SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended March 31, 2000
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 May 10, 2000:
Class Number of Shares Outstanding
Common Stock, par value $0.0001 per share 18,087,439
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 1999 and March 31, 2000
Consolidated Statements of Income
Three and nine months ended March 31, 1999 and 2000
Consolidated Statement of Stockholders' Equity
Nine months ended March 31, 2000
Consolidated Statements of Cash Flows
Nine months ended March 31, 1999 and 2000
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)
<TABLE>
<CAPTION>
June 30, March 31,
1999 2000
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 33,546 $ 28,995
Marketable securities, at market 9,362 8,650
Accounts receivable, net of allowance for
doubtful accounts of $860 and $785, respectively 12,631 7,881
Software license installments, current portion 10,603 9,370
Other current assets 2,281 3,064
------- -------
Total current assets 68,423 57,960
Software license installments, non-current portion,
net of allowance for doubtful accounts of $812
and $683, respectively 12,778 8,973
Investments, at cost 1,501 500
Property and equipment, net 6,039 8,786
Other assets 460 442
-------- -------
Total assets $ 89,201 $ 76,661
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,892 $ 12,267
Deferred maintenance revenue 12,840 13,274
Deferred income taxes 3,293 2,801
Other liabilities 36 --
-------- --------
Total current liabilities 30,061 28,342
-------- --------
Deferred maintenance revenue 3,811 2,725
Deferred income taxes 3,801 2,635
Stockholders' equity:
Common stock $.0001 par value; authorized 40,000,000
shares; issued 21,996,150 and 22,101,712 shares,
respectively; outstanding 17,905,150 and 18,010,712
shares, respectively 2 2
Additional paid-in capital 48,409 48,702
Retained earnings 16,497 7,025
Deferred stock compensation (982) (536)
Accumulated other comprehensive income (loss) (398) (234)
Treasury stock, at cost, 4,091,000
and 4,091,000 shares, respectively (12,000) (12,000)
-------- --------
Total stockholders' equity 51,528 42,959
-------- --------
Total liabilities and stockholders' equity $ 89,201 $ 76,661
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 2000 1999 2000
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Software license revenues $11,223 $ 6,522 $34,645 $20,208
Maintenance and other revenues 6,660 7,478 18,099 21,520
------- ------- ------- -------
Total revenues 17,883 14,000 52,744 41,728
Costs of revenues:
Software license revenues 282 109 825 599
Maintenance and other revenues 1,209 1,497 3,687 4,471
------- ------- ------- -------
Total costs of revenues 1,491 1,606 4,512 5,070
Gross profit 16,392 12,394 48,232 36,658
Operating expenses:
Sales and marketing 9,684 11,308 27,732 31,027
Research and development 2,630 4,108 7,907 10,315
General and administrative 2,098 3,026 6,078 8,961
Stock compensation expense 213 113 879 446
------- ------- ------- -------
Total operating expenses 14,625 18,555 42,596 50,749
Income (loss) from operations 1,767 (6,161) 5,636 (14,091)
License and other interest income 699 717 2,138 2,202
Interest expense (3) (1) (15) (3)
Foreign currency transaction (losses) gains (9) (8) (102) 40
Investment impairment - (527) - (1,939)
------- ------- ------- -------
Income (loss) before income taxes 2,454 (5,980) 7,657 (13,791)
Provision (benefit) for income taxes 1,174 (1,875) 3,757 (4,319)
------- ------- ------- -------
Net income (loss) $ 1,280 $(4,105) $ 3,900 $(9,472)
======= ======= ======= =======
Basic earnings (loss) per share $ 0.07 $ (0.23) $ 0.22 $ (0.53)
Basic weighted average shares
outstanding 17,815 18,007 17,783 17,962
Diluted earnings (loss) per share $ 0.07 $ (0.23) $ 0.21 $ (0.53)
Diluted weighted average
shares outstanding 19,239 18,007 18,973 17,962
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Additional Comprehensive Treasury Stock Stockholders'
------------ Paid-in Retained Deferred Income, net -------------- (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 - - - (9,472) - - - - (9,472)
Change in other comprehensive income,
net of tax - - - - - 164 - - 164
------
Comprehensive loss - - - - - - - - (9,308)
Stock options exercised 52 - 123 - - - - - 123
Stock purchase plan shares issued 54 - 170 - - - - - 170
Change in deferred compensation - - - - 446 - - - 446
--------------------------------------------------------------------------------------------
Balance at March 31, 2000 18,011 $ 2 $48,702 $7,025 $ (536) $(234) 4,091 $(12,000) $ 42,959
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1999 2000
------- -------
<S> <C> <C>
Cash flows provided by operating activities:
Net income (loss) $ 3,900 $(9,472)
------- --------
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Deferred income taxes 2,121 (1,658)
Depreciation and amortization 841 1,974
Stock compensation expense 879 446
Loss on disposal of property, plant and equipment -- 22
Impairment of investment -- 1,939
Change in operating assets and liabilities:
Accounts receivable, net 1,752 4,750
Software license installments (2,880) 5,038
Other assets (1,281) (527)
Accounts payable and accrued expenses 692 (1,566)
Other liabilities (918) --
Deferred maintenance revenue 418 (652)
------- ------
Total adjustments 1,624 9,766
------- ------
Net cash provided (used) by operating activities 5,524 294
------- ------
Cash flows (used) provided in investing activities:
Purchase of marketable securities (9,697) (1,000)
Purchase of investments -- (1,063)
Sale of marketable securities -- 1,500
Capital expenditures (1,571) (4,649)
------- ------
Net cash used in investing activities (11,268) (5,212)
------- ------
Cash flows (used) provided by financing activities:
Cash received from employee stock purchase -- 169
Cash received from exercise of stock options 253 65
Payments on capital lease obligations (36) (36)
------- ------
Net cash provided by financing activities 217 198
------- ------
Effect of exchange rate changes on
cash and cash equivalents (250) 169
------- ------
Net change in cash and cash equivalents (5,777) (4,551)
Cash and cash equivalents at beginning
of period 42,222 33,546
------- -------
Cash and cash equivalents at end of period $36,445 $28,995
======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 15 $ 3
Income taxes $ 3,222 $ 10
</TABLE>
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
March 31, 2000 and for the three and nine month periods ended March 31, 1999 and
2000, 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 Management Systems, Inc. ("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 March 31,
1999 2000
-------------- --------------- ----------- -------------- --------------- -----------
Net Income Shares Per Share Net Loss Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income (loss) $ 1,280 $(4,105)
======= =======
Weighted average shares
outstanding 17,815 18,007
Basic earnings (loss)
per share $0.07 $(0.23)
===== ======
Diluted earnings (loss)
per share:
Net income (loss) $ 1,280 $(4,105)
======= =======
Dilutive effect of
stock options 1,424 -
----- ------
Diluted earnings (loss)
per share 19,239 $0.07 18,007 $(0.23)
====== ===== ====== ======
</TABLE>
<PAGE>
(2) Earnings Per Share (continued)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
1999 2000
-------------- --------------- ----------- -------------- --------------- -----------
Net Income Shares Per Share Net Loss Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS:
Net income (loss) $3,900 $(9,472)
====== =======
Weighted average shares
outstanding 17,783 17,962
Basic earnings (loss)
per share $0.22 $(0.53)
===== ======
Diluted earnings (loss)
per share:
Net income (loss) $3,900 $(9,472)
====== =======
Dilutive effect of
stock options 1,190 -
------ ------
Diluted earnings (loss)
per share 18,973 $0.21 17,962 $(0.53)
====== ===== ====== ======
</TABLE>
For the three and nine months ended March 31, 2000 stock options were
not included in the Diluted EPS calculation because their effects were
anti-dilutive. There were no anti-dilutive stock options in the EPS calculation
in the three and nine months ended March 31, 1999, respectively.
(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 and nine months ended March 31, 2000. As
of June 30, 1999 and March 31, 2000, 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.
<PAGE>
(5) Property and Equipment
Property and equipment consists of the following (in thousands):
June 30, March 31,
1999 2000
------- -------
Furniture, fixtures and office equipment $ 939 $ 1,084
Computer equipment 7,803 11,435
Leasehold improvements 1,153 1,448
Construction in progress -- 552
------- -------
9,895 14,519
Less accumulated depreciation and amortization (3,856) (5,733)
------ -------
Property and equipment, net $ 6,039 $ 8,786
======= =======
Depreciation and amortization expense on property and equipment,
including capital leases, was $311,000, $841,000, $683,000 and $1.9 million for
the three and nine months ended March 31, 1999 and 2000, respectively. At June
30, 1999 and March 31, 2000 there was $214,000 of equipment under capital leases
included in property and equipment with accumulated depreciation of $104,000 and
$127,000, respectively.
(6) Non-Current Investments
In June 1999, the Company invested $1,501,000 in Home Account Network
("HAN"), a privately-held, information technology company providing processing
and Internet outsourcing to financial services companies. During the third
quarter of fiscal 2000, Mobius provided an additional $562,500 to HAN in short
term loans that were converted to preferred stock in May 2000. The short term
loans are classified as other current assets at March 31, 2000. See footnote 12
for subsequent events relating to this investment.
Mobius holds a minority ownership position, which, if the preferred
converted to common stock, would be less than 5%. Mobius does not sit on the
Board of Directors, nor influence day to day operations of HAN. The short-term
loans accrued interest at an annual rate of 10% for the first month and 12% each
month until the loans were converted to preferred stock in May 2000. The
short-term loans are outstanding as of March 31, 2000.
Mobius regularly reviews the assumptions underlying the operating
performance and cash flow forecasts of HAN to assess the investment's
recoverability. During the most recent quarter, HAN continued to consume cash.
Mobius concluded that an other than temporary impairment loss occurred. Mobius
believes that the cash consumption basis is the appropriate surrogate for
measuring the impairment of this investment.
For the three and nine months ended March 31, 2000 a $527,000 and $1.9
million of impairment losses have been recorded. The entire non-current
investment has been impaired and $438,000 of the short term loans are impaired
at March 31, 2000.
<PAGE>
(6) Non-Current Investments (continued)
In January 2000, the Company made a strategic investment of $500,000 in
Flooz.com, a startup Internet company. Flooz is online gift currency that can be
sent to a recipient over the Internet. The flooz gift currency can be redeemed
by the recipient at Flooz.com participating merchants. This is an investment in
preferred stock, which converts into common stock if and when Flooz.com
completes an initial public offering. Mobius holds a minority ownership
position, which, if the preferred converted to common stock, would be less than
5%. Mobius does not sit on the Board of Directors, nor influence day to day
operations of Flooz.com. Mobius's wholly owned subsidiary, Click-n-Done.com has
signed a partnership agreement with Flooz.com to offer flooz as an innovative
means of rewarding consumers, prospective partners, clients and seminar
attendees. Distribution of flooz will take place via a unique Web-based
interface created by Flooz.com.
Mobius regularly reviews the assumptions underlying the operating
performance and cash flow forecasts of Flooz.com to assess the investment's
recoverability. At March 31, 2000, the investment is carried at its original
cost of $500,000 within other non-current assets.
(7) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
June 30, March 31,
1999 2000
------- -------
Accounts payable $ 2,179 $ 1,249
Compensation and related benefits 5,897 5,695
Royalties payable 1,358 1,114
Other 4,458 4,209
------- ------
$13,892 $12,267
======= =======
(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 exercise prices 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 $213,000, $879,000, $113,000 and $446,000 for the three and nine
months ended March 31, 1999 and 2000, respectively. There is approximately
$101,000, $264,000, $134,000 and $37,000 of remaining 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.
<PAGE>
(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, net of income tax, for the three and nine months ended
March 31, 1999 and 2000 is as follows (in thousands):
Three months ended Nine months ended
March 31, March 31,
1999 2000 1999 2000
---- ---- ---- ----
Net income (loss) $1,280 $(4,105) $3,900 $(9,472)
Unrealized marketable securities gain (loss) 3 7 3 (5)
Unrealized translation gain (loss) (295) (94) (250) 169
---------------------------------
Comprehensive income (loss) $ 988 $(4,192) $3,653 $(9,308)
=================================
(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 five years, and has
recognized approximately $1.0 million of maintenance revenue through March 31,
2000. For the three and nine months ended March 31, 2000, the Company recognized
$82,000 and $561,000 of license revenue related to this arrangement,
respectively. For the three and nine months ended March 31, 2000, the Company
recognized $0 and $302,000 of maintenance revenue related to this arrangement,
respectively. Future license revenue is expected to be $112,500 each quarter
thereafter for the remaining four year term of the contract. All maintenance
revenue has been recognized.
(12) Subsequent Events
In May 2000, Mobius invested $750,000 in preferred stock of HAN. This
investment was funded by converting $562,500 of bridge loans to HAN into
preferred stock and providing an additional funds of $187,500. After this round
of financing, Mobius's total equity investment in HAN is $2,251,000.
<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
March 31, 1999 and 2000, 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 at the end of the
Management's Discussion and Analysis of Financial Condition and Results of
Operations in this Form 10-Q.
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 "Factors Affecting Future
Performance" included in the Company's Management's Discussion and Analysis of
Financial Condition and Results of Operations in this Form 10-Q. 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 periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
1999 2000 1999 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Revenues:
Software license revenues 62.8% 46.6% 65.7% 48.4%
Maintenance and other revenues 37.2 53.4 34.3 51.6
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
----- ----- ----- -----
Costs of revenues:
Software license revenues 1.6 0.8 1.6 1.5
Maintenance and other revenues 6.7 10.7 7.0 10.7
----- ----- ----- -----
Total costs of revenues 8.3 11.5 8.6 12.2
----- ----- ----- -----
Gross profit 91.7 88.5 91.4 87.8
Operating expenses:
Sales and marketing 54.2 80.8 52.5 74.4
Research and development 14.7 29.3 15.0 24.7
General and administrative 11.7 21.6 11.5 21.4
Stock compensation expense 1.2 0.8 1.7 1.1
----- ----- ----- -----
Total operating expenses 81.8 132.5 80.7 121.6
----- ----- ----- -----
Income (loss) from operations 9.9 (44.0) 10.7 (33.8)
License and other interest income 3.8 5.1 4.0 5.3
Foreign currency transaction(losses)gains -- -- (0.2) --
Investment impairment -- (3.8) -- (4.6)
----- ----- ----- -----
Income (loss) before income taxes 13.7 (42.7) 14.5 (33.1)
Provision (benefit) for income taxes 6.5 (13.4) 7.1 (10.4)
----- ----- ----- -----
Net income (loss) 7.2% (29.3)% 7.4% (22.7)%
===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1999 Compared to Three Months Ended March 31, 2000
Revenues.
o Total revenues decreased 21.7% from $17.9 million in last year's quarter to
$14.0 million this quarter. Domestic revenues decreased 26.1% from $16.0
million in last year's quarter to $11.8 million this quarter. International
revenues increased 15.5% from $1.9 million in last year's quarter to $2.2
million this quarter. The Company believes total revenues decreased
primarily due to Year 2000 issues which resulted in the deferral of
purchase decisions by the Company's customers. The Company anticipates
continued softness in license revenues for the next one to two quarters.
o Software license revenues decreased 41.9% from $11.2 million in last year's
quarter to $6.5 million this quarter. This decrease was primarily
attributable to decreased sales of licenses. Mobius believes that Year 2000
issues significantly affected the purchasing patterns of its customers and
potential customers. Many companies 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 offered by Mobius.
<PAGE>
o Maintenance and other revenues increased 12.3% from $6.7 million in last
year's quarter to $7.5 million this quarter. This increase in maintenance
and other 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 61.3%
from $282,000 in last year's quarter to $109,000 this quarter, representing
2.5% and 1.7% respectively, of software license revenues in those quarters.
The costs of software license revenue decreased from last year's quarter to
this quarter primarily due to decreased license revenues from products that
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
23.8% from $1.2 million in last year's quarter to $1.5 million this
quarter, representing 18.2% and 20.0% 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 16.8% from $9.7 million in last year's quarter to
$11.3 million this quarter, representing 54.2% and 80.8%, respectively, of
total revenues in those quarters. Sales and marketing expenses have
increased primarily because of spending for the Company's new subsidiary,
Click-n-Done.com, and increased personnel related costs for marketing,
partially offset by a decrease in sales commissions due to 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 56.2% from $2.6 million in last year's quarter to $4.1 million
this quarter, representing 14.7% and 29.3%, 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 to develop new products, including those for
Click-n-Done.com.
o General and administrative expenses consist of personnel costs related to
general management, accounting, human resources, network services,
administration and associated overhead costs, as well as fees for
professional services. General and administrative expenses increased 44.2%
from $2.1 million in last year's quarter to $3.0 million this quarter,
representing 11.7% and 21.6%, respectively, of total revenues in those
quarters. The increase was primarily attributable to the costs to
administer the Company's new subsidiary, Click-n-Done.com, depreciation of
improvements made to the Company's infrastructure and additional personnel
costs.
o Stock compensation expense was the result of issuing options in 1998 that
were deemed to be below market value. Stock compensation expense decreased
46.9% from $213,000 in last year's quarter to $113,000 this quarter. This
expense will continue to decrease as it 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.
<PAGE>
License and other interest income; interest expense; foreign currency
transaction gains (losses). License and other interest income was $699,000 and
$717,000 in last year's quarter and this quarter, respectively. During both
quarters interest expense and foreign currency transaction losses were
insignificant. Foreign currency losses are the result of foreign currency
fluctuations in the foreign jurisdictions where the Company does business.
Investment Impairment. In June 1999, the Company invested $1,501,000 in
Home Account Network ("HAN"), a privately-held, information technology company
providing processing and Internet outsourcing to financial services companies.
During the third quarter of fiscal 2000, Mobius provided an additional $562,500
to HAN in short term loans, which are classified as other current assets at
March 31, 2000. In May 2000, Mobius invested $750,000 in preferred stock of HAN.
This investment was funded by converting $562,500 of bridge loans to HAN into
preferred stock and providing an additional funds of $187,500. After this round
of financing, Mobius's total equity investment in HAN is $2,251,000.
Mobius holds a minority ownership position, which, if the preferred
converted to common stock, would be less than 5%. Mobius does not sit on the
Board of Directors, nor influence day to day operations of HAN. The short-term
loans accrued interest at an annual rate of 10% for the first month and 12% each
month until the loans were converted to preferred stock in May 2000. The
short-term loans are outstanding as of March 31, 2000.
Mobius regularly reviews the assumptions underlying the operating
performance and cash flow forecasts of HAN to assess the investment's
recoverability. During the most recent quarter, HAN continued to consume cash.
Mobius concluded that an other than temporary impairment loss occurred. Mobius
believes that the cash consumption basis is the appropriate surrogate for
measuring the impairment of this investment. For the three months ended March
31, 2000 a $527,000 impairment loss has been recorded.
Provision for Income Taxes. The provision for income taxes was $1.2 million
in last year's quarter compared to a tax benefit of $1.9 million in this
quarter. The provision (benefit) for taxes as a percentage of income (loss)
before taxes was 47.8% and (31.4)% 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.
Nine Months Ended March 31, 1999 Compared to Nine Months Ended March 31, 2000
Revenues.
o Total revenues decreased 20.9% from $52.7 million in the first nine months
of fiscal 1999 to $41.7 million in the first nine months of fiscal 2000.
Domestic revenues decreased 24.3% from $45.5 million in the first nine
months of fiscal 1999 to $34.5 million in the first nine months of fiscal
2000. International revenues were stable at $7.2 million in the first nine
months of fiscal 1999 and fiscal 2000. The Company believes total revenues
decreased primarily due to Year 2000 issues that resulted in the deferral
of purchase decisions by the Company's customers. The Company anticipates
continued softness in license revenues for the next one to two quarters.
o Software license revenues decreased 41.7% from $34.6 million in the first
nine months of fiscal 1999 to $20.2 million in the first nine months of
fiscal 2000. This decrease was primarily attributable to decreased
sales of licenses. Mobius believes that Year 2000 issues 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 18.9% from $18.1 million in the
first nine months of fiscal 1999 to $21.5 million in the first nine months
of fiscal 2000. This increase in maintenance and other 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 nine month
periods 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 27.4%
from $825,000 in the first nine months of fiscal 1999 to $599,000 in the
first nine months of fiscal 2000, representing 2.4% and 3.0% respectively,
of software license revenues in those nine month periods. The costs of
software license revenue as a percentage of software license revenues
increased from the first nine months of fiscal 1999 to the first nine
months of fiscal 2000 primarily due to increased license revenues from
products that 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
21.3% from $3.7 million in the first nine months of fiscal 1999 to $4.5
million in the first nine months of fiscal 2000, representing 20.4% and
20.8% respectively, of maintenance and other revenues in those nine month
periods. 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 11.9% from $27.7 million in the first nine months
of fiscal 1999 to $31.0 million in the first nine months of fiscal 2000,
representing 52.5% and 74.4%, respectively, of total revenues in those nine
month periods. Sales and marketing expenses have increased primarily
because of spending for the Company's new subsidiary, Click-n-Done.com, and
increased personnel related costs for marketing, partially offset by a
decrease in sales commissions due to 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 30.5% from $7.9 million in the first nine months of fiscal 1999
to $10.3 million in the first nine months of fiscal 2000, representing
15.0% and 24.7%, respectively, of total revenues in those nine month
periods. The increases in research and development expenses were primarily
attributable to increased staffing and personnel-related costs for
technical staff to develop new products, including Click-n-Done.com.
<PAGE>
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 47.4% from $6.1 million in
the first nine months of fiscal 1999 to $9.0 million in the first nine
months of fiscal 2000, representing 11.5% and 21.4%, respectively, of total
revenues in those nine month periods. The increase was primarily
attributable to additional personnel costs, costs to administer the
Company's new subsidiary, Click-n-Done.com and the depreciation of
improvements made to the Company's infrastructure.
o Stock compensation expense was the result of issuing options in 1998 that
were deemed to be below market value. Stock compensation expense decreased
49.3% from $879,000 in the first nine months of fiscal 1999 to $446,000 in
the first nine months of fiscal 2000. 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 $2.1 million
and $2.2 million in the first nine months of fiscal 1999 and in the first nine
months of fiscal 2000, respectively. During both nine month periods interest
expense was insignificant. Foreign currency transaction losses were $102,000 in
the first nine months of fiscal 1999 and foreign currency transaction gains were
$40,000 in the first nine months of fiscal 2000. These losses and gains are the
result of foreign currency fluctuations in the foreign jurisdictions where the
Company does business.
Investment Impairment. In June 1999, the Company invested $1,501,000 in
Home Account Network ("HAN"), a privately-held, information technology company
providing processing and Internet outsourcing to financial services companies.
During the third quarter of fiscal 2000, Mobius provided an additional $562,500
to HAN in short term loans, which are classified as other current assets at
March 31, 2000. In May 2000, Mobius invested $750,000 in preferred stock of HAN.
This investment was funded by converting $562,500 of bridge loans to HAN into
preferred stock and providing an additional funds of $187,500. After this round
of financing, Mobius's total equity investment in HAN is $2,251,000.
Mobius holds a minority ownership position, which, if the preferred
converted to common stock, would be less than 5%. Mobius does not sit on the
Board of Directors, nor influence day to day operations of HAN. The short-term
loans accrue interest at an annual rate of 10% for the first month and 12% each
month until the loans were converted to preferred stock in May 2000. The
short-term loans are outstanding as of March 31, 2000.
Mobius regularly reviews the assumptions underlying the operating
performance and cash flow forecasts of HAN to assess the investment's
recoverability. During the most recent quarter, HAN continued to consume cash.
Mobius concluded that an other than temporary impairment loss occurred. Mobius
believes that the cash consumption basis is the appropriate surrogate for
measuring the impairment of this investment. For the nine months ended March 31,
2000 a $1.9 million impairment loss has been recorded.
Provision for Income Taxes. The provision for income taxes was $3.8
million in the first nine months of fiscal 1999 compared to a tax benefit of
$4.3 million in the first nine months of fiscal 2000. The provision (benefit)
for taxes as a percentage of income (loss) before taxes was 49.1% and (31.3)%
for the first nine months of fiscal 1999 and in the first nine months of fiscal
2000, respectively. The change in the effective tax rate from the first nine
months of fiscal 1999 to the first nine months of fiscal 2000 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 the first nine months of fiscal 2000
from losses in the Company's foreign subsidiaries.
<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. In April 1998, the Company completed its initial public offering,
which generated net proceeds of $33.0 million. As of March 31, 2000, Mobius had
cash and cash equivalents of $29.0 million, a decrease of $4.5 million from the
$33.5 million held at June 30, 1999. In addition, Mobius had marketable
securities of $9.4 million and $8.7 million as of June 30, 1999 and March 31,
2000, respectively.
Net cash provided by operating activities was $5.5 million and $294,000
in the first nine months of fiscal 1999 and fiscal 2000, respectively. Mobius's
primary sources of cash during the first nine months of fiscal 2000 were
collections of accounts receivable and decreased software license installments.
These sources were offset by a net loss and decreases in accounts payable and
accrued expenses. Net software license installments decreased 21.5% from $23.4
million at June 30, 1999 to $18.3 million at March 31, 2000. Net accounts
receivable decreased 37.6% from $12.6 million at June 30, 1999 to $7.9 million
at March 31, 2000. Deferred maintenance revenue decreased 3.9% from $16.7
million at June 30, 1999 to $16.0 million at March 31, 2000.
Accounts receivable reserves are primarily calculated by identifying
problem accounts and in recognition that some customers decide to cancel or
reduce the number of products covered by maintenance arrangements upon their
anniversary but do not always notify Mobius in sufficient time to prevent some
portion of the annual maintenance billings being recognized. Mobius also has a
small reserve to absorb losses based upon historical experience that may result
from current receivables. Mobius specifically identifies problem accounts by the
age of the receivable and through discussions with the customer and Mobius sales
representatives. Based on that information, Mobius exercises its best judgment
as to what portion of the accounts receivable balance requires a reserve. At
June 30, 1999 and March 31, 2000 approximately 83% and 78% of the total accounts
receivable reserve balances related to specific accounts, respectively. To the
extent that an account for which a specific reserve was provided is subsequently
collected, Mobius reduces the reserves in the period of collection.
Software license installment reserves have consistently been determined
as a percentage of software license installments to provide for potential
bankruptcies and contractual disputes. At June 30, 1999 and March 31, 2000,
software license installments were approximately $24.2 million and $19.0 million
of which 85% and 80% were customer balances greater than $100,000, respectively.
Customer balances for software license installments tend to be large due to the
selling price of Mobius' products.
Software license installment and accounts receivable reserves have
decreased 12.2% from $1.7 million at June 30, 1999 to $1.5 million at March 31,
2000. The decrease in these reserves is attributable to favorable collection
experience during the first nine months of fiscal 2000 and management's overall
assessment of specific accounts.
Cash used in investing activities, consisting of capital expenditures
to purchase computer equipment and complete leasehold improvements, was $1.6
million and $4.6 million in the first nine months of fiscal 1999 and in the
first nine months of fiscal 2000, respectively. The Company has undertaken
significant projects in fiscal 2000, including the installation of an automated
sales force computer system, implementation of a new accounting system and
expansion of the Rye headquarters. Consequently, capital expenditures are
expected to increase in future quarters.
<PAGE>
In addition, in the first nine months of fiscal 2000, $1.0 million of
marketable securities were purchased and $1.5 million of marketable securities
were sold. Mobius also made investments in HAN and Flooz.com. Mobius provided an
additional $562,500 to HAN in short term loans, which were converted to
preferred stock in May 2000. Mobius invested $500,000 in preferred stock of
Flooz.com, which converts into common stock if and when Flooz.com completes an
initial public offering.
Cash provided by financing activities was $217,000 in the first nine
months of fiscal 1999 and $198,000 in the first nine months of fiscal 2000,
primarily due to cash received from the exercise of stock options and the
employee stock purchase plan.
In December 1999, Mobius announced its new suite of Internet-based bill
and presentment products, from it's subsidiary Click-n-Done.com.
Click-n-Done.com's products are being designed to seamlessly and securely
retrieve, consolidate, and archive bills and statements on a consumer or
business' desktop, while preserving the bill or statement issuers total control
of their one-to-one relationship with their customer. Mobius's expenses for
Click-n-Done.com were approximately $3.2 million and $5.4 million in this
quarter and in the first nine months of fiscal 2000, respectively. Mobius
anticipates that it will continue to incur significant costs to pursue this
consumer focused Internet opportunity.
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 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 five years, and has
recognized approximately $1.0 million of maintenance revenue through March 31,
2000. For the three and nine months ended March 31, 2000, the Company recognized
$82,000 and $561,000 of license revenue related to this arrangement,
respectively. For the three and nine months ended March 31, 2000, the Company
recognized $0 and $302,000 of maintenance revenue related to this arrangement,
respectively. Future license revenue is expected to be $112,500 each quarter
thereafter for the remaining four year term of the contract. All maintenance
revenue has been recognized.
<PAGE>
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., 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 2 of this Form 10-Q.
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.
<PAGE>
Protection of Intellectual Property
Mobius's success is heavily dependent upon its confidential and
proprietary intellectual property. Mobius has no patents covering any aspect of
its software products and it has one patent application pending. 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.
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.
Click-n-Done.com Related Factors
On December 9, 1999, Mobius announced the formation of a new subsidiary
called Click-n-Done.com and its intended release of a new consumer and
business-focused suite of Internet-based bill presentment and payment systems.
Click-n-Done.com's products are being designed to seamlessly and securely
retrieve, consolidate, and archive bills and statements on a consumer or
business desktop, while preserving the bill or statement issuer's control of
their one-to-one relationship with their customer. Mobius's expenses for
Click-n-Done.com were approximately $3.2 million and $5.4 million in this
quarter and in the first nine months of fiscal 2000, respectively. Mobius
anticipates that it will continue to incur additional costs related to this
business for at least the next year. The following factors may affect
Click-n-Done.com's future performance, and as a result, the future performance
of Mobius on a consolidated basis.
<PAGE>
Mobius May Not Successfully Implement The Click-n-Done.com Business Plan.
The Click-n-Done.com business model is still in development. Mobius is
subject to expenses and difficulties associated with implementing the
Click-n-Done.com business plan that are not typically encountered by more mature
companies since the Click-n-Done.com products are Internet-based. The risks
associated with implementing the Click-n-Done.com business plan relate to:
o establishing and building out the operations infrastructure;
o implementing and expanding the sales structure and marketing programs;
o increasing and developing brand awareness;
o providing services to customers that are reliable and cost-effective;
o responding to technological development or service offerings by
competitors; and
o attracting and retaining qualified personnel.
If Mobius is not successful in implementing the Click-n-Done.com
business plan, Mobius' future financial or operating results could suffer.
Mobius Has Incurred Significant Expenses for Click-n-Done.com and Mobius Expects
These Expenses to Increase in the Foreseeable Future.
Mobius has incurred significant expenses relating to Click-n-Done.com
in the nine months since Click-n-Done.com's inception and anticipates that it
will continue to incur significant expenses for Click-n-Done.com's sales and
marketing, technology, customer support and personnel. As a result of Mobius
Click-n-Done.com expansion plans, Mobius expects Click-n-Done.com's expenses on
a quarterly and annual basis to increase in the foreseeable future. Mobius
cannot assure you that Click-n-Done.com will achieve or sustain revenue or
profitability on either a quarterly or an annual basis.
Click-n-Done.com May Need Additional Funds Which, if Available, Could Result in
Dilution of Mobius's Equity Interest in Click-n-Done.com or an Increase in
Click-n-Done.com's Interest Expense. If These Funds Are Not Available,
Click-n-Done.com's Business Could Be Hurt.
To date, Mobius has provided the working capital for Click-n-Done.com's
operations. Click-n-Done.com may need to raise additional funds through public
or private debt or equity financings in order to:
o fully implement its business model;
o take advantage of unanticipated opportunities or acquisitions of
complementary assets, technologies or businesses;
o develop new products; or
o respond to competitive pressures.
If additional funds become necessary, additional financing may not be
available on terms favorable to Click-n-Done.com, or available at all. If
adequate funds are not available or are not available on acceptable terms when
needed, Click-n-Done.com's business could be hurt. If additional funds are
raised through the issuance of equity securities, Mobius's percentage ownership
in Click-n-Done.com may be reduced, and the new equity securities may have
rights, preferences or privileges senior to those of Mobius. If additional funds
are raised through the issuance of debt securities, these securities would have
some rights, preferences and privileges senior to those of Mobius, and the terms
of this debt could impose restrictions on Click-n-Done.com's operations and
result in significant interest expense.
<PAGE>
If Widespread Internet Adoption Does Not Continue, or If the Internet Cannot
Accommodate Continued Growth, Click-n-Done.com's Business Will Be Harmed.
Acceptance of Click-n-Done.com's products depends upon continued
adoption of the Internet for commerce. As is typical in the case of an emerging
industry characterized by rapidly changing technology, evolving industry
standards and frequent new product and service introductions, demand for and
acceptance of recently introduced e-commerce enabling products and services are
subject to a high level of uncertainty. To the extent that businesses or
consumers do not consider the Internet a viable commercial medium,
Click-n-Done.com's customer base may not grow. In addition, critical issues
concerning the commercial use of the Internet remain unresolved and may affect
the growth of Internet use. The adoption of the Internet for commerce,
communications and access to content, particularly by those who have
historically relied upon alternative methods, generally requires understanding
and acceptance of a new way of conducting business and exchanging information.
In particular, companies and consumers maybe reluctant or slow to adopt a new,
Internet-based bill payment system that may render existing practices obsolete.
If the use of the Internet fails to develop or develops more slowly than
expected, our business may be seriously harmed.
To the extent that there is an increase in Internet use, an increase in
frequency of use or an increase in the required bandwidth of users, the Internet
infrastructure may not be able to support the demands placed upon it. In
addition, the Internet could lose its viability as a commercial medium due to
delays in development or adoption of new standards or protocols required to
handle increased levels of Internet activity. Changes in, or insufficient
availability of, telecommunications or similar services to support the Internet
also could result in slower response times and could adversely impact use of the
Internet generally. If the Internet infrastructure, standards, protocols or
complementary products, services or facilities do not effectively support any
growth in Internet usage that may occur, our business may be seriously harmed.
The Expected Continued Growth in the Market for Click-n-Done.com's Products and
Services May Not Materialize or May Materialize in a Manner Mobius Has Not
Anticipated.
Click-n-Done.com's market is new and rapidly evolving. Whether, and the
manner in which, the market for Click-n-Done.com's products and services will
continue to grow is uncertain. The market for its products and services may be
inhibited for a number of reasons, including:
o the reluctance of businesses to adopt the Click-n-Done.com business model
o alternative, competitive models for services similar to Click-n-Done.com's
services
o Click-n-Done.com's failure to successfully market its products and
services to new customers; and
o Click-n-Done.com inability to maintain and strengthen its brand awareness.
<PAGE>
Concerns about Transaction Security on the Internet May Hinder
Click-n-Done.com's Business.
A significant barrier to electronic commerce and communications is the
secure transmission of private information over public networks.
Click-n-Done.com relies on encryption and authentication technology some of
which it has developed and some of which may be licensed from third parties to
provide the required security and authentication to ensure the privacy of
Internet transactions. Advances in computer capabilities, new discoveries in the
field of cryptography or other events or developments may result in a compromise
or breach of the algorithms Click-n-Done.com uses to protect customer
transaction data. Any breaches in security could cause a significant decrease in
the use of Click-n-Done.com's software or Web site, which would materially harm
its business.
Anyone who can circumvent Click-n-Done.com's security measures could
misappropriate proprietary information or cause interruptions in
Click-n-Done.com's or its operations. Click-n-Done.com could be required to
expend significant capital and other resources to protect against the threat of
security breaches or to alleviate problems caused by these breaches. Consumer
concerns about the security of electronic commerce and user privacy may also
inhibit the growth of the Internet as a means of conducting commercial
transactions. To the extent that Click-n-Done.com's activities or the activities
of third party contractors involve storing and transmitting proprietary
information, such as credit card numbers, security breaches could expose us to a
risk of loss or litigation and possible liability. Click-n-Done.com's security
measures may not effectively prevent security breaches, and its failure to
prevent security breaches could significantly disrupt its operations.
The Internet Industry Is Characterized by Rapid Technological Change.
Rapid technological developments, evolving industry standards and user
demands, and frequent new product introductions and enhancements characterize
the market for Internet products and services. These market characteristics are
exacerbated by the emerging nature of the market and the fact that many
companies are expected to introduce new Internet products and services in the
near future. Click-n-Done.com future success will depend on its ability to
continually improve its product offerings and services.
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 March 31,
2000, 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, the Company is involved in litigation relating to claims
arising out of their operations in the normal course of business. The Company is
not a party to any legal proceedings, the adverse outcome of which, individually
or in the aggregate, would have a material adverse effect on the Company's
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
the Company's Registration Statement on Form S-1 (File No. 333-47117) with
respect to the Company's initial public offering. To date, the Company has not
used any of the approximately $33.0 million of proceeds from the offering. The
proceeds are currently invested in cash and short term, investment grade,
interest bearing securities.
Item 3 - Defaults Upon Senior Securities
None
<PAGE>
Item 4 - Submission of Matters to a Vote of Security Holders
Mobius held its Annual Meeting of Stockholders on January 7, 2000. The matters
submitted to a vote of our stockholders was the election of two directors to the
class of directors whose terms expire in 2002, approval of an amendment to the
1998 Employee Stock Purchase Plan and the ratification of the appointment of
Mobius' independent auditors.
Mobius stockholders elected Joseph J. Albracht and Peter J. Barris to the Board
of Directors, to hold office until the 2002 Annual Meeting of Stockholders and
until their respective successors are duly elected and qualified. The results of
the voting were as follows:
Joseph J. Albracht
Voted for 17,133,997
Against 182,434
Peter J. Barris
Voted for 17,256,957
Against 59,474
Mobius stockholders approved the amendment to the 1998 Employee Stock Purchase
Plan to increase the maximum number of shares of Mobius's Common Stock available
for issuance under the plan from 300,000 to 650,000. The results of the voting
were as follows:
Voted for 17,260,383
Against 54,098
Abstain 1,950
Mobius stockholders ratified the appointment of KPMG LLP as Mobius's independent
auditors. The results of the voting were as follows:
Voted for 17,287,779
Against 24,702
Abstain 3,950
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
3.1* Form of Second Amended and Restated Certificate of Incorporation
of the Registrant.
3.2* Form of Amended and Restated By-Laws of the Registrant.
4.1* Specimen certificate representing the Common Stock
27 Financial Data Schedule (EDGAR only)
* 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: May 15, 2000
MOBIUS MANAGEMENT SYSTEMS, INC.
By:
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)
* 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 nine months
ended March 31, 2000 for Mobius Management Systems, Inc. and is
qualified in its entirety by reference to such Financial
Statements.
</LEGEND>
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<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-1-1999
<PERIOD-END> MAR-31-2000
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<CASH> 28,995
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