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, 2002
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,
2002 as reported on NASDAQ, was approximately $16.0 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, 2002, Registrant had 17,216,475 outstanding shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
MOBIUS MANAGEMENT SYSTEMS, INC.
FISCAL YEAR 2002 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
CERTIFICATION PURSUANT TO SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
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. They are not historical facts or guarantees of
future performance or events. They are based on current expectations, estimates,
beliefs, assumptions, goals and objectives, and are subject to uncertainties
that are difficult to predict. 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 Mobius'
control, which may cause actual results, performance or achievements to differ
materially from those projected or implied in such forward-looking statements.
Important factors that might affect actual results, performance or achievements
include, among other things, overall economic and business conditions, the
demand for Mobius' goods and services, including budget allocations for new
software products especially within larger corporate environments which have
traditionally licensed Mobius' products, technological advances and competitive
factors in the markets in which Mobius competes, including price competition
from products providing similar functionality to Mobius' products as well as
competition for experienced, seasoned employees (including retention) to support
Mobius' key business operations, ongoing product development and growth, and
acceptance and or adoption of Mobius' new products or services. Certain of these
risks and uncertainties are described in detail from time to time in Mobius'
filings with the Securities and Exchange Commission, including without
limitation, as set forth under the heading "Factors Affecting Future
Performance" in Item 1 - Business. Forward looking statements included in this
annual report are based on information known to Mobius as of the date of this
annual report and Mobius accepts no obligation (and expressly disclaims any
obligations) 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 integrated
solutions for total content management ("TCM"). Mobius was incorporated in New
York in 1981 and reincorporated in Delaware in 1997. The Company has
international subsidiaries in the United Kingdom, France, Germany, Italy,
Sweden, Australia, Switzerland, Japan and the Benelux. Mobius' company
headquarters are located at 120 Old Post Road, Rye, NY 10580 and the telephone
number is (914) 921-7200.
For over two decades, Mobius has delivered innovative technology that
provides for storage and access to mission-critical documents, reports and
images. Mobius solutions have achieved industry-wide recognition for their
ability to support high-volume, high-performance, simultaneous-access
requirements in distributed environments that range from the desktop to the
mainframe. Mobius' packaged software products support a broad range of
content-intensive e-business requirements, including customer relationship
management, enterprise resource planning, Internet presentment and payment,
imaging and workflow.
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 information must be
quickly and accurately retrieved to support customer service, meet legal
requirements and to 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.
1
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. The challenge is compounded by the
variety of information formats now used for day-to-day business operations.
These include not just computer-generated output and transactions, but scanned
images, e-mail, Web pages, audio and video files, and more. Information in this
broad diversity of formats is generally referred to as "content." Organizations
wish to present customized views of this content to their employees, customers
and suppliers over intranets and the Internet in formats that are compatible
with the most widely-used desktop tool - the Web-browser.
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' ViewDirect(R) family of products captures, indexes, stores,
distributes, Web-enables and Web-presents enterprise information. Its versatile
architecture interfaces with back-office systems, capturing output from
enterprise applications as well as scanned documents. ViewDirect(R) creates an
integrated repository of documents, reports and images from multiple
applications and sources. It makes this content available for online access,
delivery via fax or e-mail, or Web-enabled for use with front-office systems
such as customer service, electronic statement presentment (ESP), and electronic
bill presentment and payment (EBPP). Capabilities include powerful search
functions, personalized views of enterprise content, automated distribution, and
tools for data analysis and export.
The ViewDirect(R) architecture is scalable and open, supporting a broad
range of information formats, computing platforms and storage media.
Technological innovation provides uniquely robust functionality, efficiency and
ease-of-use.
Products
Mobius' ViewDirect TCM suite manages enterprise content in its many forms
and makes it available for many purposes. The suite includes products for
storing, viewing and delivering content as well as specialized tools for
automating business processes (workflow) and for Internet bill presentment and
payment. Products include ViewDirect(R), e-Search & View(TM), DocumentDirect(R)
for the Internet, WorkflowDirect(TM), Click-n-Done(R), DocumentDirect(R)
Application Suite, DocumentDirect(R), DocuAnalyzer(TM) and ViewDirect(R)-ABS.
ViewDirect(R) is market-leading software for high-volume storage,
high-speed indexed access and electronic distribution of enterprise information.
It is the document server of the ViewDirect technology product suite, capturing,
indexing, and storing information in multiple formats from multiple sources.
e-Search & View(TM) is a powerful Web-based tool for searching content
stored in high-volume, indexed enterprise archives. This content includes
application report output, bills, statements, scanned forms, e-mail, policies,
images, customer correspondence, and more. e-Search & View is a Web searching
solution for customer support and customer relationship management.
DocumentDirect(R) for the Internet makes content in the enterprise
available over the Internet/intranet using generic Web browsers. It supports
both internal users who require only browsing capability, and customers and
suppliers, who want "self-service" access in a secure environment. It offers
robust functionality for Web presentment of enterprise information, providing
the ability to produce a replica of the original document or to extract data
from a document and embed it in a customized Web page.
WorkflowDirectTM is a Java-based business process platform for designing
and building workflow applications that connect the enterprise with customers,
partners
2
and suppliers. WorkflowDirect supports both e-business applications such as loan
processing and internal operations such as call center workflow. All user
interactions are browser based. Interfaces to capture software and full
integration with the ViewDirect TCM Content Repository link workflow tasks and
users to supporting documents and scanned images.
Click-n-Done(R) 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. Click-n-Done's distributed architecture offers the enterprise
flexibility for centralized or decentralized processing. Its primary components
- -- the document repository, presentment server and payment server -- are
designed to operate independently, supporting both self-hosting and outsourcing.
DocumentDirect(R) Application Suite supports fast implementation of
personalized document search, retrieval, and processing applications. Its
configurable interface provides the flexibility to deliver powerful customer
care applications and support ad-hoc searching needs.
DocumentDirect(R) is a Windows-based portal to information stored
throughout the enterprise. Its robust functionality supports the "power" user
who needs flexibility in navigating the document repository and manipulating
documents.
DocuAnalyzerTM is an analytical tool that turns the data in documents into
information that supports the decision-making process. It can help highlight
trends and discover patterns.
ViewDirect-ABS is an audit and balancing system that monitors data within
and across business applications to ensure accuracy and consistency. It ensures
that reports, statements and other business documents contain accurate
information and protects against corrupt data being proliferated throughout an
enterprise. ViewDirect-ABS eliminates slow and costly manual balancing, speeding
procedures such as item reconciliation and control-total balancing.
Sales and Marketing
The Company sells and markets its products primarily through a direct
sales force located in 8 sales offices in the United States. In addition, Mobius
has international subsidiaries in the United Kingdom, 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 international support centers.
Complex diagnostics and product corrections are provided exclusively through the
United States support center.
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 and acquire 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' product development cycle (from funding a product development
project until the new product is shipped to the marketplace) generally 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 development tools to facilitate short development
cycles for functional enhancements while maintaining product reliability.
3
Employees
As of June 30, 2002, Mobius employed 408 people: 170 in Sales and
Marketing; 28 in Professional Services; 55 in Customer Satisfaction; 97 in
Research and Development; and 58 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 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 2000, 2001 or 2002.
Competition
The market for Mobius' products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. "Factors Affecting Future Performance"
below includes a description of the competitive environment in which the Company
does business.
4
FACTORS AFFECTING FUTURE PERFORMANCE
Fluctuations in Period to Period Results; Seasonality; Uncertainty of Future
Operating Results
Mobius' quarterly revenues and operating results have varied significantly
in the past and are likely to vary substantially from quarter to quarter in the
future. Quarterly revenues and operating results are expected to fluctuate as a
result of a variety of factors, including lengthy product sales cycles, general
domestic and international economic conditions, demand for Mobius' products,
changes in the level of operating expenses, introductions of new products and
product enhancements by Mobius or its competitors and competitive conditions in
the industry.
The timing, size and nature of individual license transactions are
important factors in Mobius' quarterly operating results. Many of Mobius'
license transactions involve large dollar commitments by customers, and the
sales cycles for these transactions are often lengthy and unpredictable. There
can be no assurance that Mobius will be successful in closing large license
transactions within the fiscal period in which they are budgeted, if at all.
Mobius' business has experienced and is expected to continue to experience
significant seasonality, with revenues typically peaking primarily in the fourth
(June) fiscal quarter and to a lesser extent in the second (December) fiscal
quarter. These fluctuations are caused primarily by customer purchasing patterns
and Mobius' sales force incentive programs, which recognize and reward sales
personnel on the basis of achievement of annual and other periodic performance
quotas, as well as by the factors described above.
Mobius expects that the difficult global economy, as well as delays in
information technology spending, will continue to impact future quarterly
operating results. Mobius believes that the state of the global economy has
influenced certain Mobius customers to defer information technology spending.
The current economic environment may continue to have an adverse effect on
Mobius.
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 and may not be reliable indicators of future performance.
Technological Change
The market for Mobius' software, in general, and its internet products, in
particular, is characterized by a high degree of technological change, frequent
new product introductions, evolving industry standards and changes in customer
demands. The introduction of competitive products embodying new technologies and
the emergence of new industry standards could render Mobius' existing products
obsolete and unmarketable. Mobius' future success will depend in part on its
ability to enhance existing products, to develop and introduce new products to
meet diverse and evolving customer requirements, and to keep pace with
technological developments and emerging industry standards such as web-based
functionality, 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' revenues have been attributable
to the licensing and related maintenance service of its ViewDirect and
DocumentDirect suite of products. Mobius currently expects this to continue for
the foreseeable future. As
5
a result, factors adversely affecting the pricing of, or demand for, these
products and services, such as economic downturns, competition or technological
change, could have a material adverse effect on its business, operating results
or financial condition.
Competition
The market for Mobius' products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. Mobius 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, BMC Software, Inc., FileNet Corporation, International
Business Machines Corp., and Quest Software, 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 Mobius' business, operating results or financial
condition. There can be no assurance that Mobius will be able to compete
successfully against current or future competitors or that competitive pressures
will not have a material adverse effect on Mobius' business, operating results
or 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,
Mobius' international subsidiaries have been unprofitable to date, and Mobius
expects achieving profitability will continue to 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
attract and retain qualified personnel who will successfully be able to market
its products internationally. Mobius' international sales are subject to the
general risks inherent in doing business internationally, including unexpected
changes in regulatory requirements, tariffs and other trade barriers, costs and
difficulties of localizing products for international countries, lack of
acceptance of localized products in international 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 international laws and
economic instability. There can be no assurance that such factors will not have
a material adverse effect on Mobius' future international revenues and,
consequently, on its business, operating results or financial condition.
An increase in the value of the U.S. dollar relative to foreign currencies
could make Mobius' products more expensive, and, therefore, potentially less
competitive in those markets. To the extent that the U.S. dollar strengthens
against foreign currencies in international markets in which Mobius 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 Mobius' international operations, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Item 2 of this
report.
6
Expansion of Indirect Channels
To date, sales through indirect sales channels have not been significant
although Mobius continues to invest resources to develop these channels. Mobius'
revenue growth in the future may be affected by its success in expanding
existing and establishing additional relationships with strategic partners.
Extended Payment Risk
The Company offers extended payment terms to some of its customers. For
software license contracts with extended payment terms, the related financing
period is generally 3 to 5 years. Software license installments are discounted
at a market rate of interest at the date the software license contract revenue
is recognized. The discount is amortized to interest income using the interest
method over the term of the financing. Although Mobius has established reserves
against possible future bad debts and believes that these installment contracts
are enforceable and that ultimate collection is probable, there can be no
assurances that customers will not default under such financing arrangements, or
that any such default would not have a material adverse effect on Mobius'
business, operating results or financial condition.
Protection of Intellectual Property
Mobius' success is heavily dependent upon its confidential and proprietary
intellectual property. Mobius has no issued patents covering any aspect of its
software products, but it has two patent applications pending in the U.S. with
corresponding international filings. Mobius relies primarily on a combination of
confidentiality agreements, copyright, trademark and trade secret laws and
confidentiality procedures to protect its proprietary rights. Trade secret and
copyright laws afford only limited protection. Despite Mobius' efforts to
protect its proprietary rights, unauthorized parties may attempt to copy aspects
of its products or obtain and use information that Mobius regards as
proprietary. In addition, the laws of some international countries do not
protect its proprietary rights to as great an extent as do the laws of the
United States. There can be no assurance that its means of attempting to protect
Mobius' proprietary rights will be adequate or that its competitors will not
independently develop similar or competitive technology.
Mobius' products are generally provided to customers in object code format
only. However, Mobius enters into arrangements with its customers that releases
the source code to the customer upon the occurrence of certain events, such as
bankruptcy or insolvency of Mobius or certain material breaches of the license
agreement by Mobius. In the event of any release of the source code pursuant to
these arrangements, the customer's license is generally limited to use of the
source code to maintain, support and configure its software products.
Notwithstanding such provision, the delivery of source code to customers may
increase the likelihood of misappropriation or other misuse of its intellectual
property.
Mobius is not aware that any of its products infringe on the proprietary
rights of third parties. From time to time, however, third parties may 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 or
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
Mobius 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
7
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 or 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 Mobius'
software. Although Mobius' business has not been materially adversely affected
by any such errors to date, there can be no assurance that, despite testing by
Mobius and by current and potential customers, errors will not be found in new
products or releases after commencement of commercial shipments, resulting in
loss of revenue or delay in market acceptance, diversion of development
resources, damage to Mobius' reputation, or increased service and warranty
costs, any of which could have a material adverse effect on its business,
operating results or financial condition.
Mobius' license agreements with its customers typically contain provisions
designed to limit its exposure to potential product liability claims. However,
it is possible that the limitation of liability provisions contained in its
license agreements may not be effective under the laws of certain jurisdictions.
Although Mobius has not experienced any product liability claims to date, the
sale and support of products by Mobius may entail the risk of such claims, and
there can be no assurance that Mobius will not be subject to such claims in the
future. A successful product liability claim brought against Mobius could have a
material adverse effect on its business, operating results or financial
condition.
Management of Growth; Dependence on Senior Management and Other Key Employees
Mobius' ability to effectively manage its future growth, if any, will
require it to continue to improve Mobius' 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 or financial condition would be materially adversely
affected.
Mobius' success depends to a significant extent upon its senior management
and certain other key employees of Mobius. The loss of the service of senior
management or other key employees could have a material adverse effect on
Mobius. Furthermore, Mobius believes that its future success will also depend to
a significant extent upon its ability to attract, train and retain highly
skilled technical, management, sales and marketing personnel. Competition for
such personnel is intense, and Mobius expects that such competition will
continue for the foreseeable future. Mobius has from time to time experienced
difficulty in locating candidates with appropriate qualifications. The failure
to attract or retain such personnel could have a material adverse effect on
Mobius' business, operating results or financial condition.
8
If Widespread Internet Usage Does Not Continue, or if the Internet Cannot
Accommodate Continued Growth, Mobius' Business Will Be Harmed.
Acceptance of Mobius' Internet-based products depends upon continued use
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 e-commerce enabling
products and services is subject to a high level of uncertainty. To the extent
that businesses or consumers do not consider the Internet a viable commercial
medium, Mobius' customer base for its Internet-based products 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, Mobius' business may be 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 or efficiently
support any growth in Internet usage that may occur, our business may be harmed.
Concerns about Transaction Security on the Internet May Hinder Mobius'
Internet Product Sales.
A significant barrier to electronic commerce and communications is the
secure transmission of private information over public networks. Mobius'
products for the Internet rely on encryption and authentication technology some
of which it has developed and some of which may be licensed from third parties
to provide the required security and authentication to ensure the privacy of
Internet transactions. Advances in computer capabilities, new discoveries in the
field of cryptography or other events or developments may result in a compromise
or breach of the algorithms Mobius' Internet products use to protect customer
transaction data. Any breaches in security could cause a significant decrease in
the use of Mobius' Internet products, which could undermine future Internet
product sales.
9
ITEM 2. PROPERTIES
Mobius is headquartered in Rye, New York, where it leases an aggregate of
70,500 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, Illinois. Mobius leases an aggregate of
approximately 80,000 additional square feet of space domestically and
internationally for its sales offices, including approximately 36,700 square
feet of space in Chicago. Mobius intends to decrease the square footage needed
for its sales operations in Chicago. The remaining facilities are adequate to
meet Mobius' current needs.
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, cash flow or 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 fiscal
quarter ended June 30, 2002.
PART II.
ITEM 5(a). MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Mobius' common stock has been quoted on the NASDAQ National Market under
the symbol of MOBI since its initial public offering on April 27, 1998.
According to records of Mobius' transfer agent, Mobius had approximately 62
stockholders of record as of September 18, 2002. 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 Mobius'
common stock on the NASDAQ National Market for the periods indicated.
Quarter ended: High Low
-------------- ---- ---
September 30, 2000 $5.00 $2.75
December 31, 2000 $5.13 $1.13
March 31, 2001 $5.25 $2.00
June 30, 2001 $4.03 $2.19
September 30, 2001 $3.25 $1.78
December 31, 2001 $4.04 $2.00
March 31, 2002 $3.56 $2.15
June 30, 2002 $3.32 $2.00
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'
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
10
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the
captions "Consolidated Statement of Operations Data" and "Consolidated Balance
Sheet Data" as of and for each of the years in the five year period ended June
30, 2002 are derived from the consolidated financial statements of Mobius. The
financial statements for each of the years in the four-year period ended June
30, 2001 have been audited by KPMG LLP and the financial statements for the year
ended June 30, 2002 have been audited by PricewaterhouseCoopers LLP. Both KPMG
LLP and PricewaterhouseCoopers LLP are independent certified public accountants.
The consolidated financial statements as of June 30, 2001 and 2002 and for each
of the years in the three-year period ended June 30, 2002, 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 Annual Report on Form 10-K.
Years Ended June 30,
1998 1999 2000 2001 2002
-------- --------- -------- -------- -------
Consolidated Statement of Operations Data
(in thousands, except per share data):
Revenues:
Software license $ 37,929 $ 48,811 $ 31,018 $ 39,321 $ 28,026
Maintenance 17,892 23,901 27,785 33,174 34,776
Professional service and other 706 1,124 1,402 1,717 5,111
-------- -------- -------- -------- --------
Total revenues 56,527 73,836 60,205 74,212 67,913
Costs of revenues:
Software license 1,443 1,223 946 1,219 1,128
Maintenance 3,280 4,776 5,399 5,331 5,919
Professional service and other 313 235 671 817 5,035
-------- -------- -------- -------- --------
Total costs of revenues 5,036 6,234 7,016 7,367 12,082
-------- -------- -------- -------- --------
Gross profit 51,491 67,602 53,189 66,845 55,831
Operating expenses (1):
Sales and marketing 28,613 41,877 44,289 44,886 38,151
Research and development 8,013 10,674 14,823 16,267 15,741
General and administrative 6,542 9,409 12,086 10,460 10,380
Facilities restructuring -- -- -- -- 1,394
-------- -------- -------- -------- --------
Total operating expenses 43,168 61,960 71,198 71,613 65,666
-------- -------- -------- -------- --------
Income (loss) from operations 8,323 5,642 (18,009) (4,768) (9,835)
License and other interest income 1,871 2,920 2,930 2,689 1,674
Interest expense (14) (16) (58) (9) (15)
Foreign currency transaction gains (loss) (15) (191) 44 102 (5)
Other income -- -- -- 109 148
Investment impairments -- -- (2,220) (718) --
-------- -------- -------- -------- --------
Income (loss) before income taxes 10,165 8,355 (17,313) (2,595) (8,033)
Provision (benefit) for income taxes 5,500 4,057 (5,417) (605) (2,812)
Accretion on Preferred Stock 102 -- -- -- --
-------- -------- -------- -------- --------
Net income (loss) available to common stock $ 4,563 $ 4,298 $(11,896) $ (1,990) $ (5,221)
======== ======== ======== ======== ========
Basic earnings (loss) per share(2) $ 0.38 $ 0.24 $ (0.66) $ (0.11) $ (0.30)
Basic weighted average shares outstanding(2) 12,156 17,813 17,988 18,225 17,459
Diluted earnings (loss) per share(2) $ 0.27 $ 0.23 $ (0.66) $ (0.11) $ (0.30)
Diluted weighted average shares outstanding(2) 16,738 18,964 17,988 18,225 17,459
Consolidated Balance Sheet Data
(in thousands):
Total assets $ 78,800 $ 89,201 $ 78,393 $ 75,515 $ 71,392
Total long-term obligations 8,776 7,612 3,698 1,398 1,406
Stockholders' equity 46,122 51,528 40,591 38,470 31,120
(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 for the years ended June 30, 1998, 1999, 2000, 2001 and 2002
aggregating $642, $1,046, $537, $277 and $125, respectively.
(2) For a description of the basic and diluted earnings per share ("EPS")
calculations and the basic and diluted weighted average shares outstanding,
see Note 2 of Notes to Consolidated Financial Statements.
11
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 the Company's fiscal
years ended June 30, 2002 and June 30, 2001, respectively.
Overview
Mobius is a leading provider of integrated solutions for total content
management. For over two decades, Mobius has delivered innovative technology
that provides for storage and access to mission-critical documents, reports and
images. Mobius solutions have achieved industry-wide recognition for their
ability to support high-volume, high-performance, simultaneous-access
requirements in distributed environments that range from the desktop to the
mainframe. Mobius' packaged software products support a broad range of
content-intensive e-business requirements, including customer relationship
management, enterprise resource planning, Internet presentment and payment,
imaging and workflow.
The Company's total revenues increased from $60.2 million in fiscal 2000
to $74.2 million in fiscal 2001 and decreased to $67.9 million in fiscal 2002.
Mobius derives its revenues from product licenses, related annual maintenance
and professional services and other. This year, 41.3% of total revenues were
generated from software licenses, 51.2% were generated from maintenance and 7.5%
were generated from professional services and other. Mobius believes that the
decrease in license revenue was impacted by the recent global economic recession
and the disappointing response of its customers to sales and marketing
initiatives. The decrease in license revenue has been partially offset by an
increase in professional service and other revenue. In an effort to improve its
sales and marketing initiatives, the Company has refocused its sales and
marketing team under new leadership and implemented new productivity strategies.
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 90.1% of license revenues and approximately
37.2% of total revenues. Last year license revenues for these products accounted
for approximately 89.5% of license revenues and approximately 47.4% of total
revenues. The Company anticipates that, for the foreseeable future, license
revenue from these products will continue to account for a significant portion
of license and total revenues.
Mobius' growing customer base has led to continued growth in maintenance
revenues, from $27.8 million in fiscal 2000 to $33.2 million last year to $34.8
million this year. Maintenance revenue consists primarily of fees for customer
support services and enhancements provided by the Company for its products.
This year, Mobius dedicated more resources to the development of the
Company's professional service business and entered into more professional
service arrangements. As a result, professional service and other revenue has
increased from $1.4 million in fiscal 2000 and $1.7 million last year to $5.1
million this year. Other revenues in all years were not significant.
International revenues decreased this year to $10.4 million from $12.8
million last year. International revenues were $9.9 million in fiscal 2000.
Mobius believes that the economic recession and the disappointing response of
its customers to sales and marketing initiatives contributed to Mobius selling
fewer licenses of its products to new and existing international customers. As a
group, the Company's international subsidiaries have been unprofitable to date,
and Mobius expects achieving profitability will continue to require significant
management attention, increased revenues and financial resources. 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
12
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.
Prior to fiscal 2001, losses at Mobius' international subsidiaries had not
been consolidated for United States income tax purposes. Consequently, prior to
fiscal 2001, the Company has experienced a reduced effective tax benefit versus
the U.S. Federal statutory rate, as no tax benefit had been provided for the
majority of international losses. During fiscal 2001, the Company made certain
U.S. Federal income tax elections which allowed certain of these international
tax losses to be included within its U.S. Federal consolidated income tax
return. These elections, in part, have caused the Company's effective tax rate
to approach the U.S. Federal statutory rate in fiscal 2002. To the extent the
Company is successful at bringing its international subsidiaries to
profitability, the Company's effective tax rate could again exceed the U.S.
Federal statutory rate depending on the availability of operating loss
carryforwards in the profitable international jurisdictions and the operation of
foreign tax credit limitations.
Critical Accounting Policies and Estimates
Mobius' discussion and analysis of its financial condition and results of
operations are based upon Mobius' consolidated financial statements, which have
been prepared in accordance with GAAP. The preparation of financial statements
in accordance with GAAP 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.
Management bases its estimates and judgements on historical experience and on
various other factors that are believed to be reasonable under the
circumstances. These estimates are evaluated on an on-going basis. Actual
results could differ from those estimates.
Management believes that its significant judgements and estimates used in
the preparation of its consolidated financial statements are influenced by the
following critical accounting policies, among others.
Revenue Recognition
License and maintenance revenue are recognized in accordance with
Statement of Position ("SOP") 97-2, "Software Revenue Recognition." Revenue from
software license contracts includes license fees related to long-term licenses,
generally 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. SOP 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions,"
which amended SOP 97-2 and clarified what is considered vendor-specific evidence
of fair value for the various elements in a multiple element arrangement, was
adopted by Mobius on July 1, 1999.
13
According to these guidelines, when the Company sells a software license
contract that includes maintenance, the maintenance revenue is typically
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 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 revenue.
Software Development Costs
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
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.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." 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.
14
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,
2000 2001 2002
--------------------------------
Revenues:
Software license 51.5% 53.0% 41.3%
Maintenance 46.2 44.7 51.2
Professional service and other 2.3 2.3 7.5
------ ------ ------
Total revenues 100.0 100.0 100.0
Costs of revenues:
Software license 1.6 1.6 1.7
Maintenance 9.0 7.2 8.7
Professional service and other 1.1 1.1 7.4
------ ------ ------
Total costs of revenues 11.7 9.9 17.8
------ ------ ------
Gross profit 88.3 90.1 82.2
Operating expenses:
Sales and marketing 73.6 60.5 56.2
Research and development 24.6 21.9 23.2
General and administrative 20.1 14.1 15.3
Facilities restructuring -- -- 2.0
------ ------ ------
Total operating expenses 118.3 96.5 96.7
------ ------ ------
Loss from operations (30.0) (6.4) (14.5)
License and other interest income 4.9 3.6 2.5
Interest expense (0.1) -- --
Foreign currency transactions 0.1 0.1 --
Other income -- 0.2 0.2
Investment impairments (3.7) (1.0) --
------ ------ ------
Loss before income taxes (28.8) (3.5) (11.8)
Benefit for income taxes (9.0) (0.8) (4.1)
------ ------ ------
Net loss (19.8)% (2.7)% (7.7)%
====== ====== ======
Year Ended June 30, 2000 Compared to Year Ended June 30, 2001 Compared to Year
Ended June 30, 2002
Revenues
o Total revenues increased 23.3% from $60.2 million in fiscal 2000 to $74.2
million in fiscal 2001 and decreased 8.5% to $67.9 million in fiscal 2002.
Domestic revenues increased 22.0% from $50.3 million in fiscal 2000 to
$61.4 million in fiscal 2001 and decreased 6.4% to $57.5 million in fiscal
2002. International revenues increased 29.5% from $9.9 million in fiscal
2000 to $12.8 million in fiscal 2001 and decreased 18.4% to $10.4 million
in fiscal 2002.
o Software license revenues increased 26.8% from $31.0 million in fiscal 2000
to $39.3 million in fiscal 2001 and decreased 28.7% to $28.0 million in
fiscal 2002. During fiscal 2001 the market for Mobius' products appeared to
be returning to its pre-Y2K conditions and accordingly, total revenues
increased primarily because Mobius sold more licenses for its products to
new and existing customers. For fiscal 2002, Mobius believes that the
decrease in license revenues was impacted by the recent global economic
recession and the disappointing response of its customers to sales and
marketing initiatives. In an effort to improve its sales and marketing
initiatives, the Company has refocused its sales and marketing team under
new leadership and implemented new productivity strategies.
o Maintenance revenues increased 19.4% from $27.8 million in fiscal 2000 to
$33.2 million in fiscal 2001 and increased 4.8% to $34.8 million in fiscal
2002. 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 increases in the maintenance
fees charged by the Company.
15
o Professional service and other revenues increased 22.5% from $1.4 million
in fiscal 2000 to $1.7 million in fiscal 2001 and increased 197.7% to $5.1
million in fiscal 2002. Professional service revenues have significantly
increased as a result of Mobius dedicating more resources to the
development of the Company's professional service business and Mobius
entering into more professional service arrangements. Other revenues for
all years were not significant.
Costs of Revenues.
o Costs of software license revenues consist primarily of the cost of
royalties and sublicense fees. The costs of software license revenues
increased 28.9% from $946,000 in fiscal 2000 to $1.2 million in fiscal 2001
and decreased 7.5% to $1.1 million in fiscal 2002, representing 3.0%, 3.1%
and 4.0%, respectively, of software license revenues in those years. The
costs of software license revenues are a function of license sales which
were subject to royalties.
o Costs of maintenance revenues consist primarily of customer support staff
costs. The costs of maintenance revenues decreased 1.3% from $5.4 million
in fiscal 2000 to $5.3 million in fiscal 2001 and increased 11.0% to $5.9
million in fiscal 2002, representing 19.4%, 16.1% and 17.0%, respectively,
of maintenance revenues in those years. In fiscal 2001, the decrease in the
percentage of cost of maintenance revenues in relation to the maintenance
revenues was primarily attributable to supporting more maintenance
agreements with an insignificant increase in maintenance costs. In fiscal
2002, the increases in costs of maintenance and other revenues was
primarily attributable to increased staffing and personnel-related costs
associated with post sales assistance.
o Costs of professional service and other revenues consist primarily of
personnel and subcontractor costs associated with providing professional
services. The costs of professional service and other revenues increased
21.8% from $671,000 in fiscal 2000 to $817,000 in fiscal 2001 and increased
516.3% to $5.0 million in fiscal 2002, representing 47.9%, 47.6% and 98.5%
respectively, of professional service and other revenues in those years.
The costs of professional service and other revenues increased as the
result of Mobius entering into more professional service arrangements. The
costs of professional service revenue as a percentage of professional
service and other revenues has increased due to Mobius developing this
business and dedicating more internal resources and, to a lesser extent,
the loss accrued on a long-term contract.
Operating Expenses.
o Sales and marketing expenses consist primarily of the cost of personnel
associated with the selling and marketing of Mobius' products, including
salaries, commissions, performance based bonuses, and travel and
entertainment costs. Sales and marketing costs also include the cost of
branch sales offices, marketing, promotional materials and advertising.
These expenses increased 1.3% from $44.3 million in fiscal 2000 to $44.9
million in fiscal 2001 and decreased 15.0% to $38.2 million in fiscal 2002,
representing 73.6%, 60.5% and 56.2%, respectively, of total revenues in
those years. In fiscal 2001, expenses increased slightly due to more
commissions and bonuses paid for selling more software licenses and
additional marketing personnel hired, offset by a decrease in sales and
marketing expenses related to the consolidation of dedicated Click-n-Done
sales and marketing departments into Mobius' primary sales and marketing
structures. The decrease in fiscal 2002 was primarily due to decreased
commissions and bonus and consolidation of the Click-n-Done sales and
marketing departments into Mobius' primary sales and marketing structures.
Commissions are a variable expense related to license revenues and the
decrease in commissions corresponds with the decrease in license revenues.
o Research and development expenses consist primarily of personnel costs
attributable to the development of new software products and the
enhancement of existing products. Research and development expenses
increased 9.7% from $14.8 million in fiscal 2000 to $16.3 million in fiscal
2001 and decreased 3.2% to $15.7 million for fiscal 2002, representing
24.6%, 21.9% and 23.2%, respectively, of total revenues in those years. In
fiscal 2001, the increase in research and development expenses
16
was attributable to higher personnel-related costs. The decrease in fiscal
2002 was primarily attributable to a decrease in the cost of outside
research subcontractors and a reduction in recruiting expenses due to cost
savings initiatives offset by an increase in personnel costs. Research and
development expenses as a percentage of total revenues fluctuate with the
changes in development projects and annual revenues.
o General and administrative expenses consist of personnel costs related to
general management, accounting, human resources, network services,
administration and associated overhead costs, as well as fees for
professional services. General and administrative expenses decreased 13.5%
from $12.1 million in fiscal 2000 to $10.5 million in fiscal 2001 and
decreased 0.8% to $10.4 million in fiscal 2002, representing 20.1%, 14.1%
and 15.3%, respectively, of total revenues in those years. The decrease in
fiscal 2001 was attributable to the elimination of Click-n-Done's
administration department, decreased bonuses, completion of special
projects and the implementation of administrative cost savings strategies.
These decreases were partially offset by increased depreciation for
capitalized infrastructure projects. In fiscal 2002, the decrease was
attributable to utilizing fewer professional services offset by an increase
in personnel costs. General and administrative expenses as a percentage of
total revenues fluctuate with the changes in general and administrative
costs and annual revenues.
o Facilities restructuring expenses consist of an accrual for a loss on the
Company's lease for one of its sales offices. In connection with
management's plan to reduce costs and improve operating efficiencies, the
Company recorded a facilities restructuring charge of $1.4 million in
fiscal 2002. As of June 30, 2002, the Company had $1.4 million remaining in
the facilities restructuring accrual. The charge reflects estimated future
lease obligations, net of estimated sublease income, for office space the
Company will no longer utilize. The Company worked with an external real
estate consultant to determine the best estimate for the accrual. However,
if the real estate market continues to worsen and the Company is not able
to sublease the properties as expected, additional adjustments to the
accrual may be required, which would result in additional restructuring
costs in the period such determination was made. Likewise, if the real
estate market strengthens, and the Company is able to sublease the
properties earlier or at more favorable rates than projected, adjustments
to the accrual may be required that would increase net income in the period
such determination was made.
License and other interest income; interest expense; foreign currency
transaction gains (losses).
License and other interest income was $2.9 million, $2.7 million and $1.7
million in fiscal 2000, 2001, and 2002, respectively. During fiscal 2002,
license and other interest income decreased due to a decrease in interest rates
and to a lesser extent a decrease in software license installment receivables.
During fiscal 2000, 2001 and 2002 interest expense and foreign currency
transaction gains were insignificant.
Income Taxes.
The benefit for income taxes was $5.4 million in fiscal 2000, $605,000 in
fiscal 2001 and $2.8 million in fiscal 2002. The Company had effective tax rates
of approximately 31.3%, 23.3% and 35.0% in fiscal years 2000, 2001 and 2002,
respectively. The effective tax rates reflect the statutory tax benefit for the
losses in the United States offset by limitations on the tax benefit which can
be taken from losses in Mobius' international subsidiaries.
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
17
in May 2000. In fiscal 2001, Mobius provided an additional $375,000 as a short
term loan to HAN. Mobius' investment in HAN was a minority ownership position,
which was less than 5%.
Mobius regularly assessed the recoverability of the HAN investment and
concluded that other than temporary impairment losses occurred. Accordingly,
impairment losses were recorded in connection with this investment aggregating
$2.2 million and $218,000 for the years ended June 30, 2000 and 2001,
respectively.
In January 2001, HAN was purchased by Intelidata Technologies
("Intelidata"). As a result, during fiscal 2002, Mobius received Intelidata
shares for its investment in HAN. Mobius sold a portion of the shares received
and realized a $150,000 gain in fiscal 2002. The carrying value of the remaining
Intelidata shares of $146,000 is included in marketable securities at June 30,
2002.
In January 2000, Mobius made an investment of $500,000 in Flooz.com, a
startup Internet company. This was an investment in preferred stock, which would
convert into common stock if Flooz.com had completed an initial public offering.
Mobius held a minority ownership position, which, if the preferred shares
converted to common stock, would be less than 5%. Flooz.com has ceased
operations and, in August 2001, filed for bankruptcy liquidation. Accordingly,
Mobius recorded an impairment loss of $500,000 in fiscal 2001. Robert H.
Levitan, the former Chief Executive Officer of Flooz.com, is currently, and has
been since June 2000, a member of the Board of Directors of Mobius.
18
Selected Quarterly Operating Results
The following table presents certain consolidated statement of operations
data for the eight fiscal quarters in the two-year period ended June 30, 2002.
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,
2000 2000 2001 2001 2001 2001
----------- ----------- ----------- ----------- ----------- ----------
Revenues:
Software license revenues $ 10,406 $ 10,479 $ 7,719 $ 10,717 $ 5,407 $ 7,165
Maintenance 7,735 8,308 8,536 8,595 8,588 8,679
Professional Services and other 389 317 395 616 583 1,761
---------- ---------- ---------- ---------- ---------- ----------
Total revenues 18,530 19,104 16,650 19,928 14,578 17,605
Costs of revenues:
Software license revenues 417 326 122 354 234 205
Maintenance 1,284 1,239 1,387 1,421 1,292 1,565
Professional services and other 277 165 139 236 683 1,569
---------- ---------- ---------- ---------- ---------- ----------
Total costs of revenues 1,978 1,730 1,648 2,011 2,209 3,339
---------- ---------- ---------- ---------- ---------- ----------
Gross profit 16,552 17,374 15,002 17,917 12,369 14,266
Operating expenses (1):
Sales and marketing 11,682 11,764 10,616 10,824 9,288 9,783
Research and development 4,330 3,953 4,109 3,875 3,744 3,745
General and administrative 2,582 2,531 2,732 2,615 2,589 2,567
Facilities restructuring -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 18,594 18,248 17,457 17,314 15,621 16,095
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from operations (2,042) (874) (2,455) 603 (3,252) (1,829)
License and other interest income 696 748 650 595 539 487
Interest expense (3) -- (2) (4) (5) 1
Foreign currency transactions 4 2 90 6 2 6
Other income -- 67 32 10 -- --
Investment impairments (218) -- (500) -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (1,563) (57) (2,185) 1,210 (2,716) (1,335)
Provision (benefit) for income taxes (484) 195 (734) 418 (860) (424)
---------- ---------- ---------- ---------- ---------- ----------
Net income(loss)available to
common stock $ (1,079) $ (252) $ (1,451) $ 792 $ (1,856) $ (911)
========== ========== ========== ========== ========== ==========
Basic earnings (loss) per share $ (0.06) $ (0.01) $ (0.08) $ 0.04 $ (0.10) $ (0.05)
========== ========== ========== ========== ========== ==========
Diluted earnings (loss) per share $ (0.06) $ (0.01) $ (0.08) $ 0.04 $ (0.10) $ (0.05)
========== ========== ========== ========== ========== ==========
As a Percentage of Total Revenues
Revenues:
Software license revenues 56.2% 54.9% 46.4% 53.8% 37.1% 40.7%
Maintenance 41.7 43.5 51.3 43.1 58.9 49.3
Professional service and other 2.1 1.6 2.3 3.1 4.0 10.0
---------- ---------- ---------- ---------- ---------- ----------
Total revenues 100.0 100.0 100.0 100.0 100.0 100.0
Costs of revenues:
Software license revenues 2.3 1.7 0.7 1.8 1.6 1.2
Maintenance 6.9 6.5 8.3 7.1 8.9 8.9
Professional service and other 1.5 0.9 0.8 1.2 4.7 8.9
---------- ---------- ---------- ---------- ---------- ----------
Total costs of revenues 10.7 9.1 9.8 10.1 15.2 19.0
---------- ---------- ---------- ---------- ---------- ----------
Gross profit 89.3 90.9 90.2 89.9 84.8 81.0
Operating expenses (1):
Sales and marketing 63.0 61.6 63.8 54.3 63.7 55.5
Research and development 23.4 20.7 24.7 19.5 25.7 21.3
General and administrative 13.9 13.2 16.4 13.1 17.7 14.6
Facilities restructuring 0.0 0.0 0.0 0.0 0.0 0.0
---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses 100.3 95.5 104.9 86.9 107.1 91.4
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) from operations (11.0) (4.6) (14.7) 3.0 (22.3) (10.4)
License and other interest income 3.8 3.9 3.9 3.0 3.7 2.8
Interest expense 0.0 0.0 0.0 0.0 0.0 0.0
Foreign currency transactions 0.0 0.0 0.5 0.0 0.0 0.0
Other income 0.0 0.4 0.2 0.1 0.0 0.0
Investment impairments (1.2) 0.0 (3.0) 0.0 0.0 0.0
---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (8.4) (0.3) (13.1) 6.1 (18.6) (7.6)
Provision (benefit) for income taxes (2.6) 1.0 (4.4) 2.1 (5.9) (2.4)
---------- ---------- ---------- ---------- ---------- ----------
Net income (loss) available to common
stock (5.8)% (1.3)% (8.7)% 4.0% (12.7)% (5.2)%
========== ========== ========== ========== ========== ==========
March 31, June 30,
2002 2002
----------- -----------
Revenues:
Software license revenues $ 5,157 $ 10,297
Maintenance 8,732 8,777
Professional Services and other 908 1,859
---------- ----------
Total revenues 14,797 20,933
Costs of revenues:
Software license revenues 218 471
Maintenance 1,465 1,597
Professional services and other 873 1,910
---------- ----------
Total costs of revenues 2,556 3,978
---------- ----------
Gross profit 12,241 16,955
Operating expenses (1):
Sales and marketing 9,007 10,073
Research and development 4,118 4,134
General and administrative 2,532 2,692
Facilities restructuring -- 1,394
---------- ----------
Total operating expenses 15,657 18,293
---------- ----------
Income (loss) from operations (3,416) (1,338)
License and other interest income 330 318
Interest expense (11) --
Foreign currency transactions 4 (17)
Other income -- 148
Investment impairments -- --
---------- ----------
Income (loss) before income taxes (3,093) (889)
Provision (benefit) for income taxes (1,216) (312)
---------- ----------
Net income(loss)available to
common stock $ (1,877) $ (577)
========== ==========
Basic earnings (loss) per share $ (0.11) $ (0.03)
========== ==========
Diluted earnings (loss) per share $ (0.11) $ (0.03)
========== ==========
As a Percentage of Total Revenues
Revenues:
Software license revenues 34.9% 49.2%
Maintenance 59.0 41.9
Professional service and other 6.1 8.9
----- -----
Total revenues 100.0 100.0
Costs of revenues:
Software license revenues 1.5 2.3
Maintenance 9.9 7.6
Professional service and other 5.9 9.1
----- ----
Total costs of revenues 17.3 19.0
----- ----
Gross profit 82.7 81.0
Operating expenses (1):
Sales and marketing 60.9 48.1
Research and development 27.8 19.7
General and administrative 17.1 12.9
Facilities restructuring 0.0 6.7
----- ----
Total operating expenses 105.8 87.4
----- ----
Income (loss) from operations (23.1) (6.4)
License and other interest income 2.2 1.5
Interest expense 0.0 0.0
Foreign currency transactions 0.0 (0.1)
Other income 0.0 0.7
Investment impairments 0.0 0.0
----- ----
Income (loss) before income taxes (20.9) (4.3)
Provision (benefit) for income taxes (8.2) (1.5)
Net income (loss) available to common ----- ----
stock (12.7)% (2.8)%
===== ====
(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, 2002 was $91,000, $91,000, $56,000, $39,000, $40,000, $40,000,
$27,000 and $18,000, respectively.
19
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' 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. As of June 30, 2002, Mobius had cash and cash equivalents of $31.1
million, an increase of $7.0 million from $24.1 million held at June 30, 2001.
In addition, Mobius had marketable securities of $2.6 million as of June 30,
2002, a decrease of $7.9 million from $10.5 million held as of June 30, 2001.
In fiscal 2000, net cash used in operating activities was $4.0 million. In
fiscal 2001 and 2002, operating activities provided net cash of $8.3 million and
$2.2 million, respectively. In 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 of software license installments and growth in
deferred revenues. During fiscal 2001 and 2002, Mobius' depreciation and
amortization expense adjustment in operating activities was $4.2 million and
$4.1 million, respectively. Depreciation and amortization expense increased
during fiscal 2001 due to infrastructure investments. Mobius' sources of cash
during fiscal 2001 was collections of software installments and accounts
receivable. Mobius' sources of cash during fiscal 2002 was collections of
software installments and an increase in deferred revenue, offset by an increase
in accounts receivable. Software license installments, which decreased 28.9%
from $14.5 million at June 30, 2001 to $10.3 million at June 30, 2002, represent
payments due from customers for license fees that are paid over the term of the
installment agreement. 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 24.2% from $12.9
million at June 30, 2001 to $16.0 million at June 30, 2002, largely as a result
of slower collections.
Net cash used in investing activities was $8.6 million and $5.2 million in
fiscal 2000 and 2001, respectively. Net cash provided by investing activities
was $7.2 million in fiscal 2002. The increase in cash provided by investing
activities was primarily attributable to the increase in the net proceeds from
the sale of marketable securities and the decrease in capital expenditures.
For the years ended June 30, 2000, 2001 and 2002, cash of $6.2 million,
$4.2 million and $1.1 million, respectively was used for the purchase of
computer equipment, furniture and fixtures and leasehold improvements.
Marketable securities of $3.5 million, $23.4 million and $8.4 million were
purchased and $2.3 million, $23.3 million and $17.0 million marketable
securities were sold, in fiscal 2000, 2001, 2002, respectively. Mobius made
investments of $1.3 million and $375,000 in Home Account Network and Flooz.com
during fiscal 2000 and 2001, respectively. These investments are disclosed in
detail in a separate section of Management's Discussion and Analysis and in Note
5 of the Consolidated Financial Statements.
In fiscal 2000, cash provided by financing activities of $327,000 was
primarily due to cash received from the exercise of stock options and sales of
Mobius' common stock through the employee stock purchase plan. Net cash provided
by financing activities was $147,000 in fiscal 2001, primarily due to the sale
of Mobius' common stock through the employee stock purchase plan, offset by the
cash used to repurchase Mobius' common stock. In fiscal 2002, net cash used in
financing activities was $3.1
20
million, primarily due to cash used to repurchase Mobius' common stock pursuant
to Mobius' stock repurchase program, offset by cash received for employee stock
purchases and stock option exercises.
The Company's material obligations and commitments to make future payments
under contracts consist of its operating leases for its office facilities. These
leases expire on various dates through fiscal 2010 and provide for additional
payments relating to utility costs. As of June 30, 2002, the future minimum
lease payments for these operating leases is as follows (in thousands):
Operating
Leases
--------
Year Ended:
- -----------
June 30, 2003 $3,136
June 30, 2004 2,776
June 30, 2005 2,145
June 30, 2006 1,549
June 30, 2007 1,492
Thereafter 3,790
-------
Total minimum lease payments $14,888
=======
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.
The Company continues to evaluate potential acquisition candidates whose
products or technology would enhance Mobius' strategic market position.
Bad Debt Reserves
Accounts receivable reserves are primarily calculated by identifying
potentially problem accounts and potential adjustments to maintenance
agreements. Mobius also has a small reserve to absorb losses based upon
historical experience that may result from current receivables. Mobius
specifically identifies potentially 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 judgment as to
what portion of the accounts receivable balance requires a reserve. As of June
30, 2001 and June 30, 2002 approximately 80% and 86%, respectively, of the total
accounts receivable reserve balances were related to specific accounts. 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. 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 $1.45 million
and $1.5 million at June 30, 2001 and June 30, 2002, respectively.
Other Matters
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. The buyer
assumed responsibility for maintenance support for all existing TapeSaver
licenses. The Company recognized approximately $1.1 million of TapeSaver
maintenance revenue through December 31, 1999 for TapeSaver maintenance billings
collected prior to the sale, $795,000 of which was
21
recognized in fiscal 1999 and $302,000 of which was recognized in fiscal 2000.
No maintenance revenue was recognized in fiscal 2001 and 2002. For the years
ended June 30, 2000 and 2001, the Company recognized $673,000 and $450,000 of
TapeSaver license revenue, respectively. As the buyer is delinquent on these
payments since June 2001, no TapeSaver license revenue was recognized in fiscal
2002.
Mobius commenced arbitration proceedings with the buyer to enforce the
payment terms in the sales agreement. On March 26, 2002, the arbitrator issued
an award in Mobius' favor against the buyer and its president in the amount of
$381,750, which represents amounts past due under the sales agreement. The
arbitrator also directed the buyer and its president to pay Mobius $37,500 each
month from March 31, 2002 through December 31, 2003 and to pay Mobius' share of
the arbitration expenses. In April 2002, Mobius commenced an action against the
buyer and its president in the United States District Court for the Southern
District of New York to confirm the arbitration award. The Court granted that
motion and issued an order confirming the award on September 23, 2002.
During fiscal 2001, Mobius integrated Click-n-Done with Mobius' other
products, to provide an integrated architecture that supports electronic
statement presentment, electronic bill presentment and payment and electronic
invoice presentment and payment. Mobius' segregated expenses for Click-n-Done
were approximately $8.2 million and $4.4 million in fiscal 2000 and 2001,
respectively. Through June 30, 2000, Mobius had not generated any revenue from
the sale of its Click-n-Done products. In fiscal 2001 Mobius recognized $173,000
of license revenue from Click-n-Done products.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," which addresses financial accounting and
reporting for business combinations and supersedes APB Opinion No. 16, "Business
Combinations" and SFAS No. 38, "Accounting for Pre-acquisition Contingencies of
Purchased Enterprises." All business combinations in the scope of this Statement
are to be accounted for using one method, the purchase method. The Statement
also provides guidance on purchase accounting related to the recognition of
intangible assets and accounting for negative goodwill. The provisions of this
Statement apply to all business combinations initiated after June 30, 2001. The
Company adopted this statement as of July 1, 2001. The adoption of SFAS No. 141
did not have a significant impact on the Company's financial position or results
of operations.
Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which addresses financial accounting and reporting for
acquired goodwill and other intangible assets. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Goodwill will be tested for impairment annually or whenever events or
circumstances occur that indicate goodwill could have been impaired. Upon
adoption of Statement 141, amortization of goodwill recorded for business
combinations consummated prior to July 1, 2001 will cease, and intangible assets
acquired prior to July 1, 2001 that do not meet the criteria for recognition
under SFAS No. 141 will be reclassified to goodwill. Companies are required to
adopt SFAS No. 142 for fiscal years beginning after December 15, 2001. In
connection with the adoption of SFAS No. 142, companies will be required to
perform a transitional goodwill impairment assessment. The Company adopted this
statement on July 1, 2002. The adoption of SFAS No. 142 did not have a
significant impact on the Company's financial position or results of operations
as the Company does not have significant amounts of recorded goodwill or
intangible assets associated with any prior business combination.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which establishes accounting standards for recognition
and measurement of a liability for the costs of asset retirement obligations.
Under SFAS No. 143, the costs of retiring an asset will be recorded as a
liability when the obligation arises, and will be amortized to expense over the
life of the asset. Companies are required to adopt SFAS No. 143 for fiscal years
beginning after June 15, 2002. Mobius adopted this statement on July 1, 2002.
The adoption of SFAS No. 143 did not
22
have a significant impact on the Company's financial position or results of
operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 requires an entity to test an asset for recoverability whenever
events or changes in circumstances indicate that the entity may not be able to
recover the asset's carrying amount. Companies are required to adopt SFAS No.
144 for fiscal years beginning after December 15, 2001. Mobius adopted this
statement on July 1, 2002. The adoption of SFAS No. 144 did not have a
significant impact on the Company's financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exist
an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, rather than at the date
of an entity's commitment to an exit plan as prescribed by EITF Issue No. 94-3.
The provisions of SFAS No. 146 are effective for exit or disposal activities
that are initiated after December 31, 2002. As disclosed in Note 17, in fiscal
2002, Mobius recognized a facilities restructuring charge of $1.4 million. The
estimated accrual was recognized in accordance with EITF Issue No. 94-3 based on
the estimated fair value of the liability.
23
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 security will probably decline. At June 30, 2002, 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 international
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. Mobius does not use
derivative foreign exchange financial investments.
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.
24
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are currently seven members of the Board of Directors. During fiscal
year 2002, Edward Glassmeyer resigned from the Board of Directors. The Board is
divided into three classes with terms expiring, respectively, at the 2002, 2003
and 2004 annual meeting of stockholders. Generally, Mobius directors are elected
for three-year terms, However, Robert H. Levitan was appointed to fill a vacancy
with a remaining term of two years, and Arthur J. Marks was appointed to fill a
vacancy with a remaining term of one year. Personal information on each of our
directors is given below.
The Board oversees the management of the Company on the stockholder's
behalf. It reviews Mobius' long-term strategic plans and exercises direct
decision-making authority in key areas. The Board chooses the Chief Executive
Officer, sets the scope of his authority to manage Mobius' business day to day,
and evaluates his performance.
Six of Mobius' seven directors are not Mobius employees. Only non-employee
directors serve on Mobius' Audit and Compensation committees. The Board met
seven times during fiscal 2002. Each director attended all of the meetings of
the Board held during their term, except Gary G. Greenfield and Robert H.
Levitan who each attended six of the seven meetings of the Board.
DIRECTORS
Set forth below are the names, ages, positions and certain other
information concerning the current Directors of Mobius.
Mitchell Gross........... Co-Founder of Mobius. President since 1981 and
Age 52 Chairman of the Board and Chief Executive Officer
Director since 1981 since 1996. Mr. Gross was an officer in the U.S.
Navy, serving on nuclear submarines, from
1971-1976. Holds a B.S. in mechanical engineering
from Columbia University School of Engineering and
Applied Science and an M.B.A. in finance from The
Wharton School at the University of Pennsylvania.
Joseph J. Albracht....... Co-founder of Mobius. Executive Vice President and
Age 53 Secretary from 1981 to 1999, Chief Operating
Director since 1981 Officer from 1996 to 1999 and Treasurer from 1981
to 1996. Holds a B.S. in operations research and
an M.B.A. from Pennsylvania State University.
Gary G. Greenfield....... Chief Executive Officer of Peregrine Systems,
Age 47 Inc.(1) Formerly, President and Chief Executive
Director since 1998 Officer of MERANT plc from 1998 to 2001. Holds a
B.S. from the U.S. Naval Academy, an M.S.
Administration from George Washington University
and an M.B.A from Harvard Business School. Serves
as a director of Hyperion Solutions, Peregrine
Systems, Inc., and Managed Objects and is Chairman
of Intellitactics. Chairman of the Information
Technology Association, a special advisor to JMI
Equity, and a member of the Norwood School Board of
Trustees.
25
Patrick W. Gross......... Co-founder of American Management Systems, Inc.
Age 57 Holds a B.S. in economics from Rensselear
Director Since 2002 Polytechnic Institute, an M.S. in economics from
the University of Michigan and an M.B.A from
Stanford University. Serves as a director of
Capital One Financial Corporation, Landmark Systems
Corporation and Baker & Taylor, Inc.
Kenneth P. Kopelman...... Partner of Kramer Levin Naftalis & Frankel LLP(2)
Age 50 (law firm). Attended Cornell University (A.B.) and
Director since 1997 the London School of Economics and received his
J.D. from Columbia University School of Law.
Serves as a director of Liz Claiborne, Inc.
Robert H. Levitan........ New media and technology entrepreneur, most
Age 41 recently consulting with Pearson PLC. Co-founder
Director since 2000 and Chief Executive Officer of Flooz.com, Inc. from
1999 to 2001(3). Co-founder of iVillage.com, Inc.
Holds a B.A. in history and public policy studies
from Duke University. Serves as a director of New
York Cares.
Arthur J. Marks.......... General Partner of Valhalla Partners and Chairman
Age 57 of the Mid-Atlantic Venture Association. General
Director since 2002 Partner with New Enterprise Associates, from 1984
to 2001. Formerly with General Electric from 1975
to 1984 and Baxter-Travenol Laboratories from 1971
to 1975. Holds a B.S. in industrial engineering
from the University of Michigan and an M.B.A from
the Harvard University Graduate School of Business.
Serves as a director of Progress Software, Advanced
Switching Communications and Talk America.
(1) Peregrine Systems, Inc. filed for bankruptcy protection in September 2002.
(2) Kramer Levin has served as legal counsel to Mobius since the Company's
founding in 1981.
(3) Flooz.com, Inc. filed for bankruptcy liquidation in August 2001.
DIRECTOR COMPENSATION
Mobius employees receive no extra pay for serving as directors. Effective
February 2002: (1) the annual retainer fee for non-employee directors serving on
the Board was increased from $10,000 to $15,000, payable quarterly in advance;
(2) Audit Committee members receive an additional annual fee of $2,500; and (3)
the fee for each board meeting attended was increased from $1,250 to $2,000. The
fee for each telephonic Board meeting attended is $500. Board meeting fees are
payable promptly after each meeting. Mr. Kopelman's fees are net of the amounts
paid to Kramer Levin for time Mr. Kopelman devotes to preparation for and
attendance at Board meetings.
The Mobius Non-Employee Directors' 1998 Stock Option Plan provides for the
grant to Mobius directors of non-qualified stock options to purchase Mobius
shares. These include an initial grant of 10,000 options, made upon a
non-employee director's first election to the Board, as well as an annual grant
of 10,000 options, made at each annual meeting to those directors having at
least nine months of Board service on the grant date. All such options have an
exercise price equal to the fair market value of the underlying Mobius shares on
the date of grant.
INFORMATION CONCERNING EXECUTIVE OFFICERS
Set forth below are the names, ages, positions and certain other
information concerning the current Executive Officers of Mobius. Personal
information on Mitchell Gross is given above. Executive officers are elected by
the Board and
26
serve until the next meeting of the Board following the annual meeting of
stockholders and until their successors have been duly executed and qualified.
Name Position
- ---- --------
Mitchell Gross Chairman of the Board, Chief Executive Officer and
Age 52 President.
Michael J. Festa Vice President, Sales (United States and Latin America)
Age 42 since 2000. Joined Mobius in 1991 and served as Area
Director from 1998-2000 and Regional Manager from
1996-1997. Holds a B.B.A. in management from Iona
College.
David J. Gordon Vice President, Finance and Assistant Treasurer since
Age 46 2001. Interim Chief Financial Officer from June 2000
until January 2002. Joined Mobius in 1987 and served as
Director of Finance from 1999-2000 and Controller from
1987-1999. Holds a B.A. in Accounting from Queens
College N.Y.
Karry D. Kleeman (1) Vice President, World Sales since 1999. Joined Mobius in
Age 40 1990 and served as Vice President, Sales (North and South
America) from 1997-1999, National Sales Manager from 1995
to 1997 and Regional Manager from 1992 to 1995. Holds a
B.A. in marketing from Elmhurst College.
Robert H. Lawrence Vice President, Product Engineering since 1992. Joined
Age 50 Mobius in 1985. Holds a B.S. in physics from the
University of Massachusetts.
Peter E. Takiff Senior Vice President, Finance, and Chief Financial
Age 48 Officer since he joined Mobius in January 2002. Formerly
served as Chief Financial Officer of Flooz.com, Inc.(2)
and Tommy Boy Music. Holds a B.S. in Accounting from New
York University and is a Certified Public Accountant.
Peter H. Tierney Vice President, Sales (Europe, Middle East and Africa)
Age 51 since July 2001. Joined Mobius in 1993 as Director of
International Operations and has served in various
international management positions. Before joining
Mobius, he held international management positions with
SDI (UK) Limited, The European Software Company and SKK
Inc. Holds an M.B.A. from the University of Cape Town.
Joseph G. Tinnerello Senior Vice President, Sales and Marketing since July 1,
Age 45 2002; previously, Senior Vice President, Marketing since
March 2002. Joined Mobius in 1990 and served as Vice
President, Sales from 1995 to 1997 and Vice President,
Business Development from 1998 to March 2002. Following a
personal leave of absence, left Mobius from October 1997
through January 1998. From 1988 to 1989, Mr. Tinnerello
served as a Regional Manager with Legent Software.
Hiromasa Yazaki Vice President, Sales (North Asia) since 1999. Prior to
Age 46 joining Mobius, Mr. Yazaki was employed by Kodak Japan
Ltd. in 1997 and 1998 as a General Manager/Consumer
Imaging Marketing and employed by Informix K.K. in 1996
as Director of Sales. Holds a B.A. from Dokkyo
University.
27
(1) Commenced six-month sabbatical on July 1, 2002.
(2) Flooz.com, Inc. filed for bankruptcy liquidation in August 2001.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's common stock, to file reports of ownership on Form 3 and
changes in ownership on Form 4 or 5 with the SEC. Such directors, executive
officers and 10% stockholders are also required by SEC rules to furnish the
Company with copies of all Section 16(a) forms they file. Based solely upon its
review of copies of such forms received, or on written representations from
certain reporting persons for which no other filings were required, the Company
believes that during the year ended June 30, 2002, there was compliance with all
Section 16(a) filing requirements applicable to its directors, executive
officers and 10% stockholders, except: (1) due to administrative oversight, (A)
the following directors did not timely report on Form 5 their annual receipt of
10,000 options automatically granted to them under the Company's stockholder
approved 1998 Non-Employee Director Stock Option Plan: one option grant in each
of fiscal years 2001 and 2002 - Messrs. Albracht, Greenfield and Kopelman; and
one option grant in fiscal year 2002 - Mr. Levitan; and (B) the following
officers did not timely report on Form 5 their receipt of options granted to
them under the Company's stockholder approved 1996 Stock Incentive Plan: one
grant of 5,000 options in fiscal year 2001 - Mr. Tinnerello; one grant of 20,000
options in fiscal 2000 and one grant of 5,000 options in fiscal 2001 - Ms.
Becker; one grant of 10,000 options in fiscal 2001 and one grant of 25,000
options in fiscal 2002 - Mr. Gordon; one grant of 20,000 options in fiscal 2002
- - Mr. Festa; and one grant of 45,000 options in fiscal 2002 - Mr. Tierney; and
(2) Mr. Lawrence inadvertently filed late one Form 4 in fiscal 2002 covering the
sale of 9,400 shares.
28
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by Mobius' Chief
Executive Officer and the five other highest-paid executive officers for the
past three fiscal years. The individuals included in the table will be
collectively referred to as the "Named Officers."
SUMMARY COMPENSATION TABLE
Name and Principal Position Annual Compensation(1)
- --------------------------- ------------------------------------------
All Other Annual All Other
Year Salary Bonus Compensation (2) Compensation
---- -------- -------- ---------------- ------------
Mitchell Gross 2002 $200,000 $ 50,000 -- $ 74,194(3)
Chairman of the Board, Chief Executive 2001 200,000 150,264 -- 73,904(3)
Officer and President 2000 200,000 75,252 -- 84,948(3)
Karry D. Kleeman 2002 125,000 30,078 260,531 4,324(4)
Vice President, World Sales 2001 125,000 4,140 311,818 4,069(4)
2000 125,000 6,126 310,501 --
Michael J. Festa 2002 125,000 30,078 213,405 3,950(4)
Vice President, U.S. and Latin America Sales 2001 125,000 7,016 257,698 3,468(4)
2000 115,500 46,767 176,796 --
Sandra A. Becker 2002 132,513 71,250 -- 78,434(6)
Senior Vice President, Marketing 2001 190,000 142,665 -- 3,889(4)
2000 190,000 142,658 -- 72,943(5)
Joseph G. Tinnerello 2002 150,000 -- 206,250 --
Senior Vice President, Sales and Marketing 2001 150,000 231 189,750 --
2000 150,000 252 214,500 --
Robert H. Lawrence 2002 210,591 15,749 -- 4,840(4)
Vice President, Project Engineering 2001 201,432 48,438 -- --
2000 193,737 43,875 -- --
(1) In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted in those instances
where the aggregate amount of such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total annual
salary and bonuses for the named executive officer for such year.
(2) Consists of sales commissions and non-recoverable draws.
(3) Includes premiums on insurance, car premiums, tax preparation fees and
sales incentive trip added to compensation. These amounts have been grossed
up to include taxes.
(4) Includes sales incentive trip. The value of the trip has been grossed up to
include taxes.
(5) Includes relocation expenses.
(6) Includes sales incentive trip, the value of which has been grossed up to
include taxes, as well as compensation paid upon resignation from the
Company in February 2002.
BOARD COMMITTEES
The Board appoints committees to help carry out its duties. Each committee
reviews the results of its meetings with the full Board. The Board established
its committees in February 1998 in connection with Mobius' initial public
offering.
The Audit Committee is responsible for accounting and internal control
matters. Subject to stockholder and Board approval, the Audit Committee chooses
the independent public accountants to audit Mobius' financial statements and
reviews the scope, results and costs of the audit with such accountants. The
Audit Committee also reviews the financial statements and accounting and control
practices of Mobius. The Audit Committee consists of Messrs. Greenfield, P.
Gross and Levitan. The Audit Committee met five times during fiscal 2002.
29
The Compensation Committee oversees compensation for Mobius' executives,
including salary, bonus and incentive awards. The Compensation Committee is also
responsible for administering Mobius' 1996 Stock Incentive Plan, Mobius' 1998
Employee Stock Purchase Plan and Mobius' 1998 Executive Incentive Plan. The
Compensation Committee consists of Messrs. Albracht and Levitan. The
Compensation Committee met one time during fiscal 2002.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview
The Compensation Committee:
(1) reviews and approves the compensation of Mr. Gross;
(2) approves the general policies applicable to salaries and bonuses for
the other executive officers and reviews and acts on bonuses for those
officers; and
(3) makes recommendations to the full Board and senior management with
respect to the adoption and administration of Mobius' compensation
programs.
Mobius' executive compensation program is designed to attract, retain,
motivate and reward the management talent Mobius needs to achieve its business
goals and maintain its leadership in the increasingly competitive environment of
enterprise software products.
The three major components of Mobius' compensation program are salary,
annual bonus and stock options.
The salary and bonus components of Mobius' executive compensation are
designed to facilitate the fulfillment of the following objectives:
(1) retaining competent management;
(2) rewarding management for the achievement of short and long term
accomplishments;
(3) aligning the interests of management with the interests of Mobius'
stockholders; and
(4) relating executive compensation to the achievement of our goals and
financial performance.
Salary
We base salary on an executive's knowledge, skills and level of
responsibility as well as the economic and business conditions affecting Mobius.
Other factors we consider are:
(1) competitive positioning (comparing Mobius' salary structure with
salaries paid by other companies);
(2) Mobius' own business performance; and
(3) general economic factors.
30
Annual Bonus
We give our executives annual bonuses to provide an incentive and reward
for short-term financial success and long-term Company growth. Annual bonuses
link compensation in significant part to Mobius' financial performance and is
determined solely by the Compensation Committee.
Stock Options
We use stock options as a long-term, non-cash incentive and to align the
long-term interests of executives and stockholders. The stock options are priced
at the market price of Mobius' common stock on the date of grant, therefore the
options are linked to future performance of our stock because the options do not
become valuable to the holder unless the price of our stock increases above the
price on the date of grant. The number of stock options granted to an executive
as a form of non-cash compensation is determined by the following factors:
(1) number of stock options previously granted to an executive;
(2) the executive's remaining options exercisable; and
(3) the value of those remaining stock options, as compared to the
anticipated value that an executive will add to Mobius in the future.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan commenced in fiscal 1999 and provides
employees who wish to acquire Mobius' common stock with the opportunity to
purchase shares with a convenient way of doing so by accumulated payroll
deductions. We believe that employee participation in ownership of Mobius on
this basis will be to the mutual benefit of the employees and Mobius.
Executive Incentive Plan
The Executive Incentive Plan ("Incentive Plan") was established in fiscal
1998 and 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 Mobius. 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 September 18, 2002, there were no awards made under the Incentive
Plan.
Compensation of the Chief Executive Officer
Mr. Gross is one of the founders of Mobius. He beneficially owns
approximately 5,550,500 shares of common stock constituting approximately 32.2%
of the total amount outstanding. Accordingly, his interest is very much aligned
with the interest of all stockholders and Mobius has not considered it sensible
to relate Mr. Gross's compensation to Mobius' performance through long-term
stock incentives such as restricted stock or stock options. Mr. Gross's
compensation package consists primarily of salary and bonus. The members of the
Compensation Committee agreed to continue to pay Mr. Gross's $200,000 annual
salary after the expiration of his employment agreement on April 27, 2001 and
granted Mr. Gross a bonus attributable to his success in achieving certain goals
during fiscal 2002.
Joseph J. Albracht
Robert H. Levitan
31
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1996 Stock Incentive Plan to the Named Officers
during fiscal year 2002.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
% of Potential Realizable
Number of Underlying Value at Assumed
Securities Options Rates of Stock
Underlying Granted to Exercise Appreciation for
Options Employees in Price Expiration Option Term
Name Granted(#)(1) Fiscal Year ($/Share) Date 5%($) 10%($)
---- ------------ ------------- --------- ---------- -------- --------
Michael J. Festa 20,000 1.92% $ 2.52 11/21/11 $31,696 $80,325
- ------------------------
(1) Options were granted on November 21, 2001 and have a maximum term of
10 years measured from the grant date, subject to earlier termination in the
event of the optionee's cessation of service with the Company. The vesting of
these options is 20% on November 21, 2002 and 5% of the remaining stock options
will become exercisable every three months thereafter until November 21,2006.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information with respect to the Named
Officers concerning their exercise of options during fiscal year 2002 and the
unexercised options held by them as of the end of such year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Shares Underlying Unexercised in-the Money Options
Acquired Value Options at Fiscal at Fiscal
on Realized Year-End Year-End ($)(1)
Name Exercise ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
Mitchell Gross -- $- -- -- $ -- $ --
Karry D. Kleeman -- -- 331,528 8,472 340,000 --
Michael J. Festa -- -- 60,250 59,750 21,500 18,100
Sandra A. Becker -- -- -- -- -- --
Joseph G. Tinnerello -- -- 281,500 3,500 375 875
Robert H. Lawrence -- -- 204,000 -- 408,000 --
------------------
(1) Based on the closing sale price on the Nasdaq National Market of the
common stock on June 28, 2002 of $3.25.
STOCK PERFORMANCE GRAPH
The following graph depicts a comparison of the cumulative total return
(assuming the reinvestment of dividends) for a $100 investment on June 30, 1998
in each of the common stock of Mobius, the Goldman Sachs Technology Composite
Index (a published industry index), and the Nasdaq Composite (a broad market
index). The Company paid no dividends during the periods shown. The graph lines
merely connect measurement dates and do not reflect fluctuations between those
dates.
June 30,1999 June 30,2000 June 29,2001 June 28,2002
------------ ------------ ------------ ------------
Mobius $ 55.00 $ 30.42 $ 22.00 $ 21.67
Goldman Sachs Technology
Composite Index 168.31 265.36 129.51 74.48
Nasdaq Composite 141.77 209.32 114.03 77.22
32
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares of Mobius common stock each
Named Officer, each non-employee director, and certain stockholders known by the
Company to be the beneficial owner of more than 5% of the outstanding common
stock, owned as of September 18, 2002.
Name and Address of Named Executive
Officers, Certain Stockholders and Shares Percent of
Directors / Nominees Owned(1) Class
------------------------------------ -------- ----------
Mitchell Gross(2)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580 ........................... 5,550,500 32.2%
Joseph J. Albracht (3)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 3,953,500 22.9%
Karry D. Kleeman(4)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, NY 10580 ................................. 341,000 1.9%
Robert H. Lawrence (5)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 309,600 1.8%
Joseph G. Tinnerello(6)
c/o Mobius Management Systems, Inc.
600 West Fulton Street
Chicago, IL 60661.............................. 292,600 1.7%
Michael J. Festa (7)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 76,290 *
Arthur J. Marks (8)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 52,125 *
Kenneth P. Kopelman(9)
c/o Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, NY 10022............................. 43,850 *
Gary G. Greenfield (10)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 40,481 *
Robert H. Levitan(11)
160 East 88th Street
New York, NY 10128............................ 20,000 *
Patrick W. Gross (11)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 20,000 *
33
Name and Address of Named Executive
Officers, Certain Stockholders and Shares Percent of
Directors / Nominees Owned(1) Class
------------------------------------ -------- ----------
Sandra A. Becker
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 7,429 *
All Executive Officers and Directors
As a group (16 persons) ....................... 10,843,128 59.0%
-------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC"), and generally includes voting
power and/or investment power with respect to securities. Shares of Common
Stock subject to options currently exercisable or exercisable within 60
days ("Currently Exercisable Options") are deemed outstanding for computing
the percentage beneficially owned by the person holding such options but
are not deemed outstanding for computing the percentage beneficially owned
by any other person.
(2) Includes 3,732,259 shares of Common Stock held by HARMIT, LP, of which
Mitchell Gross is the general partner.
(3) Includes 20,000 shares issuable pursuant to Currently Exercisable Options.
(4) Includes 340,000 shares issuable pursuant to Currently Exercisable Options.
(5) Includes 204,000 shares issuable pursuant to Currently Exercisable Options.
(6) Includes 282,000 shares issuable pursuant to Currently Exercisable Options.
(7) Includes 67,600 shares issuable pursuant to Currently Exercisable Options.
(8) Includes 11,484 shares of Common Stock held in trust for Mr. Marks'
children. Mr. Marks disclaims beneficial ownership to such shares. Also
includes 20,000 shares issuable pursuant to Currently Exercisable Options.
(9) Includes 1,500 shares of Common Stock held in trust by Mr. Kopelman's wife,
as trustee, for Mr. Kopelman's three minor children and 2,350 shares of
Common Stock held jointly by Mr. Kopelman and his wife. Mr. Kopelman
disclaims beneficial ownership to such shares. Also includes 40,000 shares
issuable pursuant to Currently Exercisable Options.
(10) Includes 40,000 shares issuable pursuant to Currently Exercisable Options.
(11) Includes 20,000 shares issuable pursuant to Currently Exercisable Options.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship With Kramer Levin Naftalis & Frankel LLP
Since 1981 the Company has engaged, and plans to continue to engage, the
Kramer Levin law firm to provide the Company with legal counsel. Mr. Kopelman, a
member of Mobius' Board of Directors, is a partner of Kramer Levin Naftalis &
Frankel LLP. Fees paid to Kramer Levin during fiscal 2002 were approximately
$635,000. Mobius believes that fees charged by Kramer Levin are at rates and on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties.
Relationship With Mr. Tinnerello
Following a personal leave, on September 30, 1997, Mobius entered into a
severance agreement with Mr. Joseph G. Tinnerello, presently Mobius' Senior Vice
President, Sales and Marketing, pursuant to which Mr. Tinnerello left Mobius'
employment on October 1, 1997 and agreed to certain non-competition and
non-solicitation restrictions in consideration for (1) the acceleration of
80,000 options to purchase shares of our common stock previously granted to him
and (2) the grant of 100,000 new options to purchase shares of our common stock
at an exercise price equal to the fair market value of the shares at the time of
the grant. Due to his termination and the terms of Mobius' 1996 Employee Stock
Incentive Plan, Mr. Tinnerello forfeited 640,000 options to purchase shares of
common stock that were previously granted to him in November 1996. On December
26, 1997, Mr. Tinnerello agreed to return to Mobius effective January 15, 1998.
On December 28, 1997, Mobius agreed to advance $160,000 to Mr. Tinnerello
against future commissions. As of September 18, 2002, the full amount of such
advance remains outstanding. Such monies (net of applicable taxes) were used by
Mr. Tinnerello to exercise options to purchase 80,000 shares of Common Stock. On
January 15, 1998, Mobius granted Mr.
34
Tinnerello options to purchase 180,000 shares of Common Stock in accordance with
and on terms similar to, our standard hiring practices.
Agreements With Employees
In February, 1998, Mobius entered into employment agreements with each
of Messrs. M. Gross and Albracht providing for the employment of Mr. Gross as
our Chairman of the Board, Chief Executive Officer and President and Mr.
Albracht as our Executive Vice President and Chief Operating Officer. Each
employment agreement provides for a three-year term ending on April 27, 2001,
the third anniversary of our initial public offering. In October 1999, Mr.
Albracht terminated his employment with the Company. Mr. Gross' employment
agreement expired during fiscal 2001.
Compensation Committee Interlocks And Insider Participation
The current members of our Board's Compensation Committee are Messrs.
Albracht and Levitan. There are no compensation committee interlocks which are
required to be disclosed by applicable SEC rules. No member of Mobius'
Compensation Committee serves as a member of the board of directors or
compensation committee of any other entity that has one or more executive
officers serving as a member of Mobius' Board of Directors or Compensation
Committee.
35
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 Accountants' Report of PricewaterhouseCoopers LLP
Independent Auditors' Report of KPMG LLP
Consolidated Balance Sheets as of June 30, 2001 and 2002
Consolidated Statements of Operations for the Years Ended June 30, 2000, 2001
and 2002
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the
Years Ended June 30, 2000, 2001 and 2002
Consolidated Statements of Cash Flows for the Years Ended June 30, 2000, 2001
and 2002
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
36
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors and Stockholders of
Mobius Management Systems, Inc.:
In our opinion, the accompanying consolidated balance sheet as of June 30,
2002 and the related consolidated statements of operations, of stockholders'
equity and comprehensive income and of cash flows present fairly, in all
material respects, the financial position of Mobius Management Systems, Inc. and
subsidiaries at June 30, 2002 and the results of their operations and their cash
flows for the year then ended in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audit of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
July 27, 2002
Stamford, CT
37
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mobius Management Systems, Inc.:
We have audited the accompanying consolidated balance sheet of Mobius Management
Systems, Inc. and subsidiaries as of June 30, 2001, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the two-year period ended June 30, 2001. In connection with our audits
of the aforementioned consolidated financial statements, we also audited the
related consolidated financial statement schedule in the Form 10-K. These
consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with 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, 2001 and the results of their
operations and their cash flows for each of the years in the two-year period
ended June 30, 2001, 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
July 25, 2001
Stamford, CT
38
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and per share data)
June 30,
---------------------------
2001 2002
--------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 24,099 $ 31,099
Marketable securities, at market value 10,508 2,635
Accounts receivable, net of allowance for doubtful
accounts of $899 and $1,043, respectively 12,852 15,959
Software license installments, current portion 9,317 6,862
Other current assets 2,304 2,846
-------- --------
Total current assets 59,080 59,401
Software license installments, non-current portion,
net of allowance for doubtful accounts of $551
and $453, respectively 5,216 3,467
Property and equipment, net 9,231 6,435
Deferred income taxes 1,242 1,423
Other assets 746 666
-------- --------
Total assets $ 75,515 $ 71,392
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 15,498 $ 17,446
Deferred revenue 16,950 19,182
Deferred income taxes 3,199 2,238
-------- --------
Total current liabilities 35,647 38,866
Deferred revenue 1,398 1,406
-------- --------
Total liabilities 37,045 40,272
-------- --------
Stockholders' equity:
Common stock $.0001 par value; authorized 40,000,000 shares;
issued 22,468,125 and 22,568,198 shares, respectively;
outstanding 18,193,102 and 17,213,975 shares, respectively 2 2
Additional paid-in capital 49,624 49,827
Retained earnings (deficit) 2,611 (2,610)
Deferred stock compensation (168) (43)
Accumulated other comprehensive income (878) (74)
Treasury stock, at cost, 4,275,023
and 5,354,223 shares, respectively (12,721) (15,982)
-------- --------
Total stockholders' equity 38,470 31,120
-------- --------
Total liabilities and stockholders' equity $ 75,515 $ 71,392
======== ========
See accompanying notes to consolidated financial statements.
39
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years Ended June 30,
--------------------------------------------------
2000 2001 2002
-------- --------- --------
Revenues:
Software license $ 31,018 $ 39,321 $ 28,026
Maintenance 27,785 33,174 34,776
Professional service and other 1,402 1,717 5,111
-------- -------- --------
Total revenues 60,205 74,212 67,913
-------- -------- --------
Costs of revenues:
Software license 946 1,219 1,128
Maintenance 5,399 5,331 5,919
Professional service and other 671 817 5,035
-------- -------- --------
Total costs of revenues 7,016 7,367 12,082
-------- -------- --------
Gross profit 53,189 66,845 55,831
-------- -------- --------
Operating expenses:
Sales and marketing 44,289 44,886 38,151
Research and development 14,823 16,267 15,741
General and administrative 12,086 10,460 10,380
Facilities restructuring -- -- 1,394
-------- -------- --------
Total operating expenses 71,198 71,613 65,666
-------- -------- --------
Loss from operations (18,009) (4,768) (9,835)
License and other interest income 2,930 2,689 1,674
Interest expense (58) (9) (15)
Foreign currency transactions 44 102 (5)
Other income -- 109 148
Investment impairments (2,220) (718) --
-------- -------- --------
Loss before income taxes (17,313) (2,595) (8,033)
Benefit for income taxes (5,417) (605) (2,812)
-------- -------- --------
Net loss $(11,896) $ (1,990) $ (5,221)
======== ======== ========
Basic and diluted loss per share $ (0.66) $ (0.11) $ (0.30)
Basic and diluted weighted average shares
outstanding 17,988 18,225 17,459
See accompanying notes to consolidated financial statements.
40
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in thousands)
Accumulated
Additional Retained Other
Common Stock Paid-in Earnings Deferred Comprehensive Treasury Stock
Shares Amount Capital (Deficit) Compensation Loss Shares Amount
------ ------ ------- --------- ------------ ---- ------ ------
Balance at June 30, 1999 17,905 $ 2 $ 48,409 $ 16,497 $ (982) $ (398) 4,091 $(12,000)
Net loss -- -- -- (11,896) -- -- -- --
Change in other comprehensive
income, net of tax -- -- -- -- -- 85 -- --
Comprehensive loss -- -- -- -- -- -- -- --
Stock options exercised 142 -- 252 -- -- -- 13 (85)
Stock purchase plan shares
issued 54 -- 170 -- -- -- -- --
Change in deferred compensation -- -- -- -- 537 -- -- --
------ -------- -------- ------- ------- ------- ------- -------
Balance at June 30, 2000 18,101 2 48,831 4,601 (445) (313) 4,104 (12,085)
Net loss -- -- -- (1,990) -- -- -- --
Change in other comprehensive
income, net of tax -- -- -- -- -- (565) -- --
Comprehensive loss -- -- -- -- -- -- -- --
Stock options exercised 25 -- 38 -- -- -- -- --
Stock purchase plan shares
issued 238 -- 755 -- -- -- -- --
Stock repurchase program (171) -- -- -- -- -- 171 (636)
Change in deferred compensation -- -- -- -- 277 -- -- --
------ -------- -------- ------- ------- ------- ------- -------
Balance at June 30, 2001 18,193 2 49,624 2,611 (168) (878) 4,275 (12,721)
Net loss -- -- -- (5,221) -- -- -- --
Change in other comprehensive
loss, net of tax -- -- -- -- -- 804 -- --
Comprehensive loss -- -- -- -- -- -- -- --
Stock options exercised 15 -- 25 -- -- -- -- --
Stock purchase plan shares issued 85 -- 178 -- -- -- -- --
Stock repurchase program (1,079) -- -- -- -- -- 1,079 (3,261)
Change in deferred compensation -- -- -- -- 125 -- -- --
------ -------- -------- -------- -------- -------- ------- --------
Balance at June 30, 2002 17,214 $ 2 $ 49,827 $ (2,610) $ (43) $ (74) 5,354 $(15,982)
====== ======== ======== ======== ======== ======== ======= ========
Total
Stockholders'
Equity
-------------
Balance at June 30, 1999 $ 51,528
Net loss (11,896)
Change in other comprehensive
income, net of tax 85
--------
Comprehensive loss (11,811)
Stock options exercised 167
Stock purchase plan shares
issued 170
Change in deferred compensation 537
--------
Balance at June 30, 2000 40,591
Net loss (1,990)
Change in other comprehensive
income, net of tax (565)
--------
Comprehensive loss (2,555)
Stock options exercised 38
Stock purchase plan shares
issued 755
Stock repurchase program (636)
Change in deferred compensation 277
--------
Balance at June 30, 2001 38,470
Net loss (5,221)
Change in other comprehensive
loss, net of tax 804
--------
Comprehensive loss (4,417)
Stock options exercised 25
Stock purchase plan shares issued 178
Stock repurchase program (3,261)
Change in deferred compensation 125
--------
Balance at June 30, 2002 $ 31,120
========
See accompanying notes to consolidated financial statements.
41
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended June 30,
------------------------------------------
2000 2001 2002
-------- -------- --------
Cash flows provided by (used in) operating activities:
Net loss $(11,896) $ (1,990) $(5,221)
-------- --------- --------
Adjustments to reconcile net loss to net cash provided
by (used in)operating activities:
Deferred income taxes (3,200) (1,937) (1,142)
Depreciation and amortization 3,029 4,163 4,106
Stock compensation expense 537 277 125
Impairment of investment 2,220 718 --
Loss on disposal of fixed assets 22 114 --
Other -- (18) 120
Change in operating assets and liabilities:
Accounts receivable, net (2,226) 2,005 (3,107)
Software license installments 5,553 3,295 4,204
Other assets (1,430) 1,778 (1,121)
Accounts payable and accrued expenses 1,921 452 1,954
Deferred revenue 1,503 (514) 2,240
------- ------- ------
Total adjustments 7,929 10,333 7,379
------- ------- ------
Net cash provided by (used in) operating activities (3,967) 8,343 2,158
------- ------- ------
Cash flows used in investing activities:
Purchase of marketable securities (3,535) (23,430) (8,418)
Purchase of investments (1,250) (375) --
Sale of marketable securities 2,330 23,270 16,958
Sale of fixed assets -- 62 8
Capital expenditures (6,152) (4,245) (1,141)
Other investment -- (445) (212)
------ ------- ------
Net cash provided by (used in) investing activities (8,607) (5,163) 7,195
------ ------- ------
Cash flows provided by financing activities:
Cash received from exercise of stock options 193 35 19
Cash received from employee stock purchase 170 748 178
Cash used for stock repurchase program -- (636) (3,261)
Payments on capital lease obligations (36) -- --
------- ------- ------
Net cash provided by (used in) financing activities 327 147 (3,064)
------- ------- ------
Effect of exchange rate changes on
cash and cash equivalents 81 (608) 711
------- ------- ------
Net change in cash and cash equivalents (12,166) 2,719 7,000
Cash and cash equivalents at beginning of year 33,546 21,380 24,099
------- ----------- -------
Cash and cash equivalents at end of year $21,380 $24,099 $31,099
======= ======= =======
Supplemental disclosure of cash flow
information:
Cash paid during the period for:
Interest $ 58 $ 9 $15
Income taxes (refunds), net (3,119) (1,690) 21
See accompanying notes to consolidated financial statements.
42
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
Mobius Management Systems, Inc., together with its consolidated
subsidiaries (the "Company"), is a leading provider of innovative technology
that provides for storage and access to mission-critical documents, reports and
images. Mobius was incorporated in New York in 1981 and reincorporated in
Delaware in 1997. The Company has international subsidiaries in the 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 accounts and
transactions.
Revenue Recognition
License and maintenance revenue are recognized in accordance with
Statement of Position ("SOP") 97-2, "Software Revenue Recognition." Revenue from
software license contracts includes license fees related to long-term licenses,
typically 5 or 15 years, and fees for term license contracts, which are
generally 3 to 5 years. 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. SOP 98-9, "Modification of
SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions,"
which amended SOP 97-2 and clarified what is considered vendor-specific evidence
of fair value for the various elements in a multiple element arrangement was
adopted by Mobius on July 1, 1999.
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 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 revenue.
Software Development Costs
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires
43
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
two to fifteen years. Assets acquired under capital leases are depreciated on a
straight-line basis over the asset's estimated life. Repairs and maintenance are
expensed as incurred.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." 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, capital 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 international 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 or loss.
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, 2001 and 2002, 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 SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," and are 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, 2000, 2001 and 2002 are insignificant. As of June
30, 2001 and 2002, the unamortized investment premium and unrealized holding
gains and losses were also insignificant.
44
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
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
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 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.
Outstanding stock options, representing an aggregate of 2,684,150,
3,061,150 and 3,764,350 shares of Common Stock equivalents, are antidilutive for
the year ended June 30, 2000, 2001 and 2002, respectively. Stock options would
be the only dilutive instruments for the years ended June 30, 2000, 2001 and
2002.
Stock Based Compensation
The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and related interpretations ("APB No. 25"). The Company applies the
disclosure requirements of SFAS No. 123, "Accounting for Stock-Based
Compensation."
FASB Interpretation ("FIN") No. 44, "Accounting for Certain Transactions
Involving Stock Compensation," provides guidance for applying APB Opinion No.
25. With certain exceptions, FIN No. 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.
Reclassifications
Certain reclassifications have been made to the 2001 and 2000 amounts to
conform to the 2002 presentation.
Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," which addresses financial accounting and
reporting for business combinations and supersedes APB Opinion No. 16, "Business
Combinations"
45
and SFAS No. 38, "Accounting for Pre-acquisition Contingencies of Purchased
Enterprises." All business combinations in the scope of this Statement are to be
accounted for using one method, the purchase method. The Statement also provides
guidance on purchase accounting related to the recognition of intangible assets
and accounting for negative goodwill. The provisions of this Statement apply to
all business combinations initiated after June 30, 2001. The Company adopted
this statement as of July 1, 2001. The adoption of SFAS No. 141 did not have a
significant impact on the Company's financial position or results of operations.
Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other
Intangible Assets," which addresses financial accounting and reporting for
acquired goodwill and other intangible assets. SFAS No. 142 changes the
accounting for goodwill from an amortization method to an impairment-only
approach. Goodwill will be tested for impairment annually or whenever events or
circumstances occur that indicate goodwill could have been impaired. Upon
adoption of Statement 141, amortization of goodwill recorded for business
combinations consummated prior to July 1, 2001 will cease, and intangible assets
acquired prior to July 1, 2001 that do not meet the criteria for recognition
under SFAS No. 141 will be reclassified to goodwill. Companies are required to
adopt SFAS No. 142 for fiscal years beginning after December 15, 2001. In
connection with the adoption of SFAS No. 142, companies will be required to
perform a transitional goodwill impairment assessment. The Company adopted this
statement on July 1, 2002. The adoption of SFAS No. 142 did not have a
significant impact on the Company's financial position or results of operations
as the Company does not have significant amounts of recorded goodwill or
intangible assets associated with any prior business combination.
In June 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which establishes accounting standards for recognition
and measurement of a liability for the costs of asset retirement obligations.
Under SFAS No. 143, the costs of retiring an asset will be recorded as a
liability when the obligation arises, and will be amortized to expense over the
life of the asset. Companies are required to adopt SFAS No. 143 for fiscal years
beginning after June 15, 2002. Mobius adopted this statement on July 1, 2002.
The adoption of SFAS No. 143 did not have a significant impact on the Company's
financial position or results of operations.
In August 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets," which addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 requires an entity to test an asset for recoverability whenever
events or changes in circumstances indicate that the entity may not be able to
recover the asset's carrying amount. Companies are required to adopt SFAS No.
144 for fiscal years beginning after December 15, 2001. Mobius adopted this
statement on July 1, 2002. The adoption of SFAS No. 144 did not have a
significant impact on the Company's financial position or results of operations.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities," which addresses financial
accounting and reporting for costs associated with exit or disposal activities
and nullifies Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exist
an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146
requires that a liability for a cost associated with an exit or disposal
activity be recognized when the liability is incurred, rather than at the date
of an entity's commitment to an exit plan as prescribed by EITF Issue No. 94-3.
The provisions of SFAS No. 146 are effective for exit or disposal activities
that are initiated after December 31, 2002. As disclosed in Note 18, in fiscal
2002, Mobius recognized a facilities restructuring charge of $1.4 million.
(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
46
years. For software installment contracts of 3 to 5 years, the payments are
generally spread ratably over the related 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, 2001 and 2002 the effective weighted
average discount rate used for software license installments was 7.4% in both
fiscal years. The discount is amortized to interest income using the interest
method over the term of the financing.
The present values of software license installments to be received after
June 30, 2002 are as follows (in thousands):
Year Ended:
June 30, 2003 $7,620
June 30, 2004 2,346
June 30, 2005 1,452
June 30, 2006 568
June 30, 2007 --
------
Total minimum payments to be received 11,986
Less unearned interest income (1,204)
Less allowance for doubtful accounts (453)
------
Present value of software license installments, net 10,329
Less current portion, net (6,862)
-------
Non-current portion, net $3,467
======
(4) Property and Equipment
Property and equipment consists of the following (in thousands):
June 30,
Useful -------
Life 2001 2002
---- ---- ----
Computer equipment 2 - 5 years $12,689 $13,788
Furniture, fixtures and office equipment 5 years 1,650 1,701
Leasehold improvements 5 - 15 years 4,665 4,653
------- -------
19,004 20,142
Less accumulated depreciation and amortization (9,773) (13,707)
------ -------
Property and equipment, net $ 9,231 $ 6,435
======= =======
Depreciation and amortization expense on property and equipment, including
capital leases, was $2,874,000, $4,133,000 and $3,929,000 for the years ended
June 30, 2000, 2001 and 2002, respectively.
(5) Investments
In June 1999, the Company invested $1,501,000 in Home Account Network
("HAN") a privately-held, information technology company providing processing
and Internet outsourcing to financial services companies. During fiscal 2000,
Mobius provided an additional $750,000 to HAN in short term loans that were
converted to preferred stock in May 2000. In fiscal 2001, Mobius provided an
additional $375,000 as a short term loan to HAN. Mobius' investment in HAN was a
minority ownership position, which was less than 5%.
Mobius regularly assessed the recoverability of the HAN investment and
concluded that other than temporary impairment losses occurred. Accordingly,
impairment losses were recorded in connection with this investment aggregating
$2.2 million and $218,000 for the years ended June 30, 2000 and 2001,
respectively.
In January 2001, HAN was purchased by Intelidata Technologies
("Intelidata"). As a result, during fiscal 2002, Mobius received Intelidata
shares for its investment in HAN. Mobius sold a portion of the shares received
and realized a
47
$150,000 gain in fiscal 2002. The carrying value of the remaining Intelidata
shares of $146,000 is included in marketable securities at June 30, 2002.
In January 2000, Mobius made an investment of $500,000 in Flooz.com, a
startup Internet company. This was an investment in preferred stock, which would
convert into common stock if Flooz.com had completed an initial public offering.
Mobius held a minority ownership position, which, if the preferred shares
converted to common stock, would be less than 5%. Flooz.com has ceased
operations and, in August 2001, filed for bankruptcy liquidation. Accordingly,
Mobius recorded an impairment loss of $500,000 in fiscal 2001. Robert H.
Levitan, the former Chief Executive Officer of Flooz.com, is currently, and has
been since June 2000, a member of the Board of Directors of Mobius.
(6) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
June 30,
--------
2001 2002
---- ----
Accounts payable $ 2,101 $3,531
Compensation and related benefits 6,728 6,746
Facilities restructuring -- 1,394
Royalties payable 1,143 1,305
Other 5,526 4,470
------- -------
$15,498 $17,446
======= =======
(7) Income Taxes
Income(loss)before provision (benefit) for income taxes is as follows (in
thousands):
Years Ended June 30,
--------------------
2000 2001 2002
---- ---- ----
Domestic income (loss) $(15,575) $ 1,216 $(3,015)
Foreign losses (1,738) (3,811) (5,018)
-------- ------- -------
$(17,313) $(2,595) $(8,033)
======== ======= =======
The components of the provision (benefit) for income taxes for the years
ended June 30, 2000, 2001 and 2002 are as follows (in thousands):
Years Ended June 30,
-------------------------------------------------------------------------------------------------------
2000 2001 2002
-------------------------------------------------------------------------------------------------------
Current Deferred Total Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- ----- ------- -------- -----
Federal $(1,734) $(2,768) $(4,502) $ 1,000 $(1,592) $ (592) $(1,613) $ (777) $(2,390)
State (532) (432) (964) 219 (345) (126) (103) (365) (468)
Foreign 49 -- 49 113 -- 113 46 -- 46
------- ------- ------- ------- ------- ------- ------- ------- -------
$(2,217) $(3,200) $(5,417) $ 1,332 $(1,937) $ (605) $(1,670) $(1,142) $(2,812)
======= ======= ======= ======= ======= ======= ======= ======= =======
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, 2000, 2001 and 2002
(in thousands):
48
Years Ended June 30,
---------------------------------
2000 2001 2002
-------- -------- --------
Expected federal statutory corporate rate $ (5,887) $ (882) $ (2,731)
State income taxes, net of Federal benefit (693) (78) (309)
Losses of international subsidiaries
for which no benefit has been recognized 866 208 304
Other 297 147 (76)
-------- -------- --------
Total income tax benefit $ (5,417) $ (605) $ (2,812)
======== ======== ========
Pre-Tax Loss $(17,313) $ (2,595) $ (8,033)
======== ======== ========
Effective Tax Rate (31.3)% (23.3)% (35.0)%
======== ======== ========
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,
-----------------
2001 2002
------- ------
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts $ 551 $ 571
Domestic net operating loss carryforwards 835 253
Foreign net operating loss carryforwards 3,289 4,679
Depreciation and amortization 103 473
Restructuring charge -- 538
AMT tax credit 309 309
Research and development credit carryforwards 541 741
Unrealized loss on investments 942 --
Capital loss carryforwards 193 1,077
Other 71 53
------ -----
6,834 8,694
Valuation allowance (3,289) (5,756)
------ ------
Net deferred tax assets 3,545 2,938
Deferred tax liabilities:
Software license installments 5,464 3,701
Other 38 52
------ -----
Net deferred tax liability $1,957 $ 815
====== ======
The valuation allowances increased by $1.1 million and $2.5 million for the
years ended June 30, 2001 and 2002, respectively, due to the uncertainty
regarding the realization of net operating losses incurred by certain
international subsidiaries and limitations imposed by the tax laws on the
Company's ability to realize the benefit of the capital loss carryforwards. 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.
As of June 30, 2002 the Company had net operating loss carryforwards, for
federal income tax purposes, of approximately $656,000 which expire, if unused,
in the year 2022. The Company also has $14.3 million in foreign net operating
loss carryforwards as of June 30, 2002. The carryforward period of these losses
varies by jurisdictions; some begin to expire in fiscal 2004 and others extend
indefinitely.
As of June 30, 2001 and 2002, the Company had capital loss carryforwards of
approximately $500,000 and $2.8 million, respectively. These capital loss
carryforwards will expire, if unused, in fiscal 2006 and 2007, respectively.
(8) 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
49
provisions of the shares including the designation of series, voting rights,
dividend features, redemption and liquidation provision and other features. No
shares were outstanding as of June 30, 2001 and 2002.
(9) Treasury Stock
In September 2001, the Board of Directors expanded the Company's stock
repurchase program to allow repurchases of up to 1,250,000 shares of Mobius'
outstanding common stock. Since the inception of the program in December 2000,
the entire 1,250,000 shares were repurchased at a cost of approximately $3.9
million. The number of shares repurchased and timing of purchases were based on
a variety of factors, including general market conditions, the market price and
trading volume of Mobius shares.
(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 4,902,400 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, 1999 2,481,850 $ 6.20
Granted 609,750 4.67
Exercised (154,950) 1.25
Forfeited (252,500) 5.60
Expired -- --
---------
Balance at June 30, 2000 2,684,150 6.19
50
Granted 826,750 3.04
Exercised (24,650) 1.29
Forfeited (403,600) 6.82
Expired -- --
---------
Balance at June 30, 2001 3,082,650 5.31
Granted 1,041,500 2.72
Exercised (15,500) 1.25
Forfeited (344,300) 8.48
Expired -- --
---------
Balance at June 30, 2002 3,764,350 $4.32
=========
The following table summarizes information about the stock option plans:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- -------------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
Range of as of Contractual Exercise as of Exercise
Exercise Prices June 30,2002 Life Price June 30, 2002 Price
--------------- ------------ ---- ----- ------------- -----
$1.25 - $1.25 626,750 4.16 $1.25 626,750 $1.25
$1.95 - $2.61 377,000 9.12 $2.21 66,100 $2.30
$2.65 - $2.75 13,500 9.65 $2.66 -- --
$2.80 - $2.80 437,500 9.49 $2.80 -- --
$2.81 - $2.98 10,000 9.21 $2.86 -- --
$3.00 - $3.00 640,250 8.63 $3.00 141,075 $3.00
$3.10 - $4.00 505,850 8.13 $3.71 239,775 $3.76
$4.13 - $6.94 502,500 5.81 $6.03 421,178 $6.10
$7.00 - $11.00 596,000 5.98 $9.83 519,300 $9.91
$11.25 - $15.00 55,000 6.41 $11.82 41,250 $11.85
-------- --------
$1.25 - $15.00 3,764,350 7.14 $4.32 2,055,428 $5.09
========= =========
At June 30, 2002, there were 737,800 shares available for grant under the
Plan and 50,000 shares available for grant under the Directors' Plan. At June
30, 2001 and 2002, there were 1,722,550 and 2,055,428 options exercisable,
respectively.
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 $537,000, $277,000 and $125,000 for
the years ended June 30, 2000, 2001 and 2002, respectively. Such compensation
expense is included within Sales and marketing of $397,000, $193,000 and
$80,000, Research and development of $112,000, $67,000 and $36,000 and General
and administrative expenses of $28,000, $17,000 and $9,000 for the years ended
June 30, 2000, 2001 and 2002, respectively. There is approximately $43,000 of
expense relating to these 1998 option grants to be recognized as stock
compensation expense in fiscal 2003, subject to adjustment for option holders'
terminations.
51
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 loss and loss per share would have been as indicated below.
Year Ended June 30,
-------------------
2000 2001 2002
-------- ------- --------
Proforma net loss and loss per share as would be
reported under SFAS No. 123:
Net loss $(14,449) $(4,431) $(7,065)
Basic and diluted loss per share $(0.80) $ (0.24) $ (0.40)
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, 2000, 2001 and 2002 was $4.54, $2.95 and
$2.60 on the date of grant, respectively. Grants during the year ended June 30,
2000, 2001 and 2002 assumed 412%, 343% and 116% of volatility, expected dividend
yield of 0.0% and an expected life of 3.1 years, 3.2 years and 3.2 years,
respectively. The assumed risk free interest rate on the date of grants was
6.2%, 5.0% and 4.1% in fiscal 2000, fiscal 2001 and fiscal 2002, respectively.
(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 1,150,000 shares. During
fiscal 2000, 2001 and 2002; 53,812, 238,563 and 84,573 shares were issued under
the ESPP, respectively. As of June 30, 2002, 184,491 shares are reserved for
issuance and there were 588,561 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, 2000, 2001 and 2002.
In February 1998, the Board of Directors and stockholders of the Company
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. For the years ended June 30, 2000, 2001 and 2002, no
awards were made under the Incentive Plan.
(13) Comprehensive Loss
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,
2000, 2001 and 2002 is as follows:
52
Year ended June 30,
-------------------
2000 2001 2002
-------- ------- -------
Net loss $(11,896) $(1,990) $(5,221)
Unrealized marketable securities gain (loss) 4 43 94
Unrealized translation gain (loss) 81 (608) 710
--------- ------- -------
Comprehensive loss, net of tax $(11,811) $(2,555) $(4,417)
========= ======= =======
(14) Related Party Transactions
Since 1981 the Company has engaged, and plans to continue to engage, the
Kramer Levin law firm to provide the Company with legal counsel. Mr. Kopelman, a
member of Mobius' Board of Directors, is a partner of Kramer Levin Naftalis &
Frankel LLP. Fees paid to Kramer Levin during fiscal 2002 were approximately
$635,000.
(15) Lease Commitments
The Company has operating leases for its office facilities which expire on
various dates through fiscal 2010 and provide for escalation and additional
payments relating to operating expenses.
The following is a schedule of future minimum lease payments for operating
leases as of June 30, 2002 (in thousands):
Operating
Leases
------
Year Ended:
June 30, 2003 $3,136
June 30, 2004 2,776
June 30, 2005 2,145
June 30, 2006 1,549
June 30, 2007 1,492
Thereafter 3,790
-------
Total minimum lease payments $14,888
=======
Rental expense for all operating leases was approximately $3.3 million,
$3.5 million and $3.5 million for the years ended June 30, 2000, 2001 and 2002,
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.
(16) Segment and Geographic Information
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", 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 accounted for more than 10% of revenue or 10% of
identifiable assets in any of the periods presented.
53
United
States International(a) Eliminations Total
------ ---------------- ------------ -----
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 $ -- $18,299
======= ======= ======= =======
Year Ended June 30, 2001:
Revenue:
From external customers(b) $61,415 $12,797 $ -- $74,212
Between geographic areas(c) 3,133 -- (3,133) --
-------- ------- ------- -------
Total revenue $64,548 $12,797 $(3,133) $74,212
======= ======= ======= =======
Long-lived assets $14,589 $ 1,846 $ -- $16,435
======= ======= ======= =======
Year Ended June 30, 2002:
Revenue:
From external customers(b) $57,474 $10,439 $ -- $67,913
Between geographic areas(c) 2,848 -- (2,848) --
------- ------- ------- -------
Total revenue $60,322 $10,439 $(2,848) $67,913
======= ======= ======= =======
Long-lived assets $10,416 $ 1,575 $ -- $11,991
======= ======= ======= =======
(a) The Company operates wholly-owned subsidiaries in the United Kingdom,
France, Germany, Italy, Sweden, Switzerland, Australia, Japan and the
Benelux. Includes international agent sales.
(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 international subsidiaries. Royalties from
international subsidiaries are a percentage of the license and maintenance
fees paid by customers to such international subsidiaries.
(17) 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. The buyer
assumed responsibility for maintenance support for all existing TapeSaver
licenses. The Company recognized approximately $1.1 million of TapeSaver
maintenance revenue through December 31, 1999 for TapeSaver maintenance billings
collected prior to the sale, $795,000 of which was recognized in fiscal 1999 and
$302,000 of which was recognized in fiscal 2000. No maintenance revenue was
recognized in fiscal 2001 and 2002. For the years ended June 30, 2000 and 2001,
the Company recognized $673,000 and $450,000 of TapeSaver license revenue,
respectively. As the buyer is delinquent on these payments since June 2001, no
TapeSaver license revenue was recognized in fiscal 2002.
Mobius commenced arbitration proceedings with the buyer to enforce the
payment terms in the sales agreement. On March 26, 2002, the arbitrator issued
an award in Mobius' favor against the buyer and its president in the amount of
$381,750, which represents amounts past due under the sales agreement. The
arbitrator also directed the buyer and its president to pay Mobius $37,500 each
month from March 31, 2002 through December 31, 2003 and to pay Mobius' share of
the arbitration expenses. In April 2002, Mobius commenced an action against the
buyer and its president in the United States District Court for the Southern
District of New York to confirm the arbitration award. The Court granted that
motion and issued an order confirming the award on September 23, 2002.
54
(18) Facilities Restructuring
In connection with management's plan to reduce costs and improve operating
efficiencies, the Company recorded a facilities restructuring charge of $1.4
million in fiscal 2002. As of June 30, 2002, the Company had $1.4 million
remaining in the facilities restructuring accrual. The charge reflects estimated
future lease obligations, net of estimated sublease income, for office space the
Company will no longer utilize. The Company worked with an external real estate
consultant to determine the best estimate for the accrual. However, if the real
estate market continues to worsen and the Company is not able to sublease the
properties as expected, additional adjustments to the accrual may be required,
which would result in additional restructuring costs in the period such
determination was made. Likewise, if the real estate market strengthens, and the
Company is able to sublease the properties earlier or at more favorable rates
than projected, adjustments to the accrual may be required that would increase
net income in the period such determination was made.
55
Report of Independent Accountants on Financial Statement Schedules
To the Board of Directors of
Mobius Management Systems, Inc.:
Our audit of the consolidated financial statements referred to in our report
dated July 27, 2002 appearing in this Annual Report on Form 10-K also included
an audit of the financial statement schedule for the year ended June 30, 2002
listed in Item 14(a)(2) of the Form 10-K. In our opinion, this financial
statement schedule presents fairly, in all material respects, the information
set forth therein when read in conjunction with the related consolidated
financial statements.
PricewaterhouseCoopers LLP
Stamford, CT
July 27, 2002
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, 2000:
Deductions from asset account:
Allowance for doubtful accounts $1,672 470 -- (415) $1,727
Year ended June 30, 2001:
Deductions from asset account:
Allowance for doubtful accounts $1,727 316 -- (593) $1,450
Year ended June 30, 2002:
Deductions from asset account:
Allowance for doubtful accounts $1,450 330 -- (284) $1,496
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.
56
(a)(3) Exhibits
- ---------------
Exhibit No. Description
- ----------- -----------
3.1(1) -- Form of Second Amended and Restated Certificate of Incorporation
of the Registrant.
3.2(1) -- Form of Restated By-Laws of the Registrant.
4.1(1) -- Specimen certificate representing the Common Stock.
10.1(1) -- Mobius Management Systems, Inc. 1996 Stock Incentive Plan.
10.2(1) -- Amendment No. 1 to Mobius Management Systems, Inc. 1996 Stock
Incentive Plan.
10.3(1) -- Mobius Management Systems, Inc. 1998 Employee Stock Purchase
Plan.
10.4(1) -- Mobius Management Systems, Inc. 1998 Non-Employee Director Stock
Option Plan.
10.4A(2) -- Amendment No. 1 to Mobius Management Systems, Inc. 1998
Non-Employee Director Stock Option Plan.
10.5(1) -- Mobius Management System, Inc. 1998 Executive Incentive Plan.
10.6(1) -- Form of Grantee Option Agreement.
10.7(1) -- Lease dated December 4, 1997 by and between Old Boston Post Road
Associates LLC and the Registrant.
10.8(1) -- Lease dated February 14, 1983 by and between American National
Bank and Trust Company of Chicago and the Registrant.
10.9(3) -- Sublease dated January 5, 1999 by and between Fluor Daniel, Inc.
and the Registrant
10.10(1) -- 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(1) -- 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(1) -- Registration Rights Agreement dated May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.13(1) -- Employment Agreement between the Registrant and Mitchell Gross,
dated February 26, 1998.
10.14(1) -- Employment Agreement between the Registrant and Joseph Albracht,
dated February 26, 1998.
10.15(1) -- Severance Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.
10.16(1) -- Option Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.
10.17(1) -- Letter Agreement, dated as of December 28, 1997 between the
Registrant and Joseph Tinnerello.
10.18(1) -- Stockholder Agreement, dated as of December 30, 1997 between the
Registrant and Joseph Tinnerello.
10.19(1) -- Software Assets Purchase Agreement dated as of December 10, 1990
among the Registrant, Compucept of Nevada and Software Assist
Corporation.
10.20(1) -- OEM Agreement between the Registrant and CDP Communications,
Inc. dated as of October 15, 1993.
10.21(1) -- Source Code License and Amendment to OEM Agreement between the
Registrant and CDP Communications Inc. dated as of August 12,
1997.
10.22(1) -- Amendment #1 to License and Amendment to OEM Agreement between
the Registrant and CDP Communications, Inc. dated November 21,
1997.
10.23(4) -- Lease Modification Agreement dated July 12, 1999 by and between
Old Boston Post Road Associates LLC and the Registrant.
10.24(5) -- Amendment #1 to Mobius Management Systems, Inc. 1998 Employee
Stock Purchase Plan.
10.25(6) -- Amendment #2 to Mobius Management Systems, Inc. 1998 Employee
Stock Purchase Plan.
21.1(3) -- Subsidiaries of the Registrant.
23.1 -- Consent of Independent Accountants.
23.2 -- Consent of KPMG LLP.
57
99.1 -- CEO Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
99.2 -- CFO Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(1) 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.
(2) Filed as Exhibit No. 10.4A to Mobius Management Systems, Inc.'s Form 10-Q
for the quarter ended September 30, 2001 and incorporated herein by
reference.
(3) Filed as an exhibit to Mobius Management Systems, Inc.'s Annual Report
filed on Form 10-K for the year ended June 30, 1999 and incorporated herein
by reference.
(4) Filed as Exhibit No. 10.1 to Mobius Management Systems, Inc.'s Form 10-Q
for the quarter ended December 31, 1999 and incorporated herein by
reference.
(5) Filed as Exhibit No. 10.24 to Mobius Management Systems, Inc.'s Annual
Report filed on Form 10-K for the year ended June 30, 2000 and incorporated
herein by reference.
(6) Filed as Exhibit No. 10.25 to Mobius Management Systems, Inc.'s Form 10-Q
for the quarter ended December 31, 2001 and incorporated herein by
reference.
58
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, 2002
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 27, 2002
------------------------ Executive Officer, President
Mitchell Gross and Director (Principal
Executive Officer)
/s/ Peter E. Takiff Chief Financial Officer September 27, 2002
------------------------- (Principal Financial
Peter E. Takiff and Accounting Officer)
/s/ Joseph J. Albracht Director September 27, 2002
-------------------------
Joseph J. Albracht
/s/ Robert H. Levitan Director September 27, 2002
-------------------------
Robert H. Levitan
/s/ Arthur J. Marks Director September 27, 2002
------------------------
Arthur J. Marks
/s/ Kenneth P. Kopelman Director September 27, 2002
-------------------------
Kenneth P. Kopelman
/s/ Gary G. Greenfield Director September 27, 2002
-------------------------
Gary G. Greenfield
/s/ Patrick W. Gross Director September 27, 2002
- --------------------------
Patrick W. Gross
59
CERTIFICATIONS OF
CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
SECTION 302(a) OF THE SARBANES-OXLEY ACT OF 2002
I, Mitchell Gross, certify that:
1. I have reviewed this annual report on Form 10-K of Mobius Management
Systems, Inc. (the "Company");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report.
/s/ Mitchell Gross
- ----------------------
Mitchell Gross
Chief Executive Officer
September 27, 2002
I, Peter E. Takiff, certify that:
1. I have reviewed this annual report on Form 10-K of Mobius Management
Systems, Inc. (the "Company");
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this annual report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report.
/s/ Peter E. Takiff
- ------------------------
Peter E. Takiff
Chief Financial Officer
September 27, 2002
60