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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended September 30, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File Number: 0-24077
Mobius Management Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3078745
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
120 Old Post Road, Rye, New York 10580
(Address of principal executive offices) (zip code)
(914) 921-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO | |
Number of shares outstanding of the issuer's common stock as of November 11,
2002
Class Number of Shares Outstanding
Common Stock, par value $0.0001 per share 17,416,219
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2002 and September 30, 2002
Consolidated Statements of Operations
Three months ended September 30, 2001 and 2002
Consolidated Statement of Stockholders' Equity
Three months ended September 30, 2002
Consolidated Statements of Cash Flows
Three months ended September 30, 2001 and 2002
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data and per share data)
June 30, September 30,
2002 2002
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 31,099 $ 37,867
Marketable securities, at market value 2,635 498
Accounts receivable, net of allowance for doubtful
accounts of $1,043 and $980, respectively 15,959 10,026
Software license installments, current portion 6,862 7,582
Other current assets 2,846 2,600
-------- --------
Total current assets 59,401 58,573
Software license installments, non-current portion,
net of allowance for doubtful accounts of $453
and $459, respectively 3,467 5,897
Property and equipment, net 6,435 5,942
Deferred income taxes 1,423 1,507
Other assets 666 620
-------- --------
Total assets $ 71,392 $ 72,539
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 17,446 $ 14,655
Deferred revenue 19,182 21,524
Deferred income taxes 2,238 2,550
-------- --------
Total current liabilities 38,866 38,729
Deferred revenue 1,406 2,298
-------- --------
Total liabilities 40,272 41,027
-------- --------
Stockholders' equity:
Common stock $.0001 par value; authorized 40,000,000
shares; issued 22,568,198 and 22,610,698 shares,
respectively; outstanding 17,213,975 and 17,256,475
shares, respectively 2 2
Additional paid-in capital 49,827 49,880
Accumulated deficit (2,610) (2,226)
Deferred stock compensation (43) (25)
Accumulated other comprehensive income (74) (137)
Treasury stock, at cost, 5,354,223
and 5,354,223 shares, respectively (15,982) (15,982)
-------- --------
Total stockholders' equity 31,120 31,512
-------- --------
Total liabilities and stockholders' equity $ 71,392 $ 72,539
-------- --------
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three Months Ended
September 30,
2001 2002
-------- --------
Revenues:
Software license $ 5,407 $ 7,756
Maintenance 8,588 9,190
Professional services and other 583 1,968
-------- --------
Total revenues 14,578 18,914
-------- --------
Costs of revenues:
Software license 234 88
Maintenance 1,292 1,482
Professional services and other 683 1,985
-------- --------
Total costs of revenues 2,209 3,555
-------- --------
Gross profit 12,369 15,359
-------- --------
Operating expenses:
Sales and marketing 9,288 8,573
Research and development 3,744 4,067
General and administrative 2,589 2,430
-------- --------
Total operating expenses 15,621 15,070
-------- --------
Income (loss) from operations (3,252) 289
Interest income 539 326
Interest expense (5) (3)
Foreign currency transaction gains 2 13
Gain on investment -- 113
-------- --------
Income (loss) before income taxes (2,716) 738
Provision for (benefit from) income taxes (860) 354
-------- --------
Net income (loss) $ (1,856) $ 384
======== ========
Basic earnings (loss) per share $ (0.10) $ 0.02
Basic weighted average shares outstanding 18,143 17,220
Diluted earnings (loss)per share $ (0.10) $ 0.02
Diluted weighted average shares outstanding 18,143 17,534
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(Unaudited, in thousands)
Accumulated
Common Stock Additional Other Treasury Stock Total
----------------- Paid-in Accumulated Deferred Comprehensive ---------------- Stockholders'
Shares Amount Capital Deficit Compensation Loss Shares Amount Equity
------ ------- -------- -------- ------ ------ ----- -------- --------
Balance at June 30, 2002 17,214 $ 2 $ 49,827 $ (2,610) $ (43) $ (74) 5,354 $(15,982) $ 31,120
Net income -- -- -- 384 -- -- -- -- 384
Change in other comprehensive
income, net of tax -- -- -- -- -- (63) -- -- (63)
--------
Comprehensive income 321
Stock options exercised 42 -- 53 -- -- -- -- -- 53
Change in deferred compensation -- -- -- -- 18 -- -- -- 18
---------------------------------------------------------------------------------------------
Balance at September 30, 2002 17,256 $ 2 $ 49,880 $ (2,226) $ (25) $ (137) 5,354 $(15,982) $ 31,512
=============================================================================================
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Three Months Ended
September 30,
2001 2002
-------- --------
Cash flows provided by (used in) operating activities:
Net income (loss) $ (1,856) $ 384
-------- --------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Deferred income taxes (945) 228
Depreciation and amortization 1,092 799
Stock compensation expense 40 18
Other 12 --
Change in operating assets and liabilities:
Accounts receivable, net 1,828 5,933
Software license installments (319) (3,151)
Other assets (82) 245
Accounts payable and accrued expenses (1,094) (2,791)
Deferred revenue 2,984 3,234
-------- --------
Total adjustments 3,516 4,515
-------- --------
Net cash provided by operating activities 1,660 4,899
-------- --------
Cash flows provided by (used in) investing activities:
Purchase of marketable securities (3,146) --
Sale of marketable securities 5,975 2,042
Capital expenditures (75) (259)
-------- --------
Net cash provided by investing activities 2,754 1,783
-------- --------
Cash flows provided by (used in) financing activities:
Cash used for stock repurchase program (1,298) --
Cash received from exercise of stock options -- 53
-------- --------
Net cash provided by (used in) financing activities (1,298) 53
-------- --------
Effect of exchange rate changes on
cash and cash equivalents 166 33
-------- --------
Net change in cash and cash equivalents 3,282 6,768
Cash and cash equivalents at beginning of year 24,099 31,099
-------- --------
Cash and cash equivalents at end of period $ 27,381 $ 37,867
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 5 $ 3
Income taxes, net $ 8 $ (514)
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements at June 30, 2002 and
September 30, 2002 and for the three month periods ended September 30, 2001 and
2002, have been prepared in accordance with the requirements of the Securities
and Exchange Commission (SEC) for interim reporting. Under those rules, certain
footnotes or other financial information that are normally required by generally
accepted accounting principles (GAAP) can be condensed or omitted.
Revenues, expenses, assets and liabilities vary during the year and GAAP
requires the Company to make estimates and assumptions in preparing the interim
financial statements. The Company has made their best effort in establishing
good faith estimates and assumptions. Actual results, however, may differ.
Mobius is responsible for the financial statements included in this Form 10-Q.
These financial statements include all normal and recurring adjustments that are
necessary for the fair presentation of Mobius's financial position, results of
operations and changes in cash flow. These statements should be read in
conjunction with the consolidated financial statements and notes in Mobius's
latest Form 10-K.
(2) Earnings Per Share
Earnings per share is presented in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128
stipulates that the calculation of earnings per share (EPS) be shown for all
historical periods as Basic EPS and Diluted EPS. Basic EPS is computed by
dividing net income (loss) 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.
The following is a reconciliation of the numerators and denominators for the
Basic and Diluted EPS calculations (in thousands, except per share data):
Three Months Ended September 30,
2001 2002
------------------------------------ ------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS:
Net income (loss) $(1,856) $384
======= ====
Weighted average
shares outstanding 18,143 17,220
Basic earnings
(loss) per share $(0.10) $0.02
====== =====
Diluted earnings
(loss) per share:
Net income (loss) $(1,856) $384
======= ====
Dilutive effect of
stock options -- 314
------ ------
Weighted average
shares outstanding 18,143 17,534
====== ======
Diluted earnings
(loss) per share $(0.10) $0.02
====== =====
Outstanding stock options, representing an aggregate of 2,930,175 and
2,767,880 shares of Common Stock for the three months ended September 30, 2001
and 2002, respectively, were excluded from the calculation of diluted earnings
(loss) per share because the effect would be antidilutive. Stock options would
be the only dilutive instruments for the three months ended September 30, 2001
and 2002.
(3) Marketable Securities
Marketable securities are categorized as available-for-sale securities, as
defined by Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". Unrealized holding gains and
losses are reflected as a net amount in a separate component of stockholders'
equity until realized. For the purpose of computing realized gains and losses,
cost is identified on a specific identification basis. Realized gains and losses
for the three months ended September 30, 2001 were insignificant. Realized gains
for the three months ended September 30, 2002 were $113,000. As of June 30, 2002
and September 30, 2002, the unamortized investment premium and unrealized
holding gains and losses were also insignificant.
(4) Software License Installments Receivable
The Company provides payment terms in excess of one year to some of its
customers. For software license contracts with license terms of 15 years, the
related payment term is generally 5 years. For software license contracts with
license terms of 3 to 5 years, generally the payments are due annually over the
term. Software license installments receivable 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
payment term. Using the interest method, interest income is periodically accrued
so that as an installment becomes due the installment receivable and the
interest receivable is equal to the payment.
(5) Property and Equipment
Property and equipment consists of the following (in thousands):
Useful June 30, September 30,
Life 2002 2002
---------- ------- -------------
Computer equipment 2-5 years $13,788 $13,943
Furniture, fixtures and office equipment 5 years 1,701 1,694
Leasehold improvements 5-15 years 4,653 4,658
------- -------
20,142 20,295
Less accumulated depreciation and amortization (13,707) (14,353)
------- -------
Property and equipment, net $ 6,435 $ 5,942
======= =======
Depreciation and amortization expense on property and equipment was
$1,017,000 and $751,000 for the three months ended September 30, 2001 and 2002,
respectively.
(6) Non-Current Investments
In June 1999, the Company invested $1,501,000 in Home Account Network
("HAN") a privately-held, information technology company providing processing
and Internet outsourcing to financial services companies. During fiscal 2000,
Mobius provided an additional $750,000 to HAN in short term loans that were
converted to preferred stock in May 2000. In the first quarter of fiscal 2001,
Mobius provided an additional $281,000 as a short term loan to HAN. Mobius's
investment in HAN represented an ownership position of less than 5%.
Mobius regularly assessed the recoverability of the HAN investment and
concluded that other than temporary impairment losses occurred. Impairment
losses of $2.4 million were recorded through September 30,2000.
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. During the quarter ended September
30, 2002, the remaining shares of Intelidata were sold resulting in a realized
gain of $113,000.
(7) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
June 30, September 30,
2002 2002
------- -------------
Accounts payable $ 3,531 $ 2,145
Compensation and related benefits 6,746 6,306
Facilities restructuring 1,394 1,252
Royalties payable 1,305 719
Other 4,470 4,233
------- --------
$17,446 $ 14,655
======= ========
(8) 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's
outstanding common stock. Since the program's inception in December 2000 through
October 2001, the entire 1,250,000 shares were repurchased at an approximate
cost of $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.
(9) Stock Incentive Plan
In January, February and March 1998 the Company granted 350,000, 370,000
and 53,000 stock options, respectively, under the 1996 Stock Incentive Plan at
an exercise price of $9.86, $11.00 and $11.00 per share, respectively, which
were deemed by the Board of Directors to be fair market values for the shares on
these dates. The Company subsequently determined that these options were granted
at exercise prices below the fair market value of $14.00 per share, the low end
of the range of per share prices for the Initial Public Offering in April 1998.
As a result, the Company recognized stock compensation expense of $40,000 and
$18,000 for the three months ended September 30, 2001 and 2002, respectively.
Such compensation expense is included within Sales and marketing of $26,000 and
$12,000, Research and development of $11,000 and $5,000,and General and
administrative expenses of $3,000 and $1,000 for the three months ended
September 30, 2001 and 2002, respectively. There is approximately $25,000 of
stock compensation expense relating to these 1998 option grants to be recognized
as stock compensation expense in fiscal 2003, subject to adjustment for option
holders' terminations.
(10) Comprehensive Income (Loss)
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the disclosure of comprehensive income, which
includes net income, foreign currency translation adjustments and unrealized
gains and losses on marketable securities classified as available-for-sale.
Comprehensive income (loss) for the quarters ended September 30, 2001 and 2002
is as follows (in thousands):
Three Months ended
September 30,
2001 2002
---- ----
Net income (loss) $(1,856) $ 384
Unrealized marketable securities gain (loss) 5 (95)
Unrealized translation gain 165 32
-------------------------
Comprehensive income (loss) $(1,686) $321
=========================
(11) Commitments and Contingencies
In compliance with the lease of the corporate headquarters, the Company's
landlord holds a letter of credit with Silicon Valley Bank for $275,000. This
letter of credit is secured by a certificate of deposit.
(12) 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. As the
buyer is delinquent on these payments since June 2001, no TapeSaver license
revenue was recognized in the three months ended September 30, 2001 and 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's 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's 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.
(13) 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 the fourth quarter of fiscal 2002. 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.
The balance of the facilities restructuring accrual and the transactions
for the three months ended September 30, 2002 are as follows (in thousands):
June 30, Cash September 30,
2002 Payments 2002
------- -------- -------------
Rent and related operating expenses $ 1,066 $ 122 $ 944
Other 328 20 308
------- ----- ------
$ 1,394 $ 142 $1,252
======= ===== ======
(14) Subsequent Event - Cytura Asset Acquisition
On October 11, 2002 (the "Closing Date"), the Company, through a
wholly-owned subsidiary, acquired technology and certain other assets of Cytura
Corp. ("Cytura"). Mobius paid Cytura, a privately held company, $2.2 million in
cash for the acquired assets. No later than 60 days following the first
anniversary of the Closing Date, Mobius may be obligated to pay Cytura up to an
additional $800,000, if the average closing price of the common stock of Mobius
achieves appreciation levels defined in the agreement during any 30-day period
during the thirteen months following the Closing Date.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In this section, readers are given a more detailed assessment of Mobius's
operating results and changes in financial position. This section should be read
in conjunction with Mobius's Consolidated Financial Statements and Notes. Please
note that references in this section to "last year's quarter" and "this quarter"
refer to Mobius's fiscal quarters ended September 30, 2001 and 2002,
respectively. Mobius's quarterly revenues and operating results have varied
substantially from quarter to quarter in the past, and are likely to continue to
do so in the future.
Statements contained in this quarterly report, other than historical
financial results, may contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks and uncertainties. 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's
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's goods and services, including budget allocations for new
software products especially within larger corporate environments which have
traditionally licensed Mobius's products, technological advances and competitive
factors in the markets in which Mobius competes, including price competition
from products providing similar functionality to Mobius's products as well as
competition for experienced, seasoned employees (including retention) to support
Mobius's key business operations, ongoing product development and growth, and
acceptance and or adoption of Mobius's new products or services. Certain of
these risks and uncertainties are described in detail from time to time in
Mobius's filings with the Securities and Exchange Commission, including without
limitation, as set forth under the heading "Factors Affecting Future
Performance" below. Forward looking statements included in this quarterly report
are based on information known to Mobius as of the date of this quarterly report
and Mobius accepts no obligation (and expressly disclaims any obligations) to
update these forward-looking statements and does not intend to do so.
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's packaged software products support a broad range of
content-intensive e-business requirements, including Web content management,
workflow and imaging, Internet presentment and payment, and enterprise report
distribution.
Critical Accounting Policies and Estimates
Mobius's discussion and analysis of its financial condition and results of
operations are based upon Mobius's 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 judgments 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 judgments 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 time as 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. Generally, Mobius's
contracts include a software license and an obligation to provide maintenance.
According to the SOP 97-2 guidelines, when the Company enters into a
contract that includes both a software license and an obligation to provide
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. We determine the portion of the contract
price attributable to maintenance (which, as per SOP 97-2, may not necessarily
track the allocation between license and maintenance fees set out in the
contract) using a percentage derived from our pricing structure. The unbundled
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.
Professional service revenue is recognized using the percentage of
completion method of accounting. In accordance with this method, revenue from
professional service contracts is recognized based on the percentage of costs
incurred to date to total estimated costs of the project. The financial
reporting for these contracts depends on estimates, which are continually
assessed and subject to revision as the contract progresses to completion. When
the current estimate of total contract costs indicates that a contract will
result in a loss, a provision for the full loss is recognized.
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.
Results of Operations
The following table sets forth certain items from the Company's
Consolidated Statement of Income as a percentage of total revenues for the
fiscal periods indicated:
Three Months Ended
September 30,
2001 2002
----- -----
(Unaudited)
Revenues:
Software license 37.1% 41.0%
Maintenance 58.9 48.6
Professional service and other 4.0 10.4
----- -----
Total revenues 100.0 100.0
----- -----
Costs of revenues:
Software license 1.6 0.5
Maintenance 8.9 7.8
Professional service and other 4.7 10.5
----- -----
Total costs of revenues 15.2 18.8
----- -----
Gross profit 84.8 81.2
Operating expenses:
Sales and marketing 63.7 45.3
Research and development 25.7 21.5
General and administrative 17.7 12.9
----- -----
Total operating expenses 107.1 79.7
----- -----
Income (loss) from operations (22.3) 1.5
----- -----
Interest income 3.7 1.7
Interest expense -- --
Foreign currency transaction gains -- 0.1
Gain on investment -- 0.6
----- -----
Income (loss) before income taxes (18.6) 3.9
Provision (benefit) from income taxes (5.9) 1.9
----- -----
Net income (loss) (12.7)% 2.0%
===== =====
Three Months Ended September 30, 2001 Compared to Three Months Ended
September 30, 2002
Revenues.
o Total revenues increased 29.7% from $14.6 million in last year's quarter to
$18.9 million this quarter. Domestic revenues increased 38.8% from $11.6
million in last year's quarter to $16.1 million this quarter. International
revenues decreased 4.8% from $3.0 million in last year's quarter to $2.8
million this quarter. The increase in total revenues is due to increases in
software license revenues, maintenance, professional service and other
revenues.
o Software license revenues increased 43.4% from $5.4 million in last year's
quarter to $7.8 million this quarter. For the quarter ended September 30,
2002, license revenues increased due to increased spending for Mobius
products by new and existing Mobius customers. Mobius believes that the
quarter ended September 30, 2001 was severely impacted by geopolitical
events surrounding the terrorist attacks of September 11, 2001, which
caused customers to defer information technology spending.
o Maintenance revenues increased 7.0% from $8.6 million in last year's
quarter to $9.2 million this quarter. The increase in maintenance revenue
was primarily attributable to the growth in the amount of licensed software
covered by maintenance agreements.
o Professional service and other revenues increased 237.6% from $583,000 in
last year's quarter to $2.0 million this quarter. 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 both quarters were not significant.
Costs of Revenues.
o Costs of license revenues consist primarily of the cost of royalties and
sublicense fees. The costs of software license revenues decreased 62.4%
from $234,000 in last year's quarter to $88,000 this quarter, representing
4.3% and 1.1%, respectively, of software license revenues in those
quarters. The decrease from last year's quarter to this quarter was
primarily due to negotiating more favorable terms with respect to an
existing royalty agreement, which terms included a decrease in current
royalty rates and a credit for past royalty expense.
o Costs of maintenance revenues consist primarily of customer support staff
costs. The costs of maintenance revenues increased 14.7% from $1.3 million
in last year's quarter to $1.5 million this quarter, representing 15.0% and
16.1%, respectively, of maintenance revenues in those quarters. The
increase in this quarter's costs as a percentage of maintenance revenues
was primarily attributable to an increase in the cost of support staff. The
increase was offset by negotiating more favorable terms with respect to an
existing royalty agreement, which terms included a decrease in current
royalty rates and a credit for past royalty expense.
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
190.6% from $683,000 in last year's quarter to $2.0 million this quarter,
representing 117.2% and 100.9% respectively, of professional service and
other revenues in those quarters. The costs of professional service and
other revenues increased as the result of Mobius entering into more
professional service arrangements and dedicating more internal resources to
developing this business.
Operating Expenses.
o Sales and marketing expenses consist primarily of the cost of personnel
associated with the selling and marketing of Mobius's products, including
salaries, commissions, performance based bonuses and travel and
entertainment costs. Sales and marketing costs also include the cost of
branch sales offices, marketing, promotional materials and advertising.
These expenses decreased 7.7% from $9.3 million in last year's quarter to
$8.6 million this quarter, representing 63.7% and 45.3%, respectively, of
total revenues in those quarters. Sales and marketing expenses decreased
primarily due to lower personnel costs (reflecting lower headcount), lower
lease costs due to the facilities restructuring charge related to the
Chicago sales office, and lower professional fees, offset by increased
commission and bonus costs as a result of increased license revenues, and
an increase in bad debt expense.
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 8.6% from $3.7 million in last year's quarter to $4.1 million
this quarter, representing 25.7% and 21.5%, respectively, of total revenues
in those quarters. The increase in research and development expenses was
primarily due to increased subcontractor fees and personnel costs to work
on development projects.
o General and administrative expenses consist of personnel costs related to
management, accounting, human resources, network services, administration
and associated overhead costs, as well as fees for professional services.
General and administrative expenses decreased 6.1% from $2.6 million in
last year's quarter to $2.4 million this quarter, representing 17.7% and
12.9%, respectively, of total revenues in those quarters. The decrease in
general and administrative expenses was primarily attributable to lower
depreciation and telecommunications costs, offset by higher personnel
costs.
Interest income; interest expense; foreign currency transaction gains; gain on
investment.
Interest income was $539,000 and $326,000 in last year's quarter and this
quarter, respectively. The decrease in interest income is due to decreased
returns on investments, as well as lower interest income from installment sale
receivables during the current quarter. Gain on investments of $113,000 during
the quarter ended September 30, 2002 was the result of the sale of the remaining
investment in Intelidata stock. During both quarters interest expense and
foreign currency transaction gains were insignificant.
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 September 30, 2002, Mobius had cash and cash equivalents of
$37.9 million, an increase of $6.8 million from the $31.1 million held at June
30, 2002. In addition, Mobius had marketable securities of $498,000 as of
September 30, 2002, a decrease of $2.1 million from $2.6 million held as of June
30, 2002.
Net cash provided by operating activities was $1.7 million in last year's
quarter and $4.9 million this quarter. Mobius's primary sources of cash during
this quarter were from decreased accounts receivable, increased deferred revenue
and improved results of operations. These sources were offset by an increase in
software license installment receivables and a decrease in accounts payable.
Mobius's depreciation and amortization expense adjustment in operating
activities decreased 26.8% from $1.1 million in last year's quarter to $800,000
in this quarter. Deferred revenue increased 15.7% from $20.6 million at June 30,
2002 to $23.8 million at September 30, 2002. Net software license installments
increased 30.5% from $10.3 million at June 30, 2002 to $13.5 million at
September 30, 2002. Net accounts receivable decreased 37.2% from $16.0 million
at June 30, 2002 to $10.0 million at September 30, 2002.
Cash provided by investing activities was $2.8 million in last year's
quarter and $1.8 million in this quarter. During the quarter ending September
30, 2001 and 2002, the Company sold marketable securities of $6.0 million and
$2.0 million, respectively, and purchased marketable securities of $3.1 million
during the quarter ended September 30, 2001.
Cash used by financing activities was $1.3 million in last year's quarter
versus cash provided by financing activities of $53,000 in this quarter. In last
year's quarter, the cash was used to repurchase Mobius's common stock. In this
quarter, the cash was provided by the exercise of stock options by employees.
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 September 30, 2002, the future minimum
lease payments for these operating leases is as follows (in thousands):
Operating
Leases
---------
Year Ended:
- -----------
September 30, 2003 $ 3,113
September 30, 2004 2,800
September 30, 2005 2,171
September 30, 2006 1,549
September 30, 2007 1,461
Thereafter 3,454
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Total minimum lease payments $14,548
=======
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.
On October 11, 2002 (the "Closing Date"), the Company, through a
wholly-owned subsidiary, acquired technology and certain other assets of Cytura
Corp. ("Cytura"). Mobius paid Cytura, a privately held company, $2.2 million in
cash for the acquired assets. No later than 60 days following the first
anniversary of the Closing Date, Mobius may be obligated to pay Cytura up to an
additional $800,000, if the average closing price of the common stock of Mobius
achieves appreciation levels defined in the agreement during any 30-day period
during the thirteen months following the Closing Date.
The Company continues to evaluate potential acquisition candidates whose
products or technology would enhance Mobius's strategic market position.
Bad Debt Reserves
Accounts receivable reserves are primarily calculated by identifying
problem accounts and in recognition that some customers decide to cancel or
reduce the number of products covered by maintenance arrangements upon their
anniversary but do not always notify Mobius in sufficient time to prevent some
portion of the annual maintenance billings from being recognized. Mobius also
has a small reserve to absorb losses based upon historical experience that may
result from current receivables. Mobius specifically identifies problem accounts
by the age of the receivable and through discussions with the customer and
Mobius sales representatives. Based on that information, Mobius exercises its
judgment as to what portion of the accounts receivable balance requires a
reserve. At September 30, 2001
and September 30, 2002 approximately 87% and 93% 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's products.
Software license installment and accounts receivable reserves were $1.5 million
and $1.4 million at June 30, 2002 and September 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. As the
buyer is delinquent on these payments since June 2001, no TapeSaver license
revenue was recognized in the three months ended September 2001 and 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's 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's 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.
Recent Accounting Pronouncements
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.
FACTORS AFFECTING FUTURE PERFORMANCE
Fluctuations in Period to Period Results; Seasonality; Uncertainty of Future
Operating Results
Mobius's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Quarterly revenues and operating results are expected to
fluctuate as a result of a variety of factors, including lengthy product sales
cycles, general domestic and international economic conditions, demand for
Mobius's 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's quarterly operating results. Many of Mobius's
license transactions involve large dollar commitments by customers, and the
sales cycles for these transactions are often lengthy and unpredictable. There
can be no assurance that Mobius will be successful in closing large license
transactions within the fiscal period in which they are budgeted, if at all.
Mobius's business has experienced and is expected to continue to
experience significant seasonality, with revenues typically peaking primarily in
the fourth (June) fiscal quarter and to a lesser extent in the second (December)
fiscal quarter. These fluctuations are caused primarily by customer purchasing
patterns and Mobius's sales force incentive programs, which recognize and reward
sales personnel on the basis of achievement of annual and other periodic
performance quotas, as well as by the factors described above.
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's 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's
existing products obsolete and unmarketable. Mobius's future success will depend
in part on its ability to enhance existing products, to develop and introduce
new products to meet diverse and evolving customer requirements, and to keep
pace with technological developments and emerging industry standards such as
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's 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 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's 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's 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's 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's 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's 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's 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's 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's international operations, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Item 2 of this
report.
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's revenue growth in the future may be affected by its success in
expanding existing and establishing additional relationships with strategic
partners.
Increased Investment in Professional Services
In recent periods, we have committed greater resources to grow our
professional services business relating to the implementation of and training on
Mobius's packaged software products. The growth of business areas requires
increased management time and resources prior to generating significant
revenues. There is no assurance that Mobius will generate significant revenues
in the professional services marketplace, or that the direct and indirect costs
associated with expanding the professional services business will not be greater
than revenues generated therefrom.
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's
business, operating results or financial condition.
Protection of Intellectual Property
Mobius's 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's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of its products or obtain and use information that Mobius regards
as proprietary. In addition, the laws of some 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's proprietary rights will be adequate or that its competitors will not
independently develop similar or competitive technology.
Mobius's products are generally provided to customers in object code
format only. However, Mobius enters into arrangements with its customers that
releases the source code to the customer upon the occurrence of certain events,
such as bankruptcy or insolvency of Mobius or certain material breaches of the
license agreement by Mobius. In the event of any release of the source code
pursuant to these arrangements, the customer's license is generally limited to
use of the source code to maintain, support and configure its software products.
Notwithstanding such
provision, the delivery of source code to customers may increase the likelihood
of misappropriation or other misuse of its intellectual property.
Mobius is not aware that any of its products infringe on the proprietary
rights of third parties. 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 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's
software. Although Mobius's business has not been materially adversely affected
by any such errors to date, there can be no assurance that, despite testing by
Mobius and by current and potential customers, errors will not be found in new
products or releases after commencement of commercial shipments, resulting in
loss of revenue or delay in market acceptance, diversion of development
resources, damage to Mobius's reputation, or increased service and warranty
costs, any of which could have a material adverse effect on its business,
operating results or financial condition.
Mobius's license agreements with its customers typically contain
provisions designed to limit its exposure to potential product liability claims.
However, it is possible that the limitation of liability provisions contained in
its license agreements may not be effective under the laws of certain
jurisdictions. Although Mobius has not experienced any product liability claims
to date, the sale and support of products by Mobius may entail the risk of such
claims, and there can be no assurance that 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's ability to effectively manage its future growth, if any, will
require it to continue to improve Mobius's operational, financial and management
controls, accounting and reporting systems, and other internal processes. There
can be no assurance that Mobius will be able to make such improvements in an
efficient or timely manner or that any such improvements will be sufficient to
manage its growth,
if any. If Mobius is unable to manage growth effectively, its business,
operating results or financial condition would be materially adversely affected.
Mobius's success depends to a significant extent upon its senior
management and certain other key employees of Mobius. The loss of the service of
senior management or other key employees could have a material adverse effect on
Mobius. Furthermore, 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's business, operating results or financial condition.
If Widespread Internet Usage Does Not Continue, or if the Internet Cannot
Accommodate Continued Growth, Mobius's Business Will Be Harmed.
Acceptance of Mobius's 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's 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's 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's Internet
Product Sales.
A significant barrier to electronic commerce and communications is the
secure transmission of private information over public networks. Mobius's
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's Internet products use to protect customer
transaction data. Any breaches in security could cause a significant decrease in
the use of Mobius's Internet products, which could undermine future Internet
product sales.
Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Mobius's investment portfolio is subject to interest rate sensitivity. The
primary objective of Mobius's investment activities is to preserve principal,
while at the same time maximizing the interest income, without significantly
increasing risk. Some of the marketable securities that Mobius has invested in
may be subject to market rate interest risk. This means a change in prevailing
interest rates may cause the market value of the security to fluctuate. For
example, if Mobius holds a security that was issued with a fixed interest rate
at the then-prevailing rates and the prevailing interest rates later rise, the
market value of the security will probably decline. At September 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 4. - CONTROLS AND PROCEDURES
Within the 90-day period prior to the filing date of this report, Mobius's
Chief Executive Officer and Chief Financial Officer carried out an evaluation of
the effectiveness of the Company's disclosure controls and procedures (as
defined in Rules 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934,
as amended). Based on that evaluation, these officers concluded that the
Company's disclosure controls and procedures are adequate and effective. There
have been no significant changes in Mobius's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
that evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART II. - OTHER INFORMATION
Item 1. - 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 or financial condition.
Item 2. - Changes in Securities and Use of Proceeds
(a) Not applicable
(b) Not applicable
(c) Not applicable
(d) Not applicable
Item 3. - Defaults Upon Senior Securities
None
Item 4. - Submission of Matters to a Vote of Security Holders
None
Item 5. - Other Information
During the quarterly period covered by this filing, the audit committee of
the Board of Directors of Mobius approved the engagement of
PricewaterhouseCoopers LLP, the Company's external auditor, for tax related
services. These services are not in connection with PricewaterhouseCoopers'
audit or review of the Company's financial statements.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
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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
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's Registration Statement on Form S-1
Registration Number 333-47117) or an amendment thereto and
incorporated herein by reference to the same exhibit number.
(b) Reports on Form 8-K
Not Applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 11, 2002
MOBIUS MANAGEMENT SYSTEMS, INC.
By: /s/ Peter E. Takiff
---------------------------------------
Peter E. Takiff
Chief Financial Officer
(Principal Financial and Accounting
Officer)
CERTIFICATIONS
I, Mitchell Gross, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mobius Management
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Mitchell Gross
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Mitchell Gross
Chief Executive Officer
November 11, 2002
I, Peter E. Takiff, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Mobius Management
Systems, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary 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 quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly
report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
/s/ Peter E. Takiff
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Peter E. Takiff
Chief Financial Officer
November 11, 2002