the sale, the
buyer will assume responsibility for maintenance support for all existing
TapeSaver licenses. As a result of this arrangement, the Company will recognize
$3.0 million of license revenue as the buyer makes payments over the next five
years, and approximately $1.0 million of maintenance revenue through December
31, 1999. For the three months ended September 30, 1999, the Company recognized
$157,000 of license revenue and $180,000 of maintenance revenue related to this
arrangement. Future license revenue will be variable through December 31, 1999
as the buyer sells TapeSaver products to customers and will be $112,500 each
quarter thereafter for the remaining four year term of the contract.
<PAGE>
Year 2000
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 the Company's products are
designed for long-term storage and retrieval of data with end of life dates well
beyond 2000, Mobius believes that its products are and have been Year 2000
compliant. There can be no assurance that the Company's 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 the Company's products.
The Company believes that Year 2000 issues may significantly affect the
purchasing patterns of its customers and potential customers. Many companies
have expended 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 the Company offers.
Management has implemented a Company-wide program to prepare its
internal computer systems and applications (such as its accounting and word
processing programs) for Year 2000 compliance. The Company has and will continue
to incur internal staff costs as well as other expenses necessary during the
course of such efforts and the Company has and will continue to replace some
systems and upgrade others. Maintenance or modification costs will be expensed
as incurred. The total cost is not expected to be material. In addition, the
Company has obtained assurances from its primary service and product providers
regarding their Year 2000 readiness, which Mobius believes is adequate.
In light of the above, the Company does not anticipate any serious Year
2000 problems. However, in compliance with the SEC Release No. 34-40649, the
Company is required to estimate the impact of a broad systemic failure that is
caused by the "Y2K" problem. While the Company does not expect this to occur, if
the Company's primary service and product providers have not completed their
remediation efforts for the Year 2000 problem, it could impact the Company's
ability to develop and maintain its products, apply cash collections and make
electronic disbursements, since these activities are dependent upon the
continued operation of the national power and telephony grids and the banking
system. Other aspects of Mobius's operations could be maintained manually, at
substantially reduced efficiency, until these systems were restored to
operation.
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Mobius investment portfolio is subject to interest rate sensitivity. The
primary objective of Mobius's investment activities is to preserve principal,
while at the same time maximizing the interest income, without significantly
increasing risk. Some of the marketable securities that Mobius has invested in
may be subject to market rate interest risk. This means a change in prevailing
interest rates may cause the market value of the security to fluctuate. For
example, if Mobius holds a security that was issued with a fixed interest rate
at the then-prevailing rates and the prevailing interest rates later rise, the
market value of the marketable security will probably decline. At September 30,
1999, Mobius primarily held debt securities.
Mobius may be subject to foreign currency fluctuations in relation to
accounts receivable and accounts payable that may be denominated in a foreign
currency other than the functional currency in certain foreign jurisdictions. To
the extent that such foreign currency transactions are negatively or positively
effected by foreign currency fluctuations, foreign currency transaction losses
or gains would be recognized.
<PAGE>
PART II - OTHER INFORMATION
Item 1 - 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 2 - Changes in Securities and Use of Proceeds
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) On April 27, 1998, the Securities and Exchange Commission declared effective
our Registration Statement on Form S-1 (File No. 333-47117) with respect to our
initial public offering. To date, we have not used any of the approximately
$33.0 million of proceeds from the offering. The proceeds are currently invested
in short term, investment grade, interest bearing securities.
Item 3 - Defaults Upon Senior Securities
None
Item 4 - Submission of Matters to a Vote of Security Holders
None
Item 5 - Other Information
None
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
3.1* Form of Second Amended and Restated Certificate of
Incorporation of the Registrant.
3.2* Form of Amended and Restated By-Laws of the Registrant.
4.1* Specimen certificate representing the Common Stock
27 Financial Data Schedule (EDGAR only)
99.1 Factors Affecting Future Performance
* Filed as an exhibit to Mobius' Registration Statement on Form S-1
(File No. 333-47117) or an amendment thereto and incorporated
herein by reference to the same exhibit number.
(b) Reports on Form 8-K
Not Applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 15, 1999
MOBIUS MANAGEMENT SYSTEMS, INC.
By: /s/ E. Kevin Dahill
E. Kevin Dahill
Vice President, Finance,
Chief Financial Officer
and Treasurer
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
No. Description
3.1* Form of Second Amended and Restated Certificate of Incorporation
of the Registrant.
3.2* Form of Amended and Restated By-Laws of the Registrant.
4.1* Specimen certificate representing the Common Stock
27 Financial Data Schedule (EDGAR only)
99.1 Factors Affecting Future Performance
* Filed as an exhibit to Mobius' Registration Statement on Form S-1
(File No. 333-47117) or an amendment thereto and incorporated
herein by reference to the same exhibit number.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains Summary Financial Information extracted
from the Balance Sheet and Income Statement for the three months
ended September 30, 1999 for Mobius Management Systems, Inc. and
is qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
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<NAME> MOBIUS MANAGEMENT SYSTEMS, INC.
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-1-1999
<PERIOD-END> SEP-30-1999
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0
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</TABLE>
The following is an excerpt from the Company's Form 10-K filed on September
28, 1999. Mobius accepts no obligation to update these forward-looking
statements and does not intend to do so.
FACTORS AFFECTING FUTURE PERFORMANCE
Fluctuations in Period to Period Results; Seasonality; Uncertainty of
Future Operating Results
Mobius's 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 Mobius's
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 Mobius's quarterly operating results. Many of Mobius's
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 Mobius will be successful in closing large license
transactions within the fiscal period in which they are budgeted, if at all.
Mobius's business has experienced and is expected to continue to
experience significant seasonality, with revenues typically peaking primarily in
the fourth (June) fiscal quarter and to a lesser extent in the second (December)
fiscal quarter. These fluctuations are caused primarily by customer purchasing
patterns and Mobius'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.
Due to all of the foregoing factors and other factors described below,
revenues for any period are subject to significant variation, and Mobius
believes that period-to-period comparisons of its operating results are not
necessarily meaningful. Such comparisons may not be reliable indicators of
future performance.
Technological Change
The market for Mobius's 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 Mobius's existing products obsolete and unmarketable. Mobius's
future success will depend in part on its ability to enhance existing products,
to develop and introduce new products to meet diverse and evolving customer
requirements, and to 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 Mobius will be successful in developing and
marketing product enhancements or that new products will respond to
technological change or evolving industry standards, or that Mobius 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 Mobius may introduce will
achieve market acceptance.
<PAGE>
Product Concentration
To date, a substantial portion of Mobius's revenues have been
attributable to the licensing of its ViewDirect and DocumentDirect software and
the provision of related maintenance services. Mobius currently expects 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 its business,
operating results and financial condition.
Competition
The market for Mobius's products is intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
market activities of industry participants. The Company believes that 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. Mobius currently
encounters 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., Quest Software, Inc. 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 Mobius's business,
operating results and financial condition.
<PAGE>
International Sales and Operations
Mobius believes that its revenues and future operating results will
depend in part on its ability to increase sales in international markets. As a
group, the Company's international subsidiaries have not achieved budgeted sales
and have been unprofitable to date, and Mobius expects achieving profitability
will require significant management attention and financial resources. There can
be no assurance that Mobius will be able to maintain or increase international
market demand for its products or hire additional qualified personnel who will
successfully be able to market its products internationally. Mobius's
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 Mobius's future international
revenues and, consequently, on its business, operating results and financial
condition.
An increase in the value of the U.S. dollar relative to foreign
currencies could make Mobius's products more expensive, and, therefore,
potentially less competitive in those markets. Although Mobius does 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
the Company maintains operations, its net assets that are denominated in such
foreign currencies will be devalued, resulting in a foreign currency translation
loss. For more information on its international operations, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7 and Notes 2 and 16 of Notes to Consolidated Financial Statements.
Expansion of Indirect Channels
To date, sales through indirect sales channels have not been
significant although Mobius intends to invest resources to develop these
channels. Mobius's ability to achieve revenue growth in the future will be
affected by its success in expanding existing and establishing additional
relationships with strategic partners. Mobius expects to receive lower unit
prices when selling through indirect channels; therefore, if Mobius is
successful in selling products through indirect channels, its gross margins as a
percentage of revenue will decrease.
Extended Payment Risk
Terms of sale are a competitive factor in Mobius's markets. Mobius
offers extended payment terms to some of its 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 Mobius has established reserves against
possible future bad debts and believes 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 Mobius'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
Mobius's success is heavily dependent upon its confidential and
proprietary intellectual property. Mobius has no patents or patent applications
pending covering any aspect of its software products. Mobius relies primarily on
a combination of confidentiality agreements, copyright, trademark and trade
secret laws and confidentiality procedures to protect its proprietary rights.
Trade secret and copyright laws afford only limited protection. Despite Mobius's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of its products or obtain and use information that Mobius regards
as proprietary. In addition, the laws of some foreign countries do not protect
its proprietary rights to as great an extent as do the laws of the United
States. There can be no assurance that its means of attempting to protect
Mobius's proprietary rights will be adequate or that its competitors will not
independently develop similar or competitive technology.
Mobius's products are generally provided to customers in object code
format only. However, Mobius enters into arrangements with its 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 its software products.
Notwithstanding such provision, the delivery of source code to customers may
increase the likelihood of misappropriation or other misuse of its intellectual
property.
Mobius is not aware that any of its products infringe on 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 its business,
operating results and financial condition.
Dependence on Licensed Technology
Mobius relies on certain software and other information that it
licenses from third parties, including software that is used to perform certain
functions in its products. Although Mobius believes 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 its sales unless
and until the Company can replace the functionality provided by these products.
In addition, Mobius is 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 Mobius would be able to
replace the functionality provided by the third party software currently offered
in conjunction with its products in the event that such software becomes
obsolete or incompatible with future versions of its 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
its 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 Mobius conducts extensive product testing, Mobius has in the
past discovered software defects in certain of its new products and enhancements
after their introduction. Mobius could in the future lose, or delay recognition
of, revenues as a result of software errors or defects. Mobius believes that its
customers and potential customers are highly sensitive to defects in the
Company's software. Although Mobius's 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 Mobius's reputation, or increased service and
warranty costs, any of which could have a material adverse effect on its
business, operating results and financial condition.
Mobius's license agreements with its customers typically contain
provisions designed to limit its exposure to potential product liability claims.
However, it is possible that the limitation of liability provisions contained in
its license agreements may not be effective under the laws of certain
jurisdictions. Although Mobius has 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 the Company will not be subject to
such claims in the future. Mobius does not maintain product liability insurance.
A successful product liability claim brought against Mobius could have a
material adverse effect on its 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 affect its 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
Mobius's ability to effectively manage its future growth, if any, will
require it to continue to improve the Company's operational, financial and
management controls, accounting and reporting systems, and other internal
processes. There can be no assurance that Mobius will be able to make such
improvements in an efficient or timely manner or that any such improvements will
be sufficient to manage its growth, if any. If Mobius is unable to manage growth
effectively, its business, operating results and financial condition would be
materially adversely affected.
Mobius's success depends to a significant extent upon its 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, the Company believes that its future success will also
depend to a significant extent upon its ability to attract, train and retain
highly skilled technical, management, sales and marketing personnel. Competition
for such personnel is intense, and Mobius expects that such competition will
continue for the foreseeable future. Mobius has 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
Mobius's business, operating results and financial condition.
<PAGE>
