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 December 31, 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 February 7,
2003
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 December 31, 2002
Consolidated Statements of Operations
Three months and six months ended December 31, 2001 and 2002
Consolidated Statements of Stockholders' Equity
Six months ended December 31, 2002
Consolidated Statements of Cash Flows
Six months ended December 31, 2001 and 2002
Notes to Unaudited 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, December 31,
2002 2002
---------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 31,099 $ 37,073
Marketable securities, at market value 2,635 --
Accounts receivable, net of allowances of $1,043 and
$1,024, respectively 15,959 11,051
Software license installments, current portion 6,862 8,028
Other current assets 2,846 2,748
-------- --------
Total current assets 59,401 58,900
Software license installments, net of allowance for
doubtful accounts of $453 and $561, respectively 3,467 9,226
Property and equipment, net 6,435 5,590
Deferred income taxes, non-current 1,423 1,516
Other non-current assets 666 1,919
-------- --------
Total assets $ 71,392 $ 77,151
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 17,446 $ 15,319
Deferred revenues 19,182 23,127
Deferred income taxes 2,238 2,709
-------- --------
Total current liabilities 38,866 41,155
Deferred revenues 1,406 3,250
-------- --------
Total liabilities 40,272 44,405
-------- --------
Stockholders' equity:
Common stock, $.0001 par value;
authorized 40,000,000 shares; issued
22,568,198 and 22,770,442 shares,
respectively; outstanding 17,213,975 and
17,416,219 shares, respectively 2 2
Additional paid-in capital 49,827 50,211
Accumulated deficit (2,610) (1,504)
Deferred stock compensation (43) (7)
Accumulated other comprehensive income (74) 26
Treasury stock, at cost, 5,354,223 shares (15,982) (15,982)
-------- --------
Total stockholders' equity 31,120 32,746
-------- --------
Total liabilities and stockholders' equity $ 71,392 $ 77,151
======== ========
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 Six months ended
December 31, December 31,
2001 2002 2001 2002
--------- -------- -------- --------
Revenues:
Software license $ 7,165 $ 10,168 $ 12,572 $ 17,924
Maintenance 8,679 9,461 17,267 18,651
Professional service and other 1,761 1,701 2,344 3,669
-------- -------- -------- --------
Total revenues 17,605 21,330 32,183 40,244
Cost of revenues:
Software license 205 334 439 422
Maintenance 1,565 1,515 2,857 2,997
Professional service and other 1,569 1,595 2,252 3,580
-------- -------- -------- --------
Total cost of revenues 3,339 3,444 5,548 6,999
Gross profit 14,266 17,886 26,635 33,245
Operating expenses:
Sales and marketing 9,783 8,820 19,071 17,393
Research and development 3,745 4,470 7,489 8,537
General and administrative 2,567 2,665 5,156 5,095
Acquired in-process research
and development -- 910 -- 910
Facilities restructuring -- 194 -- 194
-------- -------- -------- --------
Total operating expenses 16,095 17,059 31,716 32,129
Income (loss) from operations (1,829) 827 (5,081) 1,116
Interest income 487 391 1,028 717
Interest expense 1 -- (4) (3)
Foreign currency transactions 6 (16) 8 (3)
Other income (expense) -- -- (2) 113
-------- -------- -------- --------
Income (loss) before income taxes (1,335) 1,202 (4,051) 1,940
Provision for (benefit from) income taxes (424) 480 (1,284) 834
-------- -------- -------- --------
Net income (loss) $ (911) $ 722 $ (2,767) $ 1,106
======== ======== ======== ========
Basic earnings (loss) per share $ (0.05) $ 0.04 $ (0.16) $ 0.06
Basic weighted average shares outstanding 17,236 17,364 17,690 17,292
Diluted earnings (loss) per share $ (0.05) $ 0.04 $ (0.16) $ 0.06
Diluted weighted average shares
outstanding 17,236 17,636 17,690 17,588
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 -- -- -- 1,106 -- -- -- -- 1,106
Change in other comprehensive
income, net of tax
Comprehensive income -- -- -- -- -- 100 -- -- 100
--------
1,206
Stock options exercised 42 -- 53 -- -- -- -- -- 53
Stock purchase plan shares
issued 160 -- 331 -- -- -- -- -- 331
Change in deferred
compensation -- -- -- -- 36 -- -- -- 36
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 2002 17,416 $ 2 $ 50,211 $ (1,504) $ (7) $ 26 5,354 $(15,982) $ 32,746
======== ======== ======== ======== ======== ======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
December 31,
2001 2002
-------- ---------
Cash flows provided by operating activities:
Net income (loss) $ (2,767) $ 1,106
-------- --------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Deferred income taxes (1,322) 378
Depreciation and amortization 2,125 1,628
Stock compensation expense 80 36
Other 6 (17)
Change in operating assets and liabilities:
Accounts receivable, net 2,089 4,908
Software license installments 1,984 (6,925)
Other assets 212 (1,244)
Accounts payable and accrued expenses (157) (2,127)
Deferred revenue 2,437 5,789
-------- --------
Total adjustments 7,454 2,426
-------- --------
Net cash provided by operating activities 4,687 3,532
-------- --------
Cash flows (used in) provided by investing activities:
Purchase of marketable securities (6,925) --
Sale of marketable securities 10,790 2,536
Capital expenditures (797) (677)
Other (11) --
-------- --------
Net cash provided by investing activities 3,057 1,859
-------- --------
Cash flows provided by (used in) financing activities:
Cash received from exercise of stock options 19 53
Cash received from employee stock purchase plan 178 331
Cash used for stock repurchase program (3,261) --
-------- --------
Net cash provided by (used in) financing activities (3,064) 384
-------- --------
Effect of exchange rate changes on cash and cash
equivalents (18) 199
-------- --------
Net change in cash and cash equivalents 4,662 5,974
Cash and cash equivalents at beginning of period 24,099 31,099
-------- --------
Cash and cash equivalents at end of period $ 28,761 $ 37,073
======== ========
Supplemental disclosure of cash flow information:
Cash (received) paid during the period for:
Interest $ 4 $ 3
Income taxes, net of refunds $ 7 $ (507)
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements at June 30, 2002 and
December 31, 2002 and for the three and six month periods ended December 31,
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 is normally
required by generally accepted accounting principles (GAAP) may 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 used its best efforts 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 December 31,
-------------------------------
2001 2002
--------------------------------------------- -----------------------------------------
Net Income Per Net Income Per
(Loss) Shares Share (Loss) Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic EPS:
Net income (loss) $(911) $722
====== ====
Weighted average shares
outstanding 17,236 17,364
Basic earnings (loss)
per share $(0.05) $0.04
======= =====
Diluted earnings
(loss) per share:
Net income (loss) $(911) $722
====== ====
Dilutive effect of
stock options - 272
------ ------
Weighted average shares
outstanding 17,236 17,636
====== ======
Diluted earnings (loss)
per share $(0.05) $0.04
======= =====
Six Months Ended December 31,
-----------------------------
2001 2002
--------------------------------------------- -----------------------------------------
Net Income Per Net Income Per
(Loss) Shares Share (Loss) Shares Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic EPS:
Net income (loss) $(2,767) $1,106
======== ======
Weighted average shares
outstanding 17,690 17,292
Basic earnings (loss)
per share $(0.16) $0.06
======= =====
Diluted earnings (loss)
per share:
Net income (loss) $(2,767) $1,106
======== ======
Dilutive effect of
stock options - 296
------ ------
Weighted average shares
outstanding 17,690 17,588
====== ======
Diluted earnings (loss)
per share $(0.16) $0.06
======= =====
All outstanding stock options for the three and six months ended December
31, 2001, representing an aggregate of 3,580,450 shares of common stock, and
certain outstanding stock options for the three and six months ended December
31, 2002, representing an aggregate of 2,767,193 and 2,784,500 shares of common
stock, respectively, were excluded from the calculation of diluted earnings
(loss) per share because the effect would be antidilutive. Stock options were
the only dilutive instruments outstanding for the three and six months ended
December 31, 2001 and 2002.
(3) 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." 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 and six months
ended December 31, 2001 were insignificant. Realized gains for the six months
ended December 31, 2002 were $113,000, recognized in the first quarter of fiscal
2003. As of June 30, 2002 and December 31, 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, December 31,
Life 2002 2002
------ ------- -----------
Computer equipment 2-5 years $ 13,788 $ 13,415
Furniture, fixtures and office equipment 5 years 1,701 1,733
Leasehold improvements 5-15 years 4,653 4,686
-------- --------
20,142 19,834
Less accumulated depreciation and amortization (13,707) (14,244)
-------- --------
Property and equipment, net $ 6,435 $ 5,590
======== ========
Depreciation and amortization expense on property and equipment was $1.0
million and $770,000 for the three months ended December 31, 2001 and 2002,
respectively, and $2.1 million and $1.5 million for the six months ended
December 31, 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. As a result,
impairment losses of $2.4 million were recorded through December 31, 2000.
In January 2001, HAN was purchased by Intelidata Technologies
("Intelidata"). As a result, during fiscal 2002, Mobius received Intelidata
shares in exchange for its investment in HAN. Mobius sold a portion of the
shares received and realized a $150,000 gain in fiscal 2002. During the first
quarter of fiscal 2003, Mobius sold the remaining shares of Intelidata,
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, December 31,
2002 2002
------- -----------
Accounts payable $ 3,531 $ 2,125
Compensation and related benefits 6,746 7,192
Facilities restructuring 1,394 656
Royalties payable 1,305 625
Other 4,470 4,721
------- -------
$17,446 $15,319
======= =======
(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 and the
market price and trading volume of Mobius's common stock.
(9) Stock Incentive Plan
In January, February and March 1998 the Company granted an aggregate of
350,000, 370,000 and 53,000 stock options, respectively, under the 1996 Stock
Incentive Plan at an exercise price of $9.86, $11.00 and $11.00 per share,
respectively, which were deemed by the Board of Directors to be fair market
values for the shares on these dates. The Company subsequently determined that
these options were granted at exercise prices below the fair market value of
$14.00 per share, the low end of the range of per share prices for the Company's
initial public offering in April 1998. As a result, the Company recognized stock
compensation expense as follows (in thousands):
Three Months ended Six Months ended
December 31, December 31,
2001 2002 2001 2002
---- ---- ---- ----
Sales and marketing $26 $11 $52 $23
Research and development 11 5 23 10
General and administrative 3 2 5 3
-------------- --------------
Total $40 $18 $80 $36
============== ===============
Approximately $7,000 of additional stock compensation expense relating to
these 1998 option grants will be recognized as stock compensation expense in the
second half of fiscal 2003, to be adjusted for option holders' terminations.
(10) Comprehensive Income (Loss)
SFAS 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 three and six months
ended December 31, 2001 and 2002 is as follows (in thousands):
Three Months ended Six Months ended
December 31, December 31,
2001 2002 2001 2002
---- ---- ---- ----
Net income (loss) $ (911) $ 722 $(2,767) $ 1,106
Unrealized marketable securities gain (loss) (4) (4) 1 (99)
Unrealized translation gain(loss) 7 167 172 199
------------------ ------------------
Comprehensive income (loss) $ (908) $ 885 $(2,594) $ 1,206
================== ==================
(11) Commitments and Contingencies
In compliance with the lease of the corporate headquarters, the Company's
landlord holds a letter of credit issued by 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 has been delinquent on these payments since June 2001, no license revenue
relating to this transaction was recognized in the three and six months ended
December 31, 2001 and 2002.
Mobius commenced arbitration proceedings against 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 such agreement. The arbitrator
also directed the buyer and its president to pay Mobius $37,500 per 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 entered an
order confirming the award on September 23, 2002. The Company is currently
determining the appropriate course of action to be taken in this matter.
(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 reflected 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. During the second
quarter of fiscal 2003, the Company entered into an agreement which releases
Mobius from all of its ongoing obligations under the original terms of the lease
effective as of February 15, 2003. Accordingly, during the quarter, the Company
recorded additional expenses of $78,000 associated with this new agreement.
The Company recorded a facilities restructuring charge of $116,000 in the
second quarter of fiscal 2003 representing the estimated future lease
obligations for office space that the Company was subleasing to a third party.
The third party abandoned such space during the second quarter of fiscal 2003
and the Company believes that it is highly unlikely that it will be able to
sublease this space for the remainder of the lease term.
The balance of the facilities restructuring accrual and the transactions
for the six months ended December 31, 2002 are as follows (in thousands):
Additions
June 30, Charged to Cash December 31,
2002 Expense Payments 2002
---- ---------- -------- -----------
Rent and related
facilities expenses $1,066 $ 194 $ 891(1) $ 369
Other 328 -- 41 287
------ ------ ------ ------
$1,394 $ 194 $ 932 $ 656
====== ====== ====== ======
(1) Includes a cash payment of $647,000 in connection with the release
described above.
(14) Cytura Asset Acquisition
On October 11, 2002 (the "Closing Date"), the Company, through a
wholly-owned subsidiary, acquired technology (the "Contenuity Software") and
certain other assets of Cytura Corp. ("Cytura"), a privately held company, for
an aggregate of approximately $2.236 million in cash, which was paid from the
Company's existing cash balances. In addition, the Company assumed capital lease
obligations of $36,000 and incurred acquisition-related expenses of $250,000,
for an aggregate purchase price of approximately $2.5 million. The Company may
be obligated to pay Cytura up to an additional $800,000 within 60 days of the
first anniversary of the transaction if the average closing price of the common
stock of Mobius equals or exceeds a specified amount during any 30-day period in
the thirteen months following the Closing Date. If the additional purchase price
is paid, such amount will be recorded as additional goodwill.
The purchase price for the Contenuity Software and the other Cytura assets
has been allocated to assets acquired and liabilities assumed based on their
fair values at the Closing Date, as follows (in thousands):
Property and equipment $ 249
Other current assets 27
Other non-current assets 1,336
Acquired in-process research and
development 910
-------
Purchase price $ 2,522
=======
Other non-current assets consist of completed technology of $900,000 and
goodwill of $436,000. Property and equipment is being amortized on a comparable
basis for similar property and equipment. Completed technology is being
amortized on a straight-line basis over the estimated useful life of 3.75 years.
The Company utilized the discounted net cash flow method to value the acquired
in-process research and development which had not reached the working model
stage and had no alternative future use. Accordingly, an operating expense of
$910,000 was taken in the second quarter of fiscal 2003.
The following table reflects the unaudited pro forma combined results of
operation of the Company and Cytura on the basis that the Cytura acquisition had
taken place at the beginning of the fiscal year for both periods presented (in
thousands):
Six Months ended December 31,
2001 2002
------- --------
Revenues $33,024 $40,538
Net income (loss) $(4,422) $ 735
Basic and diluted earnings (loss)
per share $ (0.25) $ 0.04
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 December 31, 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 total content management (TCM) software
solutions that help enterprises manage and deliver enterprise content via the
Web to employees, customers and partners. The highly scalable ViewDirect TCM
repository is the foundation of an integrated suite of packaged software
products that includes Web site management, workflow and imaging, document
archiving, records management, transaction and document audit and balancing,
Internet presentment and payment, and enterprise report distribution. Since
1981, Mobius solutions have achieved industry-wide recognition for breadth of
functionality, scalability and performance in high-demand environments that
range from the desktop to the mainframe.
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 licenses with terms
generally of 5 or 15 years. Revenue from 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.
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 regularly 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 Mobius's 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 the use of 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 Statements of Operations as a percentage of total revenues for the
fiscal periods indicated:
Three months ended Six months ended
December 31, December 31,
2001 2002 2001 2002
---- ---- ---- ----
Revenues:
Software license 40.7% 47.7% 39.1% 44.5%
Maintenance 49.3 44.3 53.6 46.4
Professional service and other 10.0 8.0 7.3 9.1
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Software license 1.2 1.5 1.3 1.0
Maintenance 8.9 7.1 8.9 7.5
Professional service and other 8.9 7.5 7.0 8.9
----- ----- ----- -----
Total costs of revenues 19.0 16.1 17.2 17.4
Gross profit 81.0 83.9 82.8 82.6
Operating expenses:
Sales and marketing 55.5 41.3 59.3 43.2
Research and development 21.3 21.0 23.3 21.2
General and administrative 14.6 12.5 16.0 12.7
Acquired in-process research
and development -- 4.3 -- 2.2
Facilities restructuring -- 0.9 -- 0.5
----- ----- ----- -----
Total operating expenses 91.4 80.0 98.6 79.8
Income (loss) from operations (10.4) 3.9 (15.8) 2.8
Interest income 2.8 1.8 3.2 1.8
Foreign currency transactions -- (0.1) -- 0.2
----- ----- ----- -----
Income (loss) before income taxes (7.6) 5.6 (12.6) 4.8
Provision for (benefit from) income taxes (2.4) 2.2 (4.0) 2.1
----- ----- ----- -----
Net income (loss) (5.2)% 3.4% (8.6)% 2.7%
===== ===== ===== =====
Three Months Ended December 31, 2001 Compared to Three Months Ended
December 31, 2002
Revenues.
o Total revenues increased 21.2% from $17.6 million in last year's quarter to
$21.3 million this quarter. Domestic revenues increased 20.1% from $15.1
million in last year's quarter to $18.1 million this quarter. International
revenues increased 27.6% from $2.5 million in last year's quarter to $3.2
million this quarter. The increase in total revenues is primarily
attributable to increases in software license and maintenance revenues.
o Software license revenues increased 41.9% from $7.2 million in last year's
quarter to $10.2 million this quarter. This increase is attributable to
increased spending
for Mobius products by new and existing Mobius customers. Mobius believes
that the quarter ended December 31, 2001 was impacted by geopolitical
events surrounding the terrorist attacks of September 11, 2001, which
caused customers to defer information technology spending.
o Maintenance revenues increased 9.0% from $8.7 million in last year's
quarter to $9.4 million this quarter. The increase in maintenance revenue
is primarily attributable to the growth in the amount of licensed software
covered by maintenance agreements.
o Professional service and other revenues decreased 3.4% from $1.8 million in
last year's quarter to $1.7 million this quarter. Professional service
revenues increased 3% from last year's quarter, offset by a decrease in
other revenues.
Cost of Revenues.
o Cost of software license revenues consists primarily of the cost of
royalties and sublicense fees. The cost of software license revenues
increased 62.9% from $205,000 in last year's quarter to $334,000 this
quarter, representing 2.9% and 3.3%, respectively, of software license
revenues in those quarters. The cost of software license revenues is a
variable expense related to software license revenues that are subject to
third-party royalties. The increase in cost of software license revenues is
consistent with the increase in license revenues.
o Cost of maintenance revenues consists primarily of personnel costs. The
cost of maintenance revenues decreased 3.2% from $1.6 million in last
year's quarter to $1.5 million this quarter, representing 18.0% and 16.0%,
respectively, of maintenance revenues in those quarters. The decrease in
cost of maintenance revenues is attributable to reductions in operating
costs offset by increases in personnel costs.
o Cost of professional service and other revenues consists primarily of
personnel and subcontractor costs associated with providing professional
services. The cost of professional service and other revenues was $1.6
million for both last year's quarter and this quarter. These costs as a
percentage of professional service and other revenues increased from 89.1%
in last year's quarter to 93.8% in this quarter due to a decrease in other
revenues.
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 9.8% from $9.8 million in last year's quarter to
$8.8 million this quarter, representing 55.5% and 41.3%, respectively, of
total revenues in those quarters. Sales and marketing expenses decreased
primarily due to lower professional fees, lower personnel costs (reflecting
lower headcount), lower tradeshow costs, and lower lease costs, 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 19.4% from $3.7 million in last year's quarter to $4.5 million
this quarter, representing 21.3% and 21.0%, respectively, of total revenues
in those quarters. The increase in research and development expenses is
primarily attributable to increased personnel costs arising from the Cytura
Corp.("Cytura") asset acquisition and increased subcontractor fees.
o General and administrative expenses consist of personnel costs related to
management, accounting, human resources, network services, administration
and associated overhead costs, as well as fees for professional services.
General and
administrative expenses increased 3.8% from $2.6 million in last year's
quarter to $2.7 million this quarter, representing 14.6% and 12.5%,
respectively, of total revenues in those quarters. The increase in general
and administrative expenses is primarily attributable to higher personnel
costs and professional fees, offset by lower depreciation costs.
o Acquired in-process research and development expenses relate to the
acquisition of the technology and certain other assets of Cytura, in which
a portion of the purchase price was allocated to acquired in-process
research and technology. Since the technological feasibility of the
research and development projects has not yet been achieved and Mobius
believes such projects have no alternative future use, the acquired
in-process research and development was expensed immediately. As a result,
the Company recorded a charge of $910,000 in the second quarter of fiscal
2003.
o Facilities restructuring expenses of $194,000 in the second quarter of
fiscal 2003 consist of an accrual for a loss on the Company's leases for
two 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 the fourth quarter of fiscal 2002.
The charge reflected 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. During the second quarter of fiscal 2003,
the Company entered into an agreement which releases Mobius from all of its
ongoing obligations under the original terms of the lease effective as of
February 15, 2003. Accordingly, the Company recorded additional expenses of
$78,000.
The Company recorded a facilities restructuring charge of $116,000 in the
second quarter of fiscal 2003 representing the estimated future lease
obligations for office space that the Company was subleasing to a third
party. The third party abandoned such space during the second quarter of
fiscal 2003 and the Company believes that it is highly unlikely that it
will be able to sublease this space for the remainder of the lease term.
As of December 31, 2002, the Company had $656,000 remaining in the
facilities restructuring accrual.
Interest income; interest expense; foreign currency transactions.
Interest income was $487,000 in last year's quarter and $391,000 this
quarter. The decrease in interest income is attributable to decreased returns on
investments. During both quarters, interest expense and foreign currency
transactions were insignificant.
Provision for (benefit from) income taxes.
The tax benefit for income taxes was $(424,000) in last year's quarter
compared to a tax provision of $480,000 this quarter. The provision (benefit)
for taxes as a percentage of income (loss) before taxes was (31.8)% and 39.9%
for last year's quarter and this quarter, respectively. The effective tax rates
for these quarters reflect the statutory tax provision (benefit) for the income
(loss) in the United States offset by limitations on the tax benefit which may
be taken from certain foreign subsidiary losses.
Six Months Ended December 31, 2001 Compared to Six Months Ended
December 31, 2002
Revenues.
o Total revenues increased 25.0% from $32.2 million in the first six months
of fiscal 2002 to $40.2 million in the first six months of fiscal 2003.
Domestic revenues increased 28.2% from $26.7 million in the first six
months of fiscal 2002 to $34.1 million in the first six months of fiscal
2003. International revenues
increased 10.1% from $5.5 million in the first six months of fiscal 2002 to
$6.1 million in the first six months of fiscal 2003. The increase in total
revenues is attributable to increases in software license revenues,
maintenance, professional service and other revenues.
o Software license revenues increased 42.6% from $12.6 million in the first
six months of fiscal 2002 to $17.9 million in the first six months of
fiscal 2003. The increase in software license revenues is attributable to
increased spending for Mobius products by new and existing Mobius
customers. Mobius believes that the six months ended December 31, 2001 was
impacted by geopolitical events surrounding the terrorist attacks of
September 11, 2001, which caused customers to defer information technology
spending.
o Maintenance revenues increased 8.0% from $17.3 million in the first six
months of fiscal 2002 to $18.7 million in the first six months of fiscal
2003. The increase in maintenance revenue is primarily attributable to the
growth in the amount of licensed software covered by maintenance
agreements.
o Professional service and other revenues increased 56.5% from $2.3 million
in the first six months of fiscal 2002 to $3.7 million in the first six
months of fiscal 2003. Professional service revenues increased 64.4% from
the first six months of fiscal 2002 to the first six months of fiscal 2003
as a result of Mobius dedicating additional resources to the development of
the professional service business and Mobius entering into more
professional service arrangements.
Cost of Revenues.
o Cost of software license revenues consists primarily of the cost of
royalties and sublicense fees. The cost of software license revenues
decreased 3.9% from $439,000 in the first six months of fiscal 2002 to
$422,000 in the first six months of fiscal 2003, representing 3.5% and
2.4%, respectively, of software license revenues in those periods. The
decrease is primarily attributable 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. This was
partially offset by higher royalties related to increased software license
revenues that were subject to third-party royalties.
o Cost of maintenance revenues consists primarily of personnel costs. The
cost of maintenance revenues increased 4.9% from $2.9 million in the first
six months of fiscal 2002 to $3.0 million in the first six months of fiscal
2003, representing 16.5% and 16.1%, respectively, of maintenance revenues
in those periods. The increase in cost is 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, and lower depreciation and printing costs.
o Cost of professional service and other revenues consists primarily of
personnel and subcontractor costs associated with providing professional
services. The cost of professional service and other revenues increased
59.0% from $2.3 million in the first six months of fiscal 2002 to $3.6
million in the first six months of fiscal 2003, representing 96.1% and
97.6%, respectively, of professional service and other revenues in those
quarters. The cost 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 8.8% from $19.1 million in the first six months of
fiscal 2002 to $17.4 million in the first six months of fiscal 2003,
representing 59.3% and 43.2%, respectively, of total revenues in those
periods. The decrease in sales and marketing expenses is primarily
attributable to lower personnel costs (reflecting lower headcount), lower
professional fees, lower lease costs, and lower tradeshow costs, 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 14.0% from $7.5 million in the first six months of fiscal 2002 to
$8.5 million in the first six months of fiscal 2003, representing 23.3% and
21.2%, respectively, of total revenues in those periods. The increase in
research and development expenses is primarily attributable to increased
personnel costs arising from the Cytura asset acquisition and increased
subcontractor fees.
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 1.2% from $5.2 million in the
first six months of fiscal 2002 to $5.1 million in the first six months of
fiscal 2003, representing 16.0% and 12.7%, respectively, of total revenues
in those periods. The decrease in general and administrative expenses is
primarily attributable to lower depreciation and telecommunications costs,
offset by higher personnel costs and professional fees.
o Acquired in-process research and development expenses relate to the
acquisition of the technology and certain other assets of Cytura, in which
a portion of the purchase price was allocated to acquired in-process
research and technology. Since the technological feasibility of the
research and development projects has not yet been achieved and Mobius
believes such projects have no alternative future use, the acquired
in-process research and development was expensed immediately. As a result,
the Company recorded a charge of $910,000 in the second quarter of fiscal
2003.
o Facilities restructuring expenses of $194,000 in the second quarter of
fiscal 2003 consist of an accrual for a loss on the Company's leases for
two 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 the fourth quarter of fiscal 2002.
The charge reflected 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. During the second quarter of fiscal 2003,
the Company entered into an agreement which releases Mobius from all of its
ongoing obligations under the original terms of the lease effective as of
February 15, 2003. Accordingly, the Company recorded additional expenses of
$78,000.
The Company recorded a facilities restructuring charge of $116,000 in the
second quarter of fiscal 2003 representing the estimated future lease
obligations for office space that the Company was subleasing to a third
party. The third party abandoned such space during the second quarter of
fiscal 2003 and the Company believes that it is highly unlikely that it
will be able to sublease this space for the remainder of the lease term.
As of December 31, 2002, the Company had $656,000 remaining in the
facilities restructuring accrual.
Interest income; interest expense; foreign currency transactions; gain on
investment.
Interest income was $1.0 million in the first six months of fiscal 2002
and $717,000 in the first six months of fiscal 2003. The decrease in interest
income is primarily attributable to decreased returns on investments. Gain on
investments of $113,000 during the first six months of fiscal 2003 was the
result of the sale of Mobius's remaining investment in Intelidata stock in the
first quarter of fiscal 2003. During both six month periods, interest expense
and foreign currency transactions were insignificant.
Provision for (benefit from) income taxes.
The tax benefit for income taxes was $(1.3) million in the first six
months of fiscal 2002 compared to a tax provision of $834,000 in the first six
months of fiscal 2003. The provision (benefit) for taxes as a percentage of
income (loss) before taxes was (31.7)% and 43.0% for the first six months of
fiscal 2002 and the first six months of fiscal 2003, respectively. The effective
tax rates for the first six months of fiscal 2002 and the first six months of
fiscal 2003 reflect the statutory tax provision (benefit) for the income (loss)
in the United States offset by limitations on the tax benefit which may be taken
from certain foreign subsidiary losses.
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 December 31, 2002, Mobius had cash and cash equivalents of
$37.1 million, an increase of $6.0 million from the $31.1 million held at June
30, 2002. In addition, Mobius held no marketable securities as of December 31,
2002, and $2.6 million of marketable securities as of June 30, 2002.
Net cash provided by operating activities was $4.7 million in the first
six months of fiscal 2002 and $3.5 million in the first six months of fiscal
2003. Mobius's primary sources of cash during the first six months of fiscal
2003 were from decreased accounts receivable as a result of cash collections,
increased deferred revenue and improved results of operations. These sources
were offset by increased software license installment receivables and decreased
accounts payable. Mobius's depreciation and amortization expense adjustment in
operating activities decreased 23.4% from $2.1 million in the first six months
of fiscal 2002 to $1.6 million in the first six months of fiscal 2003. Deferred
revenue increased 28.1% from $20.6 million at June 30, 2002 to $26.4 million at
December 31, 2002. Net software license installments increased 67.0% from $10.3
million at June 30, 2002 to $17.3 million at December 31, 2002. Net accounts
receivable decreased 30.8% from $16.0 million at June 30, 2002 to $11.1 million
at December 31, 2002.
Cash provided by investing activities was $3.1 million in the first six
months of fiscal 2002 and $1.9 million in the first six months of fiscal 2003.
During the first six months of fiscal 2002 and the first six months of fiscal
2003, the Company sold marketable securities of $10.8 million and $2.5 million,
respectively, and during the first six months of fiscal 2002, the Company
purchased marketable securities of $6.9 million.
Cash used by financing activities was $3.1 million in the first six months
of fiscal 2002 versus cash provided by financing activities of $384,000 in the
first six months of fiscal 2003. In the first six months of fiscal 2002, the
cash was used to repurchase Mobius's common stock, offset by cash received for
employee stock purchases and stock option exercises. In the first six months of
fiscal 2003, the cash was provided by 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 December 31, 2002, the future minimum
lease payments for these operating leases are as follows (in thousands):
Operating
Year Ended: Leases
- ----------- ---------
December 31, 2003 $ 2,462
December 31, 2004 1,987
December 31, 2005 1,611
December 31, 2006 1,548
December 31, 2007 1,458
Thereafter 3,354
-------
Total minimum lease payments $12,420
=======
In compliance with the lease of the Company's corporate headquarters in
Rye, NY, the landlord holds a letter of credit issued by 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 (the "Contenuity Software") and
certain other assets of Cytura, a privately held company, for an aggregate of
approximately $2.236 million in cash, which was paid from the Company's existing
cash balances. In addition, the Company assumed capital lease obligations of
$36,000 and incurred acquisition-related expenses of $250,000, for an aggregate
purchase price of approximately $2.5 million. The Company may be obligated to
pay Cytura up to an additional $800,000 within 60 days of the first anniversary
of the transaction if the average closing price of the common stock of Mobius
equals or exceeds a specified amount during any 30-day period in the thirteen
months following the Closing Date. If the additional purchase price is paid,
such amount will be recorded as additional goodwill.
The Company continues to evaluate potential acquisition candidates whose
products or technology would enhance Mobius's strategic market position.
Accounts Receivable 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's sales representatives. Based on the specific account information and
the historical relationship of actual losses to revenues and receivable
balances, Mobius exercises its judgment as to what portion of the accounts
receivable balance requires a reserve. As of December 31, 2001 and December 31,
2002, approximately 90% and 87%, 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's products.
Software license installment and
accounts receivable reserves were $1.5 million and $1.6 million as of June 30,
2002 and December 31, 2002, respectively.
Deferred Revenues
Deferred revenues consist primarily of the unearned portion of maintenance
billings, unbundled maintenance and license contracts. Total deferred revenues
increased 28.1% from $20.6 million at June 30, 2002 to $26.4 million at December
31, 2002. Deferred revenues can fluctuate due to the timing of annual
maintenance billings, increases or decreases in current license revenues and
increases or decreases in license contracts that include more than one year of
maintenance. Current deferred revenues totaled $23.1 million as of December 31,
2002.
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 has been delinquent on these payments since June 2001, no license revenue
relating to this agreement was recognized in the first six months of fiscal 2002
or the first six months of fiscal 2003.
Mobius commenced arbitration proceedings against 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 such agreement. The arbitrator
also directed the buyer and its president to pay Mobius $37,500 per 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 entered an
order confirming the award on September 23, 2002. The Company is currently
determining the appropriate course of action to be taken in this matter.
Recent Accounting Pronouncements
In December 2002, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 148, "Accounting for Stock-Based Compensation--Transition and
Disclosure," which amends SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 148 provides alternative methods of transition for a
voluntary change to the fair value method of accounting for stock-based employee
compensation and requires more prominent and frequent disclosures about the
effects of stock-based compensation. The transition guidance and annual
disclosure provisions of SFAS No. 148 are effective for fiscal years ending
after December 15, 2002. The interim disclosure provisions are effective for
interim periods beginning after December 15, 2002.
Mobius continues to apply the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," and FASB
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation - An Interpretation of Accounting Principles Board Opinion No. 25,"
and accordingly no compensation expense has been recorded for stock-based
compensation plans. The Company's adoption of SFAS No. 148 requires additional
interim disclosures effective for the Company's third quarter fiscal 2003.
In November 2002, the FASB issued FASB Interpretation No. ("FIN") 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others, an interpretation of FASB
Statements No. 5, 57, and 107 and rescission of FASB interpretation No. 34." FIN
45 addresses the disclosures to be made by a guarantor in its interim and annual
financial statements about its obligations under guarantees. It also requires
that a guarantor recognize a liability, at the inception of a guarantee, for the
fair value of the obligation undertaken in issuing the guarantee. The initial
measurement and recognition provisions of FIN 45 are effective for guarantees
issued or modified
after December 31, 2002. The disclosure requirements are effective for interim
or annual periods ending after December 15, 2002. There were no disclosures
required during the second quarter of fiscal 2003 and the Company does not
expect the adoption of the measurement and recognition provisions of this
interpretation to have a material impact on its financial position or results of
operations.
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, develop and introduce new
products to meet diverse and evolving customer requirements, and 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 has 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
Mobius's 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 Inc., 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.
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. Although Mobius does not have any issued
patents covering any aspect of its software products, 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 Mobius's proprietary rights to as
great an extent as do the laws of the United States. There can be no assurance
that Mobius's means of attempting to protect its 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
provide for the release of 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 Mobius's software products. Notwithstanding such provision, the
delivery of source code to customers may increase the likelihood of
misappropriation or other misuse of Mobius's intellectual property.
Mobius is not aware that any of its products infringes 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 Mobius's 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
Mobius's 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 Mobius's 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 Mobius to continue to improve its 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 in which Mobius has invested
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. As of December 31, 2002,
Mobius held no marketable 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 affected 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
None
Item 6. - Exhibits and Reports on Form 8-K
(a) 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
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
On October 17, 2002, Mobius filed a Form 8-K (as updated on December 23,
2002 on a Form 8-K/A) to report that on October 11, 2002, MMS Acquisition
I LLC, a wholly-owned subsidiary of Mobius, acquired technology and
certain other assets of Cytura Corp.
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: February 13, 2003
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
- ---------------------------
Mitchell Gross
Chief Executive Officer
February 13, 2003
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
- ----------------------------
Peter E. Takiff
Chief Financial Officer
February 13, 2003