UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from________ to ________
Commission File Number: 0-24077
Mobius Management Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3078745
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
120 Old Post Road, Rye, New York 10580
(Address of principal executive offices) (zip code)
(914) 921-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO | |
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|
Number of shares outstanding of the issuer's common stock as of
February 10, 2004
Class Number of Shares Outstanding
Common Stock, par value $0.0001 per share 18,168,422
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2003 and December 31, 2003
Consolidated Statements of Operations
Three months and six months ended December 31, 2002 and 2003
Consolidated Statements of Stockholders' Equity
Six months ended December 31, 2003
Consolidated Statements of Cash Flows
Six months ended December 31, 2002 and 2003
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Item 4. Controls and Procedures
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
CERTIFICATIONS
PART I. - FINANCIAL INFORMATION
Item 1. - Financial Statements
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data and per share data)
June 30, December 31,
2003 2003
--------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 37,315 $ 37,789
Accounts receivable, net of allowances of $819
and $1,021, respectively 10,551 11,237
Software license installments, current portion 8,017 11,437
Other current assets 2,897 2,580
-------- --------
Total current assets 58,780 63,043
Software license installments, net of allowance
for doubtful accounts of $671 and $500, respectively 15,435 21,522
Property and equipment, net 4,546 4,472
Deferred income taxes, non-current 328 461
Other non-current assets 2,729 2,564
-------- --------
Total assets $ 81,818 $ 92,062
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 15,726 $ 17,084
Deferred revenues 21,306 22,180
Deferred income taxes 2,869 4,110
-------- --------
Total current liabilities 39,901 43,374
Deferred revenues 5,560 4,891
-------- --------
Total liabilities 45,461 48,265
-------- --------
Stockholders' equity:
Common stock, $.0001 par value;
authorized 40,000,000 shares; issued
22,879,401 and 23,419,754 shares,
respectively; outstanding 17,525,178 and
18,065,531 shares, respectively 2 2
Additional paid-in capital 50,653 53,489
Retained earnings 1,466 5,550
Accumulated other comprehensive income 218 738
Treasury stock, at cost, 5,354,223 shares (15,982) (15,982)
-------- --------
Total stockholders' equity 36,357 43,797
-------- --------
Total liabilities and stockholders' equity $ 81,818 $ 92,062
======== ========
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share data)
Three months ended Six months ended
December 31, December 31,
2002 2003 2002 2003
---- ---- ---- ----
Revenues:
Software license $ 10,168 $ 11,503 $ 17,924 $ 24,004
Maintenance 9,461 10,044 18,651 20,046
Professional service and other 1,701 1,749 3,669 2,657
-------- -------- -------- --------
Total revenues 21,330 23,296 40,244 46,707
-------- -------- -------- --------
Cost of revenues:
Software license 334 389 422 724
Maintenance 1,515 1,562 2,997 3,256
Professional service and other 1,595 1,894 3,580 2,956
-------- -------- -------- --------
Total cost of revenues 3,444 3,845 6,999 6,936
-------- -------- -------- --------
Gross profit 17,886 19,451 33,245 39,771
-------- -------- -------- --------
Operating expenses:
Sales and marketing 8,820 8,880 17,393 18,313
Research and development 4,470 4,927 8,537 9,930
General and administrative 2,665 2,904 5,095 5,714
Acquired in-process research and development 910 -- 910 --
Facilities restructuring 194 -- 194 --
-------- -------- -------- --------
Total operating expenses 17,059 16,711 32,129 33,957
-------- -------- -------- --------
Income from operations 827 2,740 1,116 5,814
Interest income, net 391 461 714 900
Other income (expense) (16) (7) 110 (21)
-------- -------- -------- --------
Income before income taxes 1,202 3,194 1,940 6,693
Provision for income taxes 480 1,146 834 2,609
-------- -------- -------- --------
Net income $ 722 $ 2,048 $ 1,106 $ 4,084
======== ======== ======== ========
Basic earnings per share $ 0.04 $ 0.11 $ 0.06 $ 0.23
Basic weighted average shares outstanding 17,364 17,857 17,292 17,706
Diluted earnings per share $ 0.04 $ 0.10 $ 0.06 $ 0.21
Diluted weighted average shares outstanding 17,636 20,266 17,588 19,909
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
SIX MONTHS ENDED DECEMBER 31, 2003
(Unaudited, in thousands)
Accumulated
Common Stock Additional Other Treasury Stock Total
------------ Paid-in Retained Comprehensive -------------- Stockholders'
Shares Amount Capital Earnings Income Shares Amount Equity
------ ------ --------- -------- ----------- ------ -------- ------
Balance at June 30, 2003 17,526 $ 2 $ 50,653 $ 1,466 $ 218 5,354 $(15,982) $ 36,357
Net income -- -- -- 4,084 -- -- -- 4,084
Change in other comprehensive income, net
of tax -- -- -- -- 520 -- -- 520
--------
Comprehensive income 4,604
Stock options exercised 389 -- 2,417 -- -- -- -- 2,417
Stock purchase plan shares issued,
including tax benefit 151 -- 419 -- -- -- -- 419
-------- -------- -------- -------- -------- -------- -------- --------
Balance at December 31, 2003 18,066 $ 2 $ 53,489 $ 5,550 $ 738 5,354 $(15,982) $ 43,797
======== ======== ======== ======== ======== ======== ======== ========
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
December 31,
2002 2003
-------- ---------
Cash flows provided by (used in) operating activities:
Net income $ 1,106 $ 4,084
-------- --------
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Deferred income taxes 378 2,207
Depreciation and amortization 1,628 933
Other 19 --
Change in operating assets and liabilities:
Accounts receivable, net 4,908 (686)
Software license installments (6,925) (9,507)
Other assets (1,244) 397
Accounts payable and accrued expenses (2,127) 1,358
Deferred revenue 5,789 205
-------- --------
Total adjustments 2,426 (5,093)
-------- --------
Net cash provided by (used in) operating activities 3,532 (1,009)
-------- --------
Cash flows provided by (used in) investing activities:
Sale of marketable securities 2,536 --
Capital expenditures (677) (760)
-------- --------
Net cash provided by (used in) investing activities 1,859 (760)
-------- --------
Cash flows provided by financing activities:
Cash received from exercise of stock options 53 1,446
Cash received from employee stock purchase plan 331 291
-------- --------
Net cash provided by financing activities 384 1,737
-------- --------
Effect of exchange rate changes on cash and cash
equivalents 199 506
-------- --------
Net change in cash and cash equivalents 5,974 474
Cash and cash equivalents at beginning of period 31,099 37,315
-------- --------
Cash and cash equivalents at end of period $ 37,073 $ 37,789
======== ========
Supplemental disclosure of cash flow information:
Cash (received) paid during the period for:
Interest $ 3 $ 6
Income taxes, net of refunds $ (507) $ (9)
See accompanying notes to unaudited consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying consolidated financial statements at June 30, 2003 and
December 31, 2003 and for the three and six month periods ended December 31,
2002 and 2003 have been prepared in accordance with the requirements of the
Securities and Exchange Commission (SEC) for interim reporting. Under those
rules, certain footnotes or other financial information that is normally
required by generally accepted accounting principles (GAAP) may be condensed or
omitted.
GAAP requires the Company to make estimates and assumptions in preparing
the interim financial statements. The Company has used its best efforts in
establishing good faith estimates and assumptions. Actual results, however, may
differ.
Mobius Management Systems, Inc. ("Mobius" or the "Company") is responsible
for the financial statements included in this Form 10-Q or the "Company". These
financial statements include all normal and recurring adjustments that are
necessary for the fair presentation of Mobius's financial position, results of
operations and changes in cash flow. These statements should be read in
conjunction with the consolidated financial statements and notes in Mobius's
latest Form 10-K.
(2) Earnings Per Share
Earnings per share are presented in accordance with Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No. 128
stipulates that the calculation of earnings per share (EPS) be shown for all
historical periods as Basic EPS and Diluted EPS. Basic EPS is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. The computation of Diluted EPS is similar to the computation
of Basic EPS except that it gives effect to all potentially dilutive instruments
that were outstanding during the period.
The following is a reconciliation of the numerators and denominators for
the Basic and Diluted EPS calculations (in thousands, except per share data):
Three Months Ended December 31,
-------------------------------
2002 2003
--------------------------------------------- -------------------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic EPS:
Net income $722 $2,048
==== ======
Weighted average shares
outstanding 17,364 17,857
Basic earnings per share $0.04 $0.11
===== =====
Diluted EPS:
Net income $722 $2,048
==== ======
Dilutive effect of
stock options 272 2,409
------ ------
Weighted average shares
outstanding 17,636 20,266
====== ======
Diluted earnings per share $0.04 $0.10
===== =====
Six Months Ended December 31,
-------------------------------
2002 2003
--------------------------------------------- -------------------------------------------------
Net Income Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic EPS:
Net income $1,106 $4,084
====== ======
Weighted average shares
outstanding 17,292 17,706
Basic earnings per share $0.06 $0.23
===== =====
Diluted EPS:
Net income $1,106 $4,084
====== ======
Dilutive effect of
stock options 296 2,203
------ ------
Weighted average shares
outstanding 17,588 19,909
====== ======
Diluted earnings per share $0.06 $0.21
===== =====
Certain outstanding stock options for the three and six months ended
December 31, 2002, representing an aggregate of 2,767,193 and 2,784,500 shares
of common stock, respectively, and certain outstanding stock options for the
three and six months ended December 31, 2003, representing an aggregate of
15,000 and 452,359 shares of common stock, respectively, were excluded from the
calculation of diluted earnings per share because the effect would be
antidilutive. Stock options were the only dilutive instruments outstanding for
the three and six months ended December 31, 2002 and 2003.
(3) Software License Installments Receivable
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 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. The discount is
amortized to interest income using the interest method over the payment term.
Using the interest method, interest income is periodically accrued so that as an
installment becomes due the sum of the installment receivable and the interest
receivable equals the amount of the payment required to be made by the customer.
(4) Property and Equipment
Property and equipment consists of the following (in thousands):
Useful June 30, December
Life 2003 31, 2003
---- ---- --------
Computer equipment 2-5 years $7,265 $7,874
Furniture, fixtures and office equipment 5 years 1,437 1,498
Leasehold improvements 5-15 years 4,026 4,067
------ -------
12,728 13,439
Less accumulated depreciation and amortization (8,182) (8,967)
------ -------
Property and equipment, net $4,546 $ 4,472
====== =======
Depreciation and amortization expense on property and equipment was
$770,000 and $380,000 for the three months ended December 31, 2002 and 2003,
respectively, and $1.5 million and $813,000 for the six months ended December
31, 2002 and 2003, respectively.
(5) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
June 30, December 31,
2003 2003
---- ----
Accounts payable $ 3,110 $ 3,579
Compensation and related benefits 6,934 7,759
Royalties payable 1,025 1,256
Other 4,657 4,490
------- -------
$15,726 $ 17,084
======= ========
(6) Stock Incentive Plan
The Company has adopted the disclosure provisions of SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123." SFAS No. 148 requires prominent
disclosures in both annual and interim financial statements regarding the method
of accounting for stock-based employee compensation and the effect of the method
used on reported results. The Company accounts for employee stock options under
the intrinsic value method of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, the Company does not
recognize compensation expense related to employee stock options, since options
are granted at exercise prices equal to the fair market value on the date of
grant. The following table presents the effect on the Company's net income and
net income per share if the Company had applied the fair value recognition
provisions of SFAS No. 123, "Accounting for Stock-Based Compensation" (in
thousands, except per share data):
Three Months ended Six Months ended
December 31, December 31,
2002 2003 2002 2003
---- ---- ---- ----
Net income, as reported $ 722 $ 2,048 $ 1,106 $ 4,084
Add: Stock-based compensation expense
included in reported net income, net of tax 18 -- 36 --
Less: Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of tax (376) (566) (617) (839)
------- -------- -------- --------
Pro forma net income $ 364 $ 1,482 $ 525 $ 3,245
======= ======== ======== ========
Basic net income per share- as reported $ 0.04 $ 0.11 $ 0.06 $ 0.23
Basic net income per share- pro forma $ 0.02 $ 0.08 $ 0.03 $ 0.18
Diluted net income per share-as reported $ 0.04 $ 0.10 $ 0.06 $ 0.21
Diluted net income per share- pro forma $ 0.02 $ 0.07 $ 0.03 $ 0.16
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 three months ended December 31, 2002 and 2003 was $1.30 and
$6.75 on the date of grant, respectively. The per share weighted average fair
value of stock options granted during the six months ended December 31, 2002 and
2003 was $1.32 and $6.56 on the date of grant, respectively. Grants during the
three and six months ended December 31, 2002 and 2003 assumed 110% and 107% of
volatility, expected dividend yield of 0.0% and an expected life of 3.6 years
and 3.5 years, respectively. The assumed risk free interest rate on the date of
grants was 2.8% and 3.3% in the three and six months ended December 31, 2002 and
2003, respectively.
(7) Comprehensive Income
SFAS No. 130, "Reporting Comprehensive Income" requires the disclosure of
comprehensive income, which includes net income, foreign currency translation
adjustments and unrealized gains and losses on marketable securities classified
as available-for-sale. Comprehensive income for the three and six months ended
December 31, 2002 and 2003 is as follows (in thousands):
Three Months ended Six Months ended
December 31, December 31,
2002 2003 2002 2003
------------------- -----------------
Net income $ 722 $ 2,048 $ 1,106 $ 4,084
Unrealized marketable securities loss (4) -- (99) --
Unrealized translation gain 167 426 199 520
------------------- -------------------
Comprehensive income $ 885 $ 2,474 $ 1,206 $ 4,604
=================== ===================
(8) Commitments and Contingencies
In compliance with the leases of the Company's corporate headquarters in
Rye, NY and a sales office in Chicago, IL, the landlords hold letters of credit
issued by two banks totaling in the aggregate $325,000, secured by a certificate
of deposit and a money market account.
(9) Sale of INFOPAC-TapeSaver
In January 1999, the Company sold the INFOPAC-TapeSaver product to a third
party for approximately $3.0 million payable over a five-year period. As a
result of
this arrangement, the Company was going to recognize $3.0 million of license
revenues as the buyer made payments over a five-year period ended December 31,
2003. As the buyer has been delinquent on these payments since June 2001, no
license revenue relating to this transaction was recognized in the three and six
months ended December 31, 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.
(10) Facilities Restructuring
In connection with management's plan to reduce costs and improve operating
efficiencies, the Company recorded a facilities restructuring charge of $1.4
million in the fourth quarter of fiscal 2002 and an additional charge of
$194,000 in the second quarter of fiscal 2003. Refer to the Company's Annual
Report on Form 10-K for the fiscal year ended June 30, 2003 for a further
discussion of this plan. Through June 30, 2003, cash payments totaled $1.5
million.
The balance of the facilities restructuring accrual and the transactions
for the six months ended December 31, 2003 are as follows (in thousands):
June 30, Cash Other December 31,
2003 Payments Adjustments 2003
---- -------- ----------- ----
Rent and related
facilities expenses $ 112 $40 $41 $31
===== === ==== ===
(11) 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. Under the terms
of the agreement, the Company was obligated to pay Cytura an additional $800,000
within 60 days of the first anniversary of the transaction since, 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.
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.
Under the terms of a revised agreement with Cytura, the Company made the
$800,000 payment to Cytura in January, 2004.
A portion of the purchase price for the Contenuity Software and the other
Cytura assets has been allocated to completed technology ($900,000) and goodwill
($1,236,000). Completed technology is being amortized on a straight-line basis
over the estimated useful life of 3.75 years. Accordingly, during the six months
ended December 31, 2003, the Company had amortized $120,000 of the completed
technology, and will amortize $120,000 during the remainder of fiscal 2004 and
$240,000 in each of the fiscal years 2005 and 2006.
The following table reflects the unaudited pro forma combined results of
operations for the six months ended December 31, 2002 of the Company and Cytura
on the basis that the Cytura acquisition had taken place at the beginning of the
2003 fiscal year (in thousands). The pro forma information for 2003 has been
intentionally omitted as the Company's reported operating results for 2003
include the effect of the Cytura acquisition for the full three and six month
periods ended December 31, 2003.
Six months ended
December 31, 2002
-----------------
Pro Forma
---------
Revenues $40,538
Net income $735
Basic earnings per share $0.04
Diluted earnings per share $0.04
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In this section, readers are given a more detailed assessment of
Mobius's operating results and changes in financial position. This section
should be read in conjunction with Mobius's Consolidated Financial Statements
and Notes. Please note that references in this section to "last year's quarter"
and "this quarter" refer to Mobius's fiscal quarters ended December 31, 2002 and
2003, respectively. Mobius's quarterly revenues and operating results have
varied substantially from quarter to quarter in the past, and are likely to
continue to do so in the future.
Statements contained in this quarterly report, other than historical
financial results, may contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks and uncertainties. They are not historical facts or guarantees of
future performance or events. They are based on current expectations, estimates,
beliefs, assumptions, goals and objectives, and are subject to uncertainties
that are difficult to predict. In particular, any statements contained herein
regarding expectations with respect to future sales and profitability, as well
as product development and/or introductions, are subject to known and unknown
risks, uncertainties and contingencies, many of which are beyond Mobius's
control, which may cause actual results, performance or achievements to differ
materially from those projected or implied in such forward-looking statements.
Important factors that might affect actual results, performance or achievements
include, among other things, fluctuations in period to period results,
seasonality, uncertainty of future operating results, technological change,
extended payment risk, product concentration, competition, international sales
and operations, expansion of indirect channels, increased investment in
professional services, 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 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" below. Forward-looking statements included in this quarterly report
are based on information known to Mobius as of the date of this quarterly report
and Mobius accepts no obligation (and expressly disclaims any obligations) to
update these forward-looking statements and does not intend to do so.
Overview
Mobius is a leading provider of integrated solutions for total content
management (TCM). For over two decades, Mobius has delivered innovative software
that captures, stores, manages and delivers mission- and business-critical
content, such as 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.
Critical Accounting Policies and Estimates
Mobius's discussion and analysis of its financial condition and results of
operations are based upon Mobius's consolidated financial statements, which have
been prepared in accordance with GAAP. The preparation of financial statements
in accordance with GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period.
Management bases its estimates and judgments on historical experience and on
various other factors that are believed to be reasonable under the
circumstances. These estimates are evaluated on an on-going basis. Actual
results could differ from those estimates.
Management believes that its significant judgments and estimates used in
the preparation of Mobius's consolidated financial statements are influenced by
the following critical accounting policies, among others:
Revenue Recognition
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 3, 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. 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 generally 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. Professional service
revenue associated with new products is generally deferred until completion of
the project and acceptance by the customer.
Software Development Costs
Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting
for the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires the capitalization of certain software development costs once
technological feasibility is established. The capitalized costs are then
amortized on a straight-line basis over the estimated product life, or on the
ratio of current revenues to total projected product revenues, whichever is
greater.
The Company determines technological feasibility based on the working
model method. The period between establishment of a working model and the
general availability of Mobius's software has historically been short and,
accordingly, software development costs qualifying for capitalization have been
insignificant. As a result, the Company has expensed all software development
costs.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires the use of the asset and liability method
of accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities, and their respective tax bases. Deferred tax assets are
recognized for deductible temporary differences, net operating loss
carryforwards, and tax credit carryforwards if it is more likely than not that
the tax benefits will be realized. A valuation allowance is established if it is
more likely than not that a deferred tax asset will not be realized.
Results of Operations
The following table sets forth certain items from the Company's
Consolidated Statements of Operations as a percentage of total revenues for the
fiscal periods indicated:
Three months ended Six months ended
December 31, December 31,
2002 2003 2002 2003
---- ---- ---- ----
Revenues:
Software license 47.7% 49.4% 44.5% 51.4%
Maintenance 44.3 43.1 46.4 42.9
Professional service and other 8.0 7.5 9.1 5.7
----- ----- ----- -----
Total revenues 100.0 100.0 100.0 100.0
Cost of revenues:
Software license 1.5 1.7 1.0 1.6
Maintenance 7.1 6.7 7.5 7.0
Professional service and other 7.5 8.1 8.9 6.3
----- ----- ----- -----
Total costs of revenues 16.1 16.5 17.4 14.9
Gross profit 83.9 83.5 82.6 85.1
Operating expenses:
Sales and marketing 41.3 38.1 43.2 39.2
Research and development 21.0 21.1 21.2 21.3
General and administrative 12.5 12.5 12.7 12.2
Acquired in-process research and development 4.3 -- 2.2 --
Facilities restructuring 0.9 -- 0.5 --
----- ----- ----- -----
Total operating expenses 80.0 71.7 79.8 72.7
Income from operations 3.9 11.8 2.8 12.4
Interest income 1.8 1.9 1.8 1.9
Foreign currency transactions (0.1) -- -- --
Other income (loss) -- -- 0.2 --
----- ----- ----- -----
Income before income taxes 5.6 13.7 4.8 14.3
Provision for income taxes 2.2 4.9 2.1 5.6
----- ----- ----- -----
Net income 3.4% 8.8% 2.7% 8.7%
===== ===== ===== =====
Three Months Ended December 31, 2002 Compared to Three Months Ended
December 31, 2003
Executive Overview
Total revenues in the second quarter of fiscal 2004 of $23.3 million were
9.2% higher than revenues of $21.3 million in the same period last year. The
increase in revenues was due to higher license revenues resulting largely from
the success of our offering of "Solution Packs" (see below), the introduction of
new products, greater productivity from our sales force and some economic
improvement in the markets we serve, as well as an increase in maintenance
revenues resulting from the growth in software licenses covered by maintenance
agreements. Operating income in the second quarter of fiscal 2004 was $2.7
million, or 11.8% of revenues, as compared with $827,000, or 3.9% of revenues,
in the same period last year. Last year's second quarter results included
charges for acquired in-process research and development and facilities
restructuring of $910,000 and $194,000, respectively. Net income for the second
quarter of fiscal 2004 was $2.0 million, or $0.10 per diluted share, as compared
with $722,000, or $0.04 per diluted share, in the same period last year.
The Company believes that the markets in which we operate will experience
growth in the near term. A recent survey of U.S. businesses conducted by the
Boston-based Yankee Group indicated that 63% of those companies plan to increase
their investment in enterprise content management systems over the next 12 to 18
months. There are no assurances, however, that content management spending
patterns will develop as anticipated. In addition, the Company believes that
companies are focusing on purchasing solutions for particular applications that
have well defined rates of return, as well as on simplifying their environments
to gain access to disparate repositories and content throughout their company
quickly and easily. To address these purchasing patterns, Mobius began to market
licenses of ViewDirect TCM products under the term "Solution Packs" during the
latter part of fiscal 2003. Solution Packs are bundles of server products and
client products designed to address specific customer applications and
requirements, generally with license terms of five years. In marketing our
Solution Packs, the Company offers extended payment terms to its customers which
we believe enhances the Company's competitive position. However, there are no
assurances that the offering of Solution Packs will continue to have positive
results. Mobius continues to monitor the level of sales that include extended
payment terms to manage the use of cash associated with these sales.
Revenues:
o Total revenues increased 9.2% from $21.3 million in last year's quarter to
$23.3 million this quarter. Domestic revenues increased 6.6% from $18.1
million in last year's quarter to $19.3 million this quarter. International
revenues increased 24.0% from $3.2 million in last year's quarter to $4.0
million this quarter. Approximately 40% of the increase in international
revenues was a result of the change in the exchange rates from the prior
year's quarter. The following provides a discussion of the changes in
software license revenues, maintenance revenues and professional service and
other revenues for the quarter ended December 31, 2003, as compared with the
quarter ended December 31, 2002.
o Software license revenues increased 13.1% from $10.2 million in last
year's quarter to $11.5 million this quarter. This increase is
attributable to the success of "Solution Packs" and improved
productivity of the Mobius sales force. During the latter part of
fiscal 2003, Mobius began to market licenses of ViewDirect TCM
products under the term "Solution Packs."
o Maintenance revenues increased 6.2% from $9.4 million in last year's
quarter to $10.0 million this quarter. The increase in maintenance
revenue is 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. During the latter part of
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 between 5% and 15% 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 typically 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 2.8% from $1.7
million in last year's quarter to $1.8 million this quarter.
Professional service revenues for the current quarter included
approximately $500,000 relating to services associated with new
products that we had previously deferred revenue recognition pending
acceptance by the customer. Excluding this amount, professional
service revenues decreased 25%, reflecting fewer large professional
service engagements.
Cost of Revenues:
o Cost of software license revenues consists primarily of the cost of royalties
and sublicense fees. The cost of software license revenues increased 16.5%
from $334,000 in last year's quarter to $389,000 this quarter, representing
3.3% and 3.4%, respectively, of software license revenues in those quarters.
The cost of software license revenues is a variable expense related to
software license revenues that are subject to third-party royalties and
sub-license fees. The increase in cost of software license revenues is
consistent with the increase in license revenues.
o Cost of maintenance revenues consists primarily of personnel costs related to
Customer Satisfaction. The cost of maintenance revenues increased 3.1% from
$1.5 million in last year's quarter to $1.6 million this quarter,
representing 16.0% and 15.6%, respectively, of maintenance revenues in those
quarters. The increase in cost of maintenance revenues is primarily due to
increased subcontractor costs and third-party royalty costs.
o Cost of professional service and other revenues consists primarily of
personnel and subcontractor costs directly associated with providing
professional services. The cost of professional service and other revenues
increased 18.7% from $1.6 million in last year's quarter to $1.9 million this
quarter. These costs as a percentage of professional service and other
revenues increased from 93.8% in last year's quarter to 108.3% in this
quarter. The cost of professional service for the current quarter includes
approximately $500,000 of costs relating to services associated with new
products that we had previously deferred pending acceptance by the customer.
Excluding this amount, the cost of professional service decreased 11%,
primarily due to a decrease in third-party vendor costs. The cost of
professional service revenue as a percentage of professional service and
other revenues has increased due to efforts to develop this business and the
related dedication of more internal resources. In addition, there were lower
gross margins recognized on certain contracts for the implementation of newer
products. The gross profit for professional service and other revenue is also
dependent on the level of revenues generated, since there are substantial
fixed personnel 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, incentive compensation costs, 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 remained relatively flat, totaling $8.8 million in last year's
quarter and $8.9 million this quarter, representing 41.3% and 38.1%,
respectively, of total revenues in those quarters. The reduction in the
percentage of sales and marketing expenses to total revenues in the current
quarter reflects increased productivity from the Mobius sales force.
Increases in sales and marketing expenses due to higher personnel costs
(reflecting increased headcount) were offset by lower bad debt expense and
depreciation costs.
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 increased 10.2% from $4.5 million in last year's quarter
to $4.9 million this quarter, representing 21.0% and 21.1%, respectively, of
total revenues in those quarters. The increase in research and development
expenses is primarily attributable to increased personnel costs arising from
increased headcount and increased subcontractor fees.
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 increased 9.0% from $2.7 million in last year's
quarter to $2.9 million in this quarter, representing 12.5% of total revenues
in both quarters. The increase in general and administrative expenses is
primarily attributable to higher personnel costs and professional fees,
offset by lower depreciation costs.
o Acquired in-process research and development expenses related to the
acquisition of the Contenuity Software and certain other assets of Cytura
Corp. ("Cytura") in the second quarter of fiscal 2003, in which a portion of
the purchase price was allocated to acquired in-process research and
technology. (For a further discussion of the acquisition of the Contenuity
Software and certain other assets of Cytura, see the section entitled
"Liquidity and Capital Resources" below.) Since the technological feasibility
of the research and development projects had not yet been achieved and Mobius
believed such projects had no alternative future use, the acquired in-process
research and development was expensed in the quarter of acquisition. As a
result, the Company recorded a charge of $910,000 in the second quarter of
fiscal 2003.
o Facilities restructuring expenses of $194,000 in the second quarter of fiscal
2003 consisted of an accrual for a loss on the Company's leases for two of
its sales offices. In connection with management's plan to reduce costs and
improve operating efficiencies, the Company recorded a facilities
restructuring charge of $1.4 million in the fourth quarter of fiscal 2002
relating to the first sales office. The charge reflected estimated future
lease obligations, net of estimated sublease income, for office space the
Company will no longer utilize. The Company worked with an external real
estate consultant to determine the best estimate for the accrual. During the
second quarter of fiscal 2003, the Company entered into an agreement with the
landlord and the over-tenant which released Mobius from all of its ongoing
obligations under the original terms of the lease effective as of February
15, 2003. Accordingly, the Company recorded additional expenses of $78,000 in
the second quarter of fiscal 2003.
In connection with the second sales office, the Company recorded a facilities
restructuring charge of $116,000 in the second quarter of fiscal 2003
representing the estimated future lease obligations for office space that the
Company was subleasing to a third party. The third party abandoned such space
during the second quarter of fiscal 2003 and the Company believed that it was
highly unlikely that it would be able to sublease this space for the
remainder of the lease term.
As of December 31, 2003, the Company had $31,000 remaining in the facilities
restructuring accrual, which will be paid in future periods in accordance
with the plan provisions.
Interest income and other income (expense):
Interest income, net of interest expense, was $391,000 in last year's
quarter and $461,000 in this quarter. The increase in interest income is
attributable to higher interest from installment receivables partially offset by
lower returns on investments. During both quarters, other income (expense),
comprised of foreign currency transactions, was insignificant.
Provision for income taxes:
The provision for income taxes was $480,000 in last year's quarter and
$1.1 million in this quarter. The effective tax rate was 39.9% and 35.9% for
last year's quarter and this quarter, respectively. The difference between the
effective tax rate and the statutory rate for last year's quarter and this
year's quarter is primarily attributable to foreign losses for which no tax
benefit has been recognized. The lower effective tax rate in the current quarter
was primarily due to an increase in U.S. taxable income relative to foreign
losses in jurisdictions for which no tax benefit can be recognized.
Six Months Ended December 31, 2002 Compared to Six Months Ended December
31, 2003
Executive Overview
Total revenues in the first six months of fiscal 2004 of $46.7 million
were 16.1% higher than revenues of $40.2 million in the same period last year.
The increase in revenues was due to higher license revenues resulting largely
from the success of our offering of "Solution Packs", the introduction of new
products, greater productivity from our sales force and some economic
improvement in the markets we serve, as well as an increase in maintenance
revenues resulting from the growth in software licenses covered by maintenance
agreements. Operating income in the first six months of fiscal 2004 was $5.8
million, or 12.4% of revenues, as compared with $1.1 million, or 2.8% of
revenues, in the same period last year. Net income for the first six months of
fiscal 2004 was $4.1 million, or $0.23 per diluted share, as compared with $1.1
million, or $0.06 per diluted share, in the same period last year.
For a discussion of the known material trends, opportunities and
uncertainties facing Mobius, see the section entitled "Executive Overview" above
for details.
Revenues:
o Total revenues increased 16.1% from $40.2 million in the first six months of
fiscal 2003 to $46.7 million in the first six months of fiscal 2004. Domestic
revenues increased 13.8% from $34.1 million in the first six months of fiscal
2003 to $36.9 million in the first six months of fiscal 2004. International
revenues increased 61.5% from $6.1 million in the first six months of fiscal
2003 to $9.8 million in the first six months of fiscal 2004. Approximately
15% of the increase in international revenues was a result of the change in
the exchange rates from the same period last year. The following provides a
discussion of the changes in software license revenues, maintenance revenues
and professional service and other revenues for the first six months of
fiscal 2003, as compared with the first six months of fiscal 2004.
o Software license revenues increased 33.9% from $17.9 million in the first six
months of fiscal 2003 to $24.0 million in the first six months of fiscal
2004. This increase is attributable to the success of "Solution Packs,"
improved productivity of the Mobius sales force and some improvement in the
markets we serve. During the latter part of fiscal 2003, Mobius began to
market licenses of ViewDirect TCM products under the term "Solution Packs."
o Maintenance revenues increased 7.5% from $18.7 million in the first six
months of fiscal 2003 to $20.0 million in the first six months of fiscal
2004. The increase in maintenance revenue is 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. During the
latter part of 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
between 5% and 15% 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 typically 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 decreased 27.6% from $3.7 million in
the first six months of fiscal 2003 to $2.7 million in the first six months
of fiscal 2004. Professional service revenues for the first six months of
fiscal 2004 included approximately $500,000 relating to services associated
with new products that we had previously deferred revenue recognition pending
acceptance by the customer. Excluding this amount, professional service
revenues decreased almost 41%, reflecting fewer large professional service
engagements.
Cost of Revenues:
o Cost of software license revenues consists primarily of the cost of royalties
and sublicense fees. The cost of software license revenues increased 71.6%
from $422,000 in the first six months of fiscal 2003 to $724,000 in the first
six months of fiscal 2004, representing 2.4% and 3.0%, respectively, of
software license revenues in those periods. The cost of software license
revenues is a variable expense related to software license revenues that are
subject to third-party royalties and sub-license fees. The increase in cost
of software license revenues is consistent with the increase in license
revenues. Additionally, the first six months of fiscal 2003 included a
first-quarter benefit from negotiating more favorable terms with respect to a
royalty agreement.
o Cost of maintenance revenues consists primarily of personnel costs related to
Customer Satisfaction. The cost of maintenance revenues increased 8.6% from
$3.0 million in the first six months of fiscal 2003 to $3.3 million in the
first six months of fiscal 2004, representing 16.1% and 16.2%, respectively,
of maintenance revenues in those periods. The first six months of fiscal 2003
included a first-quarter benefit from negotiating more favorable terms with
respect to a royalty agreement. Additionally, the cost of maintenance
revenues increased due to increased staffing and personnel-related costs.
o Cost of professional service and other revenues consists primarily of
personnel and subcontractor costs associated with providing professional
services. The cost of professional service and other revenues decreased 17.4%
from $3.6 million in the first six months of fiscal 2003 to $3.0 million in
the first six months of fiscal 2004, representing 97.6% and 111.3%,
respectively, of professional service and other revenues in those periods.
The cost of professional service for the first six months of fiscal 2004
included approximately $500,000 of costs relating to services associated with
new products that we had previously deferred pending acceptance by the
customer. Excluding this amount, the cost of professional service decreased
31%, primarily due to a decrease in third-party vendor costs. The cost of
professional service revenue as a percentage of professional service and
other revenues has increased due to efforts to develop this business and the
related dedication of more internal resources. In addition, there were lower
gross margins recognized on certain contracts for the implementation of newer
products. The gross profit for professional service and other revenue is also
dependent on the level of revenues generated, since there are substantial
fixed personnel 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, incentive compensation costs, 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 increased 5.3% from $17.4 million in the first six months of fiscal
2003 to $18.3 million in the first six months of fiscal 2004, representing
43.2% and 39.2%, respectively, of total revenues in those periods. Sales and
marketing expenses increased primarily due to increased incentive
compensation costs as a result of increased license revenues and higher
personnel costs (reflecting increased headcount) offset by lower depreciation
costs and 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 increased 16.3% from $8.5 million in the first six
months of fiscal 2003 to $9.9 million in the first six months of fiscal 2004,
representing 21.2% and 21.3%, respectively, of total revenues in those
periods. The increase in research and development expenses is primarily
attributable to increased personnel costs arising from the acquisition of the
Contenuity Software and increased headcount, as well as increased
subcontractor fees.
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 increased 12.2% from $5.1 million in the first six
months of fiscal 2003 to $5.7 million in the first six months of fiscal 2004,
representing 12.7% and 12.2%, respectively, of total revenues in those
periods. The increase in general and administrative expenses is primarily
attributable to higher personnel costs and professional fees, offset by lower
depreciation costs.
o Acquired in-process research and development expenses of $910,000 recorded in
the second quarter of fiscal 2003 related to the acquisition of the
Contenuity Software and certain other assets of Cytura. For a further
discussion of this charge, see the section entitled "Acquired in-process
research and development" above for details.
o Facilities restructuring expenses of $194,000 in the second quarter of fiscal
2003 consisted of an accrual for a loss on the Company's leases for two of
its sales offices. For a further discussion of this charge, see the section
entitled "Facilities restructuring" above for details.
As of December 31, 2002, the Company had $31,000 remaining in the facilities
restructuring accrual, which will be paid in future periods in accordance
with the plan provisions.
Interest income and other income (expense):
Interest income, net of interest expense, was $714,000 in the first six
months of fiscal 2003 and $900,000 in the first six months of fiscal 2004. The
increase in interest income is primarily attributable to higher interest from
installment receivables partially offset by lower returns on investment. Other
income (expense) is comprised of gain on investments and foreign currency
transactions. Gain on investments of $113,000 during the first six months of
fiscal 2003 was the result of
the sale of Mobius's remaining investment in Intelidata stock in the first
quarter of fiscal 2003. During both six month periods, foreign currency
transactions were insignificant.
Provision for income taxes:
The provision for income taxes was $834,000 in the first six months of
fiscal 2003 and $2.6 million in the first six months of fiscal 2004. The
effective tax rate was 43.0% and 39.0% for the first six months of fiscal 2003
and the first six months of fiscal 2004, respectively. The difference between
the effective tax rate and the statutory rate for the first six months of fiscal
2003 and the first six months of fiscal 2004 is primarily attributable to
foreign losses for which no tax benefit has been recognized and by foreign taxes
paid in certain jurisdictions for which no U.S. foreign tax credit is available.
The lower effective tax rate in the current period was primarily due to an
increase in U.S. taxable income relative to foreign losses in jurisdictions for
which no tax benefit can be recognized.
Liquidity and Capital Resources
Executive Overview
Since its inception, Mobius has funded its operations principally through
cash flows from operating activities and, to a lesser extent, equity or bank
financings. As of December 31, 2003, Mobius had cash and cash equivalents of
$37.8 million, an increase of $0.5 million from the $37.3 million held at June
30, 2003, and $2.7 million higher than the end of the prior quarter (September
30, 2003). The improvement over the prior quarter was primarily due to earnings,
an increase in accounts payable and accrued expenses and cash generated from the
exercise of stock options by employees and employee stock purchases, partially
offset by an increase in software license installment receivables and a
reduction in deferred revenue. As of December 31, 2003, September 30, 2003 and
June 30, 2003, the Company had no bank debt outstanding.
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
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.
The Company continues to monitor the level of sales that include extended
payment terms to manage the use of cash associated with these sales.
*****
Net cash provided by operating activities was $3.5 million in the first
six months of fiscal 2003 compared with net cash used in operating activities of
$1.0 million during the first six months of fiscal 2004. Mobius's primary
sources of cash during the first six months of fiscal 2004 were from improved
results of operations and increased accounts payable and accrued expenses and
deferred income taxes. These sources were offset by increased software license
installment receivables, which increased 40.5% from $23.5 million at June 30,
2003 to $33.0 million at December 31, 2003. Software license installment
receivables, which represent payments due from customers for license fees that
are paid over the term of the installment agreement, increased 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 Receivables" below. Mobius's depreciation and amortization expense
adjustment in operating activities decreased 42.7% from $1.6 million in the
first six months of fiscal 2003 to $933,000 in the first six months of fiscal
2004. Deferred revenue increased 0.8% from $26.9 million at June 30, 2003 to
$27.1 million at December 31, 2003. Net accounts receivable increased 6.5% from
$10.6 million at June 30, 2003 to $11.2 million at December 31, 2003.
Net cash provided by investing activities was $1.9 million in the first
six months of fiscal 2003 compared with net cash used in investing activities of
$760,000 in the first six months of fiscal 2004. During the first six months of
fiscal 2003, the Company sold marketable securities of $2.5 million. For the
first six months of fiscal 2003 and 2004, cash of $677,000 and $760,000,
respectively, was used for the purchase of computer equipment, furniture and
fixtures and leasehold improvements.
Net cash provided by financing activities was $384,000 in the first six
months of fiscal 2003 and $1.7 million in the first six months of fiscal 2004.
In the first six months of fiscal 2003 and 2004, the cash was provided by the
exercise of stock options by employees and employee stock purchases.
The Company's material obligations and commitments to make future payments
under contracts consist of its operating leases for its office facilities. These
leases expire on various dates through fiscal 2010 and provide for additional
payments relating to utility costs. As of December 31, 2003, the future minimum
lease payments for these operating leases are as follows (in thousands):
Operating
Leases
Year Ended: ------
- ----------
December 31, 2004 $ 2,814
December 31, 2005 2,571
December 31, 2006 2,163
December 31, 2007 1,855
December 31, 2008 1,809
Thereafter 2,431
-------
Total minimum lease payments $13,643
=======
In addition to the commitments shown above, the Company is committed to
make future purchases of approximately $300,000.
In compliance with the leases of the Company's corporate headquarters in
Rye, NY and a sales office in Chicago, IL, the landlords hold letters of credit
issued by two banks totaling in the aggregate $325,000, secured by a certificate
of deposit and a money market account.
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. Under the terms
of the agreement, the Company was obligated to pay Cytura an additional $800,000
within 60 days of the first anniversary of the transaction since, 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.
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.
Under the terms of a revised agreement with Cytura, the Company made the
$800,000 payment to Cytura in January, 2004.
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 provided for potential problem accounts
and for the potential 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 specifically
identifies problem accounts based on the age of the receivable and through
discussions with the customer and Mobius's sales representatives. Based on the
specific account information and the historical relationship of actual losses to
revenues and receivable balances, Mobius exercises its judgment as to what
portion of the accounts receivable balance requires a reserve. As of June 30,
2003 and December 31, 2003, approximately 79% and 81%, 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 $819,000 and $1.0 million at June 30, 2003 and
December 31, 2003, respectively.
Software License Installments Receivable
As of December 31, 2003, software license installments amounted to $33.0
million, an increase of 40.5% compared with the June 30, 2003 balance of $23.5
million. The increase reflects an 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,
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 6% of total software license installments, and 70% of the total is
comprised of customers with balances under $600,000. As of June 30, 2003 and
December 31, 2003, software license installments reserves were $671,000 and
$500,000, respectively.
Deferred Revenues
Deferred revenues consist primarily of the unearned portion of maintenance
revenues and license contracts. Current and non-current deferred revenues
increased 0.8% from $26.9 million at June 30, 2003 to $27.0 million at December
31, 2003. Deferred revenues can fluctuate due to the timing of annual
maintenance billings, increases or decreases in current license revenues and
increases or decreases in license contracts that include more than one year of
maintenance. As of December 31, 2003, current deferred revenues totaled $22.1
million and non-current deferred revenues totaled $4.9 million. It is
anticipated that current deferred revenues of $22.1 million will be recognized
as revenues within the next twelve months.
Other Matters
In January 1999, the Company sold the INFOPAC-TapeSaver product to a third
party for approximately $3.0 million payable over a five-year period. As a
result of this arrangement, the Company was going to recognize $3.0 million of
license revenues as the buyer made payments over a five-year period ended
December 31, 2003. As the buyer has been delinquent on these payments since June
2001, no license revenue relating to this agreement was recognized in the first
six months of fiscal 2003 or the first six months of fiscal 2004.
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.
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.
Historically, Mobius's business experienced significant seasonality, with
revenues typically peaking in the fourth fiscal quarter (ending June 30) and to
a lesser extent in the second fiscal quarter (ending December 31). Fluctuations
have historically been caused 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. Changes in buying patterns, product mix and
sales force incentive programs may alter these historical seasonality patterns.
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.
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 the six months ended December 31, 2003, there
was a 40.5% 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 the latter
part of 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. The Company continues to monitor the level of sales that
include extended payment terms to manage the use of cash associated with these
sales.
Mobius has established reserves against possible future bad debts and
believes that these installment contracts are enforceable, that the underlying
companies provided financing have strong credit profiles 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.
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. Some of our competitors
may also combine with, or be acquired by other parties, providing them with
additional resources with which to compete.
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 that achieving profitability will continue to require significant
management attention and financial resources. There can be no assurance that
Mobius will be able to maintain or increase international market demand for its
products or attract and retain qualified personnel who will be able to
successfully market its products internationally. Mobius's international sales
are subject to the general risks inherent in doing business internationally,
including:
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 fluctuations in currency exchange rates;
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.
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
Mobius has committed significant resources to the development of its
professional services business which provides implementation assistance and
training related to Mobius's packaged software products. The growth of business
areas requires increased management time and resources prior to generating
significant revenues. There is no assurance that an increase in investment in
professional services will result in an increase in revenues. For example,
professional services revenues decreased in the first six months of fiscal 2004
compared with the comparable period in fiscal 2003. In addition, the Company has
experienced negative gross margins related to this business during the six
months ended December 31, 2003. 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.
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 or financial condition would be materially adversely
affected.
Mobius's success depends to a significant extent upon its executive
management and certain other key employees. 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.
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 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Mobius's investment portfolio is comprised primarily of money market
accounts and is subject to interest rate sensitivity. The primary objective of
Mobius's investment activities is to preserve principal, while at the same time
maximizing interest income. As of December 31, 2003, Mobius held no marketable
securities.
Mobius may be subject to foreign currency fluctuations in relation to
accounts receivable and accounts payable that may be denominated in a foreign
currency other than the functional currency in certain international
jurisdictions. To the extent that such foreign currency transactions are
negatively or positively affected by foreign currency fluctuations, foreign
currency transaction losses or gains would be recognized. Mobius does not use
derivative foreign exchange financial investments.
Item 4. - CONTROLS AND PROCEDURES
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 December 31,
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 quarter ended December 31, 2003 that have
materially affected, or are reasonably likely to materially affect, the
Company's internal control over financial reporting.
PART II. - OTHER INFORMATION
Item 1. - Legal Proceedings
From time to time, Mobius is involved in litigation relating to claims
arising from its operations in the normal course of business. Mobius is not a
party to any legal proceedings, the adverse outcome of which, individually or in
the aggregate, would have a material adverse effect on its business, operating
results or financial condition.
Item 2. - Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
Item 3. - Defaults Upon Senior Securities
None.
Item 4. - Submission of Matters to a Vote of Security Holders
Mobius held its Fiscal 2003 Annual Meeting of Stockholders on December 16,
2003. The matters submitted to a vote of stockholders were the election of two
members of the Board of Directors to the class of directors whose terms expire
at the Fiscal 2006 Annual Meeting of Stockholders (the "2006 Annual Meeting"),
approval of an amendment to the 1996 Stock Incentive Plan (the "1996 Plan"),
approval of an amendment to the 1998 Employee Stock Purchase Plan (the "1998
Plan") and the ratification of the appointment by the Audit Committee of
Mobius's independent auditors.
Mobius's stockholders elected Mitchell Gross and Gary G. Greenfield to the
Board of Directors, to hold office until the 2006 Annual Meeting and until their
respective successors are duly elected and qualified. The results of the voting
were as follows:
Mitchell Gross
--------------
Voted for 16,287,911
Withheld 1,019,891
Gary G. Greenfield
------------------
Voted for 16,660,241
Withheld 647,561
Mobius's stockholders approved an amendment to the 1996 Plan to allow the
Stock Option Committee to delegate to one or more officers of the Company the
authority to designate individuals who will receive awards under the 1996 Plan,
subject to certain restrictions. The results of the voting were as follows:
Voted for 13,347,095
Against 1,246,285
Abstained 4,800
Mobius's stockholders approved an amendment to the 1998 Plan to increase
the maximum number of shares of Mobius's common stock available for issuance
under the 1998 Plan from 1,150,000 to 1,650,000. The results of the voting were
as follows:
Voted for 14,077,358
Against 516,320
Abstained 4,502
Mobius's stockholders ratified the appointment by the Audit Committee of
PricewaterhouseCoopers LLP as Mobius's independent auditors for the fiscal year
ending June 30, 2004. The results of the voting were as follows:
Voted for 17,269,677
Against 35,875
Abstained 2,250
Item 5. - Other Information
None.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3.1(1) Form of Second Amended and Restated Certificate of
Incorporation of the Registrant.
3.2(1) Form of Restated By-Laws of the Registrant.
4.1(1) Specimen certificate representing the Common Stock.
10.1(2) Amendment No. 2 to Mobius Management Systems, Inc.
1996 Stock Incentive Plan.*
10.2(3) Amendment No. 3 to Mobius Management Systems, Inc.
1996 Stock Incentive Plan.*
10.3(4) Amendment No. 3 Mobius Management Systems, Inc. 1998
Employee Stock Purchase Plan.*
10.4 Description of Raymond F. Kunzmann's Compensation,
dated as of December 16, 2003.*
31.1 CEO Certification pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2 CFO Certification pursuant to Section 302 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 to the same exhibit number.
(2) Filed as Exhibit No. 10.1 to Mobius Management Systems, Inc.'s
Form 10-Q for the quarter ended September 30, 2003, and
incorporated herein by reference.
(3) Filed as Exhibit No. 10.2 to Mobius Management Systems, Inc.
Registration Statement on Form S-8 (Registration Number
333-112553) filed on February 6, 2004, and incorporated herein
by reference.
(4) Filed as Exhibit No. 10.5 to Mobius Management Systems, Inc.
Registration Statement on Form S-8 (Registration Number
333-112553) filed on February 6, 2004, and incorporated herein
by reference.
(b) Reports on Form 8-K
(1) On October 23, 2003, Mobius furnished a Form 8-K under Item 12,
Results of Operations and Financial Condition, to report that Mobius
issued a press release announcing, among other things, its
preliminary financial results for its fiscal first quarter of 2004.
(2) On December 16, 2003, Mobius filed a Form 8-K under Item 5,
Other Events and Required FD Disclosure, to announce the appointment
of Raymond F. Kunzmann as chief financial officer and senior vice
president of finance.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: February 13, 2004
MOBIUS MANAGEMENT SYSTEMS, INC.
By: /s/ Raymond F. Kunzmann
------------------------------
Raymond F. Kunzmann
Chief Financial Officer
(Principal Financial and
Accounting Officer)