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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2000
COMMISSION FILE NUMBER: 0-24077
Mobius Management Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3078745
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
120 Old Post Road, Rye, New York 10580
(Address of registrant's principal executive offices) (Zip code)
914-921-7200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.0001 par value NASDAQ
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
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 | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ||
The aggregate market value of the voting stock held by non-affiliates
of the Registrant, based upon the closing sale price of common stock on
September 18, 2000 as reported on NASDAQ, was approximately $38.0 million.
Shares of common stock held by each officer and director and by each person who
owns 5% or more of the outstanding common stock have been excluded in that such
persons may be deemed affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of September 18, 2000, Registrant had outstanding 18,116,600 shares of common
stock.
DOCUMENTS INCORPORATED BY REFERENCE
Certain portions of the Registrant's definitive proxy statement to be
filed no later than October 30, 2000 pursuant to Regulation 14A, are
incorporated by reference in Items 10 through 13 of Part III of this Annual
Report on Form 10-K.
MOBIUS MANAGEMENT SYSTEMS, INC.
FISCAL YEAR 2000 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I.
ITEM 1. Business
ITEM 2. Properties
ITEM 3. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders
PART II.
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters
ITEM 6. Selected Consolidated Financial Data
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
PART III.
ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial
Owners and Management
ITEM 13. Certain Relationships and Related Transactions
PART IV.
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
SIGNATURES
FORWARD LOOKING STATEMENTS
Statements contained in this annual report, other than historical
financial results, may contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks and uncertainties. In particular, any statements contained herein
regarding expectations with respect to future sales and profitability, as well
as product development and/or introductions, are subject to known and unknown
risks, uncertainties and contingencies, many of which are beyond the Company's
control, which may cause actual results, performance or achievements to differ
materially from those projected or implied in such forward-looking statements.
Factors that might affect actual results, performance or achievements include,
among other things, those discussed in "Factors Affecting Future Performance" in
Item 1 - Business. Mobius accepts no obligation to update these forward-looking
statements and does not intend to do so.
ITEM 1. BUSINESS
Mobius Management Systems, Inc. (together with its consolidated
subsidiaries, "Mobius" or the "Company") is a leading provider of software
products designed to 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.
Mobius was incorporated in New York in 1981 and reincorporated in
Delaware in 1997. The Company has foreign subsidiaries in the United Kingdom,
France, Germany, Italy, Sweden, Australia, Switzerland, Japan and the Benelux.
Mobius's company headquarters are located at 120 Old Post Road, Rye, NY 10580
and the telephone number is (914) 921-7200.
Industry Background
Organizations need to retain information for long periods of time to
meet operational, regulatory and legal requirements or to satisfy customer and
other inquiries. For example, credit card companies store records of each charge
transaction; brokerage firms store records of every trade; and telephone
companies store records of individual telephone calls. This voluminous
information must be quickly and accurately retrieved to support customer
service, meet legal requirements and reach more informed business decisions.
Customers have become dependent upon organizations to accurately account for
transactions and other information and demand rapid and consistent access to
their records. Increasingly, customers expect self-service access via the
Internet using readily available Web browser technology.
Organizations are also faced with the need to store and distribute
large volumes of report output produced by various applications, particularly
enterprise resource planning ("ERP") systems. Furthermore, organizations wish to
present customized views of this information to their employees, customers and
suppliers over intranets with easy to learn common graphical user interfaces
such as Web browsers.
Traditional approaches such as paper, microfiche, and relational
databases, are usually cumbersome and do not lend themselves to a fully
integrated, comprehensive information management system solution. Moreover, many
organizations maintain a number of discrete, non-integrated systems, each of
which provides access to only a portion of the organization's stored
information. When the organization needs to access all information about a
particular customer or transaction, these disparate systems make retrieval
costly and time consuming. Mobius seeks to provide integrated system solutions
capable of storing, retrieving and presenting all information relevant to a
customer or transaction, regardless of format or storage site.
Products
Mobius's products include server products, which act as hosts on
central processing computers or networks, and client products that access the
host software whenever host resources are needed. The Company's primary products
are ViewDirect, which stores and retrieves documents; DocumentDirect, which
enables document viewing; DocumentDirect for the Internet, which makes
information available over the Internet and corporate intranets; e-Search &
View, which enables browser-based searching of information stored on ViewDirect
archives; DocumentDirect Application Suite, a series of industry-specific
application templates for document viewing; DocuAnalyzer, a data mining tool;
and INFOPAC-ABS, a data center quality control product. In fiscal year 2000,
Mobius's subsidiary Click-n-Done.com LLC introduced Click-n-Done, an application
that over the internet, presents bills and statements and facilitates their
payment.
ViewDirect. ViewDirect stores and presents virtually any record of a
business transaction, including computer-generated reports; print-formatted
documents, such as customer statements; scanned images; and undefined
transactions created in other computing environments, for example, those created
for display devices such as generic Internet browsers. ViewDirect provides
direct, on-line access to information stored on disk, tape or optical devices.
It supports both host-based and network-based implementations, and operates on
desktop computers and on the largest enterprise servers or "mainframe"
computers.
DocumentDirect. DocumentDirect is a Windows-based full-function viewer.
It provides a common "portal" through which the user is able to access any type
or number of documents stored in ViewDirect archives. DocumentDirect can
simultaneously display diversely formatted documents and facilitates the
annotation and reformatting of documents.
DocumentDirect for the Internet. DocumentDirect for the Internet is
designed to provide secure, self-service access to documents over the Internet
and corporate intranets. DocumentDirect for the Internet makes all the documents
in ViewDirect archives available for viewing via Internet browsers. It supports
e-business applications such as electronic bill presentment and payment
("EBPP").
e-Search & View. e-Search & View is a Web search facility that enables
browser-based searching of information stored in ViewDirect archives. It uses
ViewDirect's high-performance indexing and integrates with any Web application,
providing an efficient, easy-to-use document search application.
DocumentDirect Application Suite. DocumentDirect Application Suite is
designed to be used by those who need fast access to documents in a customized
environment. It provides customized report views with secured access to all
reports and documents across the enterprise as well as templates that meet a
wide range of vertical industry application needs in banking, insurance,
financial services, telecommunications and healthcare.
DocuAnalyzer. DocuAnalyzer is a Windows-based data mining product that
makes the data in the ViewDirect archive available for analysis without
re-keying. It simplifies the conversion of character data into a table format to
help with "drill-down", analysis, graphing and creation of new reports. Mobius
sells DocuAnalyzer in connection with a license arrangement with a third party.
INFOPAC-ABS. INFOPAC-ABS (Automated Balancing System) is an enterprise
server-based data integrity and quality control software tool. Data in computer
systems, databases, and end user applications originates from many sources. Due
to the large number of input sources, computer systems can and do become
unsynchronized. INFOPAC-ABS provides cross-application balancing of numerical
data resident in databases, files and reports to detect and assist in the
correction of out-of-balance situations.
Click-n-Done. Click-n-Done is application software that supports
electronic bill presentment and payment ("EBPP") and electronic statement
presentment ("ESP.") Click-n-Done supports multiple billing models including
"consumer consolidation," in which bills and statements are presented on the
consumer's desktop processor.
Sales and Marketing
The Company sells and markets its products primarily through a direct
sales force based in Chicago, with additional sales offices in Atlanta, GA;
Boston, MA; Dallas, TX; Denver, CO; Falls Church, VA; Fountain Valley, CA;
Madison, WI; Minneapolis, MN; Rye, NY and St. Louis, MO.
In March 1993, Mobius established its first foreign subsidiary, Mobius
UK, in England. From fiscal 1995 to fiscal 1999, Mobius has established
subsidiaries in France, Germany, Italy, Australia, Switzerland, Sweden, Japan
and the Benelux. These subsidiaries provide Mobius with an international direct
sales force.
Customer Satisfaction
Mobius provides twenty-four hour, seven-day-a-week support services for
all of its products through its United States and foreign support centers.
Complex diagnostics and product corrections are provided exclusively through the
United States support center. In addition, Mobius hires independent professional
service organizations to provide customers with post sale assistance for their
products, on-site implementation services and customizations.
Research and Development
The Company intends to continue to make substantial investments in
research and development to maintain and enhance its product lines. Mobius
believes that its future success will, in large part, depend on its ability to
maintain and improve current products and develop new products that meet the
emerging needs of the marketplace. The Company's research and development
efforts focus on designing and developing reliable and easy-to-use products.
Mobius's product development cycle (from funding a product development project
until the new product is shipped to the marketplace) typically is less than six
months to take advantage of market opportunities and be responsive to customer
demands. Larger projects are broken down so that a specific product or product
enhancement can be available in the marketplace as quickly as possible. The
Company divides its development team into groups delineated by product
functionality and employs advanced Rapid Application Development ("RAD") tools
to facilitate short development cycles for functional enhancements while
maintaining product reliability.
Employees
As of June 30, 2000, Mobius employed 423 people: 215 in Sales and
Marketing; 51 in Customer Satisfaction; 97 in Research and Development; and 60
in General and Administrative. None of the employees are represented by a labor
union or are subject to a collective bargaining agreement. The Company has not
experienced any work stoppages and believes it has a good relationship with its
employees. The Company believes that its future success will depend to a
significant extent upon its ability to attract, train and retain highly skilled
technical, management, sales and marketing personnel.
Customers
No single customer accounted for 10% or more of consolidated revenues
in fiscal years 1998, 1999 or 2000.
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. "Factors Affecting Future
Performance" below, includes a description of the competitive environment in
which the Company does business.
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.
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., RSD
S.A., Checkfree Corporation, Billserv.com, Inc. and edocs, Inc. 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.
International Sales and Operations
Mobius believes that its revenues and future operating results will
depend in part on its ability to increase sales in international markets. As a
group, the Company's international subsidiaries have not achieved budgeted sales
and have been unprofitable to date, and Mobius expects achieving profitability
will require significant management attention and financial resources. There can
be no assurance that Mobius will be able to maintain or increase international
market demand for its products or hire additional qualified personnel who will
successfully be able to market its products internationally. Mobius's
international sales are subject to the general risks inherent in doing business
abroad, including unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs and difficulties of localizing products for foreign
countries, lack of acceptance of localized products in foreign countries, longer
accounts receivable payment cycles, difficulties in managing international
operations, potentially adverse tax consequences, restrictions on the
repatriation of earnings, the burdens of complying with a wide variety of
foreign laws and economic instability. There can be no assurance that such
factors will not have a material adverse effect on Mobius's future international
revenues and, consequently, on its business, operating results and financial
condition.
An increase in the value of the U.S. dollar relative to foreign
currencies could make Mobius's products more expensive, and, therefore,
potentially less competitive in those markets. Although Mobius does not
currently engage in international currency hedging transactions, we are
exploring the possibility of doing so in the future. To the extent that the U.S.
dollar strengthens against foreign currencies in international markets in which
the Company maintains operations, its net assets that are denominated in such
foreign currencies will be devalued, resulting in a foreign currency translation
loss. For more information on its international operations, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations" in
Item 7 of this Form 10-K.
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 could
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.
Protection of Intellectual Property
Mobius's success is heavily dependent upon its confidential and
proprietary intellectual property. Mobius generally does not patent its software
products but rather 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.
Through June 30, 2000, Mobius has not generated any revenue from the sale of its
Click-n-Done.com products. Mobius's expenses for Click-n-Done.com were
approximately $8.2 million in fiscal 2000. 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. 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 greater expenses and difficulties in implementing the
Click-n-Done.com business plan as compared to those associated with more
traditional ventures, 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's future financial or operating results could be
materially adversely effected.
Mobius Has Incurred Significant Expenses for Click-n-Done.com and Mobius Expects
These Expenses to Continue for the Foreseeable Future.
Mobius has incurred significant expenses relating to Click-n-Done.com
in the twelve months since Click-n-Done.com's inception and anticipates that it
will continue to incur additional expenses for sales and marketing, technology,
customer support and personnel for the foreseeable future. Mobius cannot assure
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 Materially Adversely Effected.
To date, Mobius has provided the working capital for Click-n-Done.com's
operations. Click-n-Done.com will require additional working capital and may
need to raise these 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 capital 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 materially adversely effected. 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.
If Widespread Internet Adoption Does Not Continue, or If the Internet Cannot
Accommodate Continued Growth, Click-n-Done.com's Business Will Be Materially
Adversely Effected.
Acceptance of Click-n-Done.com's products depends upon continued
acceptance 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 may be 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's inability to maintain and strengthen its brand
awareness.
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 is 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 have a
materially adverse effect on 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 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 Mobius
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's success will depend on its ability to
continually improve its product offerings and services.
ITEM 2. PROPERTIES
Mobius is headquartered in Rye, New York, where it leases an aggregate
of approximately 57,200 square feet of space. Administrative, marketing, product
development and customer support and service operations are located in the Rye
space. Sales operations are based in Chicago. Mobius leases an aggregate of
approximately 97,000 additional square feet of space domestically and
internationally for its other sales offices. Mobius believes that these
facilities are adequate to meet its current needs and that suitable additional
space will be available as needed to accommodate physical expansions of
corporate operations and for additional sales and service field offices.
ITEM 3. LEGAL PROCEEDINGS
From time to time, Mobius is involved in litigation relating to claims
arising out of its operations in the normal course of business. Mobius 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 its business, operating
results and financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 2000.
PART II.
ITEM 5(a). MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Mobius's common stock has been quoted on the NASDAQ National Market
under the symbol of MOBI since the initial public offering on April 27, 1998.
According to records of Mobius's transfer agent, Mobius had approximately 65
stockholders of record as of September 18, 2000. Because many of such shares are
held by brokers and other institutions on behalf of stockholders, Mobius is
unable to estimate the total number of stockholders represented by the record
holders. The following table sets forth the high and low sales prices of the
Common Stock on the NASDAQ National Market for the periods indicated.
Quarter ended: High Low
---- ---
September 30, 1998 $16.25 $5.62
December 31, 1998 $14.88 $5.88
March 31, 1999 $24.44 $13.00
June 30, 1999 $20.75 $7.38
September 30, 1999 $9.25 $4.38
December 31, 1999 $10.38 $3.25
March 31, 2000 $16.88 $5.81
June 30, 2000 $13.63 $3.75
Mobius has never paid any cash dividends on its common stock and does
not anticipate paying any cash dividends in the foreseeable future. Mobius
currently intends to retain future earnings to fund the development and growth
of its business. Payment of future dividends, if any, will be at the discretion
of its Board of Directors after taking into account various factors, including
Mobius's financial condition, operating results, current and anticipated cash
needs and plans for expansion.
5(b). 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 public offering. To date, of the 33.0
Million of proceeds received from the offering, the Company has used
approximately $1.0 million for working capital. The remaining proceeds are
currently invested in cash and short term, investment grade, interest bearing
securities.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the
captions "Consolidated Statement of Income Data" and "Consolidated Balance Sheet
Data" as of and for each of the years in the five year period ended June 30,
2000 are derived from the consolidated financial statements of Mobius, which
statements have been audited by KPMG LLP, independent certified public
accountants. The consolidated financial statements as of June 30, 1999 and 2000
and for each of the years in the three year period ended June 30, 2000, and the
report thereon, are included elsewhere in this Form 10-K. The data set forth
below should be read in conjunction with, and are qualified by reference to,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto,
included elsewhere in this Form 10-K.
Years Ended June 30,
--------------------
1996 1997 1998 1999 2000
---- ---- ---- ---- ----
Consolidated Statement of Income Data
(in thousands, except per share data):
Revenues:
Software license revenues $18,769 $26,112 $37,929 $48,811 $31,018
Maintenance and other revenues 12,189 15,215 18,598 25,025 29,187
------- ------- ------- ------- -------
Total revenues 30,958 41,327 56,527 73,836 60,205
------- ------- ------- -------- -------
Costs of revenues:
Software license revenues 626 1,336 1,443 1,223 946
Maintenance and other revenues 2,716 2,923 3,593 5,011 6,070
------- ------- ------- ------ ------
Total costs of revenues 3,342 4,259 5,036 6,234 7,016
------- ------- ------- ------ ------
Gross profit 27,616 37,068 51,491 67,602 53,189
------- ------- ------- ------ ------
Operating expenses (2):
Sales and marketing 15,136 21,971 28,613 41,877 44,289
Research and development 4,600 5,904 8,013 10,674 14,823
General and administrative 2,832 4,350 6,542 9,409 12,086
------- ------- ------- ------ ------
Total operating expenses 22,568 32,225 43,168 61,960 71,198
------- ------- ------- ------ ------
Income (loss) from operations 5,048 4,843 8,323 5,642 (18,009)
License and other interest income 339 922 1,871 2,920 2,930
Interest expense (41) (22) (14) (16) (58)
Foreign currency transaction gains (loss) (72) (12) (15) (191) 44
Investment impairment -- -- -- -- (2,220)
------- ------- ------- ------ ------
Income (loss) before income taxes
5,274 5,731 10,165 8,355 (17,313)
Provision (benefit) for income taxes 2,657 3,348 5,500 4,057 (5,417)
Accretion on Preferred Stock -- -- 102 -- --
------- ------- ------- ------ ------
Net income (loss) available to common stock $ 2,617 $ 2,383 $ 4,563 $ 4,298 $(11,896)
======= ======= ======= ======= ========
Basic earnings (loss) per share(1) $ 0.17 $ 0.17 $ 0.38 $ 0.24 $ (.66)
Basic weighted average shares outstanding(1) 15,000 14,318 12,156 17,813 17,988
Diluted earnings (loss) per share(1) $ 0.17 $ 0.15 $ 0.27 $ 0.23 $ (.66)
Diluted weighted average shares outstanding(1) 15,000 15,882 16,738 18,964 17,988
Consolidated Balance Sheet Data
(in thousands):
Total assets $18,446 $28,502 $78,800 $89,201 $78,393
Total long term obligations 1,639 5,176 8,776 7,612 3,698
Convertible preferred stock -- 11,898 -- -- --
Stockholders' equity (deficit) 5,226 (4,344) 46,122 51,528 40,591
(1) For a description of the basic and diluted earnings per share ("EPS")
calculations and the basic and diluted weighted average shares
outstanding, see Note 2 of Notes to Consolidated Financial Statements.
(2) Included within sales and marketing, research and development and
general and administrative expense is stock compensation expense
associated with the granting of stock options to employees immediately
prior to the Company's IPO for the year ended June 30, 1998, 1999 and
2000 aggregating $642, $1,046 and $537, respectively. Prior to June 30,
2000, stock compensation expense was presented as a separate line item
within operating expense. See note 10 to Notes to Consolidated
Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In this section, readers are given a more detailed assessment of the
Company's operating results and changes in financial position over the periods
discussed. This section should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes. Please note that references
in this section to "this year" and "last year" refer to its fiscal years ended
June 30, 2000 and June 30, 1999, respectively.
Overview
Mobius 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 governmental entities
use the Company's products to facilitate customer service and other
mission-critical functions. Founded in 1981, the Company provided information
storage, retrieval and presentation products and support, as well as consulting
services throughout its first decade. In 1991, the Company decided to focus
primarily on developing and marketing software products and, as a result, sold
its consulting services business.
In April 1998, the Company's registration statement was declared
effective for its initial public offering ("IPO") of 2.5 million shares of
common stock at a price of $14.50 per share. Further detail about the IPO is
provided in the "Liquidity and Capital Resources" section below and in Notes 8
and 9 of the Notes to the Consolidated Financial Statements.
The Company's total revenues increased from $56.5 million in fiscal
1998 to $73.8 million in fiscal 1999 and decreased to $60.2 million in fiscal
2000. The decrease in fiscal 2000 was primarily attributable to decreased sales
of licenses. The Company believes that Year 2000 issues significantly affected
the purchasing patterns of its customers and potential customers. We believe
that many companies expended significant resources to correct or modify their
existing software systems to be Year 2000 compliant. We believe that these
expenditures resulted in reduced funds to purchase software products such as
those that Mobius offers. The Company derives its revenues primarily from server
and client product license fees and related annual maintenance fees. This year
51.5% of total revenues were generated by software license fees and 48.5% were
generated by maintenance and other fees.
License revenues of ViewDirect and DocumentDirect products have
historically accounted for a majority of the Company's license revenues and for
a significant portion of total revenues. This year license revenues for these
products accounted for approximately 93.0% of license revenues and approximately
47.9% of total revenues. Last year license revenues for these products accounted
for approximately 89.6% of license revenues and approximately 59.3% of total
revenues. The Company anticipates in the foreseeable future that license revenue
from these products will continue to account for a significant portion of
license and total revenues.
Mobius's growing customer base has led to continued growth in
maintenance revenues, from $18.6 million in fiscal 1998 to $25.0 million last
year to $29.1 million this year. Maintenance consists primarily of revenue for
post contract support services provided by the Company for its products. Other
revenue results when Mobius occasionally hires independent professional service
organizations to provide customers with post-sale assistance.
International revenues increased this year to $9.9 million from $9.5
million last year and $7.2 million in fiscal 1998. 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. The Company intends to
expand its international sales activities as part of its business strategy. The
majority of Mobius' current international revenues are derived from the
operations of its wholly-owned subsidiaries and through agents. The Company
receives a royalty that is a percent of agent or subsidiary sales of software
licenses and maintenance contracts to international customers. The Company's
subsidiaries conduct business in the currency of the country in which they
operate, exposing Mobius to currency fluctuations and
currency transaction losses or gains, which are outside of Mobius' control. To
date, most of these subsidiaries have operated at a loss, which cannot be
consolidated for United States income tax purposes. Consequently, in prior
years, the Company has experienced a substantially higher effective tax rate
than the U.S. Federal statutory rate as no tax benefit has been provided for the
majority of these foreign losses. To the extent the Company is successful at
bringing its foreign subsidiaries to profitability, the Company's effective tax
rate will be below the U.S. Federal tax statutory rate as a result of realizing
the benefit of the tax loss carryforwards currently being generated outside of
the United States. In addition, to the extent that Mobius uses different tax
structures for new foreign subsidiaries, which would permit consolidation of
losses for U.S. tax purposes, the effective tax rate will approach the U.S.
Federal statutory rate.
Capitalization of internally developed software costs is required once
technological feasibility is established. The period between achieving
technological feasibility, which we have defined as the establishment of a
working model, and the general availability of such software has been short and,
therefore, software development costs qualifying for capitalization have been
insignificant. Accordingly, the Company has not capitalized any software
development costs and currently does not anticipate having significant
development costs that are eligible for capitalization in the foreseeable
future. Software development costs are included in research and development
expenses. For more information on the Company's capitalization of software
development costs see Note 2 of Notes to Consolidated Financial Statements.
Results of Operations
The following table sets forth certain items from the Company's
Consolidated Statement of Operations as a percentage of total revenues for the
fiscal years indicated:
Years Ended June 30,
1998 1999 2000
---- ---- ----
Revenues:
Software license revenues 67.1% 66.1% 51.5%
Maintenance and other revenues 32.9 33.9 48.5
----- ------ -----
Total revenues 100.0 100.0 100.0
----- ------ -----
Costs of revenues:
Software license revenues 2.5 1.6 1.6
Maintenance and other revenues 6.4 6.8 10.1
----- ------ -----
Total costs of revenues 8.9 8.4 11.7
----- ------ -----
Gross profit 91.1 91.6 88.3
Operating expenses:
Sales and marketing 50.6 56.7 73.6
Research and development 14.2 14.5 24.6
General and administrative 11.6 12.7 20.1
---- ----- -----
Total operating expenses 76.4 83.9 118.3
----- ------ -----
Income (loss) from operations 14.7 7.7 (30.0)
License and other interest income 3.3 3.9 4.9
Interest expense -- (0.3) (0.1)
Foreign currency transaction gains(losses) -- -- 0.1
Investment impairment -- -- (3.7)
----- ---- ----
Income (loss) before income taxes 18.0 11.3 (28.8)
Provision (benefit) for income taxes 9.7 5.5 (9.0)
Accretion on Preferred Stock 0.2 -- --
----- ----- -----
Net income (loss) available to common stock 8.1% 5.8% (19.8)%
===== ===== ======
Year Ended June 30, 1998 Compared to Year Ended June 30, 1999 Compared
to Year Ended June 30, 2000
Revenues
Total revenues increased 30.6% from $56.5 million in fiscal 1998 to $73.8
million in fiscal 1999 and decreased 18.4% to $60.2 million in fiscal 2000.
Domestic revenues increased 30.4% from $49.3 million in fiscal 1998 to $64.3
million in fiscal 1999 and decreased 21.7% to $50.3 million in fiscal 2000.
International revenues increased 33.3% from $7.2 million in fiscal 1998 to $9.6
million in fiscal 1999 and increased 2.1% to $9.9 million in fiscal 2000. Total
revenues have increased in fiscal 1999 primarily because the Company sold more
licenses for its products to new and existing customers. The decrease in fiscal
2000 was primarily attributable to decreased sales of licenses. The Company
believes that Year 2000 issues significantly affected the purchasing patterns of
its customers and potential customers. We believe that many companies expended
significant resources to correct or modify their existing software systems to be
Year 2000 compliant. We believe that these expenditures resulted in reduced
funds to purchase software products such as those that Mobius offers.
Software license revenues increased 28.7% from $37.9 million in fiscal
1998 to $48.8 million in fiscal 1999 and decreased 36.5% to $31.0 million in
fiscal 2000. The increase in fiscal 1999 from 1998 was primarily attributable to
increased sales of licenses for ViewDirect and DocumentDirect products. The
decrease in fiscal 2000 was primarily attributable to decreased sales of
licenses. The Company believes that Year 2000 issues significantly affected the
purchasing patterns of its customers and potential customers. We believe that
many companies expended significant resources to correct or modify their
existing software systems to be Year 2000 compliant. We believe that these
expenditures resulted in reduced funds to purchase software products such as
those that Mobius offers.
Maintenance and other revenues increased 34.4% from $18.6 million in
fiscal 1998 to $25.0 million in fiscal 1999 and increased 16.8% to $29.2 million
in fiscal 2000. The increases in maintenance and other revenues during these
years were primarily attributable to the growth in the amount of licensed
software covered by maintenance agreements and to a lesser extent, increases in
the maintenance fees charged by the Company. Other revenues for all periods were
not significant.
Costs of Revenues.
The costs of software license revenues decreased 14.3% from $1.4
million in fiscal 1998 to $1.2 million in fiscal 1999 and decreased 33.3% to
$1.0 million in fiscal 2000, representing 2.5%, 1.6% and 1.6%, respectively, of
software license revenues in those years. The costs of software license revenue
decreased in fiscal 1999 versus 1998 primarily due to increased license revenues
from products that were developed exclusively by the Company and therefore do
not require royalty payments. The decrease in fiscal 2000 is a result of lower
license sales which were subject to royalties.
The costs of maintenance and other revenues increased 38.9% from $3.6
million in fiscal 1998 to $5.0 million in fiscal 1999 and increased 20.0% to
$6.0 million in fiscal 2000, representing 19.3%, 20.0% and 20.1%, respectively,
of maintenance and other revenues in those years. The increases in costs of
maintenance and other revenues were primarily attributable to increased staffing
and personnel-related costs and subcontractor costs associated with post sales
assistance.
Operating Expenses.
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 46.5%
from $28.6 million in fiscal 1998 to $41.9 million in fiscal 1999 and increased
5.7% to $44.3 million in fiscal 2000, representing 50.6%, 56.7% and 73.6%,
respectively, of total revenues in those years. Sales and marketing expenses
have increased in fiscal 1999 primarily because the Company paid more
commissions and bonuses for selling more software licenses and hired additional
sales personnel. The increase in fiscal 2000 is related to additional spending
for the Click-n-Done.com products, and increased personnel related costs for
marketing, partially offset by a decrease in sales commissions and bonus due to
decreased sales of software licenses.
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 33.7% from $8.0
million in fiscal 1998 to $10.7 million in fiscal 1999 and increased 38.3% to
$14.8 million for fiscal 2000, representing 14.2%, 14.5% and 24.6%,
respectively, of total revenues in those years. The increase in research and
development expenses in fiscal 1999 were primarily attributable to increased
staffing and personnel-related costs. The increase in expenses in fiscal 2000,
including the development costs associated with Click-n-Done, were primarily
attributable to increased subcontractor costs, increased staffing and
personnel-related costs.
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 44.6% from $6.5 million
in fiscal 1998 to $9.4 million in fiscal 1999 and increased 28.7% to $12.1
million in fiscal 2000, representing 11.6%, 12.7% and 20.1%, respectively, of
total revenues in those years. The increase in general and administrative
expenses in fiscal 1999 were primarily attributable to increased professional
service fees, including $600,000 in legal and professional fees relating to an
acquisition that was not completed, and increased staffing and personnel-related
cost. The increase in expenses in fiscal 2000 were primarily attributable to
additional staffing and personnel-related costs, including costs to administer
Click-N-Done.com and depreciation of improvements made to the Company's
infrastructure.
Included within sales and marketing, research and development and
general and administrative expense is stock compensation expense associated with
the granting of stock options to employees immediately prior to the Company's
IPO for the year ended June 30, 1998, 1999 and 2000 aggregating $642,000,
$1,046,000 and $537,000, respectively. Prior to June 30, 2000, stock
compensation expense was presented as a separate line item within operating
expense. See note (10) to Notes to Consolidated Financial Statements.
License and other interest income; interest expense; foreign currency
transaction gains (losses).
License and other interest income was $1.9 million, $2.9 million and $2.9
million in fiscal 1998, 1999, and 2000, respectively. The increase between 1998
and 1999 was primarily due to the increase in earnings on higher invested
balances. During fiscal 1998, 1999 and 2000 interest expense was insignificant.
Foreign currency transaction losses were $15,000, $191,000 and a gain $44,000 in
fiscal 1998, 1999 and 2000, respectively. These transactions are the result of
foreign currency fluctuations in the foreign jurisdictions within which the
Company does business.
Investment Impairment.
An impairment loss of $2.2 million was recorded in fiscal 2000 relating to the
Home Account Network investment. See Investments included in Management's
Discussion and Analysis of Financial Condition and Results of Operations and
note (5) to Notes to Consolidated Financial Statements.
Provision for Income Taxes.
The provision for income taxes was $5.5 million in fiscal 1998, $4.0 million in
fiscal 1999 and a benefit of $5.4 million in fiscal 2000. The Company had
effective tax rates of approximately 54.1%, 48.6% and (31.3)% in fiscal years
1998, 1999 and 2000, respectively. The difference between the 1998 and 1999
rates and the U.S. Federal statutory rate is primarily attributable to the
Company not being able to consolidate foreign subsidiary losses for U.S. tax
purposes. The change in the effective tax rate from 1999 to 2000 primarily
reflects a statutory 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.
Selected Quarterly Operating Results
The following table presents certain consolidated statement of
operations data for the eight fiscal quarters in the period ended June 30, 2000.
In management's opinion, this unaudited information has been prepared on the
same basis as the audited Consolidated Financial Statements appearing elsewhere
in this Form 10-K and includes all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the information for
the quarters presented, when read in conjunction with the audited Consolidated
Financial Statements and Notes thereto included elsewhere herein. The results of
operations for any quarter are not necessarily indicative of results for any
future period.
Quarters Ended
Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31, June 30,
1998 1998 1999 1999 1999 1999 2000 2000
---- ---- ---- ---- ---- ---- ---- ----
Revenues:
Software license revenues $10,169 $13,253 $11,223 $14,166 $ 6,430 $ 7,256 $ 6,522 $10,810
Maintenance and other revenues 5,587 5,852 6,660 6,926 6,953 7,089 7,478 7,667
------- ------- ------- ------- ------- ------- ------- -------
Total revenues 15,756 19,105 17,883 21,092 13,383 14,345 14,000 18,477
Costs of revenues:
Software license revenues 311 232 282 398 185 305 109 347
Maintenance and other revenues 1,304 1,174 1,209 1,324 1,634 1,340 1,497 1,599
------- ------- ------- ------- ------- ------- ------- -------
Total costs of revenues 1,615 1,406 1,491 1,722 1,819 1,645 1,606 1,946
------- ------- ------- ------- ------- ------- ------- -------
Gross profit 14,141 17,699 16,392 19,370 11,564 12,700 12,394 16,531
Operating expenses (1):
Sales and marketing 8,597 9,973 9,839 13,468 9,868 10,102 11,388 12,932
Research and development 2,629 2,764 2,676 2,605 2,991 3,282 4,134 4,415
General and administrative 1,668 2,340 2,110 3,291 2,970 2,982 3,033 3,102
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses 12,894 15,077 14,625 19,364 15,829 16,366 18,555 20,449
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations 1,247 2,622 1,767 6 (4,265) (3,665) (6,161) (3,918)
License and other interest income 672 766 700 782 726 759 717 729
Interest expense (7) (4) (4) (1) (1) (1) (1) (56)
Foreign currency transaction gains(losses) (33) (60) (9) (89) 46 2 (8) 4
Investment impairment -- -- -- -- (591) (821) (527) (281)
------- ------- ------- ------- -------- -------- ------- --------
Income (loss) before income taxes 1,879 3,324 2,454 698 (4,085) (3,726) (5,980) (3,522)
Provision (benefit) for income taxes 988 1,595 1,174 300 (1,242) (1,202) (1,875) (1,098)
------- ------- ------- ------- ------- -------- -------- --------
Net income (loss) available to common stock $ 891 $ 1,729 $ 1,280 $ 398 $(2,843) $(2,524) $(4,105) $(2,424)
===== ======= ======= ======= ======= ======= ======= =======
Basic earnings (loss) per share $0.05 $0.10 $0.07 $0.02 $(0.16) $(0.14) $(0.23) $(0.13)
===== ===== ======= ===== ====== ====== ====== ======
Diluted earnings per share $0.05 $0.09 $0.07 $0.02 $(0.16) $(0.14) $(0.23) $(0.13)
===== ===== ===== ===== ====== ====== ====== ======
As a Percentage of Total Revenues
Revenues:
Software license revenues 64.5% 69.4% 62.8% 67.2% 48.0% 50.6% 46.6% 58.5%
Maintenance and other revenues 35.5 30.6 37.2 32.8 52.0 49.4 53.4 41.5
----- ----- ----- ----- ----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Costs of revenues:
Software license revenues 2.0 1.2 1.6 1.9 1.4 2.1 0.8 1.9
Maintenance and other revenues 8.3 6.2 6.7 6.3 12.2 9.4 10.7 8.7
----- ----- ----- ----- ----- ----- ----- ------
Total costs of revenues 10.3 7.4 8.3 8.2 13.6 11.5 11.5 10.5
----- ----- ----- ----- ----- ----- ----- ------
Gross profit 89.7 92.6 91.7 91.8 86.4 88.5 88.5 89.5
Operating expenses (1):
Sales and marketing 54.6 52.2 55.0 63.9 73.7 70.4 81.3 70.0
Research and development 16.7 14.5 15.0 12.4 22.3 22.9 29.5 23.9
General and administrative 10.6 12.3 11.8 15.6 22.1 20.8 21.7 16.8
Total operating expenses 81.8 78.9 81.8 91.8 118.2 114.1 132.5 110.7
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) from operations 7.9 13.7 9.9 -- (31.8) (25.6) (44.0) (21.2)
License and other interest income 4.0 3.7 3.8 3.7 5.4 5.3 5.1 3.9
Interest expense -- -- -- -- -- -- -- (0.2)
Foreign currency transaction gains(losses) -- -- -- (0.4) 0.3 -- -- --
Investment impairment -- -- -- -- (4.4) (5.7) (3.8) (1.5)
----- ----- ----- ----- ----- ----- ----- -----
Income (loss) before income taxes 11.9 17.4 13.7 3.3 (30.5) (26.0) (42.7) (19.0)
Provision (benefit) for income taxes 6.2 8.3 6.5 1.4 (9.3) (8.4) (13.4) (5.9)
----- ----- ----- ----- ----- ----- ----- -----
Net income (loss) available to common stock 5.7% 9.1% 7.2% 1.9% (21.2)% (17.6)% (29.3)% (13.1)%
===== ===== ===== ===== ===== ===== ====== =====
(1) Included within sales and marketing, research and development and general
and administrative expense is stock compensation expense associated with
the granting of stock options to employees immediately prior to the
Company's IPO. Such stock compensation expense for the 8 quarters ended
June 30,2000 was $323,000, $343,000, $213,000, $167,000, $166,000,
$167,000, $113,000, $91,000 respectively. Prior to June 30, 2000, stock
compensation expense was presented as a separate line item within operating
expense. See note 10 to Notes to Consolidated Financial Statements.
The Company'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 the Company's
products, introductions of new products and product enhancements by Mobius or
Mobius's competitors, changes in customer budgets, competitive conditions in the
industry and general domestic and international economic conditions. License
revenues typically peak during the fourth fiscal quarter and to a lesser extent
in the second fiscal quarter. These fluctuations are caused primarily by
customer purchasing patterns and the Company's sales force incentive programs
which recognize and reward sales personnel on the basis of achievement of annual
and other periodic performance quotas, as well as the factors described above.
Liquidity and Capital Resources
Since its inception, Mobius has funded its operations principally
through cash flows from operating activities and, to a lesser extent, equity or
bank financings. In April 1998, the Company completed its initial public
offering, which generated net proceeds of $33.0 million. As of June 30, 2000,
Mobius had cash and cash equivalents of $21.4 million, a decrease of $12.1
million from the $33.5 million held at June 30, 1999. In addition, Mobius had
marketable securities of $9.4 million and $10.3 million as of June 30, 1999 and
June 30, 2000, respectively.
Net cash provided by operating activities was $5.2 million, and $6.8
million in fiscal 1998 and 1999, respectively. Net cash used by operating
activities was $4.0 million in fiscal 2000. Mobius's primary sources of cash
during 1998 and 1999 was its net income supported by increases in its deferred
income taxes and decreases in items requiring working capital. During fiscal
2000, Mobius' use of cash in operating activities was primarily caused by its
net loss and an increase in accounts receivable offset by collections on
software license installments and growth in deferred revenues. Software license
installments, which decreased 23.9% from $23.4 million at June 30, 1999 to $17.8
million at end of fiscal 2000, represent payments due from customers for license
fees that are paid over the term of the installment agreement. These payments
are typically made over 3 to 5 year terms. Since payments are made over multiple
reporting periods, software license installments can fluctuate with the amount
of license revenue sold on an installment basis. Net accounts receivable
increased 18.3% from $12.6 million at June 30, 1999 to $14.9 million at June 30,
2000, largely as a result of the timing of license sales and billings of
maintenance renewals. Deferred revenue increased 8.6% from $17.4 million at June
30, 1999 to $18.9 million at June 30, 2000 as a result of an increase in
unrecognized license revenue. Deferred revenue primarily consists of the
unrecognized portion of maintenance billings and the unrecognized portion of
maintenance revenue unbundled from customer license agreements which are
recognized ratably over the maintenance period.
Net cash used in investing activities was $1.8 million, $15.4 million
and $8.6 million in fiscal 1998, 1999 and 2000, respectively. For the years
ended June 30, 1998, 1999 and 2000, cash of $1.8 million, $4.5 million and $6.2
million was used for the purchase of computer equipment, furniture and fixtures
and leasehold improvements, respectively. During fiscal 2000, the Company has
undertaken significant capital projects, including the installation of an
automated sales force computer system, implementation of a new accounting system
and expansion of the Rye headquarters building.
In addition, in fiscal 2000, $3.5 million of marketable securities were
purchased and $2.3 million of marketable securities were sold. Mobius also made
investments of $750,000 and $500,000 in Home Account Network and Flooz.com,
respectively.
Net cash provided by financing activities was $33.1 million in fiscal
1998, primarily due to the Company's IPO of 2,500,000 shares of common stock at
a price of
$14.50 per share. In fiscal 1999, cash provided by financing activities of
$227,000 was primarily due to cash received from the exercise of stock options.
This year, cash provided by financing activities of $327,000 was primarily due
to cash received from the exercise of stock options and sales of Company common
stock through the employee stock purchase plan.
Bad Debt Reserves
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 from 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 June 30, 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 June 30, 2000,
software license installments were approximately $24.2 million and $18.5 million
of which 85% and 81% 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 were $1.7 million at June 30, 1999 and 2000.
Investments
Mobius investment decisions are divided into two categories, since they
are managed differently; speculative or strategic investments, and cash
management. The latter is done by two fund managers, Goldman Sachs and Bank of
Boston. These firms follow policy guidelines approved by our Board of Directors
and monitored by the Company's finance staff. Longer term speculative or
strategic investment decisions are made by the Board of Directors based upon the
recommendation of management regarding the investment potential or strategic
fit. These investments are reviewed by the Board of Directors on a quarterly
basis.
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. 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
interest 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. 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.
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 had
consumed most of the cash provided through June 30, 2000, (2) there was no
equity below these financing rounds and (3) there is no obligation
for any of the investors to provide additional capital. Based on these factors,
we concluded that the investment had been impaired and that the impairment was
other than temporary.
For the year ended June 30, 2000, a $2,220,000 impairment loss has been
recorded. At June 30, 2000, the remaining carrying value of the HAN investment
is $31,000 and is included within other non-current assets.
We will continue to evaluate the 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.
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.
In June 2000, Robert H. Levitan, Chief Executive Officer of Flooz.com,
became a member of the Company's Board of Directors.
Mobius regularly reviews the assumptions underlying the operating
performance and cash flow forecasts of Flooz.com to assess the investment's
recoverability. At June 30, 2000, the investment is carried at its original cost
of $500,000 within other non-current assets.
Other Matters
In January 1999, the Company sold the INFOPAC-TapeSaver product to a
third party for approximately $3.0 million. Under the terms of the sale, the
buyer will assume responsibility for maintenance support for all existing
TapeSaver licenses. As a result of this arrangement, the Company will recognize
$3.0 million of license revenue as the buyer makes payments over the next five
years, and approximately $1.0 million of maintenance revenue through December
31, 1999. For the years ended June 30, 1999 and 2000, the Company recognized
$756,000 and $673,000 of license revenue and $795,000 and $302,000 of
maintenance revenue, respectively related to this arrangement. Future license
revenue will be $112,500 each quarter thereafter through December 31, 2003.
In December 1999, Mobius announced the development of 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's
expenses for Click-n-Done.com were approximately $8.2 million in fiscal 2000.
Through June 30, 2000, Mobius has not generated any revenue from the sale of its
Click-n-Done.com products. Mobius anticipates that it will continue to incur
additional costs to bring Click-n-Done.com's products to market.
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.
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.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities" which establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended by SFAS No. 137 and No. 138 is effective for fiscal years
beginning after June 15, 2000. These statements are not expected to
significantly effect Mobius, as Mobius does not have any significant derivative
instruments or hedging activities.
Statement of Position (SOP) 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions", which amended SOP
97-2 and clarified the specification of what was considered vendor-specific
evidence of fair value for the various elements in a multiple element
arrangement was adopted by Mobius on July 1, 1999. The adoption of the
provisions of this statement did not have a material impact on Mobius' operating
results, financial position or cash flows.
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements (SAB 101). SAB 101 as amended
is required to be adopted no later than April 1, 2001. Mobius is currently
performing an analysis of SAB 101, as amended, to determine the impact, if any,
on its future operating results, financial position or cash flows.
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation" (FIN 44) provides guidance for applying APB
Opinion No. 25, "Accounting for Stock Issued to Employees". With certain
exceptions, FIN 44 applies prospectively to new awards, exchanges of awards in a
business combination, modifications to outstanding awards and changes in grantee
status on or after July 1, 2000. Mobius does not believe that the implementation
of FIN 44 will have a significant effect on its results of operations or
financial position.
Other pronouncements issued by the FASB or other authoritative accounting
standards groups with future effective dates are either not applicable or are
not significant to the financial statements of Mobius.
ITEM 7A. 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 June 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. We do not use derivative financial investments to
limit our foreign exchange expense.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements are included in Item 14 (a)(1).
Selected Quarterly Financial Data is included in Item 7 - Management's
Discussion and Analysis of Financial Condition and Results of Operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 30, 2000
pursuant to Regulation 14A of the General Rules and Regulations under Securities
Exchange Act of 1934, as amended.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 30, 2000
pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 30, 2000
pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this item is incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 30, 2000
pursuant to Regulation 14A.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets as of June 30, 1999 and 2000
Consolidated Statements of Operations for the Years Ended June 30, 1998,
1999 and 2000
Consolidated Statements of Stockholders' Equity for the Years Ended
June 30, 1998, 1999, and 2000
Consolidated Statements of Cash Flows for the Years Ended June 30,
1998, 1999, and 2000
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts and Reserves
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mobius Management Systems, Inc.:
We have audited the consolidated financial statements and financial
statement schedule of Mobius Management Systems, Inc. and subsidiaries as listed
in the accompanying index. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Mobius
Management Systems, Inc. and subsidiaries as of June 30, 1999 and 2000 and the
results of their operations and their cash flows for each of the years in the
three-year period ended June 30, 2000, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, the
related financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.
KPMG LLP
August 9, 2000
Stamford, CT
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and per share data)
June 30,
1999 2000
---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 33,546 $ 21,380
Marketable securities, at market value 9,362 10,287
Accounts receivable, net of allowance for doubtful
accounts of $860 and $1,084, respectively 12,631 14,857
Software license installments, current portion 10,603 9,836
Other current assets 2,281 3,804
------------ ------------
Total current assets 68,423 60,164
Software license installments, non-current portion,
net of allowance for doubtful accounts of $812
and $643, respectively 12,778 7,992
Investment, at cost 1,501 531
Property and equipment, net 6,039 9,295
Other assets 460 411
------------ ------------
Total assets $ 89,201 $ 78,393
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 13,220 $ 15,046
Deferred revenue 13,548 16,488
Deferred income taxes 3,293 2,570
------------ ------------
Total current liabilities 30,061 34,104
Deferred revenue 3,811 2,374
Deferred income taxes 3,801 1,324
------------ ------------
Total liabilities 37,673 37,802
------------ ------------
Stockholders' equity:
Common stock $.0001 par value; authorized
40,000,000 shares; issued 21,996,150 and
22,218,473 shares, respectively;
outstanding 17,905,150 and 18,114,000
shares, respectively 2 2
Additional paid-in capital 48,409 48,831
Retained earnings 16,497 4,601
Deferred stock compensation (982) (445)
Accumulated other comprehensive income (398) (313)
Treasury stock, at cost, 4,091,000
and 4,104,473 shares, respectively (12,000) (12,085)
------------ ------------
Total stockholders' equity 51,528 40,591
------------ ------------
Total liabilities and stockholders' equity $ 89,201 $ 78,393
============ ============
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years Ended June 30,
1998 1999 2000
---- ---- ----
Revenues:
Software license revenues $37,929 $48,811 $31,018
Maintenance and other revenues 18,598 25,025 29,187
------- ------- --------
Total revenues 56,527 73,836 60,205
------- ------- --------
Costs of revenues:
Software license revenues 1,443 1,223 946
Maintenance and other revenues 3,593 5,011 6,070
------- ------- --------
Total costs of revenues 5,036 6,234 7,016
------- ------- --------
Gross profit 51,491 67,602 53,189
------- ------- --------
Operating expenses:
Sales and marketing 28,613 41,877 44,289
Research and development 8,013 10,674 14,823
General and administrative 6,542 9,409 12,086
------- ------- --------
Total operating expenses 43,168 61,960 71,198
------- ------- --------
Income (loss) from operations 8,323 5,642 (18,009)
License and other interest income 1,871 2,920 2,930
Interest expense (14) (16) (58)
Foreign currency transaction losses (15) (191) 44
Investment impairment -- -- (2,220)
------- ------- ---------
Income (loss) before income taxes 10,165 8,355 (17,313)
Provision (benefit)for income taxes 5,500 4,057 (5,417)
Accretion on Preferred Stock 102 -- --
------- ------- --------
Net income (loss) available to
common stock $ 4,563 $ 4,298 $(11,896)
======= ======= ========
Basic earnings (loss) per share $ 0.38 $ 0.24 $ (0.66)
Basic weighted average shares
outstanding 12,156 17,813 17,988
Diluted earnings (loss) per share $ 0.27 $ 0.23 $ (0.66)
Diluted weighted average
shares outstanding 16,738 18,964 17,988
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
Additional
Common Stock Paid-in Retained Deferred
Shares Amount Capital Earnings Compensation
------ ------ ------- -------- ------------
Balance at June 30, 1997 10,909 $ 1 $ -- $ 7,636 $ --
Net income -- -- -- 4,563 --
Change in other comprehensive income -- -- -- -- --
Comprehensive income -- -- -- -- --
Issuance of common stock 2,500 -- 33,034 -- --
Conversion of Series A Preferred Stock 4,091 1 11,999 -- --
Conversion of Class A Common Stock 80 -- 100 -- --
Stock options exercised 115 -- 143 -- --
Deferred compensation -- -- 2,718 -- (2,718)
Change in deferred compensation -- -- -- -- 642
-------- -------- -------- -------- --------
Balance at June 30, 1998 17,695 2 47,994 12,199 (2,076)
Net income -- -- -- 4,298 --
Change in other comprehensive income -- -- -- -- --
Comprehensive income -- -- -- -- --
Stock options exercised 210 -- 463 -- --
Change in deferred compensation -- -- (48) -- 1,094
-------- -------- -------- -------- --------
Balance at June 30, 1999 17,905 2 48,409 16,497 (982)
Net loss -- -- -- (11,896) --
Change in other comprehensive income -- -- -- -- --
Comprehensive loss -- -- -- -- --
Stock options exercised 155 -- 252 -- --
Stock purchase plan shares issued 54 -- 170 -- --
Change in deferred compensation -- -- -- -- 537
-------- -------- -------- -------- --------
Balance at June 30, 2000 18,114 $ 2 $48,831 $ 4,601 $ (445)
======== ======== ======== ======== ========
Accumulated Total
Other Treasury Treasury Stockholders'
Comprehensive Stock Stock (Deficit)
Income Shares Amount Equity
------ ------ ------ ------
Balance at June 30, 1997 $ 19 4,091 $(12,000) $(4,344)
Net income -- -- -- 4,563
Change in other comprehensive income (16) -- -- (16)
-------- -------- -------- --------
Comprehensive income -- -- -- 4,547
Issuance of common stock -- -- -- 33,034
Conversion of Series A Preferred Stock -- -- -- 12,000
Conversion of Class A Common Stock -- -- -- 100
Stock options exercised -- -- -- 143
Deferred compensation -- -- -- --
Change in deferred compensation -- -- -- 642
-------- -------- -------- --------
Balance at June 30, 1998 3 4,091 (12,000) 46,122
Net income -- -- -- 4,298
Change in other comprehensive income (401) -- -- (401)
-------- --------
Comprehensive income -- -- -- 3,897
Stock options exercised -- -- -- 463
Change in deferred compensation -- -- -- 1,046
-------- -------- -------- --------
Balance at June 30, 1999 (398) 4,091 (12,000) 51,528
Net loss -- -- -- (11,896)
Change in other comprehensive income 85 -- -- 85
--------
Comprehensive loss -- -- -- (11,811)
Stock options exercised -- 13 (85) 167
Stock purchase plan shares issued -- -- -- 170
Change in deferred compensation -- -- -- 537
-------- -------- -------- --------
Balance at June 30, 2000 $ (313) $ 4,104 $(12,085) $ 40,591
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended June 30,
1998 1999 2000
---- ---- ----
Cash flows provided by (used in) operating activities:
Net income (loss) $ 4,563 $ 4,298 $(11,896)
------- ------- ---------
Adjustments to reconcile net
income (loss) to net cash provided
by (used in)operating activities:
Deferred income taxes 2,207 1,916 (3,200)
Depreciation and amortization 760 1,372 3,029
Stock compensation expense 642 1,046 537
Accretion of Preferred Stock 102 -- --
Impairment of investment -- -- 2,220
Loss on disposal of fixed assets 78 -- 22
Change in operating assets
and liabilities:
Accounts receivable, net (2,940) (1,898) (2,226)
Software license installments (8,530) (2,365) 5,553
Other assets (1,236) (644) (1,430)
Accounts payable and accrued expenses 2,878 3,749 1,921
Other liabilities 835 (969) --
Deferred revenue 5,869 335 1,503
------- ------- -----
Total adjustments 665 2,542 7,929
------- ------- -----
Net cash provided by (used in) operating activities 5,228 6,840 (3,967)
------- -------- -------
Cash flows used in investing activities:
Purchase of marketable securities -- (9,403) (3,535)
Purchase of investments -- (1,501) (1,250)
Marketable securities -- -- 2,330
Capital expenditures (1,780) (4,479) (6,152)
------ ------- -------
Net cash used in investing activities (1,780) (15,383) (8,607)
------ ------- -------
Cash flows provided by financing activities:
Cash received from sale of common stock 33,713 -- 170
Payments relating to sale of common stock (679) -- --
Cash received from exercise of stock options 143 263 193
Payments on capital lease obligations (59) (36) (36)
------ ------- -------
Net cash provided by financing activities 33,118 227 327
------ ------- -------
Effect of exchange rate changes on
cash and cash equivalents (16) (360) 81
------ ------- -------
Net change in cash and cash equivalents 36,550 (8,676) (12,166)
Cash and cash equivalents at beginning of year 5,672 42,222 33,546
----- ------- -------
Cash and cash equivalents at end of year $42,222 $33,546 $21,380
======= ======== =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 14 $ 16 $ 58
Income taxes (refunds), net 2,419 3,304 (3,119)
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
Mobius Management Systems, Inc., together with its wholly-owned
subsidiaries (the "Company"), is a provider of enterprise software products
designed to provide network- and Web-based access, presentation and distribution
of large volumes of diverse enterprise information. The Company is incorporated
in the State of Delaware and operates wholly-owned subsidiaries in the United
States, United Kingdom, France, Germany, Italy, Sweden, Switzerland, Australia,
Japan and the Benelux.
(2) Significant Accounting Policies
Principles of consolidation
The Company and its subsidiaries are consolidated for financial
statement purposes after the elimination of all significant intercompany
transactions.
Revenue recognition
License and maintenance revenue are recognized in accordance with
Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). Revenue
from software license contracts includes license fees related to long-term
licenses, typically 5 or 15 years, and fees for term license contracts, which
are generally 3 to 5 years. Revenue from executed software license contracts is
recognized upon delivery of the software to the customer if no significant
vendor obligations remain and collection of the resulting receivable is
probable. Software license revenue includes the present value of future payments
under non-cancelable license arrangements which provide for payment in
installments generally over periods from 3 to 5 years. A portion of the discount
is recognized as interest income over the term of the arrangement.
SOP 97-2 generally requires revenue earned on multiple element software
arrangements, such as additional software products, upgrades or enhancements,
rights to exchange or return software, maintenance or services, including
elements deliverable only on a when-and-if-available basis, to be allocated to
the various elements of such sale based on "vendor-specific objective evidence
of fair values" allocable to each such element. If sufficient vendor-specific
objective evidence of fair market values does not exist, revenue from the sale
is deferred until such sufficient evidence exists, or until all elements have
satisfied the requirements for revenue recognition.
According to these guidelines, when the Company sells a software
license contract that includes maintenance, the maintenance revenue is unbundled
from the initial license fee and recognized ratably over the maintenance period,
starting from the inception of the software license agreement. The unearned
portion of such maintenance revenue is classified as deferred maintenance
revenue with amounts extending beyond one-year reported as non-current.
Revenue on maintenance contracts is recognized on a straight-line basis
over the term of the maintenance contract, generally twelve months. The unearned
portion of maintenance revenue is classified as deferred maintenance revenue.
Software Development Costs
Statement of Financial Accounting Standards No. 86 (SFAS No. 86)
requires the capitalization of certain software development costs once
technological feasibility is established. The capitalized costs are then
amortized on a straight-line basis over the estimated product life, or on the
ratio of current revenues to total projected product revenues, whichever is
greater.
The Company determines technological feasibility based on the working
model method. The period between establishment of a working model and the
general availability of its software has historically been short and,
accordingly, software development costs qualifying for capitalization have been
insignificant. As a result, the Company has expensed all software development
costs.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed on
a straight-line basis over the estimated life of the related asset, ranging from
three to seven years. Assets acquired under capital leases are depreciated on a
straight-line basis over the shorter of the asset's life or the respective
lease.
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS
No. 109 requires using the asset and liability method of accounting for income
taxes. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities, and their
respective tax bases. Deferred tax assets are recognized for deductible
temporary differences, net operating loss carryforwards, and tax credit
carryforwards if it is more likely than not that the tax benefits will be
realized. A valuation allowance is established if it is more likely than not
that a deferred tax asset will not be realized.
Foreign Currency Translation
Balance sheet accounts of the Company's foreign subsidiaries are
translated into U.S. dollars at exchange rates in effect at the balance sheet
date. Revenues, costs and expenses are translated into U.S. dollars at average
exchange rates for the year. Gains or losses that result from translation are
shown as a separate component of stockholders' equity. Net gains and losses
resulting from foreign exchange transactions are included in the determination
of net income.
Cash Equivalents
The Company considers investments with maturities at the date of
purchase of three months or less to be cash equivalents. At June 30, 1999 and
2000, cash equivalents were comprised of overnight deposits and money market
investments with financial institutions.
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, and carried at market
value. 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. Realized gains and losses for the years ended June 30,
1998, 1999 and 2000 are insignificant. As of June 30, 1999 and 2000 the
unamortized investment premium, and unrealized holding gains and losses were
also insignificant.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of substantially all of the trade accounts
receivables and software license installments. The Company sells its products to
a large number of customers in diversified industries across many domestic and
international geographies.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" (SFAS 107) defines the fair value of a
financial instrument as the amount at which the instrument could be exchanged in
a current transaction between willing parties. The fair value of the Company's
cash and cash equivalents, marketable securities, accounts receivable, software
license installments, non current investments, accounts payable, accrued
expenses and deferred maintenance amounts approximate their carrying value.
Earnings Per Share
The Company calculates earnings per share in accordance with 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 and in 1998, the conversion of Series
A Convertible Preferred Stock, and the conversion of the Class A Non-Voting
Common Stock.
The following is a reconciliation of the numerators and denominators
for the Basic and Diluted EPS calculations (in thousands, except per share
data):
Years Ended June 30,
1999 2000
------------ ------------- ------------ ------------- ------------ -----------
Net Income
Net Income Shares Per Share (loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
Basic EPS:
Net income (loss) $4,298 $(11,896)
====== =========
Weighted average shares
outstanding 17,813 17,988
Basic EPS $0.24 $(0.66)
===== =======
Diluted EPS:
Net income (loss) $4,298 $(11,896)
====== =========
Dilutive effect of
stock options 1,151
------
Diluted EPS 18,964 $0.23 17,988 $(0.66)
====== ===== =======
Year Ended
June 30, 1998
----------- ------------- ----------
Net Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS:
Net income $4,563
======
Weighted average shares
outstanding 12,156
Basic EPS $0.38
=====
Diluted EPS:
Net income $4,563
======
Dilutive effect of
convertible securities 3,428
Dilutive effect of
stock options 1,154
------
Diluted EPS 16,738 $0.27
====== =====
For the year ended June 30, 2000 all stock options were excluded from
the Diluted EPS calculation because their effects were anti-dilutive. For the
year ended June 30, 1999 there were 62,000 weighted average shares of options
that were not included in the EPS calculation because their effect was
anti-dilutive. There were no anti-dilutive shares for 1998.
Stock Based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation", and elected to continue to apply the provisions of Accounting
Principles Board (APB) Opinion No. 25 in determining measurement of compensation
expense and provide pro forma net income and pro forma earnings per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair value-based method, as defined in SFAS No. 123, had been applied. As
such, compensation expense is generally recorded on the date of grant only if
the current fair market value of the underlying stock exceeded the exercise
price.
Reclassifications
Certain reclassifications have been made to the 1999 and 1998 amounts
to conform to the 2000 presentation.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting
for Derivative Instruments and Hedging Activities" which establishes accounting
and reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended by SFAS No. 137 and No. 138 is effective for fiscal years
beginning after June 15, 2000. These statements are not expected to
significantly effect Mobius, as Mobius does not have any significant derivative
instruments or hedging activities.
Statement of Position (SOP) 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions", which amended SOP
97-2 and clarified the specification of what was considered vendor-specific
evidence of fair value for the various elements in a multiple element
arrangement was adopted by Mobius on July 1, 1999. The adoption of the
provisions of this statement did not have a material impact on Mobius' operating
results, financial position or cash flows.
On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No.
101, Revenue Recognition in Financial Statements (SAB 101). SAB 101 as amended
is required to be adopted no later than April 1, 2001. Mobius is currently
performing an analysis of SAB 101, as amended, to determine the impact, if any,
on our future operating results, financial position or cash flows.
FASB Interpretation No. 44, "Accounting for Certain Transactions
Involving Stock Compensation" (FIN 44) provides guidance for applying APB
Opinion No. 25, "Accounting for Stock Issued to Employees". With certain
exceptions, FIN 44 applies prospectively new awards, exchanges of awards in a
business combination, modifications to outstanding awards and changes in grantee
status on or after July 1, 2000. Mobius does not believe that the implementation
of FIN 44 will have a significant effect on its results of operations or
financial position.
(3) Software License Installments
The Company offers extended payment terms to some of its customers. For
software license contracts of 15 years, the related financing period is
generally 5 years. For software installment contracts of 3 to 5 years, the
payments are generally spread ratably over the term. Software license
installments are discounted at a market rate of interest at the date the
software license contract revenue is recognized. At June 30, 1999 and 2000 the
effective weighted average discount rate used for software license installments
was 7.4%. The discount is amortized to interest income using the interest method
over the term of the license contract.
The present values of software license installments to be received
after June 30, 2000 are as follows (in thousands):
Year Ended:
June 30, 2001 $11,104
June 30, 2002 6,082
June 30, 2003 2,945
June 30, 2004 435
June 30, 2005 71
------
Total minimum payments to be received 20,637
Less unearned interest income (2,166)
Less allowance for doubtful accounts (643)
-------
Present value of software license installments, net 17,828
Less current portion, net (9,836)
-------
Non-current portion, net $ 7,992
=======
(4) Property and Equipment
Property and equipment consists of the following (in thousands):
June 30,
1999 2000
---- ----
Furniture, fixtures and office equipment $ 939 $1,089
Computer equipment 7,803 12,349
Leasehold improvements 1,153 1,542
Construction in progress - 1,062
------ -------
9,895 16,042
Less accumulated depreciation and amortization (3,856) (6,747)
------ -------
Property and equipment, net $6,039 $ 9,295
====== =======
Depreciation and amortization expense on property and equipment,
including capital leases, was $760,000, $1,372,000 and $2,874,000 for the twelve
months ended June 30, 1998, 1999 and 2000, respectively. At June 30, 1999 and
2000 there was $214,000 of equipment under capital leases included in property
and equipment with accumulated depreciation of $104,000 and $135,000,
respectively.
(5) 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.
Mobius holds a minority ownership position, which, if the preferred
interest 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. 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.
Mobius reviews the assumptions underlying the operating performance and
cash flow forecasts of HAN to assess the investment's recoverability. During
fiscal 2000 HAN consumed most of the cash raised in its financings 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 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 year ended June 30, 2000 a $2,220,000 impairment loss has been
recorded. At June 30, 2000 the remaining carrying value of the HAN investment is
$31,000 and is included within investments.
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.
In June 2000, Robert H. Levitan, Chief Executive Officer of Flooz.com,
became a member of the Company's Board of Directors.
Mobius reviews the assumptions underlying the operating performance and
cash flow forecasts of Flooz.com to assess the investment's recoverability. At
June 30, 2000, the Flooz.com investment is carried at its original cost of
$500,000 within investments.
(6) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
June 30,
1999 2000
---- ----
Accounts payable $ 2,596 $ 2,563
Compensation and related benefits 5,897 6,569
Royalties payable 1,358 1,168
Other 3,369 4,746
------- -------
$13,220 $15,046
(7) Income Taxes
Income(loss)before provision (benefit) for income taxes is as follows
(in thousands):
Years Ended June 30,
1998 1999 2000
---- ---- ----
Domestic income (loss) $13,261 $13,236 $(15,575)
Foreign losses (3,096) (4,881) (1,738)
------- ------- ---------
$10,165 $ 8,355 $(17,313)
======= ======== =========
The components of the provision (benefit) for income taxes for the
years ended June 30, 1998, 1999 and 2000 are as follows (in thousands):
Years Ended June 30,
1998 1999 2000
-------------------------------------------------------------------------------------------------
Current Deferred Total Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- ----- ------- -------- -----
Federal $2,704 $1,807 $4,511 $1,736 $1,569 $3,305 $(1,734) $(2,768) $(4,502)
State 542 400 942 350 347 697 (532) (432) (964)
Foreign 47 -- 47 55 -- 55 49 - 49
------ ------ ------ ------ ------ ------ -------- ------- -------
$3,293 $2,207 $5,500 $2,141 $1,916 $4,057 $(2,217) $(3,200) $(5,417)
====== ====== ====== ====== ====== ====== ======== ======== =======
The following table reconciles the actual provision (benefit) for
income taxes to the provision (benefit) for income taxes calculated at the
Federal statutory corporate rate of 34% for the years ended June 30, 1998, 1999
and 2000 (in thousands):
Years Ended June 30,
1998 1999 2000
---- ---- ----
Federal statutory corporate rate $3,456 $2,840 $(5,887)
State income taxes, net of Federal benefit 610 501 (693)
Losses of foreign subsidiaries for which no benefit
has been recognized 1,118 1,170 866
Research credit -- (167) -
Other 316 (287) 297
== === ====== =======
Total income tax provision (benefit) $5,500 $4,057 $(5,417)
====== ====== ========
Pre-Tax Income(Loss) $10,165 $ 8,355 $(17,313)
======= ======= =========
Effective Tax Rate 54.1% 48.6% (31.3)%
===== ======= ======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):
June 30,
1999 2000
---- ----
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts $ 450 $ 483
Net operating loss carryforwards 3,550 2,811
AMT tax credit -- 222
----- ------
4,000 3,516
Valuation allowance (3,550) (2,219)
------ -------
Net deferred tax assets 450 1,297
Deferred tax liabilities:
Software license installments 7,274 4,899
Depreciation 232 254
Other 38 38
------ ------
Net deferred tax liability $7,094 $3,894
====== ======
The valuation allowance increased by $1,390,000, and $483,000 for the
years ended June 30, 1998, and 1999 primarily due to uncertainty of realization
of net operating losses incurred by certain foreign subsidiaries. The valuation
allowance decreased by $1,331,000 between fiscal 1999 and 2000 primarily as a
result of utilization of some of the foreign losses in certain foreign
jurisdictions. The Company will reduce the valuation allowance when it is
concluded that it is more likely than not that these deferred tax assets will be
realized.
The expiration of net operating loss carryforwards varies by
jurisdiction; some began to expire in fiscal 2000 and others extend
indefinitely.
(8) Common Stock
Common Stock
The Company has authorized 40,000,000 shares of common stock with a
$.0001 par value. This includes 1,727,200 shares of common stock that were
retired during 1997, having previously been held in treasury stock.
On May 12, 1997, as part of the Preferred Stock Agreement (see note 9)
the Company repurchased 4,091,000 shares of common stock, $.0001 par value, from
its founders for $12,000,130. Such amount is being held in treasury stock at
June 30, 2000.
In April 1998, the Company sold 2,500,000 shares of common stock at a
price of $14.50 per share in an Initial Public Offering ("IPO"). The net
proceeds to the Company were $33,034,000 after deducting the underwriting
discount and offering expenses payable by the Company. In connection with the
IPO, the Company's outstanding Series A Convertible Preferred Stock and Class A
Non-Voting Common Stock were converted into an aggregate of 4,171,000 shares of
common stock.
Class A Non-Voting Common Stock
The Company had authorized 5,000,000 shares of Class A Non-Voting
Common Stock with a $.0001 par value. During fiscal 1998, 80,000 shares were
issued. Such shares of the Class A Non-Voting Common Stock were converted to
common stock upon completion of the IPO. In connection with the IPO, this class
of common stock was retired and no shares remain authorized or outstanding.
Stock Split
On February 19, 1998, the Board of Directors authorized a 100-to-one
stock split of the Company's common stock. All common share and per share
amounts have been
retroactively adjusted in the accompanying consolidated financial statements to
reflect the stock split.
(9) Preferred Stock
The Company has authorized 1,000,000 shares of Preferred Stock with a
par value of $.01. Before any shares are issued, the Board of Directors shall
fix the specific provisions of the shares including the designation of series,
voting rights, dividend features, redemption and liquidation provision and other
features.
On May 12, 1997, the Company entered into a Stock Purchase Agreement
(the "Agreement") whereby certain investors purchased 40,910 shares of the
Preferred Stock that the Board of Directors designated as Series A Convertible
Preferred Stock ("Series A Convertible Preferred Stock") for $12,000,130.
Such Series A Convertible Preferred Stock was converted into 4,091,000
shares of the Company's common stock in connection with the IPO.
(10) Stock Option Plans
1996 Stock Incentive Plan
In November 1996, the Company adopted the 1996 Stock Incentive Plan
(the "Plan") pursuant to which the Company's Board of Directors may grant stock
options to officers, employees, directors and consultants. The Plan authorizes
grants of options to purchase up to 3,837,900 shares of authorized but unissued
common stock. Stock options are generally granted with an exercise price equal
to the stock's fair market value at the date of grant as determined by the
Company's Board of Directors. Stock options generally vest as to 20% of the
shares subject thereto on the first anniversary of the date of grant and the
remainder vest ratably over the subsequent 16 quarters.
1998 Non-Employee Directors' Stock Option Plan
In February 1998, the Board of Directors and stockholders of the
Company approved and adopted the 1998 Non-Employee Director Stock Option Plan
(the "Directors' Plan"). The purpose of the Directors' Plan is to provide an
incentive to the Company's non-employee directors to serve on the Board of
Directors and to maintain and enhance the Company's long-term performance. The
Directors' Plan provides for the issuance of a total of 250,000 authorized and
unissued shares of common stock, treasury shares and/or shares acquired by the
Company for purposes of the Directors' Plan.
The Directors' Plan provides for initial grants (i.e. upon adoption of
the Directors' Plan or upon a non-employee director's initial election to the
Board of Directors) of non-qualified stock options to purchase 10,000 shares of
common stock. At each annual meeting thereafter, each non-employee director will
receive an option to purchase 10,000 shares. Each option granted under the
Directors' Plan will have a term of ten years and will become exercisable upon
grant. The exercise price of each option granted under the Directors' Plan will
equal the fair market value of a share of common stock on the date of grant.
Total stock option activity during the periods indicated was as follows:
Weighted
Average
Number of Exercise
Shares Price
Balance at June 30, 1997 2,045,500 $ 1.25
Granted 1,248,500 8.88
Exercised (194,500) 1.25
Forfeited (702,000) 1.43
Expired -- --
---------
Balance at June 30, 1998 2,397,500 $ 5.17
Granted 374,000 10.10
Exercised (210,650) 1.25
Forfeited (78,000) 6.58
Expired -- --
---------
Balance at June 30, 1999 2,482,850 $ 6.20
Granted 594,750 4.62
Exercised (154,950) 1.25
Forfeited (253,500) 5.60
Expired -- --
---------
Balance at June 30, 2000 2,669,150 $ 6.09
The following table summarizes information about the stock option
plans:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
Number Outstanding Weighted Average Weighted Number Exercisable Weighted
as of Contractual Average as of Average
Range of Exercise Prices June 30,2000 Life Exercise Price June 30, 2000 Exercise Price
- ------------------------ ------------ -------------- ------------- --------------
$1.25 - $1.25 680,900 6.18 $1.25 398,750 $1.25
$4.00 - $5.28 600,250 8.72 $4.42 133,727 $5.28
$6.00- $$8.50 542,000 8.12 $7.17 280,675 $7.22
$9.75 - $11.00 699,000 7.63 $10.39 376,675 $10.37
$11.25 - $17.50 147,000 8.43 $12.69 52,249 $12.76
--------------- --------- ---- ------ --------- ------
$1.25 - $17.50 2,669,150 7.65 $6.19 1,242,276 $6.28
--------------- --------- ---- ----- ---------- ------
At June 30, 2000, there were 340,750 shares available for grant under
the Plan and 160,000 shares available for grant under the Directors' 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 IPO in April 1998. As a result, the Company
recognized compensation expense of $642,000, $1,046,000 and $537,000 for the
years ended June 30, 1998, 1999 and 2000, respectively. Such compensation
expense is included within Sales and marketing of $442,000, $802,000, $397,000,
Research and development of $88,000, $195,000, $112,000 and General and
administrative expenses of $112,000, $49,000, $28,000 for the years ended June
30, 1998, 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 as stock compensation expense in fiscal years 2001, 2002 and 2003,
respectively, to be adjusted for option holders' terminations.
If the Company had determined compensation cost based on the fair value of the
option on the grant date for its stock options under SFAS No. 123, the Company's
net income (loss) and earnings (loss) per share would have been indicated below.
Year Ended June 30,
1998 1999 2000
---- ---- ----
Net income and earnings per share as
would be reported under SFAS No. 123:
Net income (loss) $4,209 $2,629 $(14,408)
Basic earnings (loss) per share $ 0.35 $ 0.15 $(0.81)
Diluted earnings (loss) per share $ 0.25 $ 0.14 $(0.81)
The modified Black Scholes option pricing model was used for grants
prior to June 30, 1998 and the Black Scholes option pricing model has been used
for grants subsequent to July 1, 1998. The per share weighted average fair value
of stock options granted during the years ended June 30, 1998, 1999 and 2000 was
$5.93, $10.07 and $4.50 on the date of grant, respectively. The grants during
the years ended June 30, 1998 assumed no volatility, expected dividend yield of
0.0%, and an expected life of 7 years. Grants during the year ended June 30,
1999 and 2000 assumed 568% and 412% of volatility, expected dividend yield of
0.0% and an expected life of 3.2 years and 5 years, respectively. The assumed
risk free interest rate on the date of grants ranged between 5.7% and 6.8% in
fiscal 1998, was 5.25% in fiscal 1999 and 6.2% in fiscal 2000.
(11) 1998 Employee Stock Purchase Plan ("ESPP")
In February 1998, the Board of Directors and stockholders of the
Company approved and adopted the 1998 Employee Stock Purchase Plan (the "ESPP").
The purpose of the ESPP is to provide eligible employees who wish to acquire
common stock of the Company the opportunity to purchase shares from the Company
with accumulated payroll deductions. The ESPP is intended to constitute an
"employee stock purchase plan" under section 423 of the Internal Revenue Code.
The ESPP provides for the issuance of an aggregate of up to 650,000 shares.
During fiscal 1998 and 1999 there were no shares issued under this plan. During
the year ending June 30, 2000, 53,812 shares were issued under the ESPP. As of
June 30, 2000, 274,255 shares are reserved for issuance and there were 321,933
remaining shares available to purchase under this plan.
(12) Employee Savings Plan and Executive Incentive Plan
In fiscal 1995, the Company established a savings plan that qualifies
under Section 401(k) of the Internal Revenue Code. Under the plan, participating
U.S. employees may defer up to 20% of their pre-tax compensation, but not more
than Internal Revenue Code limitations. The Company, at the discretion of the
Board of Directors, may match the employee contributions. No matching
contributions were made in the years ended June 30, 1998, 1999 and 2000.
In February 1998, the Board of Directors and stockholders of the
Company have approved and adopted the Mobius Management Systems, Inc. Executive
Incentive Plan (the "Incentive Plan"). The Incentive Plan is administered by the
Compensation Committee of the Board. Participation in the Incentive Plan is
limited to those
executives and key employees who, in the judgment of the Compensation Committee,
are in a position to have a significant impact on the performance of the
Company.
Awards under the Incentive Plan are based upon the extent to which
performance goals established by the Compensation Committee for a designated
performance period are satisfied. The Incentive Plan also provides for grants of
discretionary bonuses. As of June 30, 2000, there were no awards made under the
Incentive Plan.
(13) Comprehensive Income
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the disclosure of comprehensive income, which
includes net income (loss) , foreign currency translation adjustments and
unrealized gains and losses on marketable securities classified as
available-for-sale. Comprehensive income (loss) for the years ended June 30,
1998, 1999 and 2000 is as follows:
Year ended June 30,
1998 1999 2000
---- ---- ----
Net income (loss) $4,563 $4,298 $(11,896)
Unrealized marketable securities gain (loss) -- (41) 4
Unrealized translation gain (loss) (16) (360) 81
------ ------ -------
Comprehensive income (loss) $4,547 $3,897 $(11,811)
====== ====== ========
(14) Lease Commitments
The Company has operating leases for its office facilities which expire
on various dates through fiscal 2008 and provide for escalation and additional
payments relating to operating expenses. The Company leases some office
equipment under a capital lease which expired in fiscal 2000.
The following is a schedule of future minimum lease payments for
operating leases as of June 30, 2000 (in thousands):
Operating
Leases
------
Year Ended:
June 30, 2001 $ 2,997
June 30, 2002 2,656
June 30, 2003 2,461
June 30, 2004 2,443
June 30, 2005 2,240
Thereafter 3,728
-------
Total minimum lease payments $16,525
=======
Rental expense for all operating leases was approximately $1,521,000,
$2,419,000 and $3,319,460 for the years ended June 30, 1998, 1999 and 2000,
respectively.
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.
(15) Segment and Geographic Information
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for reporting information about operating segments in
annual financial statements and requires that certain selected information about
operating segments be reported in interim financial statements. It also
establishes standards for related
disclosures about products or services, and geographic areas. Operating segments
are defined as components of an enterprise about which separate financial
information is evaluated regularly by the chief operating decision maker, or
decision-making group, in deciding how to allocate resources and in assessing
performance. The Company operates in one principal business segment across
domestic and international markets. No foreign country or geographic area
accounted for more than 10% of revenue, 10% of net income or loss or 10% of
identifiable assets in any of the periods presented.
United
States Foreign(a) Eliminations Total
------ ---------- ------------ -----
Year Ended June 30, 1998:
Revenue:
From external customers(b) $49,294 7,233 -- $56,527
Between geographic areas(c) 1,819 -- (1,819) --
------- ------- -------- -------
Total revenue $51,113 7,233 (1,819) $56,527
======= ======= ======== =======
Long-lived assets $14,725 2,108 -- $16,833
Year Ended June 30, 1999:
Revenue:
From external customers(b) $64,269 9,567 -- $73,836
Between geographic areas(c) 2,594 -- (2,594) --
------- ------- -------- -------
Total revenue $66,863 9,567 (2,594) $73,836
======= ======= ======== =======
Long-lived assets $18,642 2,136 -- $20,778
Year Ended June 30, 2000:
Revenue:
From external customers(b) $50,321 9,884 -- $60,205
Between geographic areas(c) 1,233 -- (1,233) --
------- ------- ------ -------
Total revenue $51,554 9,884 (1,233) $60,205
------- ------- ------ -------
Long-lived assets $16,422 1,807 -- $18,229
(a) The Company operates wholly-owned subsidiaries in the United Kingdom,
France, Germany, Italy, Sweden, Switzerland, Australia, Japan and the
Benelux. Includes international sales with agents.
(b) Includes royalties paid to the Company and to its subsidiaries by
agents. Royalties from agents are a percentage of the license and
maintenance fees paid by customers to such agents.
(c) Represents royalties from foreign subsidiaries. Royalties from foreign
subsidiaries are a percentage of the license and maintenance fees paid
by customers to such foreign subsidiaries.
(16) Sale of INFOPAC-Tapesaver
In January 1999, the Company sold the INFOPAC-TapeSaver product to a
third party for approximately $3.0 million payable over a five year period.
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 approximately $1.1 million of
maintenance revenue through December 31, 1999. For the years ended June 30, 1999
and 2000, the Company recognized $756,000 and $673,000 of license revenue and
$795,000 and $302,000 of maintenance revenue related to this arrangement. Future
license revenue is scheduled to be $112,500 each quarter thereafter through
December 31, 2003.
SCHEDULE II
MOBIUS MANAGEMENT SYSTEMS, INC.
Valuation and Qualifying Accounts
(In thousands)
Additions
Balance at Charged to Charges Balance
beginning costs and to other at end
Description of period expenses accounts Deductions of period
- ----------- --------- -------- -------- ---------- ---------
Year ended June 30, 1998: Deductions from asset account:
Allowance for doubtful accounts $ 721 1,199 -- (541) $1,379
Year ended June 30, 1999:
Deductions from asset account:
Allowance for doubtful accounts $1,379 636 -- (343) $1,672
Year ended June 30, 2000:
Deductions from asset account:
Allowance for doubtful accounts $1,672 470 -- (415) $1,727
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or the
notes thereto.
(a)(3) Exhibits
Exhibit No. Description
- ----------- -----------
3.1* -- Form of Second Amended and Restated Certificate of
Incorporation of the Registrant.
3.2* -- Form of Restated By-Laws of the Registrant.
4.1* -- Specimen certificate representing the Common Stock.
10.1* -- Mobius Management Systems, Inc. 1996 Stock Incentive Plan.
10.2* -- Amendment No. 1 to Mobius Management Systems, Inc. 1996 Stock
Incentive Plan.
10.3* -- Mobius Management Systems, Inc. 1998 Employee Stock Purchase
Plan.
10.4* -- Mobius Management Systems, Inc. 1998 Non-Employee Director
Stock Option Plan.
10.5* -- Mobius Management System, Inc. 1998 Executive Incentive Plan.
10.6* -- Form of Grantee Option Agreement.
10.7* -- Lease dated December 4, 1997 by and between Old Boston Post
Road Associates LLC and the Registrant.
10.8* -- Lease dated February 14, 1983 by and between American National
Bank and Trust Company of Chicago and the Registrant.
10.9 -- Sublease dated January 5, 1999 by and between Fluor Daniel,
Inc. and the Registrant
10.10* -- Stock Purchase Agreement dated as of May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.11* -- Stockholders' Agreement dated as of May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.12* -- Registration Rights Agreement dated May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.13* -- Employment Agreement between the Registrant and Mitchell
Gross, dated February 26, 1998.
10.14* -- Employment Agreement between the Registrant and Joseph
Albracht, dated February 26, 1998.
10.15* -- Severance Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.
10.16* -- Option Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.
10.17* -- Letter Agreement, dated as of December 28, 1997 between the
Registrant and Joseph Tinnerello.
10.18* -- Stockholder Agreement, dated as of December 30, 1997 between
the Registrant and Joseph Tinnerello.
10.19* -- Software Assets Purchase Agreement dated as of December 10,
1990 among the Registrant, Compucept of Nevada and Software
Assist Corporation.
10.20* -- OEM Agreement between the Registrant and CDP Communications,
Inc. dated as of October 15, 1993.
10.21* -- Source Code License and Amendment to OEM Agreement between the
Registrant and CDP Communications Inc. dated as of August 12,
1997.
10.22* -- Amendment #1 to License and Amendment to OEM Agreement between
the Registrant and CDP Communications, Inc. dated November 21,
1997.
10.23** -- Lease Modification Agreement dated July 12, 1999 by and
between Old Boston Post Road Associates LLC and the
Registrant.
10.24 -- Amendment #1 to Mobius Management Systems, Inc. 1998 Employee
Stock Purchase Plan.
Exhibit No. Description
- ----------- -----------
21.1* -- Subsidiaries of the Registrant.
23.1 -- Consent of KPMG LLP.
27.1 -- Financial Data Schedule (EDGAR only)
* Filed as an exhibit to Mobius' Registration Statement on Form S-1
(Registration Number 333-47117) or an amendment thereto and incorporated
herein by reference to the same exhibit number.
** Filed as exhibit no. 10.1 to Mobius Management Systems, Inc. form 10Q for
the quarter ended December 31, 1999 and incorporated herein by reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MOBIUS MANAGEMENT SYSTEMS, INC.
By: /s/ Mitchell Gross
-------------------
Mitchell Gross
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)
Date: September 27, 2000
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, this report has been signed below by the following persons in the
capacities and on the dates indicated.
Signatures Title(s) Date
---------- -------- ----
/s/ Mitchell Gross Chairman of the Board, Chief September , 2000
----------------------- Executive Officer, President
Mitchell Gross and Director
(Principal Executive Officer)
/s/ Joseph J. Albracht Director September , 2000
------------------------
Joseph J. Albracht
/s/ David J. Gordon Interim Chief Financial September , 2000
------------------------- Officer, Assistant Treasurer
and Assistant Secretary
(Principal Financial
and Accounting Officer)
/s/ Peter J. Barris Director September , 2000
-------------------------
Peter J. Barris
/s/ Edward F. Glassmeyer Director September , 2000
-------------------------
Edward F. Glassmeyer
/s/ Kenneth P. Kopelman Director September , 2000
-------------------------
Kenneth P. Kopelman
/s/ Gary G. Greenfield Director September , 2000
-------------------------
Gary G. Greenfield
/s/ Robert Levitan Director September , 2000
-------------------------
Robert Levitan