UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.0001 par value NASDAQ
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes|x| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K ||
Indicate by check mark whether the registrant is an accelerated filer
as defined by Rule 12b-2 of the Securities Exchange Act of 1934: Yes | |
No |x|
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of Common Stock on December
31, 2002, the last business day of the registrant's most recently completed
second fiscal quarter, as reported on NASDAQ, was approximately $18.5 million.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed affiliates. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
As of August 20, 2003, the Registrant had 17,555,328 outstanding shares of
Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
MOBIUS MANAGEMENT SYSTEMS, INC.
FISCAL YEAR 2003 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I.
ITEM 1. Business
ITEM 2. Properties
ITEM 3. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders
PART II.
ITEM 5. Market for Registrant's Common Equity and Related Stockholder
Matters
ITEM 6. Selected Financial Data
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
ITEM 9A. Controls and Procedures
PART III.
ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
ITEM 13. Certain Relationships and Related Transactions
ITEM 14 Principal Accountant Fees and Services
PART IV.
ITEM 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
SIGNATURES
FORWARD-LOOKING STATEMENTS
Statements contained in this annual report, other than historical
financial results, may contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks and uncertainties. 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, fluctuations in period to period results,
seasonality, uncertainty of future operating results, technological change,
product concentration, competition, international sales and operations,
expansion of indirect channels, increased investment in professional services,
extended payment risk, protection of intellectual property, dependence on
licensed technology, risk of product defects, product liability, management of
growth, dependence on executive management, other key employees and
subcontractors, whether the Internet can accommodate continued growth and
concerns about transaction security on the Internet. 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" in Item 1 -
Business. Forward-looking statements included in this annual report are based on
information known to Mobius as of the date of this annual report and Mobius
accepts no obligation (and expressly disclaims any obligations) to update these
forward-looking statements and does not intend to do so.
ITEM 1. BUSINESS
Mobius Management Systems, Inc. (together with its consolidated
subsidiaries, "Mobius" or the "Company") is a leading provider of integrated
solutions for total content management ("TCM"). Mobius was incorporated in New
York in 1981 and reincorporated in Delaware in 1997. The Company has
international subsidiaries in the United Kingdom, Canada, France, Germany,
Italy, Sweden, Australia, Switzerland, Japan and the Benelux. Mobius's company
headquarters are located at 120 Old Post Road, Rye, NY 10580 and the telephone
number is (914) 921-7200.
Mobius is a leading provider of integrated solutions for total content
management (TCM). For over two decades, Mobius has delivered innovative software
that captures, stores, manages and delivers mission- and business-critical
content -- documents, reports, images and transactions in multiple formats from
multiple sources. Mobius solutions have achieved industry-wide recognition for
their breadth of functionality, breadth of supported information formats and the
ability to meet high-volume, high-performance requirements in distributed
environments that range from the desktop to the mainframe.
The Company's ViewDirect(R) TCM is a comprehensive suite of solutions that
meet a broad and diverse range of enterprise requirements for managing and
delivering content. ViewDirect TCM supports both "human-created" content --
generated by desktop applications -- and the "application-created" content --
generated by production systems -- that is needed to fuel next-generation
Web-based applications. ViewDirect TCM includes facilities for integrated access
to disparate content repositories, as well as products that support
content-intensive applications including:
o Web site, digital asset and document management;
o business process management;
o imaging;
o Internet presentment and payment;
o records management;
o enterprise report distribution;
o check image archive; and
o an audit and balancing facility that monitors the accuracy and
consistency of enterprise data.
Industry Background
It is estimated that there are billions of pages of content available on
the Web alone, in addition to vast quantities of mission- and business-critical
documents, reports, images and transactions that support internal operations.
Organizations struggle to gather and deliver disparate content and deliver it in
the necessary form for the appropriate audience. The challenge is compounded by
the variety of documents and formats now used in day-to-day business operations.
These include bills, statements, check images, report output, scanned forms,
e-mail, transactions, policies, correspondence, Web elements, audio, video and
more.
This broad diversity of content is dispersed throughout the global
enterprise in diverse content management applications, databases, e-mail
applications, and file systems. As a result of mergers and acquisitions,
departmental solutions, and home-grown applications, a typical global enterprise
today has many separate applications that generate content for storage in
multiple, dedicated repositories. When an employee needs all the information
about a transaction or when a customer wants access to all the information about
her account, this complex infrastructure makes retrieval difficult and time
consuming.
Mobius's ViewDirect(R) TCM suite of products for total content management
addresses the critical, strategic imperative to integrate and manage this
diverse content and make it available to employees, customers, partners and
suppliers in support of e-business initiatives and internal operations.
ViewDirect TCM comprises the following components:
o Content integration: via a single integrated repository or by direct access
to multiple, disparate repositories;
o Web site management: enabling the creation, reviewing, staging, approval
and publishing of content for Web sites as well as personalization;
o Document management and Web publishing: securely managing and organizing
electronic documents, routing them, automating tasks and distributing them
over the Web;
o Digital asset management: storing and retrieving rich media -- text,
graphics, photos, video and audio;
o Imaging: support for high-volume image capture, storage, access and
delivery;
o Business process management: a comprehensive solution for automating
business processes that support both outward-facing e-business applications
and internal operations;
o E-presentment and payment: facilities that support B2C and B2B bill,
statement or invoice presentment and payment application;
o Enterprise report management: distributing reports from enterprise resource
planning (ERP), customer relationship management (CRM) and other enterprise
applications to users around the globe, each with different requirements
and access authorizations;
o Check image archive: a complete repository-based system for managing and
delivering check images and associated documents;
o Records management: a full life-cycle management capability for all
electronic and non-electronic records, certified for U.S. Department of
Defense ("DoD") 5015.2 standard, a set of basic requirements that
recordkeeping systems must meet to be used by the military and other
government organizations. DoD5015.2 is a widely accepted benchmark within
the United States and is being adopted as a guideline for recordkeeping
standards and policies throughout the world;
o Audit and balancing: monitoring data within and across business
applications and platforms to ensure correctness and consistency.
The ViewDirect(R) TCM architecture is scalable and open, supporting
a broad range of information formats, computing platforms and storage media.
Technological innovation provides uniquely robust functionality, efficiency and
ease-of-use.
Products
Mobius's ViewDirect TCM suite manages enterprise content in its many forms
and makes it available for many purposes. The suite includes products for
storing, integrating, viewing and delivering content as well as specialized
tools for automating business processes, accessing content across disparate
repositories, building and maintaining Internet/intranet sites, and monitoring
data for accuracy.
o The ViewDirect TCM repository is market-leading software for high-volume
storage, high-speed indexed access and electronic distribution of
enterprise information.
o ViewDirect(R) Total Content Integrator provides integrated access to
multiple disparate repositories.
o ViewDirect(R) Contenuity(TM) is a comprehensive platform for Web site
implementation and management, document and digital asset management and
content publishing.
o WorkflowDirect(TM) is a Java-based business process platform for designing
and building workflow applications that connect the enterprise with
customers, partners and suppliers.
o ViewDirect-ABS is an audit and balancing system that reconciles data across
applications and platforms, providing data integrity and quality control.
o Click-n-Done provides statement, bill and invoice e-presentment and
payment.
o A set of viewing clients for Web browser-based searching and viewing
(DocumentDirect(R) for the Internet, e-Search & View(TM)), as well as
Windows-based tools (DocumentDirect(R), DocuAnalyzer(TM)) with powerful
features for customized display and analyzing the data in documents.
o Options, interfaces and connectors provide integration interfaces to ERP
and CRM systems, interfaces to scanning software and storage hardware, APIs
and options for migrating and viewing stored content directly from
different storage media.
Sales and Marketing
The Company sells and markets its products primarily through a direct
sales force located in 21 offices worldwide. These sales offices are located in
the United States, Canada, the United Kingdom, France, Germany, Italy,
Switzerland, Sweden, Belgium, the Netherlands, Australia, Japan and Singapore.
Customer Satisfaction
Mobius provides twenty-four hour, seven-day-a-week customer support and
product support services for all its products through support centers in the
United States, the United Kingdom and Australia.
Research and Development
The Company intends to continue to make substantial investments in
research and development to maintain and enhance its product lines. The Company
employs developers in Rye, NY and Orlando, FL, and utilizes subcontractors in
India and the Ukraine. Mobius believes that its future success will, in large
part, depend on its ability to maintain and improve current products and develop
and acquire new products that meet the emerging needs of the marketplace. The
Company's research and development efforts focus on designing and developing
reliable and easy-to-use products. Mobius's product development cycle (from
funding a product development project until the new product is shipped to the
marketplace) is generally less than six months, which enables the Company to
take advantage of market opportunities and be responsive to customer demands.
Larger projects are broken down so that a specific product or product
enhancement can be available in the marketplace as quickly as possible. The
Company divides its development team into groups delineated by product
functionality and
employs development tools to facilitate short development cycles for functional
enhancements while maintaining product reliability.
Employees
As of June 30, 2003, Mobius employed 417 people: 137 in Sales and
Marketing; 38 in Professional Services; 59 in Customer Satisfaction; 120 in
Research and Development; and 63 in General and Administrative. None of the
employees are represented by a labor union or are subject to a collective
bargaining agreement. The Company has not experienced any work stoppages and
believes it has a good relationship with its employees. The Company believes
that its future success will depend upon its ability to attract, train and
retain highly skilled technical, management, sales and marketing personnel.
Customers
No single customer accounted for 10% or more of consolidated revenues in
fiscal years 2001, 2002 or 2003.
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. A description of the competitive
environment in which the Company does business is set forth below under the
heading "Factors Affecting Future Performance."
Intellectual Property
Mobius's success is heavily dependent upon its confidential and
proprietary intellectual property. Mobius relies primarily on a combination of
confidentiality agreements, copyright, trademark and trade secret laws and
confidentiality procedures to protect its proprietary rights. A description of
the risks involved in the protection of the Company's intellectual property is
set forth below under the heading "Factors Affecting Future Performance."
Available Information
The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to these reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are available free of charge on our web site at www.mobius.com, by clicking
on Investor Relations, then SEC Filings. These documents are provided as soon as
reasonably practicable after such reports are filed with or furnished to the
Securities and Exchange Commission ("SEC"). Alternatively, you may access these
reports at the SEC's Internet web site at www.sec.gov.
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 mix of products,
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 fiscal quarter (ending June 30) and to a lesser extent in the second
fiscal quarter (ending December 31). 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 products 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 have been attributable
to the licensing and related maintenance service of its ViewDirect TCM 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 and financial
condition.
Competition
The market for Mobius's products is intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
market activities of industry participants. Mobius believes that the most
important competitive factors in the market for content management software are
breadth of functionality, scalability, breadth of supported operating systems
and content formats, vendor viability, 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 IBM Corp., FileNet Corporation, Documentum, Inc., BMC
Software, Inc. and Quest Software, Inc.
Some of our competitors 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. In addition, 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 content management software continues to develop and expand.
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 and financial condition. There
can be no assurance that Mobius will be able to compete successfully against
current or future competitors or that competitive pressures will not have a
material adverse effect on Mobius's business, operating results and financial
condition.
International Sales and Operations
Mobius believes that its revenues and future operating results will depend
in part on its ability to increase sales in international markets. As a group,
Mobius's international subsidiaries have been unprofitable to date, and Mobius
expects achieving profitability will continue to require significant management
attention and financial resources. There can be no assurance that Mobius will be
able to maintain or increase international market demand for its products or
attract and retain qualified personnel who will be able to successfully market
its products internationally. Mobius's international sales are subject to the
general risks inherent in doing business internationally including:
o unexpected changes in regulatory requirements;
o tariffs and other trade barriers;
o costs and difficulties of localizing products for international
countries;
o lack of acceptance of localized products in international countries;
o longer accounts receivable payment cycles;
o difficulties in managing international operations;
o potentially adverse tax consequences;
o restrictions on the repatriation of earnings;
o the burdens of complying with a wide variety of international laws;
and
o economic instability.
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 and financial condition.
An increase in the value of the U.S. dollar relative to foreign currencies
could make Mobius's products more expensive, and, therefore, potentially less
competitive in those markets. To the extent that the U.S. dollar strengthens
against foreign currencies in international markets in which Mobius maintains
operations, its net assets that are denominated in such foreign currencies will
be devalued, resulting in a foreign currency translation loss. For more
information on Mobius's international operations, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Item 7 of this
report.
Expansion of Indirect Channels
To date, sales through indirect sales channels have not been significant
although Mobius continues to invest resources to develop these channels.
Mobius's revenue growth in the future may be affected by its success in
expanding existing and establishing additional relationships with strategic
partners.
Increased Investment in Professional Services
In recent periods, 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. The Company has experienced negative gross margins related to this
business in the last fiscal year. 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 and operating 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. During fiscal 2003, there was a 127% increase
in software license installments receivable, reflecting a significant increase
in licenses having extended payment terms, including licenses of ViewDirect TCM
products that Mobius began to market in fiscal 2003 under the term "Solution
Packs." Solution Packs are bundles of server products and client products
designed to address specific customer applications and requirements with,
generally, license terms of five years. If the level of software license
revenues financed by installments receivable continues at the current rate, the
Company's cash position is likely to be adversely affected.
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, however, that customers will
not default under such financing arrangements. Any such default could have a
material adverse effect on Mobius's business, operating results and financial
condition.
Protection of Intellectual Property
Mobius's success is heavily dependent upon its confidential and
proprietary intellectual property. Mobius 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 and
financial condition.
Dependence on Licensed Technology
Mobius relies on certain software and other information that it licenses
from third parties, including software that is used to perform certain functions
in its products. Although Mobius believes that there are alternatives for these
products, any significant interruption in the availability of such third party
software could have a material adverse impact on 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 and financial condition.
Risk of Product Defects; Product Liability
Software products as complex as those offered by Mobius frequently contain
defects, especially when first introduced or when new versions are released.
Although Mobius conducts extensive product testing, Mobius has in the past
discovered software defects in certain of its new products and enhancements
after their introduction. In the future, Mobius could 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 and 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
and financial condition.
Management of Growth; Dependence on Executive Management, Other Key Employees
and Subcontractors
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 and financial condition would be materially adversely affected.
Mobius's success depends to a significant extent upon its executive
management and certain other key employees of Mobius. The loss of the service of
executive 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 and financial condition.
Mobius utilizes development subcontractors in India and the Ukraine. The
loss of services of these subcontractors could have a material adverse effect on
the Company's research and development.
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
Product Sales.
A significant barrier to electronic commerce and communications is the
secure transmission of private information over public networks. Mobius's
products 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 products use to protect customer transaction
data. Any breaches in security could cause a significant decrease in the use of
Mobius's products, which could undermine future product sales.
ITEM 2. PROPERTIES
Mobius is headquartered in Rye, New York, where it leases an aggregate of
70,500 square feet of space. Administrative, marketing, product development and
customer support and service operations are located in the Rye space. Sales
operations are based in Chicago, Illinois. Mobius leases an aggregate of
approximately 57,000 additional square feet of space domestically and
internationally for its sales offices. Mobius believes that these facilities are
adequate to meet its current needs.
ITEM 3. LEGAL PROCEEDINGS
From time to time, Mobius is involved in litigation relating to claims
arising out of its operations in the normal course of business. Mobius is not a
party to any legal proceedings, the adverse outcome of which, individually or in
the aggregate, would have a material adverse effect on its business, operating
results, cash flow or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fiscal
quarter ended June 30, 2003.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Mobius's common stock has been quoted on the NASDAQ National Market under
the symbol of MOBI since its initial public offering on April 27, 1998.
According to records of Mobius's transfer agent, Mobius had approximately 52
stockholders of record as of August 20, 2003. Because many of such shares are
held by brokers and other institutions on behalf of stockholders, Mobius is
unable to estimate the total number of stockholders represented by the record
holders. The following table sets forth the high and low sales prices of
Mobius's common stock on the NASDAQ National Market for the periods indicated.
Quarter ended: High Low
-------------- ---- ---
September 30, 2001 $3.25 $1.78
December 31, 2001 $4.04 $2.00
March 31, 2002 $3.56 $2.15
June 30, 2002 $3.32 $2.00
September 30, 2002 $3.25 $1.88
December 31, 2002 $2.45 $1.70
March 31, 2003 $3.30 $2.30
June 30, 2003 $9.95 $2.89
Mobius has never paid any cash dividends on its common stock and does not
anticipate paying any cash dividends in the foreseeable future. Mobius currently
intends to retain future earnings to fund the development and growth of its
business. Payment of future dividends, if any, will be at the discretion of its
Board of Directors after taking into account various factors, including Mobius's
financial condition, operating results, current and anticipated cash needs and
plans for expansion.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the
captions "Consolidated Statement of Operations Data" and "Consolidated Balance
Sheet Data" as of and for each of the years in the five year period ended June
30, 2003 are derived from the consolidated financial statements of Mobius. The
financial statements for each of the years in the three-year period ended June
30, 2001 have been audited by KPMG LLP and the financial statements for each of
the years in the two-year period ended June 30, 2003 have been audited by
PricewaterhouseCoopers LLP. Both KPMG LLP and PricewaterhouseCoopers LLP are
independent certified public accountants. The consolidated financial statements
as of June 30, 2002 and 2003 and for each of the years in the three-year period
ended June 30, 2003, and the reports thereon, are included elsewhere in this
Form 10-K. The data set forth below should be read in conjunction with, and are
qualified by reference to, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and Notes thereto, included elsewhere in this Annual Report on Form 10-K.
Years Ended June 30,
1999 2000 2001 2002 2003
--------------------------------------------------------------------
Consolidated Statement of Operations Data
(in thousands, except per share data):
Revenues:
Software license $ 48,811 $ 31,018 $ 39,321 $ 28,026 $ 38,353
Maintenance 23,901 27,785 33,174 34,776 38,448
Professional service and other 1,124 1,402 1,717 5,111 5,855
-------- -------- -------- -------- --------
Total revenues 73,836 60,205 74,212 67,913 82,656
-------- -------- -------- -------- --------
Cost of revenues:
Software license 1,223 946 1,219 1,128 1,146
Maintenance 4,776 5,399 5,331 5,919 6,631
Professional service and other 235 671 817 5,035 5,934
-------- -------- -------- -------- --------
Total cost of revenues 6,234 7,016 7,367 12,082 13,711
-------- -------- -------- -------- --------
Gross profit 67,602 53,189 66,845 55,831 68,945
-------- -------- -------- -------- --------
Operating expenses (1):
Sales and marketing 41,877 44,289 44,886 38,151 34,776
Research and development 10,674 14,823 16,267 15,741 18,025
General and administrative 9,409 12,086 10,460 10,380 10,838
Acquired in-process research and development -- -- -- -- 910
Facilities restructuring -- -- -- 1,394 194
-------- -------- -------- -------- --------
Total operating expenses 61,960 71,198 71,613 65,666 64,743
-------- -------- -------- -------- --------
Income (loss) from operations 5,642 (18,009) (4,768) (9,835) 4,202
Interest income 2,920 2,930 2,689 1,674 1,532
Interest expense (16) (58) (9) (15) (18)
Foreign currency transactions (191) 44 102 (5) 107
Other income -- -- 109 148 113
Investment impairments -- (2,220) (718) -- --
-------- -------- -------- -------- --------
Income (loss) before income taxes 8,355 (17,313) (2,595) (8,033) 5,936
Provision for (benefit from) income taxes 4,057 (5,417) (605) (2,812) 1,860
-------- -------- -------- -------- --------
Net income (loss) $ 4,298 $(11,896) $ (1,990) $ (5,221) $ 4,076
======== ======== ======== ======== ========
Basic earnings (loss) per share(2) $ 0.24 $ (0.66) $ (0.11) $ (0.30) $ 0.23
Basic weighted average shares outstanding(2) 17,813 17,988 18,225 17,459 17,363
Diluted earnings (loss) per share(2) $ 0.23 $ (0.66) $ (0.11) $ (0.30) $ 0.23
Diluted weighted average shares outstanding(2) 18,964 17,988 18,225 17,459 18,089
Consolidated Balance Sheet Data
(in thousands):
Total assets $ 89,201 $ 78,393 $ 75,515 $ 71,392 $ 81,818
Total long-term obligations 7,612 3,698 1,398 1,406 5,560
Stockholders' equity 51,528 40,591 38,470 31,120 36,357
(1) Included within sales and marketing, research and development and general
and administrative expense is stock compensation expense associated with the
granting of stock options to employees immediately prior to the Company's
IPO for the years ended June 30, 1999, 2000, 2001, 2002 and 2003 aggregating
$1,046, $537, $277, $125 and $43, respectively.
(2) For a description of the basic and diluted earnings per share ("EPS")
calculations and the basic and diluted weighted average shares outstanding,
see Notes 2 and 3 of Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In this section, readers are given a more detailed assessment of the
Company's operating results and changes in financial position over the periods
discussed. This section should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes. Please note that references
in this section to "this year" and "last year" refer to the Company's fiscal
years ended June 30, 2003 and June 30, 2002, respectively.
Overview
Mobius is a leading provider of integrated solutions for total content
management (TCM). For over two decades, Mobius has delivered innovative software
that captures, stores, manages and delivers mission- and business-critical
documents, reports, images and transactions in multiple formats from multiple
sources. Mobius solutions have achieved industry-wide recognition for their
breadth of functionality, breadth of supported information formats and the
ability to meet high-volume, high-performance requirements in distributed
environments that range from the desktop to the mainframe.
The Company's ViewDirect(R) TCM is a comprehensive suite of solutions that
meet a broad and diverse range of enterprise requirements for managing and
delivering content. ViewDirect TCM supports both "human-created" content --
generated by desktop applications -- and the "application-created" content --
generated by production systems -- that is needed to fuel next-generation
Web-based applications. ViewDirect TCM includes facilities for integrated access
to disparate content as well as products that support content-intensive
applications including Web site, digital asset and document management; business
process management; imaging; Internet presentment and payment; records
management; enterprise report distribution; check image archive; and an audit
and balancing facility that monitors the accuracy and consistency of enterprise
data.
The Company's total revenues decreased from $74.2 million in fiscal 2001
to $67.9 million in fiscal 2002 and increased to $82.7 million in fiscal 2003.
Mobius derives its revenues from product licenses, related annual maintenance
and professional services and other. This year, 46.4% of total revenues were
generated from software licenses, 46.5% were generated from maintenance and 7.1%
were generated from professional services and other. Mobius believes that the
decrease in license revenue in fiscal 2002 was impacted by the global economic
recession and the disappointing response of the Company's customers to sales and
marketing initiatives. In an effort to improve its sales and marketing
initiatives, the Company refocused its sales and marketing team under new
leadership and implemented new productivity strategies. As a result, Mobius
believes that license revenues increased in fiscal 2003 due to increased
licensing of Mobius products by existing and new customers of the Company. In
fiscal 2003, Mobius began to market licenses of ViewDirect TCM products under
the term "Solution Packs." Solution Packs are bundles of server products and
client products designed to address specific customer applications and
requirements with, generally, license terms of five years. The Company has
entered into a significant number of license contracts having extended payment
terms. If the level of software license revenues financed by installment
receivable continues at the current rate, the Company's cash position is likely
to be adversely affected.
License revenues of ViewDirect and DocumentDirect products have
historically accounted for a majority of the Company's license revenues and for
a significant portion of total revenues. This year license revenues for these
products accounted for approximately 87.7% of license revenues. Last year
license revenues for these products accounted for approximately 90.1% of license
revenues. The Company anticipates that, for the foreseeable future, license
revenue from these products will continue to account for a significant portion
of license and total revenues.
Maintenance revenues increased from $33.2 million in fiscal 2001 to $34.8
million last year to $38.4 million this year due primarily to the growth in the
amount of licensed software covered by maintenance agreements and increases in
the maintenance fees charged by the Company. Maintenance revenue consists
primarily of
fees for customer support services and enhancements provided by the Company for
its products. In fiscal 2003, Mobius began to market licenses of ViewDirect TCM
products under the term Solution Packs. Historically, Mobius has charged
primarily 15% of contract value for server product annual maintenance and
primarily 5% of contract value for client product annual maintenance, with a
significant portion of the maintenance contracts covering server products.
Annual maintenance for Solution Packs is based on 10% of the contract value. If
a significant portion of the Company's revenues is derived from Solution Packs
and its customer base remains the same, maintenance revenues could potentially
decrease.
During the past two fiscal years, Mobius dedicated more resources to the
development of the Company's professional service business and entered into more
professional service arrangements. As a result, professional service and other
revenue has increased from $1.7 million in fiscal 2001 to $5.1 million last year
to $5.9 million this year. Other revenues in all years were not significant.
International revenues increased this year to $12.0 million from $10.4
million last year. International revenues were $12.8 million in fiscal 2001.
During fiscal 2002, Mobius believes that the economic recession and the
disappointing response of its customers to sales and marketing initiatives
contributed to Mobius selling fewer licenses of its products to new and existing
international customers. During fiscal 2003, international revenues increased
due primarily to the effect of the change in the exchange rates from the
previous year. As a group, the Company's international subsidiaries have been
unprofitable to date, and Mobius expects achieving profitability will continue
to require significant management attention, increased revenues and financial
resources. The majority of Mobius's current international revenues are derived
from the operations of its wholly-owned subsidiaries and through agents. The
Company's subsidiaries conduct business in the currency of the country in which
they operate, exposing Mobius to currency fluctuations and currency transaction
losses or gains, which are outside of Mobius's control.
Prior to fiscal 2001, losses at Mobius's international subsidiaries had
not been consolidated for United States income tax purposes. Consequently, prior
to fiscal 2001, the Company has experienced a reduced effective tax benefit
versus the U.S. Federal statutory rate, as no tax benefit had been provided for
the majority of international losses. During fiscal 2001, the Company made
certain U.S. Federal income tax elections which allowed certain of these
international tax losses to be included within its U.S. Federal consolidated
income tax return. These elections, in part, have caused the Company's effective
tax rate to approach the U.S. Federal statutory rate in fiscal 2002. In fiscal
2003, exclusive of certain tax benefits, the Company experienced an increased
effective tax rate due to certain subsidiary losses that could not be
consolidated for U.S. tax purposes and foreign tax liabilities of certain
international subsidiaries for which no U.S. foreign tax credit was available.
In the future, to the extent the Company is successful at bringing its
international subsidiaries to profitability, the Company's effective tax rate
could again exceed the U.S. Federal statutory rate depending on the availability
of operating loss carryforwards in the profitable international jurisdictions
and the operation of foreign tax credit limitations.
Critical Accounting Policies and Estimates
Mobius'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 judgements on historical experience and on
various other factors that are believed to be reasonable under the
circumstances. These estimates are evaluated on an on-going basis. Actual
results could differ from those estimates.
Management believes that its significant 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
The Company recognizes license and maintenance revenue in accordance with
the provisions of Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," as amended by SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions." The Company
generates license revenues from licensing the rights to use its software
products to its customers. The Company also generates maintenance and
professional service revenues from renewable support and software enhancements
(maintenance) and from consulting activities performed for license customers.
Revenue from software license contracts includes fees related to licenses with
terms generally of 5 or 15 years.
Revenues from software license agreements are recognized upon delivery of
the software if evidence of an arrangement exists, pricing is fixed and
determinable, and collectibility is probable. If an acceptance period is
required, revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period. The Company allocates revenue on software
arrangements involving multiple elements to each element based on
vendor-specific objective evidence of the fair value allocable to each element.
Generally, Mobius's contracts include a software license and an obligation to
provide maintenance. Assuming all other revenue recognition criteria are met,
revenue is recognized upon delivery using the residual method in accordance with
SOP 98-9, where the fair value of the undelivered elements is deferred and the
remaining portion of the arrangement fee is recognized as revenue. Accordingly,
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
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. If evidence of the fair value for undelivered elements does
not exist, all revenue from the arrangement is deferred until such evidence
exists or until all elements are delivered.
The Company offers installment contracts to its customers, which provide
for payments in installments, generally over periods ranging from 3 to 5 years.
Under such contracts, software license revenue reflects the present value of
future payments under non-cancelable license arrangements. The Company has an
established business practice of offering installment contracts to customers and
has a history of successfully enforcing original payment terms on these
contracts without making concessions. In addition, the payment obligations are
unrelated to product implementation or any other post-transaction activity;
therefore, revenues from installment contracts are generally recognized in the
same manner as those requiring current payment. In the case of installment
contracts, software license revenue includes the present value of future
payments. A portion of the discount is recognized as interest income over the
term of the arrangement.
Maintenance revenue is generally recognized ratably over the term of the
support, typically 12 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 the 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
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 Statement of Operations as a percentage of total revenues for the
fiscal years indicated:
Years Ended June 30,
2001 2002 2003
----------------------------
Revenues:
Software license 53.0% 41.3% 46.4%
Maintenance 44.7 51.2 46.5
Professional service and other 2.3 7.5 7.1
----- ----- -----
Total revenues 100.0 100.0 100.0
----- ----- -----
Cost of revenues:
Software license 1.6 1.7 1.4
Maintenance 7.2 8.7 8.0
Professional service and other 1.1 7.4 7.2
----- ----- -----
Total cost of revenues 9.9 17.8 16.6
----- ----- -----
Gross profit 90.1 82.2 83.4
----- ----- -----
Operating expenses:
Sales and marketing 60.5 56.2 42.1
Research and development 21.9 23.2 21.8
General and administrative 14.1 15.3 13.1
Acquired in-process research
and development -- -- 1.1
Facilities restructuring -- 2.0 0.2
----- ----- -----
Total operating expenses 96.5 96.7 78.3
----- ----- -----
Income (loss) from operations (6.4) (14.5) 5.1
Interest income 3.6 2.5 1.8
Interest expense -- -- --
Foreign currency transactions 0.1 -- 0.1
Other income 0.2 0.2 0.1
Investment impairments (1.0) -- --
----- ----- -----
Income (loss) before income taxes (3.5) (11.8) 7.1
Provision for (benefit from) income
taxes (0.8) (4.1) 2.2
----- ----- -----
Net income (loss) (2.7)% (7.7)% 4.9%
===== ===== =====
Year Ended June 30, 2001 Compared to Year Ended June 30, 2002 Compared to Year
Ended June 30, 2003
Revenues
o Total revenues decreased 8.5% from $74.2 million in fiscal 2001 to $67.9
million in fiscal 2002 and increased 21.7% to $82.7 million in fiscal 2003.
Domestic revenues decreased 6.4% from $61.4 million in fiscal 2001 to $57.5
million in fiscal 2002 and increased 23.0% to $70.7 million in fiscal 2003.
International revenues decreased 18.4% from $12.8 million in fiscal 2001 to
$10.4 million in fiscal 2002 and increased 14.6% to $12.0 million in fiscal
2003.
o Software license revenues decreased 28.7% from $39.3 million in fiscal 2001
to $28.0 million in fiscal 2002 and increased 36.8% to $38.4 million in
fiscal 2003. For fiscal 2002, Mobius believes that the decrease in license
revenues was impacted by the global economic recession and the
disappointing response of its customers to sales and marketing initiatives.
In an effort to improve its sales and marketing initiatives, the Company
refocused its sales and marketing team under new leadership and implemented
new productivity strategies. As a result, Mobius believes that license
revenues increased in fiscal 2003 due to increased licensing of Mobius
products by existing and new customers of the Company. In fiscal 2003,
Mobius began to market licenses of ViewDirect TCM products under the term
"Solution Packs." Solution Packs are bundles of server products and client
products designed to address specific customer applications and
requirements with, generally, license terms of five years.
o Maintenance revenues increased 4.8% from $33.2 million in fiscal 2001 to
$34.8 million in fiscal 2002 and increased 10.6% to $38.4 million in fiscal
2003. The increases in maintenance and other revenues during these years
were primarily attributable to the growth in the amount of licensed
software covered by maintenance agreements and increases in the maintenance
fees charged by the Company. In fiscal 2003, Mobius began to market
licenses of ViewDirect TCM products under the term Solution Packs.
Historically, Mobius has charged primarily 15% of contract value for server
product annual maintenance and primarily 5% of contract value for client
product annual maintenance, with a significant portion of the maintenance
contracts covering server products. Annual maintenance for Solution Packs
is based on 10% of the contract value. If a significant portion of the
Company's revenues is derived from Solution Packs and its customer base
remains the same, maintenance revenues could potentially decrease.
o Professional service and other revenues increased 197.7% from $1.7 million
in fiscal 2001 to $5.1 million in fiscal 2002 and increased 14.6% to $5.9
million in fiscal 2003. Professional service revenues have significantly
increased over the past two fiscal years as a result of Mobius dedicating
more resources to the development of the Company's professional service
business and Mobius entering into more professional service arrangements.
Other revenues for all years were not significant.
Cost of Revenues.
o Cost of software license revenues consists primarily of the cost of
royalties and sublicense fees. The cost of software license revenues
decreased 7.5% from $1.2 million in fiscal 2001 to $1.1 million in fiscal
2002 and increased 1.6% to $1.2 million in fiscal 2003, representing 3.1%,
4.0% and 3.0%, respectively, of software license revenues in those years.
The cost of software license revenues are a function of license sales which
were subject to royalties. The increase is primarily attributable to higher
royalties related to increased software license revenues that were subject
to third-party royalties. In fiscal 2003, the increase 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 related
to Customer Satisfaction. The cost of maintenance revenues increased 11.0%
from $5.3 million in fiscal 2001 to $5.9 million in fiscal 2002 and
increased 12.0% to $6.6 million in fiscal 2003, representing 16.1%, 17.0%
and 17.2%, respectively, of
maintenance revenues in those years. In fiscal 2002, the increase in cost
of maintenance revenues was primarily attributable to increased staffing
and personnel-related costs. In fiscal 2003, the increase in cost of
maintenance revenues is primarily attributable to increased staffing and
personnel-related costs and an increase in Customer Satisfaction expenses.
This increase 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 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
516.3% from $817,000 in fiscal 2001 to $5.0 million in fiscal 2002 and
increased 17.9% to $5.9 million in fiscal 2003, representing 47.6%, 98.5%
and 101.3% respectively, of professional service and other revenues in
those years. In fiscal 2002 and 2003, the cost of professional service and
other revenues increased as the result of Mobius entering into more
subcontractor arrangements. The cost of professional service revenue as a
percentage of professional service and other revenues has increased due to
Mobius developing this business and dedicating more internal resources,
lower gross margins recognized on larger engagements and, to a lesser
extent, the loss accrued on a contract. The cost of professional service
and other revenue as a percentage of professional service and other
revenues is also dependent on the level of revenues generated, since there
are substantial fixed costs associated with the professional service
operations.
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, travel and entertainment
costs and bad debt expense. Sales and marketing costs also include the cost
of branch sales offices, marketing, promotional materials and advertising.
These expenses decreased 15.0% from $44.9 million in fiscal 2001 to $38.2
million in fiscal 2002 and decreased 8.8% to $34.8 million in fiscal 2003,
representing 60.5%, 56.2% and 42.1%, respectively, of total revenues in
those years. The decrease in fiscal 2002 was primarily due to decreased
commissions and bonus and consolidation of the Click-n-Done sales and
marketing departments into Mobius's primary sales and marketing structures.
In fiscal 2003, the decrease is primarily attributable to lower personnel
costs (reflecting lower headcount), lower rent costs, lower professional
fees, lower depreciation costs and lower food, travel and lodging expenses,
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. The Company employs developers in Rye, NY
and Orlando, FL and utilizes subcontractors in India and the Ukraine.
Research and development expenses decreased 3.2% from $16.3 million in
fiscal 2001 to $15.7 million in fiscal 2002 and increased 14.5% to $18.0
million for fiscal 2003, representing 21.9%, 23.2% and 21.8%, respectively,
of total revenues in those years. The decrease in fiscal 2002 was primarily
attributable to a decrease in the cost of outside research subcontractors
and a reduction in recruiting expenses due to cost savings initiatives
offset by an increase in personnel costs. The increase in fiscal 2003 is
primarily attributable to increased personnel costs arising from the
acquisition of certain assets of Cytura Corp. ("Cytura") and increased
subcontractor fees. For additional information on the Cytura asset
acquisition, see the discussion included below in the section entitled,
"Liquidity and Capital Resources." Research and development expenses as a
percentage of total revenues fluctuate with the changes in development
projects and annual revenues.
o General and administrative expenses consist of personnel costs related to
management, accounting, human resources, information technology services,
administration and associated overhead costs, as well as fees for
professional services, primarily legal and accounting. General and
administrative expenses decreased 0.8% from $10.5 million in fiscal 2001 to
$10.4 million in fiscal 2002
and increased 4.4% to $10.8 million in fiscal 2003, representing 14.1%,
15.3% and 13.1%, respectively, of total revenues in those years. In fiscal
2002, the decrease was attributable to utilizing fewer professional
services offset by an increase in personnel costs. The increase in fiscal
2003 is primarily attributable to higher personnel costs and professional
fees, offset by lower depreciation. General and administrative expenses as
a percentage of total revenues fluctuate with the changes in general and
administrative costs and annual revenues.
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 fiscal 2003. A valuation
prepared by the Company using the discounted net cash flow method was
utilized to value the acquired in-process research and development
expenses.
o Facilities restructuring expenses consist of accruals for losses 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
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 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 associated with this
new agreement.
The Company recorded a facilities restructuring charge of $116,000 in
fiscal 2003 representing the estimated future lease obligations for office
space that the Company was subleasing to a third party. The third party
abandoned the space during 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 June 30, 2003, the Company had $112,000 remaining in the facilities
restructuring accrual.
Interest income; gain on investment; foreign currency transactions; interest
expense.
Interest income was $2.7 million, $1.7 million and $1.5 million in fiscal
2001, 2002, and 2003, respectively. During fiscal 2002, license and other
interest income decreased due to a decrease in interest rates and to a lesser
extent a decrease in software license installment receivables. Gain on
investments of $148,000 and $113,000 during the fiscal years 2002 and 2003,
respectively, was the result of the sale of Mobius's investment in Intelidata
stock. Foreign currency gains were $102,000 in fiscal 2001 and $107,000 in
fiscal 2003, compared with losses of $5,000 in fiscal 2002. During fiscal 2001,
2002 and 2003 interest expense was insignificant.
Provision for (benefit from) income taxes.
The tax benefit for income taxes was $605,000 in fiscal 2001 and $2.8
million in fiscal 2002 compared to a tax provision of $1.9 million in fiscal
2003. The tax provision for fiscal 2003 includes a tax benefit of $700,000
resulting from the completion in 2003 of prior years' tax audits. The provision
(benefit) for taxes as a percentage of income (loss) before taxes was (23.3)%,
(35.0)% and 31.3% for the fiscal years 2001, 2002 and 2003, respectively.
Excluding the $700,000 tax benefit, the provision for taxes as a percentage of
income before taxes was 43.1% for the fiscal year 2003. The effective tax rates
for fiscal years 2001 and 2002 primarily reflect the statutory tax benefit for
the loss in the United States offset by limitations on the tax benefit which may
be taken from certain foreign subsidiary
losses. The effective tax rate for fiscal 2003, excluding the $700,000 tax
benefit, reflects the statutory tax provision for income in the United States
offset by limitations on the tax benefit which may be taken from certain foreign
subsidiary losses and by foreign taxes paid in certain jurisdictions for which
no U.S. foreign tax credit is available.
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 fiscal 2001, Mobius
provided an additional $375,000 as a short term loan to HAN.
Mobius regularly assessed the recoverability of the HAN investment and
concluded that other than temporary impairment losses occurred. As a result,
Mobius recorded impairment losses of $2.2 million and $218,000 for the years
ended June 30, 2000 and 2001, respectively.
In January 2001, HAN was purchased by Intelidata Technologies
("Intelidata"). As a result, during fiscal 2002, Mobius received Intelidata
shares in exchange for its investment in HAN. Mobius sold a portion of these
shares and realized a $150,000 gain in fiscal 2002. During fiscal 2003, Mobius
sold its remaining shares of Intelidata, resulting in a realized gain of
$113,000.
In January 2000, Mobius made an investment of $500,000 in Flooz.com, a
startup Internet company. This was an investment in preferred stock, which would
convert into common stock if Flooz.com had completed an initial public offering.
Mobius held a minority ownership position, which, if the preferred shares
converted to common stock, would be less than 5%. Flooz.com has ceased
operations and, in August 2001, filed for bankruptcy liquidation. Accordingly,
Mobius recorded an impairment loss of $500,000 in fiscal 2001. Robert H.
Levitan, the former Chief Executive Officer of Flooz.com, is currently, and has
been since June 2000, a member of the Board of Directors of Mobius.
Selected Quarterly Operating Results
The following table presents certain unaudited consolidated statement of
operations data for the eight fiscal quarters in the two-year period ended June
30, 2003. In management's opinion, this unaudited information has been prepared
on the same basis as the audited Consolidated Financial Statements appearing
elsewhere in this Form 10-K and includes all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information for the quarters presented, when read in conjunction with the
audited Consolidated Financial Statements and Notes thereto included elsewhere
herein. The results of operations for any quarter are not necessarily indicative
of results for any future period.
Quarters Ended
Sept.30, Dec. 31, March 31, June 30, Sept.30, Dec. 31, March 31, June 30,
2001 2001 2002 2002 2002 2002 2003 2003
-------- --------- --------- -------- --------- --------- --------- --------
Revenues:
Software license revenues $ 5,407 $ 7,165 $ 5,157 $ 10,297 $ 7,756 $ 10,168 $ 9,443 $ 10,986
Maintenance 8,588 8,679 8,732 8,777 9,190 9,461 9,890 9,907
Professional services and other 583 1,761 908 1,859 1,968 1,701 1,204 982
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues 14,578 17,605 14,797 20,933 18,914 21,330 20,537 21,875
-------- -------- -------- -------- -------- -------- -------- --------
Cost of revenues:
Software license revenues 234 205 218 471 88 334 431 293
Maintenance 1,292 1,565 1,465 1,597 1,482 1,515 1,775 1,859
Professional service and other 683 1,569 873 1,910 1,985 1,595 1,184 1,170
-------- -------- -------- -------- -------- -------- -------- --------
Total cost of revenues 2,209 3,339 2,556 3,978 3,555 3,444 3,390 3,322
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit 12,369 14,266 12,241 16,955 15,359 17,886 17,147 18,553
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses (1):
Sales and marketing 9,288 9,783 9,007 10,073 8,573 8,820 8,954 8,429
Research and development 3,744 3,745 4,118 4,134 4,067 4,470 4,795 4,693
General and administrative 2,589 2,567 2,532 2,692 2,430 2,665 2,772 2,971
Acquired in-process research
and development -- -- -- -- -- 910 -- --
Facilities restructuring -- -- -- 1,394 -- 194 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses 15,621 16,095 15,657 18,293 15,070 17,059 16,521 16,093
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations (3,252) (1,829) (3,416) (1,338) 289 827 626 2,460
Interest income 539 487 330 318 326 391 426 389
Interest expense (5) 1 (11) -- (3) -- (4) (11)
Foreign currency transactions 2 6 4 (17) 13 (16) 112 (2)
Other income -- -- -- 148 113 -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes (2,716) (1,335) (3,093) (889) 738 1,202 1160 2,836
Provision for (benefit from)
income taxes (860) (424) (1,216) (312) 354 $ 480 (166) 1,192
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) $ (1,856) $ (911) $ (1,877) $ (577) $ 384 $ 722 $ 1,326 $ 1,644
======== ======== ======== ======== ======== ======== ======== ========
Basic earnings (loss) per share $ (0.10) $ (0.05) $ (0.11) $ (0.03) $ 0.02 $ 0.04 $ 0.08 $ 0.09
======== ======== ======== ======== ======== ======== ======== ========
Diluted earnings (loss) per share $ (0.10) $ (0.05) $ (0.11) $ (0.03) $ 0.02 $ 0.04 $ 0.07 $ 0.09
======== ======== ======== ======== ======== ======== ======== ========
As a Percentage of Total Revenues
Revenues:
Software license revenues 37.1% 40.7% 34.9% 49.2% 41.0% 47.7% 46.0% 50.2%
Maintenance 58.9 49.3 59.0 41.9 48.6 44.3 48.1 45.3
Professional service and other 4.0 10.0 6.1 8.9 10.4 8.0 5.9 4.5
-------- -------- -------- -------- -------- -------- -------- --------
Total revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- -------- -------- -------- -------- --------
Cost of revenues:
Software license revenues 1.6 1.2 1.5 2.3 0.5 1.5 2.1 1.3
Maintenance 8.9 8.9 9.9 7.6 7.8 7.1 8.6 8.5
Professional service and other 4.7 8.9 5.9 9.1 10.5 7.5 5.8 5.4
-------- -------- -------- -------- -------- -------- -------- --------
Total cost of revenues 15.2 19.0 17.3 19.0 18.8 16.1 16.5 15.2
-------- -------- -------- -------- -------- -------- -------- --------
Gross profit 84.8 81.0 82.7 81.0 81.2 83.9 83.5 84.8
-------- -------- -------- -------- -------- -------- -------- --------
Operating expenses (1):
Sales and marketing 63.7 55.5 60.9 48.1 45.3 41.3 43.6 38.5
Research and development 25.7 21.3 27.8 19.7 21.5 21.0 23.3 21.5
General and administrative 17.7 14.6 17.1 12.9 12.9 12.5 13.5 13.6
Acquired in-process research
and development -- -- -- -- -- 4.3 -- --
Facilities restructuring 0.0 0.0 0.0 6.7 -- 0.9 -- --
-------- -------- -------- -------- -------- -------- -------- --------
Total operating expenses 107.1 91.4 105.8 87.4 79.7 80.0 80.4 73.6
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) from operations (22.3) (10.4) (23.1) (6.4) 1.5 3.9 3.1 11.2
Interest income 3.7 2.8 2.2 1.5 1.7 1.8 2.1 1.8
Interest expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Foreign currency transactions 0.0 0.0 0.0 (0.1) 0.1 (0.1) 0.5 0.0
Other income 0.0 0.0 0.0 0.7 0.6 0.0 0.0 0.0
-------- -------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes (18.6) (7.6) (20.9) (4.3) 3.9 5.6 5.7 13.0
Provision for (benefit from)
income taxes (5.9) (2.4) (8.2) (1.5) 1.9 2.2 (0.8) 5.5
-------- -------- -------- -------- -------- -------- -------- --------
Net income (loss) (12.7)% (5.2)% (12.7)% (2.8)% 2.0% 3.4% 6.5% 7.5%
======== ======== ======== ======== ======== ======== ======== ========
(1) Included within sales and marketing, research and development and
general and administrative expense is stock compensation expense associated
with the granting of stock options to employees immediately prior to the
Company's IPO. Such stock compensation expense for the 8 quarters ended
June 30, 2003 was $40,000, $40,000, $27,000, $18,000, $18,000, $18,000,
$7,000, $0, respectively.
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the future. Quarterly revenues and operating results are expected to
fluctuate as a result of a variety of factors, including without limitation,
fluctuations in period to period results, seasonality, uncertainty of future
operating results, technological
change, product concentration, competition, international sales and operations,
expansion of indirect channels, increased investment in professional services,
extended payment risk, protection of intellectual property, dependence on
licensed technology, risk of product defects, product liability, management of
growth, dependence on executive management, other key employees and
subcontractors, whether the Internet can accommodate continued growth and
concerns about transaction security on the Internet. License revenues typically
peak primarily in the fourth fiscal quarter (ending June 30) and to a lesser
extent in the second fiscal quarter (ending December 31). These fluctuations are
caused primarily by customer purchasing patterns and the Company's sales force
incentive programs which recognize and reward sales personnel on the basis of
achievement of annual and other periodic performance quotas, as well as the
factors described above.
Liquidity and Capital Resources
Since its inception, Mobius has funded its operations principally through
cash flows from operating activities and, to a lesser extent, equity or bank
financings. As of June 30, 2003, Mobius had cash and cash equivalents of $37.3
million, an increase of $6.2 million from $31.1 million held at June 30, 2002.
Mobius held marketable securities of $2.6 million as of June 30, 2002 and held
no marketable securities as of June 30, 2003.
Net cash provided by operating activities was $8.3 million, $2.2 million
and $3.8 million in fiscal 2001, 2002 and 2003, respectively. During fiscal 2002
and 2003, Mobius's depreciation and amortization expense adjustment in operating
activities was $4.1 million and $3.0 million, respectively. Mobius's sources of
cash during fiscal 2002 were collections of software installments and an
increase in deferred revenue, offset by an increase in accounts receivable.
Mobius's sources of cash during fiscal 2003 were collections of accounts
receivable and an increase in deferred revenue, offset by an increase in
software license installments and a decrease in accounts payable and accrued
expenses. Software license installments, which increased 127.1% from $10.3
million at June 30, 2002 to $23.5 million at June 30, 2003, represent payments
due from customers for license fees that are paid over the term of the
installment agreement. This increase was due to a proportionately greater amount
of current license revenues being financed by the Company. For additional
information, see the section entitled, "Software License Installments
Receivable" below. Net accounts receivable decreased 33.9% from $16.0 million at
June 30, 2002 to $10.6 million at June 30, 2003.
Net cash used in investing activities was $5.2 million in fiscal 2001,
compared to net cash provided by investing activities of $7.2 million and $1.4
million in fiscal 2002 and 2003, respectively. The decrease in cash provided by
investing activities in fiscal 2003 as compared with fiscal 2002 was primarily
attributable to the decrease in the net proceeds from the sale of marketable
securities.
For the years ended June 30, 2001, 2002 and 2003, cash of $4.2 million,
$1.1 million and $1.2 million, respectively, was used for the purchase of
computer equipment, furniture and fixtures and leasehold improvements.
Marketable securities of $23.4 million and $8.4 million were purchased and $23.3
million and $17.0 million of marketable securities were sold in fiscal 2001 and
2002, respectively. During fiscal 2003, no marketable securities were purchased
and $2.5 million of marketable securities were sold. Mobius made an investment
of $375,000 in Home Account Network during fiscal 2001. This investment is
disclosed in detail in a separate section of Management's Discussion and
Analysis and in Note 6 of the Consolidated Financial Statements.
Net cash provided by financing activities was $147,000 in fiscal 2001,
primarily due to the sale of Mobius's common stock through the employee stock
purchase plan, offset by the cash used to repurchase Mobius's common stock. In
fiscal 2002, net cash used in financing activities was $3.1 million, primarily
due to cash used to repurchase Mobius's common stock pursuant to Mobius's stock
repurchase program, offset by cash received for employee stock purchases and
stock option exercises. In fiscal 2003, cash provided by financing activities of
$672,000 was due to cash received from the exercise of stock options and sales
of Mobius's common stock through the employee stock purchase plan.
The Company's material obligations and commitments to make future payments
under contracts consist of its operating leases for its office facilities. These
leases expire on various dates through fiscal 2010 and provide for additional
payments relating to utility costs. As of June 30, 2003, the future minimum
lease payments for these operating leases is as follows (in thousands):
Operating
Leases
Year Ended: ---------
- -----------
June 30, 2004 $2,523
June 30, 2005 2,187
June 30, 2006 2,005
June 30, 2007 1,632
June 30, 2008 1,503
Thereafter 3,107
-------
Total minimum lease payments $12,957
=======
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. As discussed in the section entitled,
"Software License Installments Receivable" below, the Company has entered into a
significant number of license contracts having extended payment terms. If the
level of software license revenues financed by installments receivable continues
at the current rate, the Company's cash position is likely to be adversely
affected.
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 $2.2 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. During the fourth quarter of fiscal 2003, the
Company recorded goodwill and a payable to Cytura of $800,000 reflecting the
requirement to pay this amount.
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 or 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 June 30, 2002 and June 30, 2003, approximately 86% and 79%,
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. Accounts receivable reserves were $1.0 million and
$819,000 at June 30, 2002 and June 30, 2003, respectively.
Software License Installments Receivable
As of June 30, 2003, software license installments amounted to $23.5
million, an increase of 127% compared with the June 30, 2002 balance of $10.3
million. The increase reflects a significant increase in licenses having
extended payment terms, including licenses of ViewDirect TCM products that the
Company began to market in fiscal 2003 under the term "Solution Packs." Solution
Packs are ViewDirect TCM product bundles that offer customers technology
solutions through application-based licensing with, generally, license terms of
five years. The Company believes the practice of providing financing enhances
our competitive position. Since payments are made over multiple reporting
periods, software license installments receivable will fluctuate with the amount
of license revenue sold on an installment basis. Mobius provides financing to
customers that meet our specified standards of creditworthiness. 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.
The Company determines the reserve for software license installments based
upon customer-specific information, including a credit review of the customer,
historical write-off experience, the ability of the Company to enforce original
payment terms and current economic conditions. No single customer has a balance
in excess of 5% of total software license installments, and 70% of the total is
comprised of customers with balances under $600,000. As of June 30, 2002 and
2003, software license installments reserves were $453,000 and $671,000,
respectively.
Deferred Revenues
Deferred revenues consist primarily of the unearned portion of maintenance
billings, unbundled maintenance and license contracts. Current and non-current
deferred revenues increased 30.5% from $20.6 million at June 30, 2002 to $26.9
million at June 30, 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. As of June 30, 2003, current deferred revenues totaled $21.3
million and non-current deferred revenues totaled $5.6 million. It is
anticipated that current deferred revenues of $21.3 million will be recognized
as revenues within the next twelve months.
Other Matters
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. For the year ended June 30, 2001, the Company recognized $450,000 of
TapeSaver license revenue. As the buyer has been delinquent on these payments
since June 2001, no license revenue relating to this transaction was recognized
in fiscal 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. To date, the Company
has not recorded any amounts due in connection with the arbitration. As a result
of the uncertainty of collection, any amounts ultimately recorded will be
accounted for on the cash basis.
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 adoption of FIN 45 is not
expected to have a material adverse impact on the Company's financial position,
results of operations or cash flows.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). Variable Interest Entities ("VIEs") are
entities where control is achieved through means other than voting rights. FIN
46 provides guidance on the identification of and financial reporting for VIEs.
A VIE is required to be consolidated if the Company is subject to the majority
of the risk of loss from the VIE's activities or is entitled to receive a
majority of the entity's residual returns, or both. The consolidation
requirements for VIEs created after January 31, 2003 are effective immediately
and consolidation requirements apply to existing entities in the first fiscal
year or interim period beginning after June 15, 2003. The adoption of this
Interpretation did not and will not have any impact on the Company's
consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This standard amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement is effective prospectively for contracts entered into or modified
after June 30, 2003, and for hedging relationships designated after June 30,
2003. SFAS No. 149 will not have an impact upon initial adoption and is not
expected to have a material effect on the Company's results of operations,
financial position and cash flows.
In November 2002, the Emerging Issues Task Force (EITF) reached a
consensus on EITF 00-21, "Revenue Arrangements with Multiple Deliverables,"
related to the timing of revenue recognition for arrangements in which goods or
services or both are delivered separately in a bundled sales arrangement. The
EITF requires that when the deliverables included in this type of arrangement
meet certain criteria they should be accounted for separately as separate units
of accounting. This may result in a difference in the timing of revenue
recognition but will not result in a change in the total amount of revenue
recognized in a bundled sales arrangement. The allocation of revenue to the
separate deliverables is based on the relative fair value of each item. If the
fair value is not available for the delivered items then the residual method
must be used. This method requires that the amount allocated to the undelivered
items in the arrangement is their full fair value. This would result in the
discount, if any, being allocated to the delivered items. This consensus is
effective prospectively for arrangements entered into in fiscal periods
beginning after June 15, 2003. EITF 00-21 will not have an impact upon initial
adoption and is not expected to have a material impact to Mobius's ongoing
results of operations, financial position and cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity."
SFAS 150 establishes standards for the classification and measurement of
certain financial instruments with characteristics of both liabilities and
equity. The changes are intended to result in a more complete depiction of an
entity's liabilities and equity and will, thereby, assist investors and
creditors in assessing the amount, timing, and likelihood of potential future
cash outflows and equity share issuances. This Statement also requires that
certain obligations that could be settled by issuance of an entity's equity but
lack other characteristics of equity be reported as liabilities even though the
obligation does not meet the definition of a liability. The requirements of SFAS
150 became effective for the Company for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. SFAS 150 is to be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
statement and still existing at the beginning of the interim period of adoption.
The Company did not enter into or modify any financial instruments having
characteristics of both liabilities and equity during June 2003. The Company has
evaluated the impact of SFAS 150 to determine the effect it may have on its
consolidated results of operations, financial position or cash flows and has
concluded that the adoption of this statement is not expected to have a material
affect on the Company's financial position or results of operations.
ITEM 7A. 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, where 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 June
30, 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 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes thereto are included in
Item 15(a)(1). Selected Quarterly Financial Data is included in Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable due to disclosure included in Form 8-K filed on March 1,
2002.
ITEM 9A. CONTROLS AND PROCEDURES
The Company, under the supervision and with the participation of the
Company's management, including the Company's Chief Executive Officer and Chief
Financial Officer, has evaluated the effectiveness of the design and operation
of the Company's disclosure controls and procedures. Based on that evaluation,
the Chief Executive Officer and Chief Financial Officer have concluded that the
Company's disclosure controls and procedures were effective as of June 30, 2003
to ensure that information required to be disclosed by the Company in reports
that it files or submits under the Securities Exchange Act of 1934 was recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms.
There were no changes in the Company's internal control over financial
reporting during the Company's fiscal fourth quarter ended June 30, 2003 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are currently seven members of the Board of Directors. The Board is
divided into three classes with terms expiring, respectively, at the 2003, 2004
and 2005 annual meeting of stockholders. Generally, Mobius directors are elected
for three-year terms.
The Board oversees the management of the Company on the stockholder's
behalf. It reviews Mobius's long-term strategic plans and exercises direct
decision-making authority in key areas. The Board chooses the Chief Executive
Officer, sets the scope of his authority to manage Mobius's business day to day,
and evaluates his performance.
Six of Mobius's seven directors are not Mobius employees. Only
non-employee directors serve on Mobius's Audit and Compensation committees. The
Board met six times during fiscal 2003. Each director attended all of the
meetings of the Board held during their term, except Messrs. P. Gross, Levitan
and Marks, who each attended five of the six meetings of the Board.
DIRECTORS
Set forth below are the names, ages, positions and certain other
information concerning the current Directors of Mobius.
Mitchell Gross........... Co-founder of Mobius. President since 1981 and
Age 53 Chairman of the Board and Chief Executive Officer
Director since 1981 since 1996. Mr. Gross was an officer in the U.S.
Navy, serving on nuclear submarines, from
1971-1976. Holds a B.S. in mechanical engineering
from Columbia University School of Engineering and
Applied Science and an M.B.A. in finance from The
Wharton School at the University of Pennsylvania.
Joseph J. Albracht....... Co-founder of Mobius. Executive Vice President and
Age 53 Secretary from 1981 to 1999, Chief Operating
Director since 1981 Officer from 1996 to 1999 and Treasurer from 1981
to 1996. Holds a B.S. in operations research and an
M.B.A. from Pennsylvania State University.
Gary G. Greenfield....... Former Chief Executive Officer of Peregrine
Age 48 Systems, Inc., a global provider of consolidated
Director since 1998 asset and service management software, from 2002
until 2003.(1) Formerly, President and Chief
Executive Officer of MERANT plc from 1998 to 2001.
Holds a B.S. from the U.S. Naval Academy, an M.S.
Administration from George Washington University
and an M.B.A from Harvard Business School. Serves
as a director of Hyperion Solutions, Peregrine
Systems, Inc., and Managed Objects and is Chairman
of Intellitactics. Past Chairman of the Information
Technology Association and a member of the Norwood
School Board of Trustees.
Patrick W. Gross......... Chairman of The Lovell Group, a private business
Age 59 and technology advisory and investment firm.
Director Since 2002 Founder and former principal executive officer of
American Management Systems, Inc., an international
business and technology consulting and systems
integrations firm. Holds a B.S. in economics from
Rensselear Polytechnic Institute, an M.S. in
economics from the University of Michigan and an
M.B.A from Stanford University. Serves as a
director of Capital One Financial Corporation and
Computer Network Technology Corporation, both
public companies, and several private companies.
Kenneth P. Kopelman...... Partner of Kramer Levin Naftalis & Frankel LLP(2),
Age 51 a law firm in New York City. Attended Cornell
Director since 1997 University (A.B.) and the London School of
Economics and received his J.D. from Columbia
University School of Law. Serves as a director of
Liz Claiborne, Inc.
Robert H. Levitan........ New media and technology entrepreneur, most
Age 42 recently co-founder of Dotomi USA, a consumer media
Director since 2000 company, and an executive coach and marketing
consultant to AT&T Wireless Services, Inc., a
wireless carrier. During 2002, a consultant to
Pearson PLC. Co-founder and Chief Executive Officer
of Flooz.com, Inc. from 1999 to 2001(3). Co-founder
of iVillage.com, Inc. Holds a B.A. in history and
public policy studies from Duke University. Serves
as a director of New York Cares.
Arthur J. Marks.......... General Partner of Valhalla Partners, a venture
Age 58 capital firm, and Chairman of the Mid-Atlantic
Director since 2002 Venture Association, a trade group for venture
funds. General Partner with New Enterprise
Associates, from 1984 to 2001. Formerly with General
Electric from 1975 to 1984 and Baxter-Travenol
Laboratories from 1971 to 1975. Holds a B.S. in
industrial engineering from the University of
Michigan and an M.B.A from Harvard Business School.
Serves as a director of Talk America.
(1) Peregrine Systems, Inc. filed for bankruptcy protection in September 2002
and emerged in August 2003.
(2) Kramer Levin has served as legal counsel to Mobius since the Company's
founding in 1981.
(3) Flooz.com, Inc. filed for bankruptcy liquidation in August 2001.
INFORMATION CONCERNING EXECUTIVE OFFICERS
Set forth below are the names, ages, positions and certain other
information concerning the current Executive Officers of Mobius. Information
regarding Mitchell Gross is provided above. Executive officers shall hold office
until their successors have been duly elected and qualified or until their
earlier resignation or removal.
Name Position
- ---- --------
Mitchell Gross Chairman of the Board, Chief Executive Officer and
Age 53 President.
Michael J. Festa Vice President, Sales (United States and Latin America)
Age 43 since 2000. Joined Mobius in 1991 and served as
Area Director from 1998-2000 and Regional Manager from
1996-1997. Holds a B.B.A. in management from Iona
College.
David J. Gordon Vice President, Finance and Treasurer since 2001. Interim
Age 47 Chief Financial Officer from June 2000 until January
2002. Joined Mobius in 1987 and served as Director of
Finance from 1999-2000 and Controller from 1987-1999.
Holds a B.A. in Accounting from Queens College N.Y.
Karry D. Kleeman (1) Vice President, Sales (Europe, Middle East and Africa)
Age 41 since 2003. Vice President, World Sales from 1999 until
2002. Joined Mobius in 1990 and served as Vice President,
Sales (North and South America) from 1997-1999, National
Sales Manager from 1995 to 1997 and Regional Manager from
1992 to 1995. Holds a B.A. in marketing from Elmhurst
College.
Robert H. Lawrence Vice President, Product Engineering since 1992. Joined
Age 51 Mobius in 1985. Holds a B.S. in physics from the
University of Massachusetts.
Peter E. Takiff (2) Senior Vice President, Finance, and Chief Financial
Age 49 Officer since he joined Mobius in January 2002. Formerly
served as Chief Financial Officer of Flooz.com, Inc.(3)
and Tommy Boy Music. Holds a B.S. in Accounting from New
York University and is a Certified Public Accountant.
Joseph G. Tinnerello Senior Vice President, Sales and Marketing since July 1,
Age 46 2002; previously, Senior Vice President, Marketing since
March 2002. Joined Mobius in 1990 and served as Vice
President, Sales from 1995 to 1997 and Vice President,
Business Development from 1998 to March 2002. Following a
personal leave of absence, left Mobius from October 1997
through January 1998. From 1988 to 1989, Mr. Tinnerello
served as a Regional Manager with Legent Software.
(1) Commenced six-month sabbatical on July 1, 2002 and returned on January 6,
2003.
(2) On July 23, 2003, Mobius announced that Mr. Takiff will be leaving the
Company to pursue other interests. Mr. Takiff will remain with the Company
in his current role until his successor has joined Mobius.
(3) Flooz.com, Inc. filed for bankruptcy liquidation in August 2001.
There are no family relationships between any of the Company's directors
and executive officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
the Company's directors and executive officers, and persons who own more than
10% of the Company's common stock, to file reports of ownership on Form 3 and
changes in ownership on Form 4 or 5 with the SEC. Such directors, executive
officers and 10% stockholders are also required by SEC rules to furnish the
Company with copies of all Section 16(a) forms they file. Based solely upon its
review of copies of such forms received, or on written representations from
certain reporting persons for which no other filings were required, the Company
believes that during the fiscal year ended June 30, 2003, there was compliance
with all Section 16(a) filing requirements applicable to its directors,
executive officers and 10% stockholders, except: due to administrative
oversight, (A) the following directors did not timely report on Form 4 their
annual receipt of 10,000 options automatically granted to
them under the Company's stockholder approved Non-Employee Director's 1998 Stock
Option Plan: Messrs. Albracht, Greenfield, P. Gross, Kopelman, Levitan and
Marks; and (B) the following officers did not timely report on Form 4 their
receipt of options granted to them under the Company's stockholder approved 1996
Stock Incentive Plan: grants of 20,000 options and 10,000 options to Mr. Festa;
and a grant of 40,000 options to Mr. Tinnerello.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by Mobius's Chief
Executive Officer and the four other highest-paid executive officers for the
past three fiscal years. The individuals included in the table will be
collectively referred to as the "Named Officers."
SUMMARY COMPENSATION TABLE
Annual Compensation(1)
------------------------------------------
Other Annual All Other
Name and Principal Position Year Salary Bonus Compensation(2) Compensation
- --------------------------- ---- ------ ----- -------------- ------------
Mitchell Gross 2003 $200,000 $189,000 -- $61,078(3)
Chairman of the Board, Chief 2002 200,000 50,000 -- 74,194(3)
Executive Officer and President 2001 200,000 150,264 -- 73,904(3)
Joseph G. Tinnerello 2003 150,000 162,000 $198,000 --
Senior Vice President, Sales and 2002 150,000 --- 206,250 --
Marketing 2001 150,000 231 189,750 --
Michael J. Festa 2003 125,000 -- 351,618 --
Vice President, Sales (U.S. and 2002 125,000 30,078 213,405 3,950(4)
Latin America) 2001 125,000 7,016 257,698 3,468(4)
Karry D. Kleeman 2003 270,305 -- 146,926 --
Vice President, Sales (Europe, 2002 125,000 30,078 260,531 4,324(4)
Middle East and Africa) 2001 125,000 4,140 311,818 4,069(4)
Peter E. Takiff 2003 175,000 150,000 -- --
Senior Vice President, Finance, and 2002 87,500 87,500 -- --
Chief Financial Officer
(1) In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted in those instances
where the aggregate amount of such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total annual
salary and bonuses for the named executive officer for such year.
(2) Consists of sales commissions and non-recoverable draws.
(3) Includes premiums on insurance (2003- $28,027; 2002- $27,038; 2001-
$27,419), car payments (2003- $8,500; 2002- $12,197; 2001- $13,031), tax
preparation fees (2003- $17,913; 2002- $18,738; 2001- $18,307), sales
incentive trip (2002- $8,592; 2001- $10,524) and miscellaneous (2003-
$6,638; 2002- $7,629; 2001- $4,623) added to compensation. These amounts
have been grossed up to include taxes.
(4) Includes sales incentive trip. The value of the trip has been grossed up to
include taxes.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1996 Stock Incentive Plan to the Named Officers
during fiscal year 2003. Named Officers not listed in the following table did
not receive stock option grants under the Company's 1996 Stock Incentive Plan
during fiscal year 2003.
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants
- ---------------------------------------------------------------------------------------
Potential Realizable Value
Number of % of Underlying at Assumed Rates of Stock
Securities Options Granted to Appreciation for Option Term(2)
Underlying Options Employees in Exercise Price Expiration -------------------------------
Name Granted (#)(1) Fiscal Year ($/Share) Date 5%($) 10%($)
---- -------------- ----------- --------- ---- ----- ------
Joseph G.
Tinnerello 40,000 5.40% $2.05 12/5/12 $51,569 $130,687
Michael J. Festa 20,000 2.70% $2.05 12/5/12 $25,785 $65,344
10,000 1.35% $2.41 1/8/13 $15,156 $38,409
------------------------
(1) All options in this table have a maximum term of ten years measured
from the grant date, subject to earlier termination in the event of the
optionee's cessation of service with the Company. Mr. Tinnerello's options were
granted on December 5, 2002, and Mr. Festa's options were granted on December 5,
2002 (20,000 options) and January 8, 2003 (10,000 options). The vesting of these
options is 20% on the first anniversary of the grant date, and 5% of the
remaining options will become exercisable every three months thereafter, until
the options fully vest on the five-year anniversary of the grant date.
(2) The dollar amounts under these columns are based upon calculations
using assumed rates of appreciation set by the SEC and are not intended to
forecast future appreciation of the Company's stock price.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information with respect to the Named Officers
concerning their exercise of options during fiscal year 2003 and the unexercised
options held by them as of the end of such year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Shares Value Underlying Unexercised in-the Money Options
Acquired on Realized Options at Fiscal at Fiscal
Name Exercise ($)(1) Year-End Year-End ($)(1)
---- -------- ------ -------- ---------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Mitchell Gross -- $ -- -- -- $ -- $ --
Joseph G. Tinnerello -- -- 282,500 42,500 73,400 231,800
Michael J. Festa -- -- 83,500 66,500 235,840 317,460
Karry D. Kleeman -- -- 340,000 -- 1,460,300 --
Peter E. Takiff -- -- 42,500 127,500 193,800 581,400
------------------
(1) Based on the closing sales price on the Nasdaq National Market of
the Company's common stock on June 30, 2003 of $7.56.
DIRECTOR COMPENSATION
Non-employee directors are each paid a $15,000 annual retainer fee for
serving on the Board, payable quarterly in advance, and Audit Committee members
receive an additional annual fee of $2,500. The fee for each Board meeting
attended is $2,000 and the fee for each telephonic Board meeting attended is
$500. The fee for each Committee meeting attended is $500, except that no fees
are payable for Committee meetings held proximate to Board meetings. Board
meeting fees are payable promptly after each meeting. Mr. Kopelman's fees are
net of the amounts paid to Kramer Levin for time Mr. Kopelman devotes to
preparation for and attendance at Board meetings.
The Mobius Non-Employee Directors' 1998 Stock Option Plan provides for the
grant to Mobius directors of non-qualified stock options to purchase Mobius
shares. These include an initial grant of 10,000 options, made upon a
non-employee director's first election to the Board, as well as an annual grant
of 10,000 options, made at each annual meeting to those directors having at
least nine months
of Board service on the grant date. All such options have an exercise price
equal to the fair market value of the underlying Mobius shares on the date of
grant.
BOARD COMMITTEES
The Board appoints committees to help carry out its duties. Each committee
reviews the results of its meetings with the full Board. The Board established
its committees in February 1998 in connection with Mobius's initial public
offering.
The Audit Committee is responsible for accounting and internal control
matters. Subject to stockholder and Board approval, the Audit Committee chooses
the independent public accountants to audit Mobius's financial statements and
reviews the scope, results and costs of the audit with such accountants. The
Audit Committee also reviews the financial statements and accounting and control
practices of Mobius. The Audit Committee consists of Messrs. Greenfield (Chair),
P. Gross and Levitan. The Audit Committee met six times during fiscal 2003. Mr.
Greenfield attended all of the Audit Committee meetings, and Messrs. P. Gross
and Levitan each attended five of the six Audit Committee meetings. As of July
21, 2003, the Board resolved to elect the Audit Committee to serve as the
Company's Qualified Legal Compliance Committee ("QLCC"). The QLCC will be
responsible for investigating reports, made by attorneys appearing and
practicing before the SEC in the representation of the Company, of perceived
material violations of law, breaches of fiduciary duty or similar violations by
the Company or any of its agents.
The Compensation Committee oversees compensation for Mobius's executives,
including salary, bonus and incentive awards. The Compensation Committee is also
responsible for administering Mobius's 1996 Stock Incentive Plan, Mobius's 1998
Employee Stock Purchase Plan and Mobius's 1998 Executive Incentive Plan. The
Compensation Committee consists of Messrs. Levitan (Chair) and Albracht and
effective July 21, 2003, Mr. Marks. The Compensation Committee met two times
during fiscal 2003.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of our Board's Compensation Committee are Messrs.
Levitan (Chair) and Albracht, and effective July 21, 2003, Mr. Marks. No member
of Mobius's Compensation Committee serves as a member of the board of directors
or compensation committee of any other entity that has one or more executive
officers serving as a member of Mobius's Board of Directors or Compensation
Committee.
COMPENSATION COMMITTEE REPORT
Overview
The Compensation Committee:
(1) reviews and approves the compensation of the Chief Executive
Officer; and
(2) participates in recommendations to the full Board and senior
management with respect to the administration of Mobius's stock
compensation programs.
Salary
We base salary on the Chief Executive Officer's knowledge, skills and
level of responsibility as well as the economic and business conditions
affecting Mobius. Other factors we consider are:
(1) competitive positioning (comparing Mobius's salary structure with
salaries paid by other companies);
(2) Mobius's own business performance; and
(3) general economic factors.
Annual Bonus
We give the Chief Executive Officer an annual bonus to provide an
incentive and reward for short-term financial success and long-term Company
growth. Annual bonuses link compensation in significant part to Mobius's
financial performance and are determined solely by the Compensation Committee.
Compensation of the Chief Executive Officer
Mr. Mitchell Gross is one of the founders of Mobius. He beneficially owns
approximately 5,550,500 shares of common stock constituting approximately 31.7%
of the total amount outstanding. Accordingly, his interest is aligned with the
interest of the stockholders. Due to the significance of Mr. Gross's existing
stock ownership, Mobius has not incorporated long-term stock incentives, such as
restricted stock or stock options, into Mr. Gross's compensation package, which
consists primarily of salary and bonus. The members of the Compensation
Committee agreed to continue to pay Mr. Gross' $200,000 annual salary after the
expiration of his employment agreement on April 27, 2001 and granted Mr. Gross a
bonus attributable to his success in achieving revenue and net income goals
during fiscal 2003.
Stock Options
We use stock options as a long-term, non-cash incentive and to align the
long-term interests of executives and stockholders. The stock options are priced
at the market price of Mobius's common stock on the date of grant. The options
are therefore linked to future performance of our stock because the options do
not become valuable to the holder unless the price of our stock increases above
the price on the date of grant. The number of stock options granted to an
executive as a form of non-cash compensation is determined by the following
factors:
(1) number of stock options previously granted to an executive;
(2) the executive's remaining options exercisable; and
(3) the value of those remaining stock options, as compared to the
anticipated value that an executive will add to Mobius in the
future.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan commenced in fiscal 1999 and provides
employees who wish to acquire Mobius's common stock with the opportunity to
purchase shares with a convenient way of doing so by accumulated payroll
deductions. We believe that employee participation in the ownership of Mobius on
this basis will be to the mutual benefit of the employees and Mobius.
Executive Incentive Plan
The Executive Incentive Plan ("Incentive Plan") was established in fiscal
1998 and participation in the Incentive Plan is limited to those executives and
key employees who, in the judgment of the Compensation Committee, are in a
position to have a significant impact on the performance of Mobius. Awards under
the Incentive Plan are based upon the extent to which performance goals
established by the Compensation Committee for a designated performance period
are satisfied. The Incentive Plan also provides for grants of discretionary
bonuses. To date, no awards have been made under the Incentive Plan.
Robert H. Levitan (Chair)
Joseph J. Albracht
STOCK PERFORMANCE CHART
The following chart depicts a comparison of the cumulative total return
(assuming the reinvestment of dividends) for a $100 investment on June 30, 1998
in each of the common stock of Mobius, the Goldman Sachs Technology Composite
Index (a published industry index), and the Nasdaq Composite (a broad market
index). The Company paid no dividends during the periods shown.
June June June June June
30, 1999 30, 2000 29, 2001 28, 2002 30, 2003
-------- ---------- ---------- --------- ---------
Mobius $ 55.00 $ 30.42 $ 22.00 $ 21.67 $ 50.40
Goldman Sachs
Technology Composite
Index 168.31 265.36 129.51 74.48 80.64
Nasdaq Composite 141.77 209.32 114.03 77.22 85.65
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table shows the number of shares of Mobius common stock of
each Named Officer, each non-employee director, and certain stockholders known
by the Company to be the beneficial owner of more than 5% of the outstanding
common stock, owned as of August 20, 2003.
Name and Address of Named Executive
Officers, Certain Stockholders and Shares Percent of
Directors / Nominees Owned(1) Class
-------------------- -------- -----
Mitchell Gross (2)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580 ........................... 5,550,500 31.6%
Joseph J. Albracht (3)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 3,963,500 22.5%
Kennedy Capital Management, Inc. (4)
10829 Olive Blvd.
St. Louis, Missouri 63141 ..................... 1,853,700 10.6%
Karry D. Kleeman (5)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 341,000 1.9%
Joseph G. Tinnerello (6)
c/o Mobius Management Systems, Inc.
200 South Wacker Drive
Chicago, Illinois 60606........................ 293,350 1.6%
Michael J. Festa (7)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 99,290 *
Arthur J. Marks (8)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 62,125 *
Kenneth P. Kopelman (9)
c/o Kramer, Levin, Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022....................... 53,850 *
Peter E. Takiff (10)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 59,500 *
Gary G. Greenfield (11)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 50,481 *
Name and Address of Named Executive
Officers, Certain Stockholders and Shares Percent of
Directors / Nominees Owned(1) Class
-------------------- -------- -----
Robert H. Levitan (12)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 30,000 *
Patrick W. Gross (12)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 30,000 *
All Executive Officers and Directors
As a group (13 persons) ....................... 10,879,846 58.0%
-------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC"), and generally includes voting
power and/or investment power with respect to securities. Shares of common
stock subject to options currently exercisable or exercisable within 60
days ("Currently Exercisable Options") are deemed outstanding for
computing the percentage beneficially owned by the person holding such
options but are not deemed outstanding for computing the percentage
beneficially owned by any other person.
(2) Includes 3,732,259 shares of common stock held by HARMIT, LP, of which
Mitchell Gross is the general partner.
(3) Includes 30,000 shares issuable pursuant to Currently Exercisable Options.
(4) Information provided in Schedule 13G filed on May 2, 2003.
(5) Includes 340,000 shares issuable pursuant to Currently Exercisable
Options.
(6) Includes 282,750 shares issuable pursuant to Currently Exercisable
Options.
(7) Includes 90,600 shares issuable pursuant to Currently Exercisable Options.
(8) Includes 11,484 shares of common stock held in trust for Mr. Marks'
children. Mr. Marks disclaims beneficial ownership of such shares. Also
includes 30,000 shares issuable pursuant to Currently Exercisable Options.
(9) Includes 1,500 shares of common stock held in trust by Mr. Kopelman's
wife, as trustee, for Mr. Kopelman's three minor children. Mr. Kopelman
disclaims beneficial ownership of such shares. Also includes 2,350 shares
of common stock held jointly by Mr. Kopelman and his wife, as well as
50,000 shares issuable pursuant to Currently Exercisable Options.
(10) Includes 59,500 shares issuable pursuant to Currently Exercisable Options.
(11) Includes 50,000 shares issuable pursuant to Currently Exercisable Options.
(12) Includes 30,000 shares issuable pursuant to Currently Exercisable Options.
Equity Compensation Plan Information
The following table provides information as of June 30, 2003 with respect
to the shares of Mobius's common stock that may be issued under Mobius's
existing equity compensation plans.
(a) (b) (c)
Number of Number of securities
securities to be remaining available for
issued upon Weighted-average future issuance under
exercise of exercise price of equity compensation
outstanding outstanding plans (excluding
options, warrants options, warrants securities reflected in
Plan category and rights and rights column (a))
------------- ---------- ---------- -----------
Equity compensation
plans approved by
security holders (1) 4,078,050 $4.04 321,875
Equity compensation
plans not approved
by security holders - - -
--------- ----- -------
Total 4,078,050 $4.04 321,875
========= ===== =======
(1) Consists of the 1996 Stock Incentive Plan and the Non-Employee
Directors' 1998 Stock Option Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship With Kramer Levin Naftalis & Frankel LLP
Since 1981 the Company has engaged, and plans to continue to engage, the
Kramer Levin law firm to provide the Company with legal counsel. Mr. Kopelman, a
member of Mobius's Board of Directors, is a partner of Kramer Levin Naftalis &
Frankel LLP. Fees paid to Kramer Levin during fiscal 2003 were approximately
$787,000. Mobius believes that fees charged by Kramer Levin are at rates and on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties.
Relationship With Mr. Tinnerello
On December 26, 1997, Mr. Joseph G. Tinnerello, presently Mobius's Senior
Vice President, Sales and Marketing, agreed to return to Mobius effective
January 15, 1998. Mr. Tinnerello had left Mobius's employment on October 1,
1997. On December 28, 1997, Mobius agreed to advance $160,000 to Mr. Tinnerello
against future commissions. Such monies (net of applicable taxes) were used by
Mr. Tinnerello to exercise options to purchase 80,000 shares of Common Stock. On
January 15, 1998, Mobius granted Mr. Tinnerello options to purchase 180,000
shares of Common Stock in accordance with and on terms similar to, our standard
hiring practices. Effective as of June 30, 2003, the Company has agreed to
forego repayment of the advance or the crediting of the advance against future
commissions. The advance was fully reserved during fiscal 2001.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not yet effective.
PART IV.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors of PricewaterhouseCoopers LLP
Independent Auditors' Report of KPMG LLP
Consolidated Balance Sheets as of June 30, 2002 and 2003
Consolidated Statements of Operations for the Years Ended June 30, 2001,
2002 and 2003
Consolidated Statements of Stockholders' Equity and Comprehensive
Income for the Years Ended June 30, 2001, 2002 and 2003
Consolidated Statements of Cash Flows for the Years Ended June 30, 2001, 2002
and 2003
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
(a)(3) Index of Exhibits
The list of exhibits required by this Item 15(a)(3) is set forth in the
section entitled "Exhibits."
(b) Reports on Form 8-K
On April 23, 2003, Mobius furnished a Form 8-K under Item 9, Regulation
FD, to report that Mobius issued a press release announcing its preliminary
financial results for the third quarter of fiscal 2003.
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders of
Mobius Management Systems, Inc.:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and
comprehensive income and of cash flows present fairly, in all material respects,
the financial position of Mobius Management Systems, Inc. and its subsidiaries
at June 30, 2003 and 2002, and the results of their operations and their cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America. These financial statements
are the responsibility of the Company's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
July 24, 2003
Stamford, CT
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Mobius Management Systems, Inc.:
We have audited the accompanying consolidated statements of operations,
stockholders' equity and cash flows of Mobius Management Systems, Inc. and
subsidiaries for the year ended June 30, 2001. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and the cash flows
of Mobius Management Systems, Inc. and subsidiaries for the year ended June 30,
2001, in conformity with accounting principles generally accepted in the United
States of America.
KPMG LLP
July 25, 2001
Stamford, CT
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and per share data)
June 30,
------------------------
2002 2003
-------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 31,099 $ 37,315
Marketable securities, at market value 2,635 --
Accounts receivable, net of allowance for
doubtful accounts of $1,043 and $819,
respectively 15,959 10,551
Software license installments, current
portion 6,862 8,017
Other current assets 2,846 2,897
-------- --------
Total current assets 59,401 58,780
-------- --------
Software license installments, non-current
portion, net of allowance for doubtful
accounts of $453 and $671, respectively 3,467 15,435
Property and equipment, net 6,435 4,546
Deferred income taxes 1,423 328
Other assets 666 2,729
-------- --------
Total assets $ 71,392 $ 81,818
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 17,446 $ 15,726
Deferred revenue 19,182 21,306
Deferred income taxes 2,238 2,869
-------- --------
Total current liabilities 38,866 39,901
Deferred revenue 1,406 5,560
-------- --------
Total liabilities 40,272 45,461
-------- --------
Stockholders' equity:
Common stock $.0001 par value; authorized
40,000,000 shares; issued 22,568,198 and
22,879,401 shares, respectively;
outstanding 17,213,975 and 17,525,178
shares, respectively 2 2
Additional paid-in capital 49,827 50,653
Retained earnings (deficit) (2,610) 1,466
Deferred stock compensation (43) --
Accumulated other comprehensive income (74) 218
Treasury stock, at cost, 5,354,223 shares (15,982) (15,982)
-------- --------
Total stockholders' equity 31,120 36,357
-------- --------
Total liabilities and stockholders' equity $ 71,392 $ 81,818
======== ========
See accompanying notes to consolidated financial statements
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years Ended June 30,
--------------------------------------
2001 2002 2003
-------- -------- --------
Revenues:
Software license $ 39,321 $ 28,026 $ 38,353
Maintenance 33,174 34,776 38,448
Professional service and other 1,717 5,111 5,855
-------- -------- --------
Total revenues 74,212 67,913 82,656
-------- -------- --------
Cost of revenues:
Software license 1,219 1,128 1,146
Maintenance 5,331 5,919 6,631
Professional service and other 817 5,035 5,934
-------- -------- --------
Total cost of revenues 7,367 12,082 13,711
-------- -------- --------
Gross profit 66,845 55,831 68,945
-------- -------- --------
Operating expenses:
Sales and marketing 44,886 38,151 34,776
Research and development 16,267 15,741 18,025
General and administrative 10,460 10,380 10,838
Acquired in-process research and
development -- -- 910
Facilities restructuring -- 1,394 194
-------- -------- --------
Total operating expenses 71,613 65,666 64,743
-------- -------- --------
Income (loss) from operations (4,768) (9,835) 4,202
Interest income 2,689 1,674 1,532
Interest expense (9) (15) (18)
Foreign currency transactions 102 (5) 107
Other income 109 148 113
Investment impairments (718) -- --
-------- -------- --------
Income (loss) before income taxes (2,595) (8,033) 5,936
Provision for (benefit from) income taxes (605) (2,812) 1,860
-------- -------- --------
Net income (loss) $ (1,990) $ (5,221) $ 4,076
======== ======== ========
Basic earnings (loss) per share $ (0.11) $ (0.30) $ 0.23
Basic weighted average shares outstanding 18,225 17,459 17,363
Diluted earnings (loss) per share $ (0.11) $ (0.30) $ 0.23
Diluted weighted average shares outstanding 18,225 17,459 18,089
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in thousands)
Accumulated
Common Stock Additional Other
------------ Paid-in Retained Deferred Comprehensive
Shares Amount Capital Earnings Compensation Income (Loss)
------ ------- -------- -------- ------------ -------------
Balance at June 30, 2000 18,101 $ 2 $ 48,831 $ 4,601 $ (445) $ (313)
Net loss -- -- -- (1,990) -- --
Change in other comprehensive
income (loss), net of tax -- -- -- -- -- (565)
Comprehensive loss
Stock options exercised 25 -- 38 -- -- --
Stock purchase plan shares issued 238 -- 755 -- -- --
Stock repurchase program (171) -- -- -- -- --
Change in deferred compensation -- -- -- -- 277 --
------- -------- -------- -------- -------- --------
Balance at June 30, 2001 18,193 2 49,624 2,611 (168) (878)
Net loss -- -- -- (5,221) -- --
Change in other comprehensive
income (loss), net of tax -- -- -- -- -- 804
Comprehensive loss
Stock options exercised 15 -- 25 -- -- --
Stock purchase plan shares issued 85 -- 178 -- -- --
Stock repurchase program (1,079) -- -- -- -- --
Change in deferred compensation -- -- -- -- 125 --
------- -------- -------- -------- -------- --------
Balance at June 30, 2002 17,214 2 49,827 (2,610) (43) (74)
Net income -- -- -- 4,076 -- --
Change in other comprehensive
income (loss), net of tax -- -- -- -- -- 292
Comprehensive income
Stock options exercised 152 -- 491 -- -- --
Stock purchase plan shares issued 160 -- 335 -- -- --
Change in deferred compensation -- -- -- -- 43 --
------- -------- -------- -------- -------- --------
Balance at June 30, 2003 17,526 $ 2 $ 50,653 $ 1,466 $ -- $ 218
======= ======== ======== ======== ======== ========
Treasury Stock Total
-------------- Stockholders'
Shares Amount Equity
------ ------ ------------
Balance at June 30, 2000 4,104 $(12,085) $ 40,591
Net loss -- -- (1,990)
Change in other comprehensive
income (loss), net of tax -- -- (565)
--------
Comprehensive loss (2,555)
Stock options exercised -- -- 38
Stock purchase plan shares issued -- -- 755
Stock repurchase program 171 (636) (636)
Change in deferred compensation -- -- 277
--------- ---------- --------
Balance at June 30, 2001 4,275 (12,721) 38,470
Net loss -- -- (5,221)
Change in other comprehensive
income (loss), net of tax -- -- 804
--------
Comprehensive loss (4,417)
Stock options exercised -- -- 25
Stock purchase plan shares issued -- -- 178
Stock repurchase program 1,079 (3,261) (3,261)
Change in deferred compensation -- -- 125
--------- ---------- --------
Balance at June 30, 2002 5,354 (15,982) 31,120
Net income -- -- 4,076
Change in other comprehensive
income (loss), net of tax -- -- 292
--------
Comprehensive income 4,368
Stock options exercised -- -- 491
Stock purchase plan shares issued -- -- 335
Change in deferred compensation -- -- 43
--------- ---------- --------
Balance at June 30, 2003 5,354 $ (15,982) $ 36,357
========= ========= ========
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended June 30,
2001 2002 2003
--------- --------- --------
Cash flows provided by (used in) operating
activities:
Net income (loss) $ (1,990) $ (5,221) $ 4,076
-------- -------- --------
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Deferred income taxes (1,937) (1,142) 1,726
Depreciation and amortization 4,163 4,106 2,966
Stock compensation expense 277 125 43
Impairment of investment 718 -- --
Loss on disposal of fixed assets 114 -- --
Other (18) 120 279
Change in operating assets and liabilities:
Accounts receivable, net 2,005 (3,107) 5,408
Software license installments 3,295 4,204 (13,123)
Other assets 1,778 (1,121) (2,290)
Accounts payable and accrued expenses 452 1,954 (1,566)
Deferred revenue (514) 2,240 6,278
-------- -------- --------
Total adjustments 10,333 7,379 (279)
-------- -------- --------
Net cash provided by operating activities 8,343 2,158 3,797
-------- -------- --------
Cash flows provided by (used in) investing activities:
Purchase of marketable securities (23,430) (8,418) --
Purchase of investments (375) -- --
Sale of marketable securities 23,270 16,958 2,536
Sale of fixed assets 62 8 --
Capital expenditures (4,245) (1,141) (1,180)
Other investment (445) (212) --
-------- -------- --------
Net cash provided by (used in) investing
activities (5,163) 7,195 1,356
-------- -------- --------
Cash flows provided by (used in) financing activities:
Cash received from exercise of stock options 35 19 341
Cash received from employee stock purchase 748 178 331
Cash used for stock repurchase program (636) (3,261) --
-------- -------- --------
Net cash provided by (used in) financing
activities 147 (3,064) 672
-------- -------- --------
Effect of exchange rate changes on
cash and cash equivalents (608) 711 391
-------- -------- --------
Net change in cash and cash equivalents 2,719 7,000 6,216
Cash and cash equivalents at beginning of year 21,380 24,099 31,099
-------- -------- --------
Cash and cash equivalents at end of year $ 24,099 $ 31,099 $ 37,315
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 9 $ 15 $ 18
Income taxes (refunds), net (1,690) 21 250
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
Mobius Management Systems, Inc., together with its consolidated
subsidiaries (the "Company"), is a leading provider of software solutions for
total content management. Mobius was incorporated in New York in 1981 and
reincorporated in Delaware in 1997. The Company has international subsidiaries
in the United Kingdom, Canada, France, Germany, Italy, Sweden, Switzerland,
Australia, Japan and the Benelux.
(2) Significant Accounting Policies
Principles of Consolidation
The Company and its subsidiaries are consolidated for financial statement
purposes after the elimination of all significant intercompany accounts and
transactions.
Revenue Recognition
The Company recognizes license and maintenance revenue in accordance with
the provisions of Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," as amended by SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions." The Company
generates license revenues from licensing the rights to use its software
products to its customers. The Company also generates maintenance and
professional service revenues from renewable support and software enhancements
(maintenance) and from consulting activities performed for license customers.
Revenue from software license contracts includes fees related to licenses with
terms generally of 5 or 15 years.
Revenues from software license agreements are recognized upon delivery of
the software if evidence of an arrangement exists, pricing is fixed and
determinable, and collectibility is probable. If an acceptance period is
required, revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period. The Company allocates revenue on software
arrangements involving multiple elements to each element based on
vendor-specific objective evidence of the fair value allocable to each element.
Generally, Mobius's contracts include a software license and an obligation to
provide maintenance. Assuming all other revenue recognition criteria are met,
revenue is recognized upon delivery using the residual method in accordance with
SOP 98-9, where the fair value of the undelivered elements is deferred and the
remaining portion of the arrangement fee is recognized as revenue. Accordingly,
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
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. If evidence of the fair value for undelivered elements does
not exist, all revenue from the arrangement is deferred until such evidence
exists or until all elements are delivered.
The Company offers installment contracts to its customers, which provide
for payments in installments, generally over periods ranging from 3 to 5 years.
Under such contracts, software license revenue reflects the present value of
future payments under non-cancelable license arrangements. The Company has an
established business practice of offering installment contracts to customers and
has a history of
successfully enforcing original payment terms on these contracts without making
concessions. In addition, the payment obligations are unrelated to product
implementation or any other post-transaction activity; therefore, revenues from
installment contracts are generally recognized in the same manner as those
requiring current payment. In the case of installment contracts, software
license revenue includes the present value of future payments. A portion of the
discount is recognized as interest income over the term of the arrangement.
Maintenance revenue is generally recognized ratably over the term of the
support, typically 12 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 the 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
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.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed on a
straight-line basis over the estimated life of the related asset, ranging from
two to fifteen years. Assets acquired under capital leases are depreciated on a
straight-line basis over the asset's estimated life. Repairs and maintenance are
expensed as incurred.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires 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.
Foreign Currency Translation
Balance sheet accounts of the Company's international subsidiaries are
translated into U.S. dollars at exchange rates in effect at the balance sheet
date. Revenues, costs and expenses are translated into U.S. dollars at average
exchange rates for the year. Gains or losses that result from translation are
shown as a
separate component of stockholders' equity. Net gains and losses resulting from
foreign exchange transactions are included in the determination of net income or
loss.
Cash Equivalents
The Company considers investments with maturities at the date of purchase
of three months or less to be cash equivalents. At June 30, 2001 and 2002, cash
equivalents were comprised of overnight deposits and money market investments
with financial institutions.
Marketable Securities
Marketable securities are categorized as available-for-sale securities, as
defined by SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Unrealized holding gains and losses are reflected as a net amount
in a separate component of stockholders' equity until realized. For the purpose
of computing realized gains and losses, cost is identified on a specific
identification basis. Realized gains and losses for the years ended June 30,
2001 and 2002 were insignificant. Realized gains for the year ended June 30,
2003 were $113,000. As of June 30, 2002 and 2003, the unamortized investment
premium and unrealized holding gains and losses were also insignificant.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of substantially all of the trade accounts
receivables and software license installments. The Company sells its products to
a large number of customers in diversified industries across many domestic and
international geographies.
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing parties.
The fair value of the Company's cash and cash equivalents, marketable
securities, accounts receivable, software license installments, non current
investments, accounts payable, accrued expenses and deferred maintenance amounts
approximate their carrying value.
Earnings Per Share
The Company calculates earnings per share in accordance with SFAS No. 128,
"Earnings Per Share." SFAS No. 128 stipulates that the calculation of earnings
per share (EPS) be shown for all historical periods as Basic EPS and Diluted
EPS. Basic EPS is computed by dividing 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. See Note 3, Earnings Per Share, for the EPS calculations for the fiscal
years ended June 30, 2001, 2002 and 2003.
Stock-Based Compensation
The Company accounts for employee stock options under the intrinsic value
method of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations ("APB No. 25"). The Company
applies the disclosure requirements of SFAS No. 148, "Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment of FASB Statement No. 123."
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 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):
Years Ended June 30,
---------------------------------------------------
2001 2002 2003
--------- ---------- ---------
Net income (loss), as reported $ (1,990) $ (5,221) $ 4,076
Add: Stock-based compensation expense
included in reported net income (loss),
net of tax 277 125 43
Less: Total stock-based employee
compensation expense determined
under fair value based method for all
awards, net of tax (2,441) (1,844) (1,334)
--------- --------- ---------
Pro forma net income (loss) $ (4,154) $ (6,940) $ 2,785
========= ========= =========
Basic net income (loss) per share- as reported $ (0.11) $ (0.30) $ 0.23
Basic net income (loss) per share- pro forma $ (0.23) $ (0.40) $ 0.16
Diluted net income (loss) per share- as reported $ (0.11) $ (0.30) $ 0.23
Diluted net income (loss) per share- pro forma $ (0.23) $ (0.40) $ 0.15
Additional disclosures required under SFAS 123 are presented in Note 11,
Stock Option Plans.
Comprehensive Income (Loss)
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the disclosure of comprehensive income, which
includes net income (loss), foreign currency translation adjustments and
unrealized gains and losses on marketable securities classified as
available-for-sale.
Segment and Geographic Information
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", establishes standards for reporting information about operating
segments in annual financial statements and requires that certain selected
information about operating segments be reported in interim financial
statements. It also establishes standards for related disclosures about products
or services, and geographic areas. Operating segments are defined as components
of an enterprise about which separate financial information is evaluated
regularly by the chief operating decision maker, or decision-making group, in
deciding how to allocate resources and in assessing performance.
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 adoption of FIN 45 is not
expected to have a material adverse impact on the Company's financial position,
results of operations or cash flows.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" (FIN 46). Variable Interest Entities ("VIEs") are
entities where control is achieved through means other than voting rights. FIN
46 provides guidance on the identification of and financial reporting for VIEs.
A VIE is required to be consolidated if the Company is subject to the majority
of the risk of loss from the VIE's activities or is entitled to receive a
majority of the entity's residual returns, or both. The consolidation
requirements for VIEs created after January 31, 2003 are effective immediately
and consolidation requirements apply to existing entities in the first fiscal
year or interim period beginning after June 15, 2003. The adoption of this
Interpretation did not and will not have any impact on the Company's
consolidated financial statements.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133
on Derivative Instruments and Hedging Activities." This standard amends and
clarifies the accounting for derivative instruments, including certain
derivative instruments embedded in other contracts, and hedging activities under
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement is effective prospectively for contracts entered into or modified
after June 30, 2003, and for hedging relationships designated after June 30,
2003. SFAS No. 149 will not have an impact upon initial adoption and is not
expected to have a material effect on the Company's results of operations,
financial position and cash flows.
In November 2002, the Emerging Issues Task Force (EITF) reached a
consensus on EITF 00-21, "Revenue Arrangements with Multiple Deliverables,"
related to the timing of revenue recognition for arrangements in which goods or
services or both are delivered separately in a bundled sales arrangement. The
EITF requires that when the deliverables included in this type of arrangement
meet certain criteria they should be accounted for separately as separate units
of accounting. This may result in a difference in the timing of revenue
recognition but will not result in a change in the total amount of revenue
recognized in a bundled sales arrangement. The
allocation of revenue to the separate deliverables is based on the relative fair
value of each item. If the fair value is not available for the delivered items
then the residual method must be used. This method requires that the amount
allocated to the undelivered items in the arrangement is their full fair value.
This would result in the discount, if any, being allocated to the delivered
items. This consensus is effective prospectively for arrangements entered into
in fiscal periods beginning after June 15, 2003. EITF 00-21 will not have an
impact upon initial adoption and is not expected to have a material impact to
Mobius's ongoing results of operations, financial position and cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity." SFAS
150 establishes standards for the classification and measurement of certain
financial instruments with characteristics of both liabilities and equity. The
changes are intended to result in a more complete depiction of an entity's
liabilities and equity and will, thereby, assist investors and creditors in
assessing the amount, timing, and likelihood of potential future cash outflows
and equity share issuances. This Statement also requires that certain
obligations that could be settled by issuance of an entity's equity but lack
other characteristics of equity be reported as liabilities even though the
obligation does not meet the definition of a liability. The requirements of SFAS
150 became effective for the Company for financial instruments entered into or
modified after May 31, 2003, and otherwise is effective at the beginning of the
first interim period beginning after June 15, 2003. SFAS 150 is to be
implemented by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date of the
statement and still existing at the beginning of the interim period of adoption.
The Company did not enter into or modify any financial instruments having
characteristics of both liabilities and equity during June 2003. The Company has
evaluated the impact of SFAS 150 to determine the effect it may have on its
consolidated results of operations, financial position or cash flows and has
concluded that the adoption of this statement is not expected to have a material
affect on the Company's financial position or results of operations.
(3) Earnings Per Share
The following is a reconciliation of the numerators and denominators for
the Basic and Diluted EPS calculations (in thousands, except per share data):
Years Ended June 30,
--------------------
2001 2002
---------------------------------------------- ---------------------------------------------
Net Loss Shares Per Share Net Loss Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- ---------
Basic EPS:
Net loss $(1,990) $(5,221)
======== ========
Weighted average shares
outstanding 18,225 17,459
Basic loss per share $(0.11) $(0.30)
======= =======
Diluted EPS:
Net loss $(1,990) $(5,221)
======== ========
Dilutive effect of
stock options -- --
------ ------
Weighted average shares
outstanding 18,225 17,459
====== ======
Diluted loss per share $(0.11) $(0.30)
======= =======
Year Ended June 10, 2003
-------------------------------------------------------------------
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ---------
Basic EPS:
Net income $4,076
======
Weighted average shares
outstanding 17,363
Basic earnings per share $0.23
=====
Diluted EPS:
Net income $4,076
======
Dilutive effect of
stock options 726
------
Weighted average shares
outstanding 18,089
======
Diluted earnings per share $0.23
=====
All outstanding stock options for the years ended June 30, 2001 and 2002,
representing an aggregate of 3,061,150 and 3,764,350 shares, respectively, of
common stock, and certain outstanding stock options for the year ended June 30,
2003, representing an aggregate of 1,453,356 shares of common stock, 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 years ended June 30, 2001, 2002 and 2003.
(4) Software License Installments
In the ordinary course of business, the Company offers extended payment
terms to some of its customers. For software license contracts of 15 years, the
related financing period is generally 5 years. For software installment
contracts of 3 to 5 years, the payments are generally spread ratably over the
related term. Software license installments are discounted at a market rate of
interest at the date the software license contract revenue is recognized. During
the year ended June 30, 2003, the discount rate used for software license
installments ranged between 3.1% and 7.4%. The discount is amortized to interest
income using the interest method over the term of the financing.
The present values of software license installments to be received after
June 30, 2003 are as follows (in thousands):
Year Ended:
June 30, 2004 $9,249
June 30, 2005 7,984
June 30, 2006 5,063
June 30, 2007 4,400
June 30, 2008 244
------
Total minimum payments to be received 26,940
Less unearned/earned interest income (2,817)
Less allowance for doubtful accounts (671)
------
Present value of software license installments, net 23,452
Less current portion, net (8,017)
------
Non-current portion, net $15,435
=======
(5) Property and Equipment
Property and equipment consists of the following (in thousands):
June 30,
Useful ----------------
Life 2002 2003
---- ---- ----
Computer equipment 2 - 5 years $ 13,788 $ 7,265
Furniture, fixtures and office equipment 5 years 1,701 1,437
Leasehold improvements 5 - 15 years 4,653 4,026
-------- --------
20,142 12,728
Less accumulated depreciation and amortization (13,707) (8,182)
-------- --------
Property and equipment, net $ 6,435 $ 4,546
======== ========
Depreciation and amortization expense on property and equipment, including
capital leases, was $4,133,000, $3,929,000 and $2,740,000 for the years ended
June 30, 2001, 2002 and 2003, respectively.
(6) 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 fiscal 2001, Mobius
provided an additional $375,000 as a short term loan to HAN.
Mobius regularly assessed the recoverability of the HAN investment and
concluded that other than temporary impairment losses occurred. As a result,
Mobius recorded impairment losses of $2.2 million and $218,000 for the years
ended June 30, 2000 and 2001, respectively.
In January 2001, HAN was purchased by Intelidata Technologies
("Intelidata"). As a result, during fiscal 2002, Mobius received Intelidata
shares in exchange for its investment in HAN. Mobius sold a portion of these
shares and realized a $150,000 gain in fiscal 2002. During fiscal 2003, Mobius
sold its remaining shares of Intelidata, resulting in a realized gain of
$113,000.
In January 2000, Mobius made an investment of $500,000 in Flooz.com, a
startup Internet company. This was an investment in preferred stock, which would
convert into common stock if Flooz.com had completed an initial public offering.
Mobius held a minority ownership position, which, if the preferred shares
converted to common stock, would be less than 5%. Flooz.com has ceased
operations and, in August 2001, filed for bankruptcy liquidation. Accordingly,
Mobius recorded an impairment loss of $500,000 in fiscal 2001. Robert H.
Levitan, the former Chief Executive Officer of Flooz.com, is currently, and has
been since June 2000, a member of the Board of Directors of Mobius.
(7) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
June 30,
--------
2002 2003
---- ----
Accounts payable $ 3,531 $ 3,110
Compensation and related benefits 6,746 6,934
Facilities restructuring 1,394 112
Royalties payable 1,305 1,025
Other 4,470 4,545
----- -----
$17,446 $15,726
======= =======
(8) Income Taxes
Income (loss) before provision for (benefit from) income taxes is as
follows (in thousands):
Years Ended June 30,
--------------------
2001 2002 2003
---- ---- ----
Domestic income (loss) $ 1,216 $(3,015) $ 8,900
Foreign losses (3,811) (5,018) (2,964)
------ ------ ------
$(2,595) $(8,033) $ 5,936
======= ======= =======
The components of the provision for (benefit from) income taxes for the
years ended June 30, 2001, 2002 and 2003 are as follows (in thousands):
Years Ended June 30,
------------------------------------------------------------------------------------------------------
2001 2002 2003
------------------------------------------------------------------------------------------------------
Current Deferred Total Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- ----- ------- -------- -----
Federal $ 1,000 $(1,592) $ (592) $(1,613) $ (777) $(2,390) $ (380) $ 1,209 $ 829
State 219 (345) (126) (103) (365) (468) 23 517 540
Foreign 113 -- 113 46 -- 46 491 -- 491
------- ------- ------- ------- ------- ------- ------- ------- -------
$ 1,332 $(1,937) $ (605) $(1,670) $(1,142) $(2,812) $ 134 $ 1,726 $ 1,860
======= ======= ======= ======= ======= ======= ======= ======= =======
The following table reconciles the actual provision (benefit) for income
taxes to the provision (benefit) for income taxes calculated at the Federal
statutory corporate rate of 34% for the years ended June 30, 2001, 2002 and 2003
(in thousands):
Years Ended June 30,
--------------------
2001 2002 2003
---- ---- ----
Expected federal statutory corporate rate $ (882) $(2,731) $ 2,018
State income taxes, net of Federal benefit (78) (309) 356
Foreign taxes 113 46 491
Losses of international subsidiaries for which
no benefit has been recognized 208 304 582
Research credit -- (200) (389)
Reversal of previously accrued taxes -- -- (700)
Extraterritorial income exclusion (112) (126) (212)
Other 146 204 (286)
------- ------- -------
Total income tax provision (benefit) $ (605) $(2,812) $ 1,860
======= ======= =======
Pre-Tax Income (Loss) $(2,595) $(8,033) $ 5,936
======= ======= =======
Effective Tax Rate (23.3)% (35.0)% 31.3%
======= ======= =======
In March of 2003, the Internal Revenue Service (IRS) closed its
examination of the Company's tax return for the year ended June 30, 2000. As a
result of the completion of the audit, the Company reversed previously accrued
taxes, reducing the tax provision for the third quarter of fiscal 2003 by
$700,000.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):
June 30,
--------
2002 2003
---- ----
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts $ 571 $ 527
Domestic net operating loss carryforwards 253 1,611
Foreign net operating loss carryforwards 4,679 5,797
Depreciation and amortization 473 524
Restructuring charge 538 37
AMT tax credit 309 309
Research and development credit carryforwards 1,482 1,872
Capital loss carryforwards 1,077 1,077
Other 53 105
------ ------
9,435 11,859
Valuation allowance (6,497) (6,874)
------ ------
Net deferred tax assets 2,938 4,985
Deferred tax liabilities:
Software license installments 3,701 7,465
Other 52 61
------ -------
Net deferred tax liability $ 815 $ 2,541
====== =======
The valuation allowance increased by $2.5 million for the year ended June
30, 2002 primarily due to the uncertainty regarding the realization of net
operating losses incurred by certain international subsidiaries and limitations
imposed by the tax laws on the Company's ability to realize the benefit of the
capital loss carryforwards. The valuation allowance increased by $377,000 for
the year ended June 30, 2003 primarily due to the uncertainty regarding the
realization of net operating losses incurred by certain international
subsidiaries offset by a reduction in valuation allowances related to research
and development credit carryforwards. The Company will reduce the valuation
allowance when it is concluded that it is more likely than not that these
deferred tax assets will be realized.
As of June 30, 2003 the Company had net operating loss carryforwards, for
federal income tax purposes, of approximately $4.2 million which expire, if
unused, in the year 2023. The Company also has $17.2 million in foreign net
operating loss carryforwards as of June 30, 2003. The carryforward period of
these losses varies by jurisdictions; some begin to expire in fiscal 2004 and
others extend indefinitely.
As of June 30, 2002 and 2003, the Company had capital loss carryforwards
of approximately $2.8 million for each year. These capital loss carryforwards
will expire, if unused, in fiscal 2006 and 2007, respectively.
(9) Preferred Stock
The Company has authorized 1,000,000 shares of Preferred Stock with a par
value of $.01. Before any shares are issued, the Board of Directors shall fix
the specific provisions of the shares including the designation of series,
voting rights, dividend features, redemption and liquidation provision and other
features. No shares were outstanding as of June 30, 2002 and 2003.
(10) 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 or 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.
(11) Stock Option Plans
1996 Stock Incentive Plan
In November 1996, the Company adopted the 1996 Stock Incentive Plan (the
"Plan") pursuant to which the Company's Board of Directors may grant stock
options to officers, employees, directors and consultants. The Plan authorizes
grants of options to purchase up to 4,902,400 shares of authorized but unissued
common stock. Stock options are generally granted with an exercise price equal
to the stock's fair market value at the date of grant as determined by the
Company's Board of Directors. Stock
options generally vest as to 20% of the shares subject thereto on the first
anniversary of the date of grant and the remainder vest ratably over the
subsequent 16 quarters.
Non-Employee Directors' 1998 Stock Option Plan
In February 1998, the Board of Directors and stockholders of the Company
approved and adopted the Non-Employee Directors' 1998 Stock Option Plan (the
"Directors' Plan"). The purpose of the Directors' Plan is to provide an
incentive to the Company's non-employee directors to serve on the Board of
Directors and to maintain and enhance the Company's long-term performance. The
Directors' Plan provides for the issuance of a total of 500,000 authorized and
unissued shares of common stock, treasury shares and/or shares acquired by the
Company for purposes of the Directors' Plan.
The Directors' Plan provides for initial grants (i.e. upon adoption of the
Directors' Plan or upon a non-employee director's initial election to the Board
of Directors) of non-qualified stock options to purchase 10,000 shares of common
stock. At each annual meeting thereafter, each non-employee director will
receive an option to purchase 10,000 shares. Each option granted under the
Directors' Plan will have a term of ten years and will become exercisable upon
grant. The exercise price of each option granted under the Directors' Plan will
equal the fair market value of a share of common stock on the date of grant.
* * *
Total stock option activity during the periods indicated was as follows:
Weighted
Average
Number of Exercise
Shares Price
------ -----
Balance at June 30, 2000 2,684,150 $6.19
Granted 826,750 3.04
Exercised (24,650) 1.29
Forfeited (416,100) 6.86
Expired -- --
---------
Balance at June 30, 2001 3,070,150 5.29
Granted 1,051,500 2.71
Exercised (15,500) 1.25
Forfeited (344,300) 8.48
Expired -- --
---------
Balance at June 30, 2002 3,761,850 4.30
Granted 740,475 2.32
Exercised (152,225) 2.24
Forfeited (272,050) 3.87
Expired -- --
---------
Balance at June 30, 2003 4,078,050 $4.04
=========
The following table summarizes information about the stock option plans:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------- ------------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
Range of as of Contractual Exercise as of Exercise
Exercise Prices June 30,2003 Life Price June 30, 2003 Price
--------------- ------------ ---- ----- ------------- -----
$1.25 - $1.25 557,000 3.35 $ 1.25 557,000 $ 1.25
$1.81 - $2.10 444,700 8.83 $ 1.92 57,475 $ 1.98
$2.15 - $2.41 411,825 9.27 $ 2.38 41,425 $ 2.32
$2.48 - $2.80 495,625 8.49 $ 2.74 153,750 $ 2.72
$2.81 - $2.98 104,100 9.59 $ 2.90 60,850 $ 2.89
$3.00 - $3.00 556,125 7.67 $ 3.00 216,250 $ 3.00
$3.10 - $4.25 412,675 6.97 $ 3.80 288,050 $ 3.79
$4.50 - $6.94 484,500 4.85 $ 6.07 434,225 $ 6.11
$7.00 - $11.00 562,500 4.95 $ 9.85 546,350 $ 9.91
$11.25 - $15.00 49,000 5.41 $11.89 48,250 $11.84
--------- ---------
$1.25 - $15.00 4,078,050 6.71 $ 4.04 2,403,625 $ 4.94
========= =========
As of June 30, 2003, there were 321,875 shares available for grant under
the Plan and no shares available for grant under the Directors' Plan. As of June
30, 2002 and 2003, there were 2,055,428 and 2,403,625 options exercisable,
respectively.
In January, February and March 1998 the Company granted 350,000, 370,000
and 53,000 stock options, respectively, under the 1996 Stock Incentive Plan at
an exercise price of $9.86, $11.00 and $11.00 per share, respectively, which
were deemed by the Board of Directors to be fair market values for the shares on
these dates. The Company subsequently determined that these options were granted
at exercise prices below the fair market value of $14.00 per share, the low end
of the range of per share prices for the IPO in April 1998. As a result, the
Company recognized compensation expense of $277,000, $125,000 and $43,000 for
the years ended June 30, 2001, 2002 and 2003, respectively. Such compensation
expense is included within sales and marketing of $193,000, $80,000 and 27,000,
research and development of $67,000, $36,000 and 13,000 and general and
administrative expenses of $17,000, $9,000 and $3,000 for the years ended June
30, 2001, 2002 and 2003, respectively. Since the Company has recognized the
entire adjustment, there will be no additional stock compensation expense
relating to these 1998 option grants.
The Black Scholes option pricing model has been used for grants subsequent
to July 1, 1998. The per share weighted average fair value of stock options
granted during the years ended June 30, 2001, 2002 and 2003 was $2.95, $2.60 and
$1.51 on the date of grant, respectively. Grants during the years ended June 30,
2001, 2002 and 2003 assumed 343%, 116% and 110% of volatility, expected dividend
yield of 0.0% and an expected life of 3.2 years, 3.2 years and 3.4 years,
respectively. The assumed risk free interest rate on the date of grants was
5.0%, 4.1% and 2.8% in fiscal years 2001, 2002 and 2003, respectively.
(12) 1998 Employee Stock Purchase Plan
In February 1998, the Board of Directors and stockholders of the Company
approved and adopted the 1998 Employee Stock Purchase Plan (the "ESPP"). The
purpose of the ESPP is to provide eligible employees who wish to acquire common
stock of the Company the opportunity to purchase shares from the Company with
accumulated payroll deductions. The ESPP is intended to constitute an "employee
stock purchase plan" under section 423 of the Internal Revenue Code. The ESPP
provides for the issuance of an aggregate of up to 1,150,000 shares. During
fiscal 2001, 2002 and 2003; 238,563, 84,573 and 158,978 shares were issued under
the ESPP, respectively. As of June 30, 2003, 154,729 shares are reserved for
issuance and there were 459,345 remaining shares available to purchase under
this plan.
(13) Employee Savings Plan and Executive Incentive Plan
In fiscal 1995, the Company established a savings plan that qualifies
under Section 401(k) of the Internal Revenue Code. Under the plan, participating
U.S. employees may defer up to 20% of their pre-tax compensation, but not more
than Internal Revenue Code limitations. The Company, at the discretion of the
Board of Directors, may match the employee contributions. No matching
contributions were made in the years ended June 30, 2001, 2002 and 2003.
In February 1998, the Board of Directors and stockholders of the Company
approved and adopted the Mobius Management Systems, Inc. Executive Incentive
Plan (the "Incentive Plan"). The Incentive Plan is administered by the
Compensation Committee of the Board. Participation in the Incentive Plan is
limited to those executives and key employees who, in the judgment of the
Compensation Committee, are in a position to have a significant impact on the
performance of the Company.
Awards under the Incentive Plan are based upon the extent to which
performance goals established by the Compensation Committee for a designated
performance period are satisfied. The Incentive Plan also provides for grants of
discretionary bonuses. For the years ended June 30, 2001, 2002 and 2003, no
awards were made under the Incentive Plan.
(14) Comprehensive Income (Loss)
Comprehensive income (loss) for the years ended June 30, 2001, 2002 and
2003 is as follows:
Year ended June 30,
-----------------------------
2001 2002 2003
---- ---- ----
Net income (loss) $(1,990) $(5,221) $4,076
Unrealized marketable securities gain (loss) 43 94 (99)
Unrealized translation gain (loss) (608) 710 391
--------- --------- --------
Comprehensive income (loss), net of tax $(2,555) $(4,417) $4,368
========= ========= ========
(15) Related Party Transactions
Since 1981 the Company has engaged, and plans to continue to engage, the
Kramer Levin law firm to provide the Company with legal counsel. Mr. Kopelman, a
member of Mobius's Board of Directors, is a partner of Kramer Levin Naftalis &
Frankel LLP. Fees paid to Kramer Levin during the years ended June 30, 2001,
2002 and 2003 were approximately $456,000, $635,000 and $787,000, respectively.
(16) Lease Commitments
The Company has operating leases for its office facilities which expire on
various dates through fiscal 2010 and provide for escalation and additional
payments relating to operating expenses.
The following is a schedule of future minimum lease payments for operating
leases as of June 30, 2003 (in thousands):
Operating
Leases
------
Year Ended:
June 30, 2004 $ 2,523
June 30, 2005 2,187
June 30, 2006 2,005
June 30, 2007 1,632
June 30, 2008 1,503
Thereafter 3,107
-------
Total minimum lease payments $12,957
=======
Rental expense for all operating leases was approximately $3.5 million,
$3.5 million and $2.8 million for the years ended June 30, 2001, 2002 and 2003,
respectively.
In compliance with the lease of the 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, which is included
in other assets.
(17) Segment and Geographic Information
The Company operates in one principal business segment across domestic and
international markets. No foreign country accounted for more than 10% of revenue
or 10% of identifiable assets in any of the periods presented.
United
States International(a)Eliminations Total
------ ---------------------------- -----
Year Ended June 30, 2001:
Revenue:
From external customers(b) $61,415 $12,797 $ -- $74,212
Between geographic areas(c) 3,133 -- (3,133) --
------- ------- ------- -------
Total revenue $64,548 $12,797 $(3,133) $74,212
======= ======= ======= =======
Long-lived assets $14,589 $ 1,846 $ -- $16,435
======= ======= ======= =======
Year Ended June 30, 2002:
Revenue:
From external customers(b) $57,474 $10,439 $ -- $67,913
Between geographic areas(c) 2,848 -- (2,848) --
------- ------- ------- -------
Total revenue $60,322 $10,439 $(2,848) $67,913
======= ======= ------- =======
Long-lived assets $10,416 $ 1,575 $ -- $11,991
======= ======= ======= =======
Year Ended June 30, 2003:
Revenue:
From external customers(b) $70,689 $11,967 $ -- $82,656
Between geographic areas(c) 3,323 -- (3,323) --
------- ------- ------- -------
Total revenue $74,012 $11,967 $(3,323) $82,656
======= ======= ======= =======
Long-lived assets $20,202 $ 2,035 $ -- $22,237
======= ======= ======= =======
(a) The Company operates wholly-owned subsidiaries in the United Kingdom,
Canada, France, Germany, Italy, Sweden, Switzerland, Australia, Japan and
the Benelux. Includes international agent sales.
(b) Includes royalties paid to the Company and to its subsidiaries by agents.
Royalties from agents are a percentage of the license and maintenance fees
paid by customers to such agents.
(c) Represents royalties from international subsidiaries. Royalties from
international subsidiaries are a percentage of the license and maintenance
fees paid by customers to such international subsidiaries.
(18) 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. For the
year ended June 30, 2001, the Company recognized $450,000 of TapeSaver license
revenue. As the buyer has been delinquent on these payments since June 2001, no
license revenue relating to this transaction was recognized in fiscal 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. To date, the Company has not recorded any amounts due in connection
with the arbitration. As a result of the uncertainty of collection, any amounts
ultimately recorded will be accounted for on the cash basis.
(19) Facilities Restructuring
In connection with management's plan to reduce costs and improve operating
efficiencies, the Company recorded a facilities restructuring charge of $1.4
million in fiscal 2002. 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 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 associated with this new agreement.
The Company recorded a facilities restructuring charge of $116,000 in
fiscal 2003 representing the estimated future lease obligations for office space
that the Company was subleasing to a third party. The third party abandoned the
space during 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 fiscal year ended June 30, 2003 are as follows (in thousands):
Additions
June 30, Charged Cash June 30,
2002 to Expense Payments 2003
---- ---------- -------- ----
Rent and related
facilities expenses $ 1,066 $ 194 $ 1,148* $112
Other 328 - 328 -
------- ----- ------- ----
$ 1,394 $ 194 $ 1,476 $112
======= ===== ======= ====
* Includes a cash payment of $647,000 in connection with the release described
above.
(20) 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 $2.2 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. During the
fourth quarter of fiscal 2003, the Company recorded goodwill and a payable to
Cytura of $800,000 reflecting the requirement to pay this amount.
The purchase price for the Contenuity Software and the other Cytura
assets, adjusted for the additional payment of $800,000, 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 2,136
Acquired in-process research and
development 910
-------
Purchase price $ 3,322
=======
Other non-current assets consist of completed technology of $900,000 and
goodwill of $1,236,000. 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. Accordingly, during fiscal 2003, the Company had amortized $180,000 of
the completed technology, and will amortize $240,000 in each of the fiscal years
2004, 2005 and 2006. 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 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):
Year ended June 30,
-------------------
2002 2003
---- ----
Revenues $69,191 $82,950
Net income (loss) $(8,578) $ 3,705
Basic earnings (loss) per share $ (0.49) $0.21
Diluted earnings (loss) per share $ (0.49) $0.20
Report of Independent Auditors on Financial Statement Schedule
--------------------------------------------------------------
To the Board of Directors of
Mobius Management Systems, Inc.:
Our audit of the consolidated financial statements referred to in our report
dated July 24, 2003 appearing in this Annual Report on Form 10-K also included
an audit of the financial statement schedule for the years ended June 30, 2003
and 2002 listed in Item 15(a)(2) of the Form 10-K. In our opinion, this
financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
Stamford, CT
July 24, 2003
SCHEDULE II
MOBIUS MANAGEMENT SYSTEMS, INC.
Valuation and Qualifying Accounts
(In thousands)
Additions
Balance at charged to Balance
beginning costs and at end
Description of period expenses Deductions of period
- ----------- --------- -------- ---------- ---------
Year ended June 30, 2001:
Deductions from asset account:
Allowance for doubtful accounts $1,727 316 (593) $1,450
Year ended June 30, 2002:
Deductions from asset account:
Allowance for doubtful accounts $1,450 330 (284) $1,496
Year ended June 30, 2003:
Deductions from asset account:
Allowance for doubtful accounts $1,496 960 (966) $1,490
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or the
notes thereto.
15(a)(3) Exhibits
- -----------------
Exhibit No. Description
- ------- ---------------
3.1(1) -- Form of Second Amended and Restated Certificate of Incorporation
of the Registrant.
3.2(1) -- Form of Restated By-Laws of the Registrant.
4.1(1) -- Specimen certificate representing the Common Stock.
10.1(1) -- Mobius Management Systems, Inc. 1996 Stock Incentive Plan.*
10.2(1) -- Amendment No. 1 to Mobius Management Systems, Inc. 1996 Stock
Incentive Plan.*
10.3(1) -- Mobius Management Systems, Inc. 1998 Employee Stock Purchase
Plan.*
10.4(1) -- Mobius Management Systems, Inc. Non-Employee Directors' 1998 Stock
Option Plan.*
10.4A(2) -- Amendment No. 1 to Mobius Management Systems, Inc. Non-Employee
Directors' 1998 Stock Option Plan.*
10.4B(7) -- Amendment No. 2 to Mobius Management Systems, Inc. Non-Employee
Directors' 1998 Stock Option Plan.*
10.5(1) -- Mobius Management System, Inc. 1998 Executive Incentive Plan.*
10.6(1) -- Form of Grantee Option Agreement.*
10.7(1) -- Lease dated December 4, 1997 by and between Old Boston Post Road
Associates LLC and the Registrant.
10.8(1) -- Lease dated February 14, 1983 by and between American National
Bank and Trust Company of Chicago and the Registrant.
10.9(3) -- Sublease dated January 5, 1999 by and between Fluor Daniel, Inc.
and the Registrant.
10.10(1) -- Stock Purchase Agreement dated as of May 12, 1997 by and among the
Registrant and the other parties listed on the signature pages
thereto.
10.11(1) -- Stockholders' Agreement dated as of May 12, 1997 by and among the
Registrant and the other parties listed on the signature pages
thereto.
10.12(1) -- Registration Rights Agreement dated May 12, 1997 by and among the
Registrant and the other parties listed on the signature pages
thereto.
10.13(1) -- Severance Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.*
10.14(1) -- Option Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.*
10.15(1) -- Letter Agreement, dated as of December 28, 1997 between the
Registrant and Joseph Tinnerello.*
10.16(1) -- Stockholder Agreement, dated as of December 30, 1997 between the
Registrant and Joseph Tinnerello.*
10.17(1) -- Software Assets Purchase Agreement dated as of December 10, 1990
among the Registrant, Compucept of Nevada and Software Assist
Corporation.
10.18(1) -- OEM Agreement between the Registrant and CDP Communications, Inc.
dated as of October 15, 1993.
10.19(1) -- Source Code License and Amendment to OEM Agreement between the
Registrant and CDP Communications Inc. dated as of August 12,
1997.
10.20(1) -- Amendment #1 to License and Amendment to OEM Agreement between the
Registrant and CDP Communications, Inc. dated November 21, 1997.
10.21(4) -- Lease Modification Agreement dated July 12, 1999 by and between
Old Boston Post Road Associates LLC and the Registrant.
10.22(5) -- Amendment #1 to Mobius Management Systems, Inc. 1998 Employee
Stock Purchase Plan.*
10.23(6) -- Amendment #2 to Mobius Management Systems, Inc. 1998 Employee
Stock Purchase Plan.*
10.24(8) -- Asset Purchase and Sale Agreement, dated as of October 11, 2002,
by and between Cytura Corp. and certain shareholders of Cytura
Corp., on the one hand, and MMS Acquisition I LLC, on the other
hand.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Independent Accountants.
23.2 -- Independent Auditors' Consent.
31.1 -- CEO Certification pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002.
31.2 -- CFO Certification pursuant to Section 302(a) of the Sarbanes-Oxley
Act of 2002.
32.1 -- CEO Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 -- CFO Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
* Management contract or compensatory plan or arrangement.
(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.
(2) Filed as Exhibit No. 10.4A to Mobius Management Systems, Inc.'s Form 10-Q
for the quarter ended September 30, 2001 and incorporated herein by
reference.
(3) Filed as an exhibit to Mobius Management Systems, Inc.'s Annual Report
filed on Form 10-K for the year ended June 30, 1999 and incorporated
herein by reference.
(4) Filed as Exhibit No. 10.1 to Mobius Management Systems, Inc.'s Form 10-Q
for the quarter ended December 31, 1999 and incorporated herein by
reference.
(5) Filed as Exhibit No. 10.24 to Mobius Management Systems, Inc.'s Annual
Report filed on Form 10-K for the year ended June 30, 2000 and
incorporated herein by reference.
(6) Filed as Exhibit No. 10.25 to Mobius Management Systems, Inc.'s Form 10-Q
for the quarter ended December 31, 2001 and incorporated herein by
reference.
(7) Filed as Exhibit No. 10.4B to Mobius Management Systems, Inc.'s Form 10-Q
for the quarter ended March 31, 2003 and incorporated herein by reference.
(8) Filed as Exhibit No. 10.26 to Mobius Management Systems, Inc.'s Current
Report on Form 8-K filed on October 17, 2002 and incorporated herein by
reference.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
MOBIUS MANAGEMENT SYSTEMS, INC.
By: /s/ Mitchell Gross
------------------------------
Mitchell Gross
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)
Date: September 9, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title(s) Date
---------- -------- ----
/s/ Mitchell Gross Chairman of the Board, Chief September 9, 2003
------------------------ Executive Officer, President
Mitchell Gross and Director
(Principal Executive Officer)
/s/ Peter E. Takiff Chief Financial Officer September 9, 2003
----------------------- (Principal Financial
Peter E. Takiff and Accounting Officer)
/s/ Joseph J. Albracht Director September 9, 2003
-----------------------
Joseph J. Albracht
/s/ Robert H. Levitan Director September 9, 2003
-----------------------
Robert H. Levitan
/s/ Arthur J. Marks Director September 9, 2003
-----------------------
Arthur J. Marks
/s/ Kenneth P. Kopelman Director September 9, 2003
-----------------------
Kenneth P. Kopelman
/s/ Gary G. Greenfield Director September 9, 2003
-----------------------
Gary G. Greenfield
/s/ Patrick W. Gross Director September 9, 2003
-----------------------
Patrick W. Gross