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 March 31, 2003
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 May 9, 2003
Class Number of Shares Outstanding
Common Stock, par value $0.0001 per share 17,420,719
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2002 and March 31, 2003
Consolidated Statements of Operations
Three months and nine months ended March 31, 2002 and 2003
Consolidated Statements of Stockholders' Equity
Nine months ended March 31, 2003
Consolidated Statements of Cash Flows
Nine months ended March 31, 2002 and 2003
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, March 31,
2002 2003
-------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 31,099 $ 37,472
Marketable securities, at market value 2,635 --
Accounts receivable, net of allowances of $1,043
and $888, respectively 15,959 10,524
Software license installments, current portion 6,862 6,972
Other current assets 2,846 2,155
-------- --------
Total current assets 59,401 57,123
Software license installments, net of allowance for
doubtful accounts of $453 and $686, respectively 3,467 11,382
Property and equipment, net 6,435 4,855
Deferred income taxes, non-current 1,423 1,158
Other non-current assets 666 1,969
-------- --------
Total assets $ 71,392 $ 76,487
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 17,446 $ 15,232
Deferred revenues 19,182 21,243
Deferred income taxes 2,238 2,343
-------- --------
Total current liabilities 38,866 38,818
Deferred revenues 1,406 3,632
-------- --------
Total liabilities 40,272 42,450
-------- --------
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) (178)
Deferred stock compensation (43) --
Accumulated other comprehensive income (74) (16)
Treasury stock, at cost, 5,354,223 shares (15,982) (15,982)
-------- --------
Total stockholders' equity 31,120 34,037
-------- --------
Total liabilities and stockholders' equity $ 71,392 $ 76,487
======== ========
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 Nine months ended
March 31, March 31,
2002 2003 2002 2003
---- ---- ---- ----
Revenues:
Software license $ 5,157 $ 9,443 $ 17,728 $ 27,367
Maintenance 8,732 9,890 26,000 28,541
Professional service and other 908 1,204 3,252 4,873
-------- -------- -------- --------
Total revenues 14,797 20,537 46,980 60,781
-------- -------- -------- --------
Cost of revenues:
Software license 218 431 657 853
Maintenance 1,465 1,775 4,322 4,772
Professional service and other 873 1,184 3,125 4,764
-------- -------- -------- --------
Total cost of revenues 2,556 3,390 8,104 10,389
-------- -------- -------- --------
Gross profit 12,241 17,147 38,876 50,392
-------- -------- -------- --------
Operating expenses:
Sales and marketing 9,007 8,954 28,078 26,347
Research and development 4,118 4,795 11,608 13,332
General and administrative 2,532 2,772 7,688 7,867
Acquired in-process research
and development -- -- -- 910
Facilities restructuring -- -- -- 194
-------- -------- -------- --------
Total operating expenses 15,657 16,521 47,374 48,650
-------- -------- -------- --------
Income (loss) from operations (3,416) 626 (8,498) 1,742
Interest income 330 426 1,359 1,143
Interest expense (11) (4) (15) (7)
Foreign currency transactions 4 112 12 109
Other income (expense) -- -- (2) 113
-------- -------- -------- --------
Income (loss) before income taxes (3,093) 1,160 (7,144) 3,100
Provision for (benefit from) income taxes (1,216) (166) (2,501) 668
-------- -------- -------- --------
Net income (loss) $ (1,877) $ 1,326 $ (4,643) $ 2,432
======== ======== ======== ========
Basic earnings (loss) per share $ (0.11) $ 0.08 $ (0.26) $ 0.14
Basic weighted average shares outstanding 17,227 17,416 17,535 17,333
Diluted earnings (loss) per share $ (0.11) $ 0.07 $ (0.26) $ 0.14
Diluted weighted average shares
outstanding 17,227 17,930 17,535 17,685
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
NINE MONTHS ENDED MARCH 31, 2003
(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 -- -- -- 2,432 -- -- -- -- 2,432
Change in other comprehensive
income, net of tax -- -- -- -- -- 58 -- -- 58
--------
Comprehensive income 2,490
Stock options exercised 42 -- 53 -- -- -- -- -- 53
Stock purchase plan shares
issued 160 -- 331 -- -- -- -- -- 331
Change in deferred
compensation -- -- -- -- 43 -- -- -- 43
------- -------- -------- -------- -------- -------- -------- -------- --------
Balance at March 31, 2003 17,416 $ 2 $ 50,211 $ (178) $ -- $ (16) 5,354 $(15,982) $ 34,037
======= ======== ======== ======== ======== ======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Nine Months Ended
March 31,
2002 2003
-------- --------
Cash flows provided by operating activities:
Net income (loss) $ (4,643) $ 2,432
-------- --------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Deferred income taxes (2,466) 370
Depreciation and amortization 3,173 2,405
Stock compensation expense 107 43
Other 160 255
Change in operating assets and liabilities:
Accounts receivable, net 3,106 5,435
Software license installments 3,501 (8,025)
Other assets 58 (748)
Accounts payable and accrued expenses (881) (2,214)
Deferred revenue 1,023 4,287
-------- --------
Total adjustments 7,781 1,808
-------- --------
Net cash provided by operating activities 3,138 4,240
-------- --------
Cash flows (used in) provided by investing activities:
Purchase of marketable securities (7,921) --
Sale of marketable securities 14,705 2,536
Capital expenditures (915) (944)
Other (72) --
-------- --------
Net cash provided by investing activities 5,797 1,592
-------- --------
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 82 157
-------- --------
Net change in cash and cash equivalents 5,953 6,373
Cash and cash equivalents at beginning of period 24,099 31,099
-------- --------
Cash and cash equivalents at end of period $ 30,052 $ 37,472
======== ========
Supplemental disclosure of cash flow information:
Cash (received) paid during the period for:
Interest $ 15 $ 5
Income taxes, net of refunds $ 12 $ (500)
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
March 31, 2003 and for the three and nine month periods ended March 31, 2002 and
2003 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.
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 are 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 March 31,
----------------------------
2002 2003
------------------------------------------------- ---------------------------------------------
Net Income Net Income
(Loss) Shares Per Share (Loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ---------
Basic EPS:
Net income (loss) $(1,877) $1,326
======== ======
Weighted average shares
outstanding 17,227 17,416
Basic earnings (loss) per
share $(0.11) $0.08
======= =====
Diluted EPS:
Net income (loss) $(1,877) $1,326
======== ======
Dilutive effect of
stock options -- 514
------- -------
Weighted average shares
outstanding 17,227 17,930
====== ======
Diluted earnings (loss) per
share $(0.11) $0.07
======= =====
Three Months Ended March 31,
----------------------------
2002 2003
------------------------------------------------- ----------------------------------------------
Net Income Net Income
(Loss) Shares Per Share (Loss) Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ---------- ----------- ------------- ---------
Basic EPS:
Net income (loss) $(4,643) $2,432
======== ======
Weighted average shares
outstanding 17,535 17,333
Basic earnings (loss) per
share $(0.26) $0.14
======= =====
Diluted EPS:
Net income (loss) $(4,643) $2,432
======== ======
Dilutive effect of
stock options -- 352
------- -----
Weighted average shares
outstanding 17,535 17,685
====== ======
Diluted earnings (loss) per
share $(0.26) $0.14
======= =====
All outstanding stock options for the three and nine months ended March
31, 2002, representing an aggregate of 3,802,350 shares of common stock, and
certain outstanding stock options for the three and nine months ended March 31,
2003, representing an aggregate of 2,561,972 and 2,807,427 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 nine months ended
March 31, 2002 and 2003.
(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 nine months
ended March 31, 2002 were insignificant. Realized gains for the nine months
ended March 31, 2003 were $113,000, recognized in the first quarter of fiscal
2003. As of June 30, 2002 and March 31, 2003, 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 related payments are due annually
over the term. Software license installments receivable is 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 sum of the
installment receivable and the interest receivable equals the amount of the
payment required to be made by the customer.
(5) Property and Equipment
Property and equipment consists of the following (in thousands):
Useful June 30, March 31,
Life 2002 2003
---- ---- ----
Computer equipment 2-5 years $ 13,788 $ 12,069
Furniture, fixtures and office
equipment 5 years 1,701 1,410
Leasehold improvements 5-15 years 4,653 4,049
-------- --------
20,142 17,528
Less accumulated depreciation and
amortization (13,707) (12,673)
-------- --------
Property and equipment, net $ 6,435 $ 4,855
======== ========
Depreciation and amortization expense on property and equipment was $1.0
million and $730,000 for the three months ended March 31, 2002 and 2003,
respectively, and $3.0 million and $2.2 million for the nine months ended March
31, 2002 and 2003, 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. Mobius's total investment in HAN
represented an ownership position of less than 5%. In the first quarter of
fiscal 2001, Mobius provided an additional $281,000 as a short term loan to HAN.
Mobius regularly assessed the recoverability of the HAN investment and
concluded that other than temporary impairment losses had occurred. As a result,
Mobius recorded impairment losses of $2.4 million 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 these
shares and realized a $150,000 gain in fiscal 2002. During the first quarter of
fiscal 2003, Mobius sold its 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, March 31,
2002 2003
---- ----
Accounts payable $ 3,531 $ 1,668
Compensation and related benefits 6,746 8,222
Facilities restructuring 1,394 113
Royalties payable 1,305 870
Other 4,470 4,359
------- -------
$17,446 $ 15,232
======= ========
(8) Treasury Stock
Since the inception of the Company's stock repurchase program in December
2000 through October 2001, Mobius repurchased the entire 1,250,000 shares of its
common stock authorized under the program for an aggregate cost of approximately
$3.9 million. The number of shares repurchased and timing of purchases were
based on a variety of factors, including general market conditions 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, to purchase Mobius's
common stock 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 the dates of grant. 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 Nine Months ended
March 31, March 31,
2002 2003 2002 2003
---- ---- ---- ----
Sales and marketing $ 16 $ 4 $ 68 $ 27
Research and development 8 3 31 13
General and administrative 3 -- 8 3
---- ---- ---- ----
Total $ 27 $ 7 $107 $ 43
==== ==== ==== ====
Since the Company has recognized the entire adjustment, there will be no
additional stock compensation expense relating to these 1998 option grants.
The Company has adopted the disclosure provisions of SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123." SFAS No. 148 requires prominent
disclosures in both annual and interim financial statements regarding the method
of accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company accounts for employee stock options under
the intrinsic value method of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, the Company does not
recognize compensation expense related to employee stock options, since options
are granted at exercise prices equal to the
fair market value on the date of grant. The following table presents the effect
on the Company's net income (loss) and net income (loss) per share if the
Company had applied the fair value recognition provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" (in thousands, except per share data):
Three Months ended Nine Months ended
March 31, March 31,
2002 2003 2002 2003
---- ---- ---- ----
Net income (loss), as reported $ (1,877) $ 1,326 $ (4,643) $ 2,432
Add: Stock-based compensation
expense included in reported net
income (loss), net of tax 27 7 107 43
Less: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of tax (284) (341) (1,112) (946)
--------- --------- --------- ---------
Pro forma net income (loss) $ (2,134) $ 992 $ (5,648) $ 1,529
========= ========= ========= =========
Basic net income(loss) per share-
as reported $ (0.11) $ 0.08 $ (0.26) $ 0.14
Basic net income (loss) per share-
pro forma $ (0.12) $ 0.06 $ (0.32) $ 0.09
Diluted net income (loss) per share-
as reported $ (0.11) $ 0.07 $ (0.26) $ 0.14
Diluted net income (loss) per share-
pro forma $ (0.12) $ 0.06 $ (0.32) $ 0.09
(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 nine months
ended March 31, 2002 and 2003 is as follows (in thousands):
Three Months ended Nine Months ended
March 31, March 31,
2002 2003 2002 2003
---- ---- ---- ----
Net income (loss) $(1,877) $ 1,326 $(4,643) $ 2,432
Unrealized marketable securities gain (loss) (4) -- (3) (99)
Unrealized translation gain(loss) (90) (42) 81 157
------- ------- ------- -------
Comprehensive income (loss) $(1,971) $ 1,284 $(4,565) $ 2,490
======= ======= ======= =======
(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 nine months ended
March 31, 2002 and 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 represented the amount 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 has docketed the
judgment in California and is currently pursuing actions to enforce the
judgment.
(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 with the landlord
and the over-tenant which released Mobius from all of its ongoing obligations
under the original terms of the lease effective as of February 15, 2003.
Accordingly, during the second quarter of fiscal 2003, 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 nine months ended March 31, 2003 are as follows (in thousands):
Additions
Charged
June 30, to Cash March 31,
2002 Expense Payments 2003
---- -------- -------- --------
Rent and related
facilities expenses $1,066 $ 194 $1,147(1) $ 113
Other 328 -- 328 --
------ ------ ------ ------
$1,394 $ 194 $1,475 $ 113
====== ====== ====== ======
(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 is
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. During the fourth quarter of fiscal
2003, the average closing price of the Company's common stock for a 30-day
period exceeded specified amounts set forth in the agreement. As a result,
Mobius will be required to make an additional payment
of $800,000 to Cytura in accordance with the terms of the agreement. The Company
will record such additional payment as 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):
Nine Months ended March 31,
2002 2003
---- ----
Revenues $48,157 $61,075
Net income (loss) $(7,160) $ 2,061
Basic and diluted earnings (loss)
per share $ (0.41) $ 0.12
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 March 31, 2002 and
2003, 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, document and digital asset management; workflow
and imaging; records management; cross-application 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 Mobius's 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. The Company determines 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 Mobius's pricing structure. The
unbundled portion of such maintenance revenue is classified as deferred revenue
with amounts extending beyond one-year reported as non-current deferred 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 Nine months ended
March 31, March 31,
2002 2003 2002 2003
---- ---- ---- ----
Revenues:
Software license 34.9% 46.0% 37.8% 45.0%
Maintenance 59.0 48.1 55.3 47.0
Professional service and other 6.1 5.9 6.9 8.0
------- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Software license 1.5 2.1 1.4 1.4
Maintenance 9.9 8.6 9.2 7.9
Professional service and other 5.9 5.8 6.6 7.8
------- ----- ----- -----
Total costs of revenues 17.3 16.5 17.2 17.1
Gross profit 82.7 83.5 82.8 82.9
Operating expenses:
Sales and marketing 60.9 43.6 59.8 43.4
Research and development 27.8 23.3 24.7 21.9
General and administrative 17.1 13.5 16.4 12.9
Acquired in-process research
and development -- -- -- 1.5
Facilities restructuring -- -- -- 0.3
------- ----- ----- -----
Total operating expenses 105.8 80.4 100.9 80.0
Income (loss) from operations (23.1) 3.1 (18.1) 2.9
Interest income 2.2 2.1 2.9 1.9
Foreign currency transactions -- 0.5 -- 0.1
Other income (expense) -- -- -- 0.2
------- ----- ----- -----
Income (loss) before income taxes (20.9) 5.7 (15.2) 5.1
Provision for (benefit from) income
taxes (8.2) (0.8) (5.3) 1.1
------- ----- ----- -----
Net income (loss) (12.7)% 6.5% (9.9)% 4.0%
======= ===== ===== =====
Three Months Ended March 31, 2002 Compared to Three Months Ended March
31, 2003
Revenues.
o Total revenues increased 38.8% from $14.8 million in last year's quarter to
$20.5 million in this quarter. Domestic revenues increased 44.8% from $12.7
million in last year's quarter to $18.4 million in this quarter. The
increase in total revenues is primarily attributable to increases in
software license and maintenance revenues. International revenues were $2.1
million in last year's quarter and in this quarter.
o Software license revenues increased 83.1% from $5.2 million in last year's
quarter to $9.4 million in this quarter. Mobius believes this increase is
attributable to factors including increased spending for Mobius products by
existing and new Mobius customers, and that the quarter ended March 31,
2002 was negatively impacted by the difficult economic environment, which
caused customers to defer information technology spending.
o Maintenance revenues increased 13.3% from $8.7 million in last year's
quarter to $9.9 million in 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 increased 32.6% from $0.9 million
in last year's quarter to $1.2 million in this quarter. The increase in
professional service revenues resulted from 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
increased 97.7% from $218,000 in last year's quarter to $431,000 in this
quarter, representing 4.2% and 4.6%, 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 increased 21.2% from $1.5 million in last
year's quarter to $1.8 million in this quarter, representing 16.8% and
17.9%, respectively, of maintenance revenues in those quarters. The
increase in cost of maintenance revenues is attributable to higher
personnel costs offset by reductions in certain operating 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
35.6% from $0.9 million in last year's quarter to $1.2 million in this
quarter, representing 96.2% and 98.3%, 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
additional professional service arrangements.
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 0.6% from $9.0 million in last year's quarter to
$8.9 million in this quarter, representing 60.9% and 43.6%, respectively,
of total revenues in those quarters. Sales and marketing expenses decreased
primarily due to lower personnel costs (reflecting lower headcount), lower
rent costs, and lower professional fees, offset by increased commission and
bonus costs as a result of increased license revenues.
o Research and development expenses consist primarily of personnel costs
attributable to the development of new software products and the
enhancement of existing products. Research and development expenses
increased 16.4% from $4.1 million in last year's quarter to $4.8 million in
this quarter, representing 27.8% and 23.3%, 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,
primarily legal and accounting. General and administrative expenses
increased 9.5% from $2.5 million in last year's quarter to $2.8 million in
this quarter, representing 17.1% and 13.5%, 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.
Interest income; foreign currency transactions; interest expense.
Interest income was $330,000 in last year's quarter and $426,000 in this
quarter. The increase in interest income is attributable to higher interest from
installment receivables offset by lower returns on investments. Foreign currency
gains were $4,000 in last year's quarter and $112,000 in this quarter. During
both quarters, interest expense was insignificant.
Benefit from income taxes.
The benefit from income taxes was $1.2 million in last year's quarter
compared with $166,000 in this quarter. This year's quarter included a $700,000
benefit resulting from the completion of prior years' tax audits. The benefit
from taxes as a percentage of income/loss before taxes was 39.3% and (14.3)% for
last year's quarter and this quarter, respectively. Excluding the $700,000 tax
benefit, the provision for taxes as a percentage of income before taxes was
46.0% this quarter. The effective tax rates for the third quarter of fiscal 2002
and the third quarter of fiscal 2003 (excluding the $700,000 tax benefit)
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.
Nine Months Ended March 31, 2002 Compared to Nine Months Ended March 31,
2003
Revenues.
o Total revenues increased 29.4% from $47.0 million in the first nine months
of fiscal 2002 to $60.8 million in the first nine months of fiscal 2003.
Domestic revenues increased 33.5% from $39.4 million in the first nine
months of fiscal 2002 to $52.6 million in the first nine months of fiscal
2003. International revenues increased 7.9% from $7.6 million in the first
nine months of fiscal 2002 to $8.2 million in the first nine 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 54.4% from $17.7 million in the first
nine months of fiscal 2002 to $27.4 million in the first nine months of
fiscal 2003. Mobius believes this increase is attributable to factors
including increased spending for Mobius products by existing and new Mobius
customers, and that the nine months ended March 31, 2002 was negatively
impacted by the difficult economic environment, which caused customers to
defer information technology spending.
o Maintenance revenues increased 9.8% from $26.0 million in the first nine
months of fiscal 2002 to $28.5 million in the first nine 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 49.8% from $3.3 million
in the first nine months of fiscal 2002 to $4.9 million in the first nine
months of fiscal 2003. The increase in professional service revenues
resulted from 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
increased 29.8% from $657,000 in the first nine months of fiscal 2002 to
$853,000 in the first nine months of fiscal 2003, representing 3.7% and
3.1%, respectively, of software license revenues in those periods. The
increase is primarily attributable to higher royalties related to increased
software license revenues that were subject to third-party royalties. This
was partially offset by negotiating more favorable terms with respect to an
existing royalty agreement, which terms included a decrease in current
royalty rates and a credit for past royalty expense.
o Cost of maintenance revenues consists primarily of personnel costs. The
cost of maintenance revenues increased 10.4% from $4.3 million in the first
nine months of fiscal 2002 to $4.8 million in the first nine months of
fiscal 2003, representing 16.6% and 16.7%, respectively, of maintenance
revenues in those periods. The increase in cost is primarily attributable
to higher personnel costs. 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
52.4% from $3.1 million in the first nine months of fiscal 2002 to $4.8
million in the first nine months of fiscal 2003, representing 96.1% and
97.8%, respectively, of professional service and other revenues in those
periods. The cost of professional service and other revenues increased as
the result of Mobius entering into additional 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 6.2% from $28.1 million in the first nine months
of fiscal 2002 to $26.3 million in the first nine months of fiscal 2003,
representing 59.8% and 43.4%, 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 rent 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 14.9% from $11.6 million in the first nine months of fiscal 2002
to $13.3 million in the first nine months of fiscal 2003, representing
24.7% and 21.9%, 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,
primarily legal and accounting. General and administrative expenses
increased 2.3% from $7.7 million in the first nine months of fiscal 2002 to
$7.9 million in the first nine months of fiscal 2003, representing 16.4%
and 12.9%, respectively, of total revenues in those periods. The increase
in general and administrative expenses is
primarily attributable to higher personnel costs and professional fees,
offset by lower depreciation.
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 with the landlord and the over-tenant
which released 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 in the second quarter
of fiscal 2003.
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 March 31, 2003, the Company had $113,000 remaining in the facilities
restructuring accrual.
Interest income; gain on investments; foreign currency transactions; interest
expense.
Interest income was $1.4 million in the first nine months of fiscal 2002
and $1.1 million in the first nine 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 nine 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. Foreign currency gains were $12,000 in the
first nine months of fiscal 2002 and $109,000 in the first nine months of fiscal
2003. During both nine month periods, interest expense was insignificant.
Provision for (benefit from) income taxes.
The tax benefit for income taxes was $2.5 million in the first nine months
of fiscal 2002 compared to a tax provision of $668,000 in the first nine months
of fiscal 2003. The tax provision for the first nine months of fiscal 2003
includes a third-quarter tax benefit of $700,000 resulting from the completion
of prior years' tax audits. The provision (benefit) for taxes as a percentage of
income (loss) before taxes was (35.0)% and 21.5% for the first nine months of
fiscal 2002 and the first nine months of fiscal 2003, respectively. Excluding
the $700,000 tax benefit, the provision for taxes as a percentage of income
before taxes was 44.1% for the first nine months of fiscal 2003. The effective
tax rates for the first nine months of fiscal 2002 and the first nine months of
fiscal 2003 (excluding the $700,000 tax benefit) 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 March 31, 2003, Mobius had cash and cash equivalents of $37.5
million, an increase of $6.4 million from the $31.1 million held at June 30,
2002. In addition, Mobius held no marketable securities as of March 31, 2003,
and $2.6 million of marketable securities as of June 30, 2002.
Net cash provided by operating activities was $3.1 million in the first
nine months of fiscal 2002 and $4.2 million in the first nine months of fiscal
2003. Mobius's primary sources of cash during the first nine 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 24.2% from $3.2 million in the first nine months
of fiscal 2002 to $2.4 million in the first nine months of fiscal 2003. Deferred
revenue increased 20.8% from $20.6 million at June 30, 2002 to $24.9 million at
March 31, 2003. Net accounts receivable decreased 34.1% from $16.0 million at
June 30, 2002 to $10.5 million at March 31, 2003.
Net short-term and long-term software license installments increased 77.7%
from $10.3 million at June 30, 2002 to $18.4 million at March 31, 2003. This
increase was due to a proportionately greater amount of current license revenues
being financed by the Company.
Cash provided by investing activities was $5.8 million in the first nine
months of fiscal 2002 and $1.6 million in the first nine months of fiscal 2003.
During the first nine months of fiscal 2002 and the first nine months of fiscal
2003, the Company sold marketable securities of $14.7 million and $2.5 million,
respectively, and during the first nine months of fiscal 2002, the Company
purchased marketable securities of $7.9 million.
Cash used by financing activities was $3.1 million in the first nine
months of fiscal 2002 versus cash provided by financing activities of $384,000
in the first nine months of fiscal 2003. In the first nine 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
nine 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 March 31, 2003, the future minimum
lease payments for these operating leases are as follows (in thousands):
Operating
Year Ended: Leases
- ----------- ---------
March 31, 2004 $2,624
March 31, 2005 2,142
March 31, 2006 2,023
March 31, 2007 1,718
March 31, 2008 1,554
Thereafter 1,862
-------
Total minimum lease payments $11,923
=======
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 is 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. During the fourth quarter of fiscal 2003, the
average closing price of the Company's common stock for a 30-day period exceeded
specified amounts set forth in the agreement. As a result, Mobius will be
required to make an additional payment of $800,000 to Cytura in accordance with
the terms of the agreement. The Company will record such additional payment as
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
maintains a reserve to absorb losses based upon historical experience that may
result from current receivables. Mobius specifically identifies problem accounts
based on 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 March 31, 2002 and March 31, 2003,
approximately 87% and 82%, 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 $1.4 million as of June 30, 2002 and March 31, 2003, respectively.
Deferred Revenues
Deferred revenues consist primarily of the unearned portion of maintenance
billings, unbundled maintenance and license contracts. Total deferred revenues
increased 20.8% from $20.6 million at June 30, 2002 to $24.9 million at March
31, 2003. 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 $21.2 million as of March 31,
2003.
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 three and nine months ended March 31,
2002 and 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 represented the amount 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 has docketed the
judgment in California and is currently pursuing actions to enforce the
judgment.
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. Mobius has adopted the interim disclosure requirements of
SFAS No. 148 in its third quarter fiscal 2003 interim financial statements, as
disclosed in Note 9, Stock Incentive Plan.
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 third 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, may continue to impact future quarterly
operating results and 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 these 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 that 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 be able to
successfully 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. The recent outbreak of Severe Acute
Respiratory Syndrome, or SARS, which has had particular impact in the
Asia-Pacific region, could have a negative effect on the Company's sales
activity. There can be no assurance that any or all of the foregoing 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, Mobius has committed greater resources to grow its
professional services business relating to the implementation of and training
related to 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 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, to
a certain extent, Mobius is 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 also will 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 the Internet Cannot Accommodate Continued Growth, Mobius's Business Will 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, the Company's 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 invested in
the past may have been 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 March
31, 2003, 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 from 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
Mobius held its Fiscal 2002 Annual Meeting of Stockholders on January 27,
2003. The matters submitted to a vote of stockholders were the election of three
members of the Board of Directors to the class of directors whose terms expire
at the Fiscal 2005 Annual Meeting of Stockholders (the "2005 Annual Meeting"),
approval of an amendment to the Non-Employee Directors' 1998 Stock Option Plan
(the "Plan") and the ratification of the appointment of Mobius's independent
auditors.
Mobius's stockholders elected Joseph J. Albracht, Robert H. Levitan and
Arthur J. Marks to the Board of Directors, to hold office until the 2005 Annual
Meeting and until their respective successors are duly elected and qualified.
The results of the voting were as follows:
Joseph J. Albracht
------------------
Voted for 16,429,609
Withheld 634,991
Robert H. Levitan
-----------------
Voted for 16,429,609
Withheld 634,991
Arthur J. Marks
---------------
Voted for 16,429,609
Withheld 634,991
Mobius's stockholders approved an amendment to the Plan to increase the
maximum number of shares of Mobius's common stock available for issuance under
the Plan from 250,000 to 500,000. The results of the voting were as follows:
Voted for 15,731,550
Against 1,319,319
Abstained 13,731
Mobius's stockholders ratified the appointment of PricewaterhouseCoopers
LLP as Mobius's independent auditors for the fiscal year ending June 30, 2003.
The results of the voting were as follows:
Voted for 17,034,802
Against 25,198
Abstained 4,600
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
10.4B Amendment No. 2 to Mobius Management Systems, Inc.
Non-Employee Directors' 1998 Stock Option Plan
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
No Reports on Form 8-K were filed during the three months ended March 31,
2003.
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: May 14, 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
May 14, 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
May 14, 2003
Exhibit 10.4B
AMENDMENT NO. 2 TO
Mobius Management Systems, Inc.
Non-Employee Directors' 1998 Stock Option Plan
Pursuant to Section 10 of the Mobius Management Systems, Inc.
Non-Employee Directors' 1998 Stock Option Plan (the "Plan"), and in accordance
with the resolutions of the Board of Directors of Mobius Management Systems,
Inc. (the "Company") adopted as of December 6, 2002 and approved by the
Company's stockholders on January 27, 2003, the first sentence of Section 3 of
the Plan is amended to read as follows:
"The total number of shares of common stock of the Company, par value
$0.0001 per share ("Common Stock"), which may be transferred upon the exercise
of options granted under the Plan shall not exceed 500,000 shares."