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, 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 November 10,
2000
Class Number of Shares Outstanding
Common Stock, par value $0.0001 per share 18,355,063
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2000 and September 30, 2000
Consolidated Statements of Operations
Three months ended September 30, 1999 and 2000
Consolidated Statement of Stockholders' Equity
Three months ended September 30, 2000
Consolidated Statements of Cash Flows
Three months ended September 30, 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
<TABLE>
<CAPTION>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and per share data)
September 30,
June 30, 2000
2000 (Unaudited)
---- -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 21,380 $19,863
Marketable securities, at market 10,287 10,248
Accounts receivable, net of allowance for doubtful
accounts of $1,084 and $1,321, respectively 14,857 15,821
Software license installments, current portion 9,836 9,400
Other current assets 3,804 4,117
------- -------
Total current assets 60,164 59,449
Software license installments, non-current portion,
net of allowance for doubtful accounts of $643
and $636, respectively 7,992 7,423
Investments 531 500
Property and equipment, net 9,295 10,879
Other assets 411 412
-------- --------
Total assets $ 78,393 $ 78,663
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 15,046 $ 15,297
Deferred revenue 16,488 18,282
Deferred income taxes 2,570 2,457
-------- --------
Total current liabilities 34,104 36,036
-------- --------
Deferred revenue 2,374 2,076
Deferred income taxes 1,324 1,177
----- -----
Total liabilities 37,802 39,289
------ ------
Stockholders' equity:
Common stock $.0001 par value; authorized 40,000,000 shares; issued
22,218,473 and 22,220,973 shares, respectively; outstanding 18,114,000
and 18,116,500 shares, respectively 2 2
Additional paid-in capital 48,831 48,836
Retained earnings 4,601 3,522
Deferred stock compensation (445) (354)
Accumulated other comprehensive income (313) (547)
Treasury stock, at cost, 4,104,473 and 4,104,473 shares, respectively (12,085) (12,085)
-------- --------
Total stockholders' equity 40,591 39,374
-------- --------
Total liabilities and stockholders' equity $ 78,393 $ 78,663
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended
September 30,
1999 2000
---- ----
Revenues:
Software license revenues $6,430 $10,406
Maintenance and other revenues 6,953 8,124
------- ------
Total revenues 13,383 18,530
------- ------
Costs of revenues:
Software license revenues 185 417
Maintenance and other revenues 1,634 1,561
------- ------
Total costs of revenues 1,819 1,978
------- ------
Gross profit 11,564 16,552
------- -------
Operating expenses:
Sales and marketing 9,868 11,682
Research and development 2,991 4,330
General and administrative 2,970 2,582
------- -------
Total operating expenses 15,829 18,594
------- -------
Loss from operations (4,265) (2,042)
License and other interest income 726 696
Interest expense (1) (3)
Foreign currency transaction gains 46 4
Investment impairment (591) (218)
------- -------
Loss before income taxes (4,085) (1,563)
Benefit from income taxes 1,242 484
----- ----
Net loss $(2,843) $(1,079)
======= =======
Basic loss per share $(0.16) $(0.06)
Basic weighted average shares outstanding 17,916 18,115
Diluted loss per share $(0.16) $(0.06)
Diluted weighted average shares outstanding 17,916 18,115
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited, in thousands)
Accumulated
Other Total
Additional Comprehensive Stockholders'
Common Stock Paid-in Retained Deferred Income, net of Treasury Stock (Deficit)
Shares Amount Capital Earnings Compensation tax Shares Amount Equity
------ ------ ------- -------- ------------ --- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at June 30, 2000 18,114 2 $48,831 $4,601 $(445) $(313) 4,104 $(12,085) $40,591
Net loss - - - (1,079) - - - - (1,079)
Change in other comprehensive
income, net of tax - - - - - (234) - - (234)
Comprehensive loss - - - - - - - - (1,313)
Stock options exercised 3 - 5 - - - - - 5
Change in deferred compensation - - - - 91 - - - 91
-------- ------ -------- --------- ------- --------- --------- -------- ---------
Balance at September 30, 2000 18,117 2 $ 48,836 $3,522 $(354) $(547) 4,104 $(12,085) $39,374
======== ====== ======== ========= ======= ========= ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
September 30,
1999 2000
---- ----
Cash flows provided by operating activities:
<S> <C> <C>
Net income (loss) $ (2,843) $ (1,079)
--------- --------
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Deferred income taxes (683) (260)
Depreciation and amortization 561 1,009
Stock compensation expense 166 91
Impairment of investment 591 219
Change in operating assets and liabilities:
Accounts receivable, net 3,000 (964)
Software license installments 1,679 1,005
Other assets (358) (221)
Accounts payable and accrued expenses (1,896) 273
Other liabilities (15) --
Deferred revenue 819 1,496
----- ------
Total adjustments 3,864 2,648
------- ------
Net cash provided by operating activities 1,021 1,569
------- ------
Cash flows (used in) provided by investing activities:
Purchase of marketable securities -- (2,485)
Purchase of investment -- (281)
Sale of marketable securities -- 2,500
Capital expenditures (1,789) (2,572)
--------- -------
Net cash used in investing activities (1,789) (2,838)
--------- -------
Cash flows (used in) provided by financing activities:
Cash received from exercise of stock options 22 5
--------- -------
Net cash provided by financing activities 22 5
-------- -------
Effect of exchange rate changes on
cash and cash equivalents 304 (253)
-------- -------
Net change in cash and cash equivalents (442) (1,517)
Cash and cash equivalents at beginning
of period 33,546 21,380
------- -------
Cash and cash equivalents at end of period $33,104 $19,863
======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 1 $ 3
Income taxes $ - $ -
</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, 2000 and
September 30, 2000 and for the three month periods ended September 30, 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 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' 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'
latest Form 10-K.
(2) Earnings Per Share
Earnings per share is presented in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" and Staff
Accounting Bulletin No. 98. 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,
1999 2000
-------------- --------------- ----------- -------------- --------------- -----------
Net Income Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic EPS:
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss) $(2,843) $(1,079)
======== ========
Weighted average shares
outstanding 17,916 18,117
Basic earnings (loss)
per share $(0.16) $(0.06)
======= =======
Diluted earnings (loss)
per share:
Net income (loss) $(2,843) $(1,079)
======== ========
Dilutive effect of
stock options - -
----- -----
Diluted earnings (loss)
per share 17,916 $(0.16) 18,117 $(0.06)
====== ======= =======
</TABLE>
For the three months ended September 30, 1999 and 2000 options were not
included in the Diluted EPS calculation because their effect was anti-dilutive.
<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, 2000. As of
June 30, 2000 and September 30, 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 3 to 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,
2000 2000
---- ----
Furniture, fixtures and office equipment $1,089 $1,105
Computer equipment 12,349 12,872
Leasehold improvements 1,542 4,637
Construction in progress 1,062 --
----- ------
16,042 18,614
Less accumulated depreciation and
amortization (6,747) (7,735)
------ --------
Property and equipment, net $9,295 $10,879
====== =======
Depreciation and amortization expense on property and equipment,
including capital leases, was $561,000 and $988,000 for the three months ended
September 30, 1999 and 2000, respectively. At June 30, 2000 and September 30,
2000 there was $214,000 of equipment under capital leases included in property
and equipment with accumulated depreciation of $135,000 and $143,000
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 fiscal 2000,
Mobius provided an additional $750,000 to HAN in short term loans that were
converted to preferred stock in May 2000. In first quarter of fiscal 2001,
Mobius provided an additional $281,000 as a short term loan to "HAN" which is
convertible to preferred stock.
Mobius holds a minority ownership position, which, if the preferred
stock were 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.
<PAGE>
(6) Non-Current Investments (continued)
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
and Mobius concluded that an other than temporary impairment loss occurred.
Mobius believes that the amount of cash consumed by HAN is an appropriate
indicator for measuring the impairment for this investment since there is no
equity below the Mobius financing rounds and there is no obligation for any of
the investors to provide additional capital.
For the three months ended September 30, 2000 a $218,000 impairment
loss was recorded in connection with this investment. As of September 30, 2000,
the remaining carrying value of the HAN investment is $94,000 and is included
within other current assets.
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. The Chief Executive Officer of Flooz.com is a member of
the Board of Directors of Mobius.
Mobius regularly reviews the assumptions underlying the operating
performance and cash flow forecasts of Flooz.com to assess the investment's
recoverability. At September 30, 2000, the investment is carried at its original
cost of $500,000 withininvestments.
(7) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
June 30, September 30,
2000 2000
---- ----
Accounts payable $ 2,563 $3,204
Compensation and related benefits 6,569 5,845
Royalties payable 1,168 1,292
Other 4,746 4,956
------- -------
$15,046 $15,297
======= =======
<PAGE>
(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 $166,000 and $91,000 for the three months ended September 30, 1999
and 2000, respectively. Such compensation expense is included within Sales and
marketing of $126,000 and $66,000, Research and development of $33,000 and
$20,000, and General and administrative expenses of $8,000 and $5,000 for the
quarter ended September 30, 1999 and 2000, respectively. There is approximately
$264,000, $134,000 and $37,000 of expense relating to these 1998 option grants
to be recognized in fiscal years 2001, 2002 and 2003, respectively, subject to
adjustments for option holder terminations.
(9) Comprehensive Income (Loss)
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, 1999 and 2000 is as
follows:
Three Months ended
September 30,
1999 2000
---- ----
Net loss $(2,843) $(1,079)
Unrealized marketable securities gain (loss) 7 19
Unrealized translation gain (loss) 316 (253)
------- --------
Comprehensive income (loss) $(2,520) $(1,313)
======== ========
<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 over the contract period, as the buyer makes
payments, and has recognized approximately $1.1 million of maintenance revenue
through December 31, 1999. For the three months ended September 30, 1999 and
2000, the Company recognized $157,000 and $112,500 of license revenue
respectively and $180,000 and $0 of maintenance revenue, respectively. Future
license revenue is expected to be $112,500 each quarter through December 31,
2003.
<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' 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, 1999
and 2000, respectively. Mobius' 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's Discussion and Analysis, are set forth under the heading
"Factors Affecting Future Performance" below.
Statements contained in this quarterly report, including without
limitation, as set forth under the heading "Forcast" below, 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' goods and services, and
technological advances and competitive factors in the markets in which Mobius
competes. Certain of these risks and uncertainties are described in detail from
time to time in the Company's filings with the Securities and Exchange
Commission, including without limitation, as set forth under the heading
"Factors Affecting Future Performance" below. Mobius accepts no obligation to
update these forward-looking statements and does not intend to do so.
Overview
Mobius Management Systems, Inc. (together with its consolidated
subsidiaries, "Mobius" or the "Company") is a leading provider of software
products designed to provide network and Web-based access, presentation and
distribution of large volumes of diverse enterprise information. Major financial
services, healthcare, manufacturing, retail and telecommunications companies and
government entities use the Company's software to facilitate customer service
and other mission-critical functions. The Company's software products store,
retrieve and present computer and non-computer generated documents, such as
text, images, video or audio recordings, customer statements, checks, external
correspondence and remittance forms. The products can be used by a single
department, multiple departments or centrally by an entire enterprise.
<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:
Three Months Ended
September 30,
1999 2000
---- ----
(Unaudited)
Revenues:
Software license revenues 48.0% 56.2%
Maintenance and other revenues 52.0 43.8
----- ----
Total revenues 100.0 100.0
----- -----
Costs of revenues:
Software license revenues 1.4 2.3
Maintenance and other revenues 12.2 8.4
----- ----
Total costs of revenues 13.6 10.7
----- ----
Gross profit 86.4 89.3
Operating expenses:
Sales and marketing 73.7 63.0
Research and development 22.3 23.4
General and administrative 22.2 13.9
----- -----
Total operating expenses 118.2 100.3
----- -----
Income (loss) from operations (31.8) (11.0)
------ -----
License and other interest income 5.4 3.8
Interest expense -- --
Foreign currency transaction(losses)gains .3 --
Investment impairment (4.4) (1.2)
------ -----
Income (loss) before income taxes (30.5) (8.4)
Benefit from income taxes 9.3 2.6
----- ---
Net income (loss) (21.2)% (5.8)%
====== =====
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 2000
Revenues.
Total revenues increased 38.5% from $13.4 million in last year's quarter to
$18.5 million this quarter. Domestic revenues increased 42.9% from $10.4 million
in last year's quarter to $14.9 million this quarter. International revenues
increased 22.8% from $3.0 million in last year's quarter to $3.6 million this
quarter. The Company believes that Year 2000 (Y2K) issues significantly affected
the purchasing patterns of its customers and potential customers during the
quarter ended September 30, 1999. We believe many companies expended significant
resources to correct or modify their software systems to be Year 2000 compliant.
We believe these expenditures reduced funds available to purchase software
products such as those that Mobius offers. For the quarter ending September 30,
2000, the Company believes that although the software marketplace remains
turbulent, the marketplace may be returning to its pre Y2K conditions and
accordingly, total revenues increased primarily because the Company sold more
licenses for its products to new and existing customers.
o Software license revenues increased 61.8% from $6.4 million in last year's
quarter to $10.4 million this quarter. This increase was primarily
attributable to sales of more licenses for the Company's products to new
and existing customers.
<PAGE>
o Maintenance and other revenues increased 16.8% from $7.0 million in last
year's quarter to $8.1 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 Costs of license revenues consist primarily of the cost of royalties and
sublicense fees. The costs of software license revenues increased 125.4%
from $185,000 in last year's quarter to $417,000 this quarter, representing
2.9% and 4.0% respectively, of software license revenues in those quarters.
The costs of software license revenue as a percentage of software license
revenues increased from last year's quarter to this quarter primarily due
to increased sales of products that require the Company to pay royalty
payments and sublicense fee payments.
o Costs of maintenance and other revenues consist primarily of customer
support staff costs. The costs of maintenance and other revenues were $1.6
million in last year's quarter and this year's quarter, representing 23.5%
and 19.2% respectively, of maintenance and other revenues in those
quarters. The decrease in this quarter's costs as a percentage of
maintenance and other revenues was primarily attributable to an increase in
maintenance and other revenue that did not require additional expenditures
for support staff.
Operating Expenses.
o Sales and marketing expenses consist primarily of the cost of personnel
associated with the selling and marketing of Mobius' 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 18.4% from $9.9 million in last year's quarter to
$11.7 million this quarter, representing 73.7% and 63.0%, respectively, of
total revenues in those quarters. Sales and marketing expenses have
increased primarily due to increased commission costs as a result of
increased license revenues and increased advertising and personnel related
costs for marketing and spending for Click-n-Done.com products, offset by a
decrease in sales personnel costs. The decrease in this quarter's sales and
marketing expenses as a percentage of revenues is primarily attributable to
an increase in total revenues.
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 44.8% from $3.0 million in last year's quarter to $4.3 million
this quarter, representing 22.3% and 23.4%, respectively, of total revenues
in those quarters. The increases in research and development expenses,
including the development costs associated with Click-n-Done.com, were
primarily attributable to increased subcontractor costs, 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 decreased 13.1% from $3.0 million in
last year's quarter to $2.6 million this quarter, representing 22.2% and
13.9%, respectively, of total revenues in those quarters. The decrease was
attributable primarily to a reduction of personnel related costs, primarily
bonuses, and subcontractors fees offset by an increase in depreciation
expense.
License and other interest income; interest expense; foreign currency
transaction gains (losses). License and other interest income was $726,000 and
<PAGE>
$696,000 in last year's quarter and this quarter, respectively. During both
quarters interest expense was insignificant. Foreign currency transaction gains
were $46,000 and $4,000 in last year's quarter and this year's quarter,
respectively. These gains are the result of foreign currency fluctuations in the
foreign jurisdictions within which 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 fiscal 2000, Mobius provided an additional $750,000 to HAN in short term
loans, which were converted to preferred stock in May 2000. In first quarter
fiscal 2001 Mobius provided an additional $281,000 short term loan to "HAN"
which is convertible to preferred stock. After this round of financing, Mobius'
total equity investment in HAN is $2,532,000. There are several reasons for the
investment in Home Account Network ("HAN"). First, we believe that they have
experienced management and a significant market opportunity in a related
industry sector. Second, we believe that, if the venture was successful, it
would provide substantial return to Mobius shareholders.
Mobius holds a minority ownership position, which, if the preferred
stock is 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.
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
and Mobius concluded that an other than temporary impairment loss occurred.
Mobius believes that the amount of cash consumed by HAN is an appropriate
indicator for measuring the impairment of this investment since (1) HAN has
consumed most of the cash provided through September 30, 2000 (2) there was no
equity below those financing rounds and (3) there is no obligation for any of
the investors to provide additional capital. Based on those factors, we
concluded that the investment had been impaired and that the impairment was
other than temporary. For three months ended September 30, 2000, we recorded a
$218,000 impairment loss in connection with this investment. At September 30,
2000, the remaining carrying value of the HAN investment is $94,000 and is
included within other current assets.
We will continue to evaluate the potential recovery of our remaining
investment in HAN and expect that we will continue to use the amount of cash
consumed as an indicator of current value. To the extent that HAN continues to
consume cash and other information suggests that the impairment is other than
temporary, we expect to continue to write down the investment.
Provision for Income Taxes. The tax benefit for income taxes was $1.2
million in last year's quarter and $484,000 million in this quarter,
respectively. The benefit for taxes as a percentage of loss before taxes was
30.4% and 31.0% for last year's quarter and this quarter, respectively. The
effective tax rate for both quarters reflects the statutory tax benefit for the
loss in the United States offset by limitations on the tax benefit which can be
taken from losses in the Company's foreign subsidiaries.
<PAGE>
Forecast
The Company believes that although the software marketplace remains
turbulent, the marketplace may be returning to its pre-Y2K conditions and
accordingly, the Company's total revenue growth in fiscal 2001 may be starting
to return to the growth rates achieved prior to the impact of Y2K. If in fact
the software markets continue on their recovery trend and return to pre-Y2K
conditions, Mobius believes that its fiscal year 2001 annual loss per share can
range from a loss of 15 cents per share to a loss of 6 cents per share, as
compared to its fiscal year 2000 loss per share loss of 66 cents.
<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 September 30, 2000, Mobius
had cash and cash equivalents of $19.9 million, a decrease of $1.5 million from
the $21.4 million held at June 30, 2000. In addition, Mobius had marketable
securities of $10.3 million as of June 30, 2000 and September 30, 2000.
Net cash provided by operating activities was $1.0 million in last
year's quarter and $1.6 million this quarter. Mobius' primary sources of cash
during this quarter were increased deferred revenue and decreased software
license installments. These sources were offset by a net loss and increases in
account receivable. Deferred revenue increased 8.0% from $18.9 million at June
30, 2000 to $20.4 million at September 30, 2000. Net software license
installments decreased 5.6% from $17.8 million at June 30, 2000 to $16.8 million
at September 30, 2000. Net accounts receivable increased 6.5% from $14.9 million
at June 30, 2000 to $15.8 million at September 30, 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 such information, Mobius exercises its best judgment
as to what portion of the accounts receivable balance requires a reserve. At
June 30, 2000 and September 30, 2000 approximately 78% and 77% 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 collectability
issues arising from potential bankruptcies and contractual disputes. At June 30,
2000 and September 30, 2000, software license installments were approximately
$18.5 million and $17.5 million of which 81% and 79% 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
increased 13.3% from $1.7 million at June 30, 2000 to $2.0 million at September
30, 2000. The increase in these reserves is attributable to management's overall
assessment of the collectability of specific accounts.
Cash used in investing activities was $1.8 million and $2.8 million in
last year's quarter and this year's quarter, respectively. During the quarter
ending September 30, 2000, the Company completed the expansion of its Rye
headquarters. In addition, $2.5 million of marketable securities were purchased
and $2.5 million of marketable securities were sold during the current quarter.
Mobius also provided an additional $281,000 to HAN in short term loan.
<PAGE>
Cash provided by financing activities was $22,000 in last year's
quarter and $5,000 in this year's quarter, 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 its 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' expenses for
Click-n-Done.com were approximately $1.8 million in this quarter compared to
$750,000 during the last year's quarter. Through June 30, 2000 had not generated
any revenue from its Click-n-Done.com products. For the quarter ending September
30, 2000, Mobius recognized $67,000 in revenue from the sale of Click-n-Done
product. Mobius anticipates that it will continue to incur additional 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 over the contract period, and has recognized
approximately $1.1 million of maintenance revenue through December 31, 1999. For
the three months ended September 30, 1999 and 2000, the Company recognized
$157,000 of license revenue and $112,500 respectively and $180,000 and $0 of
maintenance revenue, respectively. Future license revenue is expected to be
$112,500 each quarter through December 31, 2003. All maintenance revenue has
been recognized.
<PAGE>
FACTORS AFFECTING FUTURE PERFORMANCE
Fluctuations in Period to Period Results; Seasonality; Uncertainty of Future
Operating Results
Mobius' 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' 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' quarterly operating results. Many of Mobius'
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' 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' 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' 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' existing products obsolete and unmarketable. Mobius' 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' 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' 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'
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'
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' 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' 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 quarterly report on 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' 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' 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' business,
operating results and financial condition.
<PAGE>
Protection of Intellectual Property
Mobius' 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' 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' proprietary rights will be adequate or that its competitors will
not independently develop similar or competitive technology.
Mobius' 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' 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
<PAGE>
commercial shipments, resulting in loss of revenue or delay in market
acceptance, diversion of development resources, damage to Mobius' 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' 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' 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' 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' 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' expenses for
Click-n-Done.com were approximately $1.8 million in this quarter. 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 Continue in the Foreseeable Future.
Mobius has incurred significant expenses relating to Click-n-Done.com
since Click-n-Done.com's inception and anticipates that it will continue to
incur additional expenses for Click-n-Done.com's sales and marketing,
technology, customer support and personnel for 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' 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 financing 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' 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' 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,
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, of the $33.0 million
of proceeds from the offering the Company has used approximately $3.0 million
for working capital and capital expenditures. The remaining 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
None
Item 5 - Other Information
None
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
No. Description
--- -----------
3.1* Form of Second Amended and Restated Certificate of
Incorporation of the Registrant.
3.2* Form of Amended and Restated By-Laws of the Registrant.
4.1* Specimen certificate representing the Common Stock
27 Financial Data Schedule (EDGAR only)
* 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 14, 2000
MOBIUS MANAGEMENT SYSTEMS, INC.
By: /s/ Dave Gordon
----------------------------------
Dave Gordon
Assistant Secretary,
Chief Financial Officer and
Assistant Treasurer (Principal
Financial and Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit Sequential
No. Description Page no.
--- ----------- --------
3.1* -- Form of Second Amended and Restated Certificate of
Incorporation of the Registrant.
3.2* -- Form of Amended and Restated By-Laws of the Registrant.
4.1* -- Specimen certificate representing the Common Stock
27 -- Financial Data Schedule (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.
