UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __ TO__
COMMISSION FILE NUMBER: 0-24077
Mobius Management Systems, Inc.
(Exact name of registrant as specified in its charter)
Delaware 13-3078745
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
120 Old Post Road, Rye, New York 10580
(Address of principal executive offices) (Zip code)
914-921-7200
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, $.0001 par value NASDAQ
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |x| No | |
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K | |
Indicate by check mark whether the registrant is an accelerated filer as
defined by Rule 12b-2 of the Securities Exchange Act of 1934: Yes |x| No | |
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, based upon the closing sale price of Common Stock on December
31, 2003, the last business day of the registrant's most recently completed
second fiscal quarter, as reported on NASDAQ, was approximately $83.5 million.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed affiliates. This determination of affiliate status is
not necessarily a conclusive determination for other purposes.
As of August 20, 2004, the Registrant had 18,296,808 outstanding shares
of Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
None
MOBIUS MANAGEMENT SYSTEMS, INC.
FISCAL YEAR 2004 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I.
ITEM 1. Business
ITEM 2. Properties
ITEM 3. Legal Proceedings
ITEM 4. Submission of Matters to a Vote of Security Holders
PART II.
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
ITEM 6. Selected Financial Data
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8. Financial Statements and Supplementary Data
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
PART III.
ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
ITEM 13. Certain Relationships and Related Transactions
ITEM 14 Principal Accountant Fees and Services
PART IV.
ITEM 15. Exhibits and Financial Statement Schedules
SIGNATURES
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FORWARD-LOOKING STATEMENTS
Statements contained in this annual report, other than historical
financial results, may contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking
statements involve risks and uncertainties. They are not historical facts or
guarantees of future performance or events. They are based on current
expectations, estimates, beliefs, assumptions, goals and objectives, and are
subject to uncertainties that are difficult to predict. In particular, any
statements contained herein regarding expectations with respect to future sales
and profitability, as well as product development and/or introductions, are
subject to known and unknown risks, uncertainties and contingencies, many of
which are beyond Mobius's control, which may cause actual results, performance
or achievements to differ materially from those projected or implied in such
forward-looking statements. Important factors that might affect actual results,
performance or achievements include, among other things, fluctuations in period
to period results, seasonality, uncertainty of future operating results, long
and unpredictable sales cycle, 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, concerns about
transaction security on the Internet, changes in accounting for employee stock
options and impact of recently enacted and proposed regulations. Certain of
these risks and uncertainties are described in detail from time to time in
Mobius's filings with the Securities and Exchange Commission, including without
limitation, as set forth under the heading "Factors Affecting Future
Performance" in Item 1 - Business. Forward-looking statements included in this
annual report are based on information known to Mobius as of the date of this
annual report and Mobius accepts no obligation (and expressly disclaims any
obligations) to update these forward-looking statements and does not intend to
do so.
ITEM 1. BUSINESS
Mobius Management Systems, Inc. (together with its consolidated
subsidiaries, "Mobius" or the "Company") is a leading provider of integrated
solutions for total content management ("TCM"). Mobius was incorporated in New
York in 1981 and reincorporated in Delaware in 1997. The Company has
international subsidiaries in the United Kingdom, Canada, France, Germany,
Italy, Sweden, the Benelux, Switzerland, Australia and Japan. Mobius's corporate
headquarters is located at 120 Old Post Road, Rye, NY 10580 and the telephone
number is (914) 921-7200.
Mobius is a leading provider of integrated solutions for total content
management (TCM). For over two decades, Mobius has delivered innovative software
that captures, stores, manages and delivers business- and operations
mission-critical content -- documents, reports, images and transactions in
multiple formats from multiple sources. Mobius solutions have achieved
industry-wide recognition for their breadth of functionality, breadth of
supported information formats and the ability to meet high-volume,
high-performance requirements in distributed environments that range from the
desktop to the mainframe.
The Company's ViewDirect(R) TCM is a comprehensive suite of solutions that
meet a broad and diverse range of enterprise requirements for managing and
delivering content. ViewDirect TCM supports both "human-created" content --
generated by desktop applications -- and the "application-created" content --
generated by production systems -- that is needed to fuel next-generation
Web-based applications. ViewDirect TCM includes facilities for integrated
access to disparate content repositories, as well as products that support
content-intensive applications including:
o Web site, digital asset and document management;
o e-mail management;
o records management;
o business process management;
o high-volume imaging;
o enterprise report distribution;
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o check image archive;
o e-presentment and payment; and
o an audit and balancing facility that monitors the accuracy and
consistency of enterprise data.
Industry Background
It is estimated that there are billions of pages of content available on
the Web alone, in addition to vast quantities of business- and operations
mission-critical documents, reports, images and transactions that support
internal operations. Organizations struggle to gather and deliver disparate
content and deliver it in the necessary form for the appropriate audience. The
challenge is compounded by the variety of documents and formats now used in
day-to-day business operations. These include bills, statements, check images,
report output, scanned forms, e-mail, transactions, policies, correspondence,
Web elements, audio, video and more.
This broad diversity of content is dispersed throughout the global
enterprise in diverse content management applications, databases, e-mail
applications, and file systems. As a result of mergers and acquisitions,
departmental solutions, and home-grown applications, a typical global
enterprise today has many separate applications that generate content for
storage in multiple, dedicated repositories. When an employee needs all the
information about a transaction or when a customer wants access to all the
information about her account, this complex infrastructure makes retrieval
difficult and time consuming.
Mobius's ViewDirect TCM suite of products for total content management
addresses the critical, strategic imperative to integrate and manage this
diverse content and make it available to employees, customers, partners and
suppliers in support of e-business initiatives and internal operations.
ViewDirect TCM comprises the following components:
o Content integration: via a single integrated repository or by direct
access to multiple, disparate repositories;
o E-mail management: enables the capture, classification, access and
retention of incoming and outgoing e-mails to enforce corporate policy,
facilitate regulatory compliance, reduce the costs of legal discovery
and improve e-mail system performance;
o Records management: a full life-cycle management capability for all
electronic and non-electronic records, featuring simultaneous support
for multiple record repositories and extending records management
functionality to Microsoft's SharePoint Portal Server;
o Web site management: enabling the creation, reviewing, staging, approval
and publishing of content for Web sites as well as personalization;
o Document management and Web publishing: securely managing and organizing
electronic documents, routing them, automating tasks and distributing
them over the Web;
o Digital asset management: storing and retrieving rich media -- text,
graphics, photos, video and audio;
o Imaging: support for high-volume image capture, storage, access and
delivery;
o Business process management: a comprehensive solution for automating
business processes that support both outward-facing e-business
applications and internal operations;
o Enterprise report management: distributing reports from enterprise
resource planning (ERP), customer relationship management (CRM) and
other enterprise applications to users around the globe, each with
different requirements and access authorizations;
o Check image archive: a complete repository-based system for managing and
delivering check images and associated documents; and
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o Audit and balancing: monitoring data within and across business
applications and platforms to ensure correctness and consistency.
The ViewDirect TCM architecture is scalable and open, supporting a broad
range of information formats, computing platforms and storage media.
Technological innovation provides uniquely robust functionality, efficiency and
ease-of-use.
Products
Mobius's ViewDirect TCM suite manages enterprise content in its many
forms and makes it available for many purposes. The suite includes products for
storing, integrating, viewing and delivering content as well as specialized
tools for automating business processes, accessing content across disparate
repositories, building and maintaining Internet/intranet sites, and monitoring
data for accuracy.
o ViewDirect is market-leading software for high-volume storage,
high-speed indexed access and electronic distribution of enterprise
information.
o ViewDirect Total Content Integrator provides integrated access to
multiple disparate repositories.
o ViewDirect Contenuity(R) is a comprehensive platform for Web site
implementation and management, document and digital asset management and
content publishing.
o ViewDirect E-mail Management captures, organizes and applies retention
rules to incoming and outgoing e-mails, creating a secure, searchable
archive that is accessible to users and to compliance and legal
officers.
o ViewDirect Records Management, a full lifecycle management solution for
all corporate records, includes an option for managing records
associated with Microsoft's SharePoint products.
o WorkflowDirect(R) is a Java-based business process platform for
designing and building workflow applications that connect the enterprise
with customers, partners and suppliers.
o ViewDirect-ABS is an audit and balancing system that reconciles data
across applications and platforms, providing data integrity and quality
control.
o A set of viewing clients for Web browser-based searching and viewing
(DocumentDirect(R) for the Internet, e-Search & View(TM)), as well as
Windows-based tools (DocumentDirect(R), DocuAnalyzer(TM)) with powerful
features for customized display and analyzing the data in documents.
o Options, interfaces and connectors provide integration interfaces to ERP
and CRM systems, interfaces to scanning software and storage hardware,
APIs and options for migrating and viewing stored content directly from
different storage media.
Sales and Marketing
The Company sells and markets its products primarily through a direct
sales force located in 20 offices worldwide. These sales offices are located in
the United States, Canada, the United Kingdom, France, Germany, Italy,
Switzerland, Sweden, the Netherlands, Australia, Japan and Singapore, as well
as a network of agents in Central and South America, Europe, Middle East,
Africa and Asia.
In marketing some of our products, the Company offers extended payment
terms to certain of our customers, which we believe enhances our competitive
position. For a further discussion of our policy on offering extended payment
terms to our customers, see "Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations" below.
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Customer Satisfaction
Mobius provides twenty-four hour, seven-day-a-week customer support and
product support services for all its products through support centers in the
United States, the United Kingdom and Australia.
Research and Development
The Company intends to continue to make investments in research and
development to enhance its product lines. The Company employs developers in
Rye, NY; Orlando, FL; and Ottawa, Canada, and utilizes subcontractors in India
and the Ukraine. Expenditures for research and development were $15.7 million,
$18.0 million and $20.8 million for the fiscal years ended June 30, 2002, 2003
and 2004, respectively. Mobius believes that its future success will, in large
part, depend on its ability to maintain and improve current products and
develop and acquire new products that meet the emerging needs of the
marketplace. The Company's research and development efforts focus on designing
and developing reliable and easy-to-use products. Mobius's product development
cycle (from funding a product development project until the new product is
shipped to the marketplace) is generally less than six months, which enables
the Company to take advantage of market opportunities and be responsive to
customer demands. Larger projects are broken down so that a specific product
or product enhancement can be available in the marketplace as quickly as
possible. The Company divides its development team into groups delineated by
product functionality and employs development tools to facilitate short
development cycles for functional enhancements while maintaining product
reliability.
Employees
As of June 30, 2004, Mobius employed 459 people: 147 in Sales and
Marketing; 139 in Research and Development; 66 in Customer Satisfaction; 66 in
General and Administrative; and 41 in Professional Services. None of the
employees are represented by a labor union or are subject to a collective
bargaining agreement. The Company has not experienced any work stoppages and
believes it has a good relationship with its employees. The Company believes
that its future success will depend upon its ability to attract, train and
retain highly skilled technical, management, sales and marketing personnel.
Customers
No single customer accounted for 10% or more of consolidated revenues in
fiscal years 2002, 2003 or 2004.
Competition
The market for Mobius's products is intensely competitive, subject to
rapid change and significantly affected by new product introductions and other
market activities of industry participants. A description of the competitive
environment in which the Company does business is set forth below under the
heading "Factors Affecting Future Performance."
Intellectual Property
Mobius's success is heavily dependent upon its confidential and
proprietary intellectual property. Mobius relies primarily on a combination of
confidentiality agreements, copyright, patent, trademark and trade secret laws
and confidentiality procedures to protect its proprietary rights. A description
of the risks involved in the protection of the Company's intellectual property
is set forth below under the heading "Factors Affecting Future Performance."
Available Information
The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,
Current Reports on Form 8-K and any amendments to these reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of
1934 are
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available free of charge on our web site at www.mobius.com, by clicking on
Investor Relations, then SEC Filings. These documents are provided as soon as
reasonably practicable after such reports are filed with or furnished to the
Securities and Exchange Commission ("SEC"). Alternatively, you may access these
reports at the SEC's Internet web site at www.sec.gov.
7
FACTORS AFFECTING FUTURE PERFORMANCE
We operate in a rapidly changing economic and technological environment
that involves numerous risks and uncertainties. Prospective and existing
investors are strongly urged to carefully consider the various cautionary
statements and risks set forth in this annual report and our other public
filings. The following section describes some, but not all, of the risks and
uncertainties that we believe may adversely affect our business, operating
results or financial condition. Many of these risks and uncertainties are
beyond our control and are driven by factors that we cannot predict.
o Our operating results are subject to significant fluctuations and
uncertainties, our business has experienced significant seasonality, and
it is difficult for us to predict future revenues.
Our 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 our products, changes in the level of operating expenses, introductions of
new products and product enhancements by us or our competitors and competitive
conditions in the industry.
The timing, size and nature of individual license transactions are
important factors in our quarterly operating results. Many of our 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 we will be successful in closing large license transactions
within the fiscal period in which they are budgeted, if at all.
Historically, our business has 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 our 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.
Currently, we believe that external market factors are driving customers
to cautiously spend on enterprise software which can result in unpredictability
in the timing of orders. For example, during the third quarter of fiscal 2004,
our operating results were impacted by a number of transactions that for
several reasons, including protracted negotiations of terms and delays in our
customers' approval process, did not close as anticipated. We believe that this
trend is also affecting other vendors in the market. This condition 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 we believe
that period-to-period comparisons of our operating results are not necessarily
meaningful and may not be reliable indicators of future performance.
o Our products have a long and unpredictable sales cycle, which could result
in significant fluctuations in license revenue being recognized from
quarter to quarter.
The period between initial contact with a prospective customer or
existing customer and the licensing of our software applications can range from
three to more than twelve months. Our sales cycle involves complexity as
customers consider a number of factors before committing to purchase our
products. Factors considered by customers when evaluating our products include
product benefits, cost and time of implementation, return on investment,
ability to operate with existing and future computer systems and the ability to
accommodate increased transaction volume and product reliability. Customer
evaluation, purchasing and budgeting processes vary significantly from company
to company. As a result, we spend a significant amount of
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time and resources informing prospective customers about our software products,
which may not result in a completed transaction. Even if our software products
have been chosen by the customer, completion of the sales transaction is subject
to a number of factors, which makes our quarterly revenues difficult to
forecast. Particularly in the current economic environment of reduced
information technology spending, it can take several months, or even quarters,
for sales transactions to close.
During fiscal 2004, our sales cycles continued to lengthen due to
increased organizational review by sales prospects and protracted contract
negotiations, regardless of transaction size. A continued lengthening in sales
cycles and our inability to predict these trends could result in lower than
expected future revenues, which could have a material adverse effect on our
business and operating results.
o If we are unable to keep pace with technological changes in our industry,
our products may become obsolete or fail to achieve market acceptance.
The market for our 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 our existing products obsolete and unmarketable. Our future
success will depend in part on our 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 we will be
successful in developing and marketing product enhancements or that new
products will respond to technological change or evolving industry standards,
or that we 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 we
may introduce will achieve market acceptance.
o We offer extended payment terms to many of our customers, and we cannot be
sure that those customers will be able to pay us.
We offer extended payment terms to some of our customers. For software
license contracts with extended payment terms, the related financing period is
generally three to five years. During the fiscal year ended June 30, 2004, there
was a 55.8% increase in software license installments receivable, reflecting a
significant increase in licenses having extended payment terms, including
licenses of our ViewDirect TCM products that we 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. We
recently entered into an arrangement to sell long-term installments receivable
to General Electric Capital Corporation ("GECC"), which provides enhanced
flexibility in offering financing alternatives to our customers. We have not yet
assigned any of our receivables to GECC. If the level of software license
revenues financed by installments receivable continues at the current rate and
we are unable to assign a substantial percentage of such receivables to GECC or
other vendor financing firms, our cash position is likely to be adversely
affected. We continue to monitor the level of sales that include extended
payment terms to manage the use of cash associated with these sales.
We have established reserves against possible future bad debts and
believe that these installment contracts are enforceable, that the underlying
companies provided financing have strong credit profiles, that we have a
history of successfully enforcing original payment terms and that ultimate
collection is probable. There can be no assurances, however, that customers
will not default under such financing arrangements. A significant default could
have a material adverse effect on our business, operating results and financial
condition.
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o We rely significantly on one suite of products for our revenues.
To date, a substantial portion of our revenues is attributable to the
licensing and related maintenance service of our ViewDirect TCM suite of
products. We currently expect 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 our business, operating results
and financial condition.
o We face intense competition in our business, and we may be unable to
compete successfully against our current and future competitors.
The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. We believe 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. We
currently encounter direct competition from a number of public and private
companies including IBM Corp., FileNet Corporation, EMC Corporation, BMC
Software, Inc. and Quest Software, Inc., as well as a number of smaller
competitors in niche markets.
Some of our competitors are substantially larger than we are and have
significantly greater financial, technical and marketing resources, and a
larger installed base of customers, than we have. 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 we are able to. In
addition, current and potential competitors have established or may establish
cooperative relationships among themselves with prospective customers. 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 our business, operating results and financial condition. There can be
no assurance that we will be able to compete successfully against current or
future competitors or that competitive pressures will not have a material
adverse effect on our business, operating results and financial condition.
o We may be unable to maintain or expand our international operations.
We believe that our revenues and future operating results will depend in
part on our ability to increase sales in international markets. There can be no
assurance that we will be able to maintain or increase international market
demand for our products or attract and retain qualified personnel who will be
able to successfully market our products internationally. The majority of our
current international revenues are derived from the direct sales force of our
wholly-owned subsidiaries. These subsidiaries also derive revenue in certain
geographies through third-party agents. Our 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;
10
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 our future international revenues, and
consequently, on our business, operating results and financial condition.
An increase in the value of the U.S. dollar relative to foreign
currencies could make our 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 we
maintain operations, our net assets that are denominated in such foreign
currencies will be devalued, resulting in a foreign currency translation loss.
o We may be unable to successfully expand or develop relationships with
strategic partners which could adversely affect our future revenue growth.
To date, sales through indirect sales channels have not been significant
although we continue to invest resources to develop these channels. Our revenue
growth in the future may be adversely affected if we do not expand existing
relationships and establish additional relationships with strategic partners.
o We may be unable to generate sufficient revenues from our professional
services business to cover the costs of our increased investment in that
business.
We have committed significant resources to the development of our
professional services business which provides implementation assistance and
training related to our 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 fiscal year 2004 compared with
fiscal year 2003. In addition, we have experienced negative gross margins
related to this business during the fiscal year ended June 30, 2004. There is
no assurance that we 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.
o We may be unable to successfully protect our confidential and proprietary
technology, and we may be required to defend our products against
infringement claims.
Our success depends heavily on our confidential and proprietary
intellectual property. We rely primarily on a combination of confidentiality
agreements, copyright, patent, trademark and trade secret laws and
confidentiality procedures to protect our proprietary rights. Trade secret,
patent and copyright laws afford only limited protection. Despite our efforts
to protect our proprietary rights, unauthorized parties may attempt to copy
aspects of our products or obtain and use information that we regard as
proprietary. In addition, the laws of some countries do not protect our
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that our means of attempting to protect our
proprietary rights will be adequate or that our competitors will not
independently develop similar or competitive technology.
Our products are generally provided to customers in object code format
only. However, we enter into arrangements with some of our customers that
provide for the release of our source code to the customer upon the occurrence
of certain events, such as our bankruptcy or insolvency or certain material
breaches by us of the license agreement between us and our customer. 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 our software products. Notwithstanding this protection,
the delivery of source code to customers may increase
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the likelihood of misappropriation or other misuse by third parties of our
intellectual property.
We are not aware that any of our products infringe on the proprietary
rights of any third party. From time to time, however, a third party may claim
infringement by us 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 us to enter into royalty
or licensing agreements for the right to use any such third party's proprietary
rights. Such royalty or licensing agreements, if required, may not be available
on terms acceptable to us or at all, which could have a material adverse effect
on our business, operating results and financial condition.
o If we are unable to license the technology that we need from third
parties, our sales may be negatively impacted and our products may become
obsolete.
We rely on certain software and other information that we license from
third parties, including software that is used to perform certain functions in
our products. Although we believe 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 our sales unless and until we
can replace the functionality provided by these products. In addition, to a
certain extent, we depend 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 we would be able to replace the functionality
provided by the third party software currently offered in conjunction with our
products in the event that such software becomes obsolete or incompatible with
future versions of our 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 our business, operating
results and financial condition.
o Our products may contain defects, and we may be required to pay damages
for product liability claims.
Software products as complex as those offered by us frequently contain
defects, especially when first introduced or when new versions are released.
Although we conduct extensive product testing, we have in the past discovered
software defects in certain of our new products and enhancements after their
introduction. In the future, we could lose, or delay recognition of, revenues
as a result of software errors or defects. We believe that our customers and
potential customers are highly sensitive to defects in our software. Our
business has not been materially adversely affected by any such errors to date.
There can be no assurance, however, that despite testing by us and by our
current and potential customers, errors will not be found in new products or
releases after commencement of commercial shipments. If there are errors, it
could result in loss of revenue or delay in market acceptance, diversion of
development resources, damage to our reputation, or increased service and
warranty costs, any of which could have a material adverse effect on our
business, operating results and financial condition.
Our license agreements with our customers typically contain provisions
designed to limit our exposure to potential product liability claims. However,
it is possible that the limitation of liability provisions contained in our
license agreements may not be effective under the laws of certain
jurisdictions. Although we have not experienced any product liability claims to
date, the sale and support of products by us may entail the risk of such
claims, and there can be no assurance that we will not be subject to such
claims in the future. A successful product liability claim brought against us
could have a material adverse effect on our business, operating results and
financial condition.
o We may be unable to effectively manage our future growth, if any.
Our ability to effectively manage our future growth, if any, will require
us to continue to improve our operational, financial and management controls,
accounting and reporting systems, and other internal processes. There can be no
assurance that we
12
will be able to make such improvements in an efficient or timely manner or that
any such improvements will be sufficient to manage our growth, if any. In
addition, management has stated that part of our growth strategy is to make
acquisitions of other businesses or certain assets of other businesses. There
are no assurances that we will be able to identify attractive acquisition
candidates, consummate acquisition transactions or effectively integrate an
acquired business into our operations. If we are unable to manage growth
organically or by acquisition effectively, our business, operating results or
financial condition would be materially adversely affected.
o If we lose key personnel or subcontractors, then we may be unable to
successfully develop our business or our research and development efforts.
Our success depends to a significant extent upon our 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 us.
Furthermore, we believe that our future success also will depend to a
significant extent upon our ability to attract, train and retain highly skilled
technical, management, sales and marketing personnel. Competition for such
personnel is intense, and we expect that such competition will continue for the
foreseeable future. We have 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 our business,
operating results and financial condition.
We utilize development subcontractors in India and the Ukraine. The loss
of services of these subcontractors could have a material adverse effect on our
research and development.
o Customer concerns about the security of transactions conducted over the
Internet may hinder our product sales.
A significant barrier to electronic commerce and communications is the
secure transmission of private information over public networks. Our products
rely on encryption and authentication technology, some of which we have
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 our products use to protect customer transaction
data. Any breaches in security could cause a significant decrease in the use
of our products, which could undermine future product sales.
o Our operating results may be affected if we are required to change our
accounting for employee stock options.
We currently account for the issuance of employee stock options under the
intrinsic value method of Accounting Principles Board (APB) Opinion No. 25,
"Accounting for Stock Issued to Employees." Under APB No. 25, we do 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 Financial Accounting Standards Board (FASB) has proposed changes to
U.S. generally accepted accounting principles that, if implemented, would
require companies to treat the granting of employee stock options as an
expense. If such proposals are adopted and we are required to change the way we
account for stock options, our operating results could be negatively impacted
as a result of the additional expenses associated with stock options. See Note
2, Significant Accounting Policies - Stock-Based Compensation, of the Notes to
Consolidated Financial Statements for a more detailed presentation of our
accounting for stock-based compensation plans.
o We have incurred increased costs in response to recently enacted and
proposed regulations.
Recently enacted and proposed changes in the laws and regulations
affecting public companies, including but not limited to the Sarbanes-Oxley Act
of 2002, have caused us to incur increased costs as we evaluate and respond to
the resulting requirements. Additionally, we have incurred and expect to incur
on an ongoing basis
13
increased accounting, audit and legal fees to assist us in assessing,
implementing and complying with such rules. The new and proposed rules could
also make it more difficult for us to attract and retain qualified persons to
serve on our Board of Directors. Although we are evaluating and monitoring
developments with respect to these new and proposed rules, we cannot estimate
the amount of the additional costs we may incur or the timing of such costs at
this time.
14
ITEM 2. PROPERTIES
Mobius is headquartered in Rye, New York, where it leases an aggregate of
70,500 square feet of space. Administrative, marketing, product development
and customer support and service operations are located in the Rye space.
Mobius leases an aggregate of approximately 65,000 additional square feet of
space domestically and internationally for its sales offices. Mobius believes
that these facilities are adequate to meet its current needs.
ITEM 3. LEGAL PROCEEDINGS
From time to time, Mobius is involved in litigation relating to claims
arising out of its operations in the normal course of business. Mobius is not a
party to any legal proceedings, the adverse outcome of which, individually or
in the aggregate, would have a material adverse effect on its business,
operating results, cash flow or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fiscal
quarter ended June 30, 2004.
15
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
Mobius's common stock has been quoted on the NASDAQ National Market under
the symbol of MOBI since its initial public offering on April 27, 1998.
According to records of Mobius's transfer agent, Mobius had approximately 43
stockholders of record as of August 20, 2004. Because many shares are held by
brokers and other institutions on behalf of stockholders, Mobius is unable to
estimate the total number of stockholders represented by the record holders.
The following table sets forth the high and low sales prices of Mobius's common
stock on the NASDAQ National Market for the periods indicated.
Quarter ended: High Low
-------------- ---- ---
September 30, 2002 $3.25 $1.88
December 31, 2002 $2.45 $1.70
March 31, 2003 $3.30 $2.30
June 30, 2003 $9.95 $2.89
September 30, 2003 $8.98 $5.90
December 31, 2003 $16.90 $7.91
March 31, 2004 $14.73 $8.19
June 30, 2004 $10.00 $5.12
Mobius has never paid any cash dividends on its common stock and does not
anticipate paying any cash dividends in the foreseeable future. Mobius
currently intends to retain future earnings to fund the development and growth
of its business. Payment of future dividends, if any, will be at the discretion
of its Board of Directors after taking into account various factors, including
Mobius's financial condition, operating results, current and anticipated cash
needs and plans for expansion.
16
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data presented below under the
captions "Consolidated Statement of Operations Data" and "Consolidated Balance
Sheet Data" as of and for each of the years in the five year period ended
June 30, 2004 are derived from the audited consolidated financial statements of
Mobius. The financial statements for each of the years in the three-year period
ended June 30, 2004 have been audited by PricewaterhouseCoopers LLP, an
independent registered public accounting firm. The consolidated financial
statements as of June 30, 2003 and 2004 and for each of the years in the
three-year period ended June 30, 2004, and the reports thereon, are included
elsewhere in this Form 10-K. The data set forth below should be read in
conjunction with, and are qualified by reference to, "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
Consolidated Financial Statements and Notes thereto, included elsewhere in this
Annual Report on Form 10-K.
Years Ended June 30,
2000 2001 2002 2003 2004
--------------------------------------------------------------------
Consolidated Statement of Operations Data
(in thousands, except per share data):
Revenues:
Software license $ 31,018 $ 39,321 $ 28,026 $ 38,353 $ 42,858
Maintenance 27,785 33,174 34,776 38,448 40,151
Professional service and other 1,402 1,717 5,111 5,855 5,079
-------- -------- -------- -------- --------
Total revenues 60,205 74,212 67,913 82,656 88,088
-------- -------- -------- -------- --------
Cost of revenues:
Software license 946 1,219 1,128 1,146 1,115
Maintenance 5,399 5,331 5,919 6,631 7,048
Professional service and other 671 817 5,035 5,934 5,506
-------- -------- -------- -------- --------
Total cost of revenues 7,016 7,367 12,082 13,711 13,669
-------- -------- -------- -------- --------
Gross profit 53,189 66,845 55,831 68,945 74,419
-------- -------- -------- -------- --------
Operating expenses (1):
Sales and marketing 44,289 44,886 38,151 34,776 35,090
Research and development 14,823 16,267 15,741 18,025 20,797
General and administrative 12,086 10,460 10,380 10,838 11,397
Acquired in-process research and development -- -- -- 910 956
Facilities restructuring -- -- 1,394 194 --
-------- -------- -------- -------- --------
Total operating expenses 71,198 71,613 65,666 64,743 68,240
-------- -------- -------- -------- --------
Income (loss) from operations (18,009) (4,768) (9,835) 4,202 6,179
Interest income, net 2,872 2,680 1,659 1,514 1,840
Other income (expense) 44 211 143 220 (90)
Investment impairments (2,220) (718) -- -- --
-------- -------- -------- -------- --------
Income (loss) before income taxes (17,313) (2,595) (8,033) 5,936 7,929
Provision for (benefit from) income taxes (5,417) (605) (2,812) 1,860 3,127
-------- -------- -------- -------- --------
Net income (loss) $(11,896) $ (1,990) $ (5,221) $ 4,076 $ 4,802
======== ======== ======== ======== ========
Basic earnings (loss) per share(2) $ (0.66) $ (0.11) $ (0.30) $ 0.23 $ 0.27
Basic weighted average shares outstanding(2) 17,988 18,225 17,459 17,363 17,964
Diluted earnings (loss) per share(2) $ (0.66) $ (0.11) $ (0.30) $ 0.23 $ 0.24
Diluted weighted average shares outstanding(2) 17,988 18,225 17,459 18,089 19,937
Consolidated Balance Sheet Data
(in thousands):
Total assets $ 78,393 $ 75,515 $ 71,392 $ 81,818 $ 95,576
Total long-term obligations 3,698 1,398 1,406 5,560 4,943
Stockholders' equity 40,591 38,470 31,120 36,357 45,139
(1) Included within sales and marketing, research and development and general
and administrative expense is stock compensation expense associated with
the granting of stock options to employees immediately prior to the
Company's IPO for the years ended June 30, 2000, 2001, 2002 and 2003
aggregating $537, $277, $125 and $43, respectively. There was no such
expense during fiscal 2004 since the entire expense was recognized prior to
July 1, 2003.
(2) For a description of the basic and diluted earnings per share ("EPS")
calculations and the basic and diluted weighted average shares outstanding,
see Notes 2 and 3 of Notes to Consolidated Financial Statements.
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
In this section, readers are given a more detailed assessment of the
Company's operating results and changes in financial position over the periods
discussed. This section should be read in conjunction with the Company's
Consolidated Financial Statements and related Notes. Please note that
references in this section to "this year" and "last year" refer to the
Company's fiscal years ended June 30, 2004 and June 30, 2003, respectively.
Executive 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 business- and operations
mission-critical documents, reports, images and transactions in multiple
formats from multiple sources. Mobius solutions have achieved industry-wide
recognition for their breadth of functionality, breadth of supported
information formats and the ability to meet high-volume, high-performance
requirements in distributed environments that range from the desktop to the
mainframe.
The Company's ViewDirect(R) TCM is a comprehensive suite of solutions that
meet a broad and diverse range of enterprise requirements for managing and
delivering content. ViewDirect TCM supports both "human-created" content --
generated by desktop applications -- and the "application-created" content --
generated by production computer 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.
During the fourth quarter of fiscal 2004, the Company acquired the
technology and certain other assets of eManage Inc. ("eManage"), a privately
held company that develops software solutions for e-mail archiving, records
management and lifecycle management. The eManage software suite includes a
complete records management facility for Microsoft's SharePoint Portal Server.
It extends full records management functionality, including lifecycle
management and records security, to the collaborative SharePoint document
management environment. For a further discussion of the acquisition of the
technology and certain other assets of eManage, see the section entitled,
"Liquidity and Capital Resources" below. The Company continues to evaluate
potential acquisition candidates whose products, technology and expertise or
market share would enhance Mobius's strategic market position.
The Company's total revenues increased from $67.9 million in fiscal 2002
to $82.7 million in fiscal 2003 to $88.1 million in fiscal 2004. Operating loss
in fiscal 2002 was $9.8 million, or (14.5)% of revenues, as compared with
operating income of $4.2 million, or 5.1% of revenues, in fiscal 2003 and $6.2
million, or 7.0% of revenues, in fiscal 2004. Excluding the charges for
acquired in-process research and development of $910,000 in fiscal 2003 and
$956,000 this year, operating income was $5.1 million, or 6.2% of revenues, in
fiscal 2003 and $7.1 million, or 8.1% of revenues, in fiscal 2004. Net loss in
fiscal 2002 was $5.2 million, or ($0.30) per share, as compared with net income
of $4.1 million, or $0.23 per diluted share, in fiscal 2003 and $4.8 million,
or $0.24 per diluted share, in fiscal 2004.
Mobius derives its revenues from product licenses, related annual
maintenance and professional services and other. This year, 48.6% of total
revenues were generated from software licenses, 45.6% were generated from
maintenance and 5.8% were generated from professional services and other.
Software license revenues increased from $28.0 million in fiscal 2002 to $38.4
million last year to $42.9 million this year, due to increased licensing of
Mobius products primarily by existing customers and, to a lesser extent, by new
customers of the Company. During the latter part of fiscal 2003, Mobius began
to market licenses of ViewDirect TCM products under the term "Solution Packs."
Solution Packs combine server and client products designed to address specific
18
customer applications and requirements. License terms on Solution Packs are
generally five years, compared to the 15 year terms most commonly offered by the
Company in prior periods. The Company offers extended payment terms to our
customers, which we believe enhances the Company's competitive position.
However, there are no assurances that the offering of Solution Packs or extended
payment terms 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. Additionally, the Company recently entered
into an arrangement to sell long-term installments receivable to General
Electric Capital Corporation, which provides enhanced flexibility in offering
financing alternatives to our customers and to manage our cash flows.
Maintenance revenues increased from $34.8 million in fiscal 2002 to $38.4
million last year to $40.2 million this year due primarily to the growth in the
amount of licensed software covered by maintenance agreements and increases in
the maintenance fees charged by the Company, partially offset by a decrease in
the rate of maintenance charged on Solution Packs. Maintenance revenue consists
primarily of fees for customer support services and enhancements provided by
the Company for its products. 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. Beginning in the latter part of
fiscal 2003, annual maintenance for new 15 year licenses for server and client
products is generally based on 15% of the contract value. Annual maintenance
for Solution Packs, which comprised a significant portion of license revenues
in fiscal 2004, is generally based on 10% of contract value. If Solution Packs
continue to comprise a significant portion of the Company's revenues and its
customer base remains the same, maintenance revenues could potentially
decrease.
Professional service and other revenue increased from $5.1 million in
fiscal 2002 to $5.9 million last year and decreased to $5.1 million this year.
The Company's professional services group offers installation and conversion
services and, to a lesser extent, business consulting and training to our
customers. A large percentage of the Mobius suite of products are generally not
difficult to install and do not require significant installation services. As
such, while this line of our business provides a valuable service to our
customers, revenues from professional services are not a significant percentage
of overall revenue. The decrease in revenues during fiscal 2004 reflects fewer
large professional service engagements.
International revenues increased this year to $18.4 million from $12.0
million last year. International revenues were $10.4 million in fiscal 2002.
Approximately 15% of the increase in international revenues this year was a
result of the change in the exchange rates from last year. The majority of
Mobius's current international revenues are derived from the direct sales force
of its wholly-owned subsidiaries. These subsidiaries also derive revenue in
certain geographies through third-party agents. The Company's subsidiaries
conduct business in the currency of the country in which they operate, exposing
Mobius to currency fluctuations and currency transaction losses or gains, which
are outside of Mobius's control.
The Company believes that the content management markets in which we
operate will experience growth in the near term and that our recent product
introductions and the e-mail archiving and records management technology
acquired will provide additional opportunities for growth. However, market
factors are driving customers to cautiously spend on enterprise software which
can result in unpredictability in the timing of orders. Additionally, the sales
cycle is long and involves complexity as customers consider a number of factors
before committing to purchase enterprise software. Factors considered by
customers include product benefits, cost and time of implementation, return on
investment, ability to operate with existing and future computer systems and
the ability to accommodate increased transaction volume and product
reliability. The Company has also noticed a trend whereby there are delays in
customers' approval processes due to protracted contractual negotiations. The
Company is attempting to alleviate the impact of this trend by simplifying some
of its contract and financial terms. However, there are no assurances that the
growth in the overall content management market or the success of our newer
products, such as
19
WorkflowDirect(TM), ViewDirect E-mail Management, ViewDirect Contenuity,
ViewDirect(R) Total Content Integrator and ViewDirect-ABS, as well as acquired
technology, will develop as anticipated.
The Company also believes that customers 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 organization quickly and easily. To
address these purchasing patterns, Mobius began to market licenses of
ViewDirect TCM products under the term "Solution Packs" (as discussed above)
during the latter part of fiscal 2003. For fiscal 2004, license revenues from
Solution Packs represented almost 60% of total license revenues. The Company
anticipates continuing to actively market Solution Packs during fiscal 2005.
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:
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 revenues from
renewable support and software enhancements and professional service revenues
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.
Historically, Mobius's contracts included a software license and an obligation
to provide maintenance. Assuming all other revenue recognition criteria were
met, revenue was recognized upon delivery using the residual method in
accordance with SOP 98-9, where the fair value of the undelivered elements was
deferred and the remaining portion of the arrangement fee was recognized as
revenue. Accordingly, when the Company entered into a contract that included
both a software license and an obligation to provide maintenance, the
maintenance revenue was unbundled from the initial license fee and recognized
ratably over the maintenance period, starting from the inception of the
software license agreement. The Company determined 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 was 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 did not exist, all revenue from the
arrangement was deferred until such
20
evidence exists or until all elements are delivered. Beginning in the third
quarter of fiscal 2004, the vast majority of the Company's software license
revenue contracts provide for optional maintenance in the first year, billed
separately from the software license arrangement. Accordingly, license revenue
is recognized upon delivery of the software under the provisions of SOP 97-2 and
SOP 98-9. Maintenance revenue is recognized ratably over the maintenance period.
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. The Company recently entered into an arrangement to sell long-term
installments receivable to General Electric Capital Corporation, which provides
enhanced flexibility in offering financing alternatives to our customers and to
manage our cash flows.
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.
21
Results of Operations
The following table sets forth certain items from the Company's
Consolidated Statement of Operations as a percentage of total revenues for the
fiscal years indicated:
Years Ended June 30,
2002 2003 2004
--------------------------------------
Revenues:
Software license 41.3% 46.4% 48.6%
Maintenance 51.2 46.5 45.6
Professional service and other 7.5 7.1 5.8
----- ----- -----
Total revenues 100.0 100.0 100.0
----- ----- -----
Cost of revenues:
Software license 1.7 1.4 1.3
Maintenance 8.7 8.0 8.0
Professional service and other 7.4 7.2 6.2
----- ----- -----
Total cost of revenues 17.8 16.6 15.5
----- ----- -----
Gross profit 82.2 83.4 84.5
----- ----- -----
Operating expenses:
Sales and marketing 56.2 42.1 39.8
Research and development 23.2 21.8 23.6
General and administrative 15.3 13.1 13.0
Acquired in-process research and
development -- 1.1 1.1
Facilities restructuring 2.0 0.2 0.0
----- ----- -----
Total operating expenses 96.7 78.3 77.5
----- ----- -----
Income (loss) from operations (14.5) 5.1 7.0
Interest income, net 2.5 1.8 2.1
Other income (expense) 0.2 0.2 (0.1)
----- ----- -----
Income (loss) before income taxes (11.8) 7.1 9.0
Provision for (benefit from) income
taxes (4.1) 2.2 3.5
----- ----- -----
Net income (loss) (7.7)% 4.9% 5.5%
===== ===== =====
Year Ended June 30, 2002 Compared to Year Ended June 30, 2003 Compared to Year
Ended June 30, 2004
Revenues:
o Total revenues increased 21.7% from $67.9 million in fiscal 2002 to $82.7
million in fiscal 2003 and increased 6.6% to $88.1 million in fiscal 2004.
Domestic revenues increased 23.0% from $57.5 million in fiscal 2002 to
$70.7 million in fiscal 2003 and decreased 1.5% to $69.7 million in fiscal
2004. International revenues increased 14.6% from $10.4 million in fiscal
2002 to $12.0 million in fiscal 2003 and increased 54.0% to $18.4 million
in fiscal 2004. Approximately 15% of the increase in international revenues
this year was a result of the change in the exchange rates from last year,
while most of the increase in fiscal 2003 was due to the effect of the
change in the exchange rates from fiscal 2002. We believe that the increase
in international revenues in fiscal 2004 reflects the changes made in
senior management and the continued investments in the international area.
The following provides a discussion of the changes in software license
revenues, maintenance revenues and professional service and other revenues
for the fiscal years ended June 30, 2002, 2003 and 2004.
o Software license revenues increased 36.8% from $28.0 million in fiscal 2002
to $38.4 million in fiscal 2003 and increased 11.7% to $42.9 million in
fiscal 2004. License revenues increased in fiscal 2003 and 2004 primarily
due to increased licensing of Mobius products by existing customers and, to
a lesser extent, by new customers of the Company. Additionally, during
fiscal 2004, license revenue increased due to a nominal improvement in the
overall economy and the success of the Company's Solution Packs. During the
latter part of fiscal 2003, Mobius began to market licenses of ViewDirect
TCM products under the term "Solution Packs." Solution Packs combine server
and client products
22
designed to address specific customer applications and requirements with,
generally, license terms of five years. Software license revenues from
Solution Packs represented almost 60% of total license revenues.
o Maintenance revenues increased 10.6% from $34.8 million in fiscal 2002 to
$38.4 million in fiscal 2003 and increased 4.4% to $40.2 million in fiscal
2004. The increases in maintenance revenues during these years were
primarily attributable to the growth in the amount of licensed software
covered by maintenance agreements and increases in the maintenance fees
charged by the Company, offset by a decrease in the rate of maintenance
charged on 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.
Beginning in the latter part of fiscal 2003, annual maintenance for new 15
year licenses for server and client products is generally based on 15% of
the contract value. Annual maintenance for Solution Packs, which comprised
a significant portion of license revenues in fiscal 2004, is generally
based on 10% of contract value. If Solution Packs continue to comprise a
significant portion of the Company's revenues and its customer base remains
the same, maintenance revenues could potentially decrease.
o Professional service and other revenues increased 14.6% from $5.1 million
in fiscal 2002 to $5.9 million in fiscal 2003 and decreased 13.3% to $5.1
million in fiscal 2004. Professional service revenues increased during
fiscal 2003 as a result of Mobius dedicating more resources to the
development of the Company's professional service business and Mobius
entering into more professional service arrangements. Professional service
revenues for fiscal 2004 included approximately $500,000 relating to
services associated with new products that we had deferred revenue
recognition pending acceptance by the customer. Excluding this amount,
professional service revenues decreased almost 22% in fiscal 2004. The
decrease in revenues during fiscal 2004 reflects fewer large professional
service engagements. Other revenues for all years were not significant.
Cost of Revenues:
o Cost of software license revenues consists primarily of the cost of
royalties and sublicense fees. The cost of software license revenues were
$1.1 million in fiscal 2002, $1.2 million in fiscal 2003 and $1.1 million
in fiscal 2004, representing 4.0%, 3.0% and 2.6%, respectively, of software
license revenues in those years. 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 slight decrease this year
is due primarily to a decrease in license revenues for products relating to
which Mobius pays royalties. In fiscal 2003, the slight increase was
primarily attributable to higher royalties related to increased software
license revenues that were subject to third-party royalties. Additionally,
fiscal 2003 included a benefit from negotiating more favorable terms with
respect to a royalty agreement.
o Cost of maintenance revenues consists primarily of personnel costs related
to our Customer Support group, and to a lesser extent, royalties on
third-party products. The cost of maintenance revenues increased 12.0% from
$5.9 million in fiscal 2002 to $6.6 million in fiscal 2003 and increased
6.3% to $7.0 million in fiscal 2004, representing 17.0%, 17.2% and 17.6%,
respectively, of maintenance revenues in those years. In fiscal 2003, the
increase in cost of maintenance revenues is primarily attributable to
increased staffing and personnel-related costs, partially offset by
negotiating more favorable terms during fiscal 2003 with respect to a
royalty agreement. In fiscal 2004, the increase in cost of maintenance
revenues is primarily attributable to increased staffing and
personnel-related costs. This increase was partially offset by the
increased utilization of Customer Satisfaction personnel in research and
development projects and the classification of the related costs as
research and development expense.
o Cost of professional service and other revenues consists primarily of
personnel and subcontractor costs associated with providing professional
services. The cost of professional service and other revenues increased
17.9% from $5.0 million in fiscal 2002 to $5.9 million in fiscal
23
2003 and decreased 7.2% to $5.5 million in fiscal 2004, representing 98.5%,
101.3% and 108.4% respectively, of professional service and other revenues
in those years. In fiscal 2003, the cost of professional service and other
revenues increased as the result of Mobius entering into more subcontractor
arrangements. The cost of professional service for fiscal 2004 included
approximately $500,000 of costs relating to services associated with new
products that we had deferred pending acceptance by the customer. Excluding
this amount, the cost of professional service decreased 15%, 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 lower margins on the implementation of newer software.
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 decreased 8.8% from $38.2 million in fiscal 2002 to $34.8 million
in fiscal 2003 and increased 0.9% to $35.1 million for fiscal 2004,
representing 56.2%, 42.1% and 39.8%, respectively, of total revenues in
those years. In fiscal 2003, the decrease is primarily attributable to
lower personnel costs (reflecting lower headcount), lower rent and
depreciation costs and lower professional fees, partially offset by
increased incentive compensation costs as a result of increased license
revenues, and an increase in bad debt expense. In fiscal 2004, sales and
marketing expenses increased slightly due to higher personnel costs
(reflecting increased headcount), offset by lower depreciation costs, bad
debt expense and savings due to modifications in the Company's incentive
compensation plan.
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; Orlando, FL; and Ottawa, Canada, and utilizes subcontractors in India
and the Ukraine. Research and development expenses increased 14.5% from
$15.7 million in fiscal 2002 to $18.0 million in fiscal 2003 and increased
15.4% to $20.8 million for fiscal 2004, representing 23.2%, 21.8% and
23.6%, respectively, of total revenues in those years. The increase in
fiscal 2003 is primarily attributable to increased personnel costs arising
from the acquisition of the Contenuity Software and certain other assets of
Cytura Corp. ("Cytura") and increased subcontractor fees. 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. The increase in fiscal 2004 is primarily attributable to
higher headcount and related costs associated with continued development of
products, additional quality control resources and personnel added with the
acquisition of the Contenuity Software.
o General and administrative expenses consist primarily 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 4.4% from $10.4 million in fiscal 2002 to
$10.8 million in fiscal 2003 and increased 5.2% to $11.4 million in fiscal
2004, representing 15.3%, 13.1% and 13.0%, respectively, of total revenues
in those years. The increase in fiscal 2003 and 2004 is primarily
attributable to higher personnel costs and professional fees (primarily due
to Sarbanes-Oxley Act of 2002 requirements), offset by lower depreciation.
o Acquired in-process research and development expenses relate to the
acquisition of the Contenuity Software and certain other assets of Cytura
and the technology and certain other assets of eManage. A portion of the
purchase price in each acquisition was allocated to acquired in-process
research and technology. 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 year of
acquisition. As a result, the Company recorded a charge of $910,000 in
fiscal 2003
24
relating to the Cytura asset acquisition and $956,000 in fiscal 2004
relating to the eManage asset acquisition. Valuations prepared using the
discounted net cash flow method were utilized to value the acquired
in-process research and development expenses for both acquisitions.
o Facilities restructuring expenses consist of accruals for losses on the
Company's leases for two of its sales offices. In connection with
management's plan to reduce costs and improve operating efficiencies, the
Company recorded a facilities restructuring charge of $1.4 million in
fiscal 2002. The charge reflected estimated future lease obligations, net
of estimated sublease income, for office space the Company will no longer
utilize. The Company worked with an external real estate consultant to
determine the best estimate for the accrual. During fiscal 2003, the
Company entered into an agreement with the landlord and the over-tenant
which released Mobius from all of its ongoing obligations under the
original terms of the lease effective as of February 15, 2003. Accordingly,
the Company recorded additional expenses of $78,000 associated with this
new agreement.
In connection with the second sales office, the Company recorded a
facilities restructuring charge of $116,000 in fiscal 2003 representing the
estimated future lease obligations for office space that the Company was
subleasing to a third party. The third party abandoned the space during
fiscal 2003 and the Company believed that it was highly unlikely that it
would be able to sublease this space for the remainder of the lease term.
As of June 30, 2004, the Company had $6,000 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 $1.7 million, $1.5 million
and $1.8 million in fiscal 2002, 2003, and 2004, respectively. The increase in
interest income this year is primarily attributable to increased installments
receivable balances, partially offset by lower returns on investment and lower
cash balances. Other income (expense) is comprised of gain on investments and
foreign currency transactions. Gain on investments of $148,000 and $113,000
during the fiscal years 2002 and 2003, respectively, was the result of the sale
of Mobius's investment in Intelidata stock. Foreign currency losses were $5,000
in fiscal 2002 and $90,000 in fiscal 2004, compared with gains of $107,000 in
fiscal 2003.
Provision for (benefit from) income taxes:
The tax benefit from income taxes was $2.8 million (effective tax rate of
(35.0)%) in fiscal 2002, compared to a tax provision of $1.9 million (effective
tax rate of 31.3%) in fiscal 2003 and $3.1 million in fiscal 2004 (effective
tax rate of 39.4%). The tax provision for fiscal 2003 includes a tax benefit of
$700,000 resulting from the resolution of certain tax matters. Excluding the
$700,000 tax benefit, the effective tax rate was 43.1% for the fiscal year
2003. The higher effective tax rate for fiscal 2003, excluding the $700,000 tax
benefit, as compared with fiscal 2002, reflects the inability to benefit from
losses of certain foreign subsidiaries and foreign taxes paid in certain
jurisdictions for which no U.S. foreign tax credit was available. The lower
effective tax rate this year as compared with last year (exclusive of the
$700,000 tax benefit) was primarily due to a decrease in losses of certain
foreign subsidiaries for which no tax benefit could be recognized.
25
Selected Quarterly Operating Results
The following table presents certain unaudited consolidated statement of
operations data for the eight fiscal quarters in the two-year period ended June
30, 2004. In management's opinion, this unaudited information has been prepared
on the same basis as the audited Consolidated Financial Statements appearing
elsewhere in this Form 10-K and includes all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of the
information for the quarters presented, when read in conjunction with the
audited Consolidated Financial Statements and Notes thereto included elsewhere
herein. The results of operations for any quarter are not necessarily
indicative of results for any future period.
Quarters Ended
Sept.30, Dec. 31, March 31, June 30, Sept.30, Dec. 31, March 31, June 30,
2002 2002 2003 2003 2003 2003 2004 2004
-------- -------- -------- --------- -------- -------- -------- --------
Revenues:
Software license revenues $ 7,756 $ 10,168 $ 9,443 $ 10,986 $ 12,501 $ 11,503 $ 6,410 $ 12,444
Maintenance 9,190 9,461 9,890 9,907 10,002 10,044 10,024 10,081
Professional services and
other 1,968 1,701 1,204 982 908 1,749 1,397 1,025
-------- -------- -------- --------- -------- -------- -------- --------
Total revenues 18,914 21,330 20,537 21,875 23,411 23,296 17,831 23,550
-------- -------- -------- --------- -------- -------- -------- --------
Cost of revenues:
Software license revenues 88 334 431 293 335 389 148 243
Maintenance 1,482 1,515 1,775 1,859 1,694 1,562 1,730 2,062
Professional service and
other 1,985 1,595 1,184 1,170 1,062 1,894 1,580 970
-------- -------- -------- --------- -------- -------- -------- --------
Total cost of revenues 3,555 3,444 3,390 3,322 3,091 3,845 3,458 3,275
-------- -------- -------- --------- -------- -------- -------- --------
Gross profit 15,359 17,886 17,147 18,553 20,320 19,451 14,373 20,275
-------- -------- -------- --------- -------- -------- -------- --------
Operating expenses (1):
Sales and marketing 8,573 8,820 8,954 8,429 9,433 8,880 8,201 8,576
Research and development 4,067 4,470 4,795 4,693 5,003 4,927 5,379 5,488
General and administrative 2,430 2,665 2,772 2,971 2,810 2,904 2,763 2,920
Acquired in-process research
and development -- 910 -- -- -- -- -- 956
Facilities restructuring -- 194 -- -- -- -- -- --
-------- -------- -------- --------- -------- -------- -------- --------
Total operating expenses 15,070 17,059 16,521 16,093 17,246 16,711 16,343 17,940
-------- -------- -------- --------- -------- -------- -------- --------
Income (loss) from operations 289 827 626 2,460 3,074 2,740 (1,970) 2,335
Interest income, net 323 391 422 378 439 461 465 475
Other income (expense) 126 (16) 112 (2) (14) (7) (62) (7)
-------- -------- -------- --------- -------- -------- -------- --------
Income (loss) before income
taxes 738 1,202 1,160 2,836 3,499 3,194 (1,567) 2,803
Provision for (benefit from)
income taxes 354 $ 480 (166) 1,192 1,463 $ 1,146 (471) 989
-------- -------- -------- --------- -------- -------- -------- --------
Net income (loss) $ 384 $ 722 $ 1,326 $ 1,644 $ 2,036 $ 2,048 $ (1,096) $ 1,814
======== ======== ======== ========= ======== ======== ======== ========
Basic earnings (loss)
per share $ 0.02 $ 0.04 $ 0.08 $ 0.09 $ 0.12 $ 0.11 $ (0.06) $ 0.10
======== ======== ======== ========= ======== ======== ======== ========
Diluted earnings (loss)
per share $ 0.02 $ 0.04 $ 0.07 $ 0.09 $ 0.10 $ 0.10 $ (0.06) $ 0.09
======== ======== ======== ========= ======== ======== ======== ========
As a Percentage of Total
Revenues
Revenues:
Software license revenues 41.0% 47.7% 46.0% 50.2% 53.4% 49.4% 36.0% 52.8%
Maintenance 48.6 44.3 48.1 45.3 42.7 43.1 56.2 42.8
Professional service
and other 10.4 8.0 5.9 4.5 3.9 7.5 7.8 4.4
-------- -------- -------- --------- -------- -------- -------- --------
Total revenues 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
-------- -------- -------- --------- -------- -------- -------- --------
Cost of revenues:
Software license revenues 0.5 1.5 2.1 1.3 1.4 1.7 0.8 1.0
Maintenance 7.8 7.1 8.6 8.5 7.2 6.7 9.7 8.8
Professional service and other 10.5 7.5 5.8 5.4 4.6 8.1 8.9 4.1
-------- -------- -------- --------- -------- -------- -------- --------
Total cost of revenues 18.8 16.1 16.5 15.2 13.2 16.5 19.4 13.9
-------- -------- -------- --------- -------- -------- -------- --------
Gross profit 81.2 83.9 83.5 84.8 86.8 83.5 80.6 86.1
-------- -------- -------- --------- -------- -------- -------- --------
Operating expenses (1):
Sales and marketing 45.3 41.3 43.6 38.5 40.3 38.1 46.0 36.4
Research and development 21.5 21.0 23.3 21.5 21.4 21.1 30.2 23.3
General and administrative 12.9 12.5 13.5 13.6 12.0 12.5 15.5 12.4
Acquired in-process research
and development -- 4.3 -- -- -- -- -- 4.1
Facilities restructuring -- 0.9 -- -- -- -- -- --
-------- -------- -------- --------- -------- -------- -------- --------
Total operating expenses 79.7 80.0 80.4 73.6 73.7 71.7 91.7 76.2
-------- -------- -------- --------- -------- -------- -------- --------
Income (loss) from operations 1.5 3.9 3.1 11.2 13.1 11.8 (11.1) 9.9
Interest income, net 1.7 1.8 2.1 1.8 1.9 1.9 2.6 2.0
Other income (expense) 0.7 (0.1) 0.5 0.0 (0.1) 0.0 (0.3) 0.0
-------- -------- -------- --------- -------- -------- -------- --------
Income (loss) before income
taxes 3.9 5.6 5.7 13.0 14.9 13.7 (8.8) 11.9
Provision for (benefit from)
income taxes 1.9 2.2 (0.8) 5.5 6.2 4.9 (2.6) 4.2
-------- -------- -------- --------- -------- -------- -------- --------
Net income (loss) 2.0% 3.4% 6.5% 7.5% 8.7% 8.8% (6.2)% 7.7%
======== ======== ======== ========= ======== ======== ======== ========
- --------------------------
(1) Included within sales and marketing, research and development and general
and administrative expense is stock compensation expense associated with
the granting of stock options to employees immediately prior to the
Company's IPO. Such stock compensation expense for the four quarters ended
June 30, 2003 was $18,000, $18,000, $7,000 and $0, respectively. There was
no such expense during fiscal 2004 since the entire adjustment was
recognized prior to July 1, 2003.
The Company's quarterly revenues and operating results have varied
significantly in the past and are likely to vary substantially from quarter to
quarter in the
26
future. For a further discussion of the factors that could impact quarterly
results, see the section entitled "Factors Affecting Future Performance" above.
Historically, license revenues typically peak primarily in the fourth fiscal
quarter (ending June 30) and to a lesser extent in the second fiscal quarter
(ending December 31). These fluctuations are caused primarily by customer
purchasing patterns and the Company's sales force incentive programs, which
recognize and reward sales personnel on the basis of achievement of annual and
other periodic performance quotas, as well as by the factors described above.
Changes in buying patterns, product mix and sales force incentive programs may
alter these historical seasonality patterns.
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 June 30, 2004, Mobius had cash and cash equivalents of $33.6
million, a decrease of $3.7 million from $37.3 million held at June 30, 2003.
During fiscal 2004, the Company acquired the technology and certain other
assets of eManage for an aggregate purchase price of approximately $2.7
million. The decrease in cash of about $1.0 million, exclusive of the eManage
acquisition, was primarily due to an increase in software license installments
receivable, partially offset by net cash earnings and cash generated from the
exercise of stock options by employees and employee stock purchases. As of June
30, 2004 and 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. The
Company continues to monitor the level of sales that include extended payment
terms to manage the use of cash associated with these sales. The Company
recently entered into an arrangement to sell long-term installments receivable
to General Electric Capital Corporation ("GECC"), which provides enhanced
flexibility in offering financing alternatives to our customers and to manage
our cash flows. If the level of software license revenues financed by
installments receivable continues at the current rate and the Company is unable
to assign a substantial percentage of such receivables to GECC or other vendor
financing firms, the Company's cash position is likely to be adversely affected.
*****
Net cash provided by operating activities was $2.2 million and $3.8
million in fiscal 2002 and 2003, respectively, compared with net cash used in
operating activities of $5.0 million during 2004. Mobius's sources of cash
during fiscal 2002 were collections of software installments and an increase in
deferred revenue, offset by an increase in accounts receivable. Mobius's
sources of cash during fiscal 2003 were collections of accounts receivable and
an increase in deferred revenue, offset by an increase in software license
installments and a decrease in accounts payable and accrued expenses. Mobius's
uses of cash during fiscal 2004 were increases in software license installments
receivable, offset by increases in accounts payable and accrued expenses and
deferred income taxes. Software license installments, which increased 55.8%
from $23.5 million at June 30, 2003 to $36.5 million at June 30, 2004,
represent payments due from customers for license fees that are paid over the
term of the installment agreement. This increase was due to a proportionately
greater amount of current license revenues being financed by the Company. For
additional information, see the section entitled, "Software License
Installments Receivable" below. Mobius's depreciation and amortization expense
adjustment in operating activities decreased 35.8% from $3.0 million in fiscal
2003 to $1.9 million in fiscal 2004 due to certain assets becoming fully
depreciated. Net accounts receivable increased 12.5% from $10.6 million at June
30, 2003 to $11.9 million at June 30, 2004.
27
Net cash used in investing activities was $1.3 million in fiscal 2004,
compared to net cash provided by investing activities of $7.2 million and $1.4
million in fiscal 2002 and 2003, respectively. Net cash provided by investing
activities for fiscal 2002 reflects the sale of marketable securities,
partially offset by the purchase of marketable securities and capital
expenditures. The decrease in cash provided by investing activities in fiscal
2004 as compared with fiscal 2003 was primarily attributable to the decrease in
the net proceeds from the sale of marketable securities. For the years ended
June 30, 2002, 2003 and 2004, cash of $1.1 million, $1.2 million and $1.3
million, respectively, was used for the purchase of computer equipment,
furniture and fixtures and leasehold improvements.
Net cash provided by financing activities was $672,000 and $2.3 million
in fiscal 2003 and 2004, respectively, due to the exercise of stock options by
employees and employee stock purchases. In fiscal 2002, net cash used in
financing activities was $3.1 million, primarily due to cash used to repurchase
Mobius's common stock pursuant to Mobius's stock repurchase program, partially
offset by cash received for employee stock purchases and stock option exercises.
The Company's material obligations and commitments to make future
payments under contracts consist of its operating leases for its office
facilities. These leases expire on various dates through fiscal 2010 and
provide for additional payments relating to utility costs. As of June 30, 2004,
the future minimum lease payments for these operating leases are as follows (in
thousands):
Operating
Year Ended: Leases
- ----------- ------
June 30, 2005 $2,842
June 30, 2006 2,516
June 30, 2007 2,089
June 30, 2008 1,937
June 30, 2009 1,833
Thereafter 1,629
-------
Total minimum lease payments $12,846
=======
In addition to the commitments shown above, the Company is committed to
make future purchases of goods and services of approximately $350,000.
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 "Cytura Closing Date"), the Company, through a
wholly-owned subsidiary, acquired technology (the "Contenuity Software") and
certain other assets of Cytura, a privately held company, for an aggregate of
approximately $2.2 million in cash, which was paid from the Company's existing
cash balances. In addition, the Company assumed capital lease obligations of
$36,000 and incurred acquisition-related expenses of $250,000, for an aggregate
purchase price of approximately $2.5 million. The Contenuity Software provides
a platform for Web site implementation and management, document and digital
asset management and content publishing. Additionally, 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 if the average
closing price of the Company's common stock for a 30-day period in the thirteen
months following the Cytura Closing Date exceeded specified amounts set forth
in the agreement. During the fiscal fourth quarter of 2003, the average closing
price of the Company's common stock exceeded such specified amount.
Accordingly, during the fourth quarter of fiscal 2003, the Company recorded
incremental goodwill and a payable to Cytura of $800,000. Under the terms of a
revised
28
agreement with Cytura, the Company made the $800,000 payment to Cytura in
January 2004.
On April 26, 2004 (the "eManage Closing Date"), the Company, through a
wholly-owned subsidiary, acquired technology and certain other assets of
eManage, a privately held company, for an aggregate of approximately $2.4
million in cash, which was paid from the Company's existing cash balances. In
addition, the Company assumed liabilities of $111,000 and incurred
acquisition-related expenses of $250,000, for an aggregate purchase price of
approximately $2.7 million. eManage develops software solutions for e-mail
archiving, records management and lifecycle management that enable
organizations to manage corporate records at an enterprise level. In addition,
under the terms of the agreement, Mobius may be obligated to pay eManage up to
an additional $1.2 million if certain revenue and other operating targets are
achieved as of the end of each quarter through June 30, 2005. During the fourth
quarter of fiscal 2004, certain targets were met, and, accordingly, the Company
recorded incremental goodwill and a payable to eManage of $340,000.
The Company continues to evaluate potential acquisition candidates whose
products, technology and expertise or market share 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 June 30, 2004, approximately 79% and 77%, 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 $674,000 at June 30,
2003 and June 30, 2004, respectively.
Software License Installments Receivable
As of June 30, 2004, software license installments amounted to $36.5
million, an increase of 55.8% compared with the June 30, 2003 balance of $23.5
million. This increase reflects a significant increase in 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 license terms generally of five years. In marketing our Solution Packs,
the Company offers extended payment terms to our customers that meet specified
standards of creditworthiness, which we believe enhances the Company's
competitive position. 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. 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.
The Company determines the reserve for software license installments
based upon customer-specific information, including a credit review of the
customer, historical write-off experience, the ability of the Company to
enforce original payment terms and current economic conditions. No single
customer has a balance in excess of 5% of total software license installments,
and 74% of the total is comprised of customers with balances under $600,000. As
of June 30, 2003 and 2004, software license installments reserves were $671,000
and $420,000, respectively. The Company recently entered into an arrangement to
sell long-term installments
29
receivable to General Electric Capital Corporation, which provides enhanced
flexibility in offering financing alternatives to our customers and to manage
our cash flows.
Deferred Revenues
Deferred revenues consist primarily of the unearned portion of
maintenance revenues and license contracts. Current and non-current deferred
revenues totaled $26.9 million at June 30, 2003 and $26.7 million at June 30,
2004. Deferred revenues can fluctuate due to the timing of annual maintenance
billings, increases or decreases in current license revenues and increases or
decreases in license contracts that include more than one year of maintenance.
As of June 30, 2004, current deferred revenues totaled $22.0 million and
non-current deferred revenues totaled $4.7 million. It is anticipated that
current deferred revenues of $22.0 million will be recognized as revenue within
the next twelve months.
Other Matters
INFOPAC-Tapesaver: In January 1999, the Company sold the
INFOPAC-TapeSaver product to a third party for approximately $3.0 million
payable over a five-year period. 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. The buyer has been
delinquent on these payments since June 2001 and, as such, no license revenue
relating to this agreement was recognized in fiscal 2002, 2003 and 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 for the full amount of the debt due of
approximately $1.2 million 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.
ITEM 7A. 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 June 30, 2004, Mobius held no marketable
securities.
The Company may be subject to foreign exchange gains or losses on
transactions denominated in other than the functional currency of Mobius or our
subsidiaries. Net gains and losses resulting from foreign exchange transactions
are included in the determination of net income or loss. Mobius does not use
derivative financial investments to hedge potential foreign exchange losses.
30
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and Notes thereto are included in
Item 15(a)(1). Selected Quarterly Financial Data is included in Item 7 -
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. The Company, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, has
evaluated the effectiveness of the design and operation of the Company's
disclosure controls and procedures. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the Company's
disclosure controls and procedures were effective as of June 30, 2004 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.
Changes in Internal Control Over Financial Reporting. There were no
changes in the Company's internal control over financial reporting during the
Company's fiscal quarter ended June 30, 2004 that have materially affected, or
are reasonably likely to materially affect, the Company's internal control over
financial reporting.
ITEM 9B. OTHER INFORMATION
None.
31
PART III.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are currently seven members of the Board of Directors. The Board is
divided into three classes with terms expiring, respectively, at the 2004, 2005
and 2006 annual meeting of stockholders. Generally, Mobius directors are
elected for three-year terms.
The Board oversees the management of the Company on the stockholders'
behalf. It reviews Mobius's long-term strategic plans and exercises direct
decision-making authority in key areas. The Board chooses the Chief Executive
Officer, sets the scope of his authority to manage Mobius's business day to
day, and evaluates his performance.
The Board of Directors complies with the Nasdaq listing standards and
reviews all commercial and other relationships of each director in making its
determination as to the independence of its directors. The Board has determined
that each of Messrs. Albracht, Greenfield, P. Gross, Levitan and Marks qualify
as independent under the requirements of the Nasdaq listing standards. Mr.
Patrick Gross is not related to Mr. Mitchell Gross. Only non-employee directors
serve on Mobius's Audit, Compensation and Corporate Governance and Nominating
Committees. The Board met six times during fiscal 2004 and each director
attended all of the meetings of the Board.
INFORMATION CONCERNING DIRECTORS
Set forth below are the names, ages, positions and certain other
information concerning the current Directors of Mobius.
Mitchell Gross........... Co-founder of Mobius. President since 1981 and
Age 54 Chairman of the Board and Chief Executive Officer
Director since 1981 since 1996. Mr. Gross was an officer in the U.S.
Navy, serving on nuclear submarines, from
1971-1976. Holds a B.S. in mechanical engineering
from Columbia University School of Engineering and
Applied Science and an M.B.A. in finance from The
Wharton School at the University of Pennsylvania.
Joseph J. Albracht....... Co-founder of Mobius. Executive Vice President and
Age 54 Secretary from 1981 to 1999, Chief Operating
Director since 1981 Officer from 1996 to 1999 and Treasurer from 1981
to 1996. Holds a B.S. in operations research and an
M.B.A. from Pennsylvania State University.
32
Gary G. Greenfield....... President and Chief Executive Officer of Global
Age 49 eXchange Services, a company that operates one of
Director since 1998 the largest B2B e-commerce networks in the world.
In addition, an operating Partner for Francisco
Partners, one of the world's largest technology
focused buyout fund. Former Chief Executive Officer
of Peregrine Systems, Inc., a global provider of
consolidated asset and service management software,
from 2002 until 2003.(1) Formerly, President and
Chief Executive Officer of MERANT plc from 1998 to
2001. Holds a B.S. from the U.S. Naval Academy, an
M.S. Administration from George Washington
University and an M.B.A from Harvard Business
School. Serves as a director of Hyperion Solutions
and Managed Objects, and is Chairman of
Intellitactics. Past Chairman of the Information
Technology Association.
Patrick W. Gross (2)..... Chairman of The Lovell Group, a private business
Age 60 and technology advisory and investment firm.
Director Since 2002 Founder and former principal executive officer of
American Management Systems, Inc., an international
business and technology consulting and systems
integrations firm. Holds a B.S. in economics from
Rensselear Polytechnic Institute, an M.S. in
economics from the University of Michigan and an
M.B.A from Stanford University. Serves as a
director of Capital One Financial Corporation and
Computer Network Technology Corporation, both
public companies, and several private companies.
Kenneth P. Kopelman...... Partner of Kramer Levin Naftalis & Frankel LLP(3),
Age 52 a law firm in New York City. Attended Cornell
Director since 1997 University (A.B.) and the London School of
Economics and received his J.D. from Columbia
University School of Law. Serves as a director of
Liz Claiborne, Inc.
Robert H. Levitan........ New media and technology entrepreneur. Co-founder
Age 43 and CEO of Pando Networks, Inc., a company that is
Director since 2000 developing an Internet distribution platform to
facilitate the sharing of digital video images.
Recently co-founder of Dotomi USA, a consumer media
company, and an executive coach and marketing
consultant to AT&T Wireless Services, Inc., a
wireless carrier. During 2002, a consultant to
Pearson PLC. Co-founder and Chief Executive Officer
of Flooz.com, Inc. from 1999 to 2001(4). Co-founder
of iVillage.com, Inc. Holds a B.A. in history and
public policy studies from Duke University. Serves
as a director of New York Cares.
33
Arthur J. Marks.......... General Partner of Valhalla Partners, a venture
Age 59 capital firm, and Chairman of the Mid-Atlantic
Director since 2002 Venture Association, a trade group for venture
funds. General Partner with New Enterprise
Associates, from 1984 to 2001. Formerly with
General Electric from 1975 to 1984 and
Baxter-Travenol Laboratories from 1971 to 1975.
Holds a B.S. in industrial engineering from the
University of Michigan and an M.B.A from Harvard
Business School.
(1) Peregrine Systems, Inc. filed for bankruptcy protection in September 2002
and emerged in August 2003.
(2) Mr. Patrick Gross is not related to Mr. Mitchell Gross.
(3) Kramer Levin has served as legal counsel to Mobius since the Company's
founding in 1981.
(4) Flooz.com, Inc. filed for bankruptcy liquidation in August 2001.
INFORMATION CONCERNING EXECUTIVE OFFICERS
Set forth below are the names, ages, positions and certain other
information concerning the current Executive Officers of Mobius. Information
regarding Mitchell Gross is provided above. Executive officers shall hold
office until their successors have been duly elected and qualified or until
their earlier resignation or removal.
Name Position
- ---- --------
Mitchell Gross Chairman of the Board, Chief Executive Officer and
Age 54 President.
Michael J. Festa Vice President, Sales (The Americas) since 2000. Joined
Age 44 Mobius in 1991 and served as Area Director from 1998-2000
and Regional Manager from 1996-1997. Holds a B.B.A. in
management from Iona College.
David J. Gordon Vice President, Finance and Treasurer since 2001. Interim
Age 48 Chief Financial Officer from June 2000 until January
2002. Joined Mobius in 1987 and served as Director of
Finance from 1999-2000 and Controller from 1987-1999.
Holds a B.A. in Accounting from Queens College N.Y.
Karry D. Kleeman (1) Vice President, Sales (Europe, Middle East and Africa)
Age 42 since 2003. Vice President, World Sales from 1999 until
2002. Joined Mobius in 1990 and served as Vice President,
Sales (North and South America) from 1997-1999, National
Sales Manager from 1995 to 1997 and Regional Manager from
1992 to 1995. Holds a B.A. in marketing from Elmhurst
College.
Raymond F. Kunzmann Senior Vice President, Finance and Chief Financial
Age 47 Officer since he joined Mobius in December 2003. Formerly
served as Vice President, Finance and CFO of LeCroy
Corporation, a manufacturer of oscilloscopes, from
February 2000 through February 2003, and Vice President,
34
Finance and CFO of Axsys Technologies, Inc., a
manufacturer of motion control products, from May 1994
through February 2000. Holds a B.S. in Accounting from
Fordham University and an M.B.A. in Finance from Iona
College and is a Certified Public Accountant.
Robert H. Lawrence Vice President, Product Engineering since 1992. Joined
Age 52 Mobius in 1985. Holds a B.S. in physics from the
University of Massachusetts.
Joseph G. Tinnerello Senior Vice President, Sales and Marketing since July 1,
Age 47 2002; previously, Senior Vice President, Marketing since
March 2002. Joined Mobius in 1990 and served as Vice
President, Sales from 1995 to 1997 and Vice President,
Business Development from 1998 to March 2002. Following a
personal leave of absence, left Mobius from October 1997
through January 1998. From 1988 to 1989, Mr. Tinnerello
served as a Regional Manager with Legent Software.
(1) Commenced six-month sabbatical on July 1, 2002 and returned on January 6,
2003.
There are no family relationships between any of the Company's directors
and executive officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than 10% of the Company's common stock, to file reports of ownership on
Form 3 and changes in ownership on Form 4 or 5 with the SEC. Such directors,
executive officers and 10% stockholders are also required by SEC rules to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely upon its review of copies of such forms received, or on written
representations from certain reporting persons for which no other filings were
required, the Company believes that during the fiscal year ended June 30, 2004,
there was compliance with all Section 16(a) filing requirements applicable to
its directors, executive officers and 10% stockholders, except due to
administrative oversight, (A) Mr. Marks did not timely report on Form 4 the
acquisition of 99 shares of Mobius common stock during November 2003; (B) Mr.
Festa did not timely report on Form 4 the sale of 5,000 shares of Mobius common
stock during November 2003; and (C) the following officers did not timely
report on Form 4 their receipt of options granted to them under the Company's
stockholder approved 1996 Stock Incentive Plan: a grant of 5,000 options to Mr.
Gordon and a grant of 5,000 options to Mr. Festa.
CODE OF ETHICS
The Company has adopted a Code of Ethics and Business Conduct ("Code")
that applies to the Company's officers, directors and employees. The purpose of
the Code is to promote a culture of honesty, integrity and respect for the law
and the people who work at Mobius. A copy of the Code is available free of
charge on our web site at www.mobius.com, by clicking on Investor Relations,
then Code of Ethics and Business Conduct. The Company intends to timely disclose
any amendments to or waivers of certain provisions of the Code applicable to the
Company's principal executive officer, principal financial officer, principal
accounting officer and controller on our web site at www.mobius.com.
35
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by Mobius's Chief
Executive Officer and the four other highest-paid executive officers for the
past three fiscal years. The individuals included in the table will be
collectively referred to as the "Named Officers."
SUMMARY COMPENSATION TABLE
Annual Compensation(1)
----------------------------------------
Other Annual
Compensation All Other
Name and Principal Position Year Salary Bonus (2) Compensation
- --------------------------- ---- ------ ----- ------------ ------------
Mitchell Gross 2004 $200,000 $ 75,000 -- $54,854(3)
Chairman of the Board, 2003 200,000 189,000 -- 70,459(3)
Chief Executive 2002 200,000 50,000 -- 75,678(3)
Officer and President
Joseph G. Tinnerello 2004 200,000 12,500 $384,535 641(4)
Senior Vice President, 2003 150,000 162,000 198,000 --
Sales and Marketing 2002 150,000 -- 206,250 --
Michael J. Festa 2004 125,000 50,000 247,502 62,114(5)
Vice President, Sales 2003 125,000 -- 351,618 --
(The Americas) 2002 125,000 30,078 213,405 3,950(6)
Karry D. Kleeman 2004 125,000 -- 288,109 341,977(7)
Vice President, Sales 2003 270,305 -- 146,926 --
(Europe, Middle East and 2002 125,000 30,078 260,531 4,324(6)
Africa)
Robert J. Lawrence 2004 224,488 39,413 -- --
Vice President, 2003 221,245 78,755 -- --
Product Engineering 2002 210,591 15,749 -- 4,840(6)
(1) In accordance with the rules of the SEC, other compensation in the form of
perquisites and other personal benefits has been omitted in those instances
where the aggregate amount of such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total annual
salary and bonuses for the named executive officer for such year.
(2) Consists of sales commissions and non-recoverable draws.
(3) Includes premiums on insurance (2004- $27,894; 2003- $28,028; 2002-
$27,038), car payments (2004- $8,839; 2003- $8,501; 2002- $14,714), tax
preparation fees (2004- $8,423; 2003- $27,294; 2002- $17,705), sales
incentive trip (2002- $8,592) and miscellaneous (2004- $9,698; 2003-
$6,636; 2002- $7,629) added to compensation. These amounts have been
grossed up to include taxes.
(4) Includes car payments. The value of the payments has been grossed up to
include taxes.
(5) Includes disqualifying dispositions on the exercise of stock options.
(6) Includes sales incentive trip. The value of the trip has been grossed up to
include taxes.
(7) Includes $271,707 of expatriate allowances and $70,270 of disqualifying
dispositions on the exercise of stock options. The value of the expatriate
allowances has been grossed up to include taxes.
STOCK OPTIONS
The following table contains information concerning the grant of stock
options under the Company's 1996 Stock Incentive Plan to the Named Officers
during fiscal year 2004. Named Officers not listed in the following table did
not receive stock option grants under the Company's 1996 Stock Incentive Plan
during fiscal year 2004.
36
OPTION GRANTS IN LAST FISCAL YEAR
Individual Grants Potential Realizable
- -------------------------------------------------------------------------------------- Value at Assumed Rates
Number of % of Underlying of Stock Appreciation
Securities Options Granted to for Option Term (2)
Underlying Options Employees in Exercise Price Expiration ---------------------
Name Granted (#)(1) Fiscal Year ($/Share) Date 5%($) 10%($)
---- ------------------ ----------------- -------------- ---------- ------ ------
Michael J. Festa 5,000 0.59% $7.01 6/10/14 $22,043 $55,861
- ------------------------
(1) All options in this table have a maximum term of ten years measured from
the grant date, subject to earlier termination in the event of the
optionee's cessation of service with the Company. Mr. Festa's options were
granted on June 10, 2004. The vesting of these options is 20% on the first
anniversary of the grant date, and 5% of the remaining options will become
exercisable every three months thereafter, until the options fully vest on
the five-year anniversary of the grant date.
(2) The dollar amounts under these columns are based upon calculations using
assumed rates of appreciation set by the SEC and are not intended to
forecast future appreciation of the Company's stock price.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information with respect to the Named Officers
concerning their exercise of options during fiscal year 2004 and the
unexercised options held by them as of the end of such year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Shares
Acquired on Number of Securities Value of Unexercised
Exercise Value Underlying Unexercised in-the Money Options
Name (#) Realized ($) Options at Fiscal at Fiscal
---- ---------- ------------ Year-End Year-End ($)(1)
-------- ---------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Mitchell Gross -- $ -- -- -- $ -- $ --
Joseph G. Tinnerello -- -- 295,500 29,500 59,140 117,460
Michael J. Festa 10,000 146,000 98,800 46,200 181,339 145,721
Karry D. Kleeman 4,000 56,000 336,000 -- 937,780 --
Robert J. Lawrence 75,000 728,750 129,000 -- 623,070 --
- -------------------------
(1) Based on the closing sales price on the Nasdaq National Market of the
Company's common stock on June 30, 2004 of $6.08.
DIRECTOR COMPENSATION
Non-employee directors are each paid a $15,000 annual retainer fee for
serving on the Board, payable quarterly in advance, and Audit Committee members
receive an additional annual fee of $2,500. The fee for each Board meeting
attended is $2,000 and the fee for each telephonic Board meeting attended is
$500. The fee for each Committee meeting attended is $500, except that no fees
are payable for Committee meetings held proximate to Board meetings. Board
meeting fees are payable promptly after each meeting. Mr. Kopelman's fees are
net of the amounts paid to Kramer Levin for time Mr. Kopelman devotes to
preparation for and attendance at Board meetings.
The Mobius Non-Employee Directors' 1998 Stock Option Plan provides for
the grant to Mobius directors of non-qualified stock options to purchase Mobius
shares. These include an initial grant of 10,000 options, made upon a
non-employee director's first election to the Board, as well as an annual grant
of 10,000 options, made at each annual meeting to those directors having at
least nine months
37
of Board service on the grant date. All such options have an exercise price
equal to the fair market value of the underlying Mobius shares on the date of
grant.
BOARD COMMITTEES
The Board appoints committees to help carry out its duties. Each
committee reviews the results of its meetings with the full Board. The Board
established its Audit Committee and Compensation Committees in February 1998 in
connection with Mobius's initial public offering, and its Corporate Governance
and Nominating Committee in April 2004, in connection with the implementation
of various corporate governance initiatives undertaken by the Board of
Directors.
Audit Committee. The Audit Committee is responsible for accounting and
internal control matters. Subject to stockholder and Board approval, the Audit
Committee chooses the independent public accountants to audit Mobius's
financial statements and reviews the scope, results and costs of the audit with
such accountants. The Audit Committee also reviews the financial statements and
accounting and control practices of Mobius. The Audit Committee consists of
Messrs. Greenfield (Chair), P. Gross and Levitan, all of whom have been
determined by the Board of Directors to be independent (as defined in Rule
4200(a)(15) of the Nasdaq listing standards) and under SEC Rule 10A-3. Mr.
Patrick Gross is not related to Mr. Mitchell Gross. The Board of Directors has
also determined that each of Messrs. Greenfield, P. Gross and Levitan qualify
as audit committee financial experts within the meaning of the SEC rules. The
Audit Committee held seven meetings during fiscal 2004. Messrs. Greenfield and
Levitan attended all of the Audit Committee meetings, and Mr. P. Gross attended
six of the seven Audit Committee meetings. As of July 21, 2003, the Board
resolved to elect the Audit Committee to serve as the Company's Qualified Legal
Compliance Committee ("QLCC"). The QLCC is responsible for investigating
reports, made by attorneys appearing and practicing before the SEC in the
representation of the Company, of perceived material violations of law,
breaches of fiduciary duty or similar violations by the Company or any of its
agents.
Compensation Committee. The Compensation Committee oversees compensation
for Mobius's executives, including salary, bonus and incentive awards. The
Compensation Committee is also responsible for administering Mobius's 1996
Stock Incentive Plan, Mobius's 1998 Employee Stock Purchase Plan and Mobius's
1998 Executive Incentive Plan. The Compensation Committee consists of Messrs.
Levitan (Chair), Albracht and Marks, all of whom are independent in accordance
with the Nasdaq listing standards. The Compensation Committee held three
meetings during fiscal 2004.
Corporate Governance and Nominating Committee. The Corporate Governance
and Nominating Committee oversees and advises the Board of Directors with
respect to corporate governance matters and assists the Board of Directors in
identifying and recommending qualified Board candidates. The Committee also
makes recommendations to the Board of Directors with respect to the assignments
to committees of the Board and oversees the evaluation of the Board and its
committees. The Corporate Governance and Nominating Committee consists of
Messrs. P. Gross (Chair), Albracht and Marks, all of whom are independent in
accordance with the Nasdaq listing standards. Mr. Patrick Gross is not related
to Mr. Mitchell Gross. The Corporate Governance and Nominating Committee was
established in April 2004, and did not hold any meetings during fiscal 2004.
Mobius stockholders may recommend individuals to the Corporate Governance
and Nominating Committee for consideration as potential director candidates by
submitting their names and appropriate background and biographical information
to Mobius Management Systems, Inc., 120 Old Post Road, Rye, NY 10580, c/o
Secretary. Assuming that the appropriate information has been timely provided
in accordance with the Company's Amended and Restated By-Laws, the Corporate
Governance and Nominating Committee will consider these candidates
substantially in the same manner as it considers other Board candidates it
identifies.
38
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of our Board's Compensation Committee are Messrs.
Levitan (Chair), Albracht and Marks. No member of Mobius's Compensation
Committee serves as a member of the board of directors or compensation
committee of any other entity that has one or more executive officers serving
as a member of Mobius's Board of Directors or Compensation Committee.
COMPENSATION COMMITTEE REPORT
Overview
The Compensation Committee:
(1) reviews and approves the compensation of the Chief Executive
Officer; and
(2) participates in recommendations to the full Board and senior
management with respect to the administration of Mobius's stock
compensation programs.
Salary
We base salary on the Chief Executive Officer's knowledge, skills and
level of responsibility, as well as the economic and business conditions
affecting Mobius. Other factors we consider are:
(1) competitive positioning (comparing Mobius's salary structure with
salaries paid by other companies);
(2) Mobius's own business performance; and
(3) general economic factors.
Annual Bonus
We give the Chief Executive Officer an annual bonus to provide an
incentive and reward for short-term financial success and long-term Company
growth. Annual bonuses link compensation in significant part to Mobius's
financial performance and are determined solely by the Compensation Committee.
Compensation of the Chief Executive Officer
Mr. Mitchell Gross is one of the founders of Mobius. He beneficially owns
approximately 5,549,500 shares of common stock constituting approximately 30.3%
of the total amount outstanding. Accordingly, his interest is aligned with the
interest of the stockholders. Due to the significance of Mr. Gross's existing
stock ownership, Mobius has not incorporated long-term stock incentives, such
as restricted stock or stock options, into Mr. Gross's compensation package,
which consists primarily of salary and bonus. The members of the Compensation
Committee, based on the factors enumerated above under the sections entitled
"Salary" and Annual Bonus," agreed to continue to pay Mr. Gross's $200,000
annual salary after the expiration of his employment agreement on April 27,
2001 and granted Mr. Gross a bonus attributable to his success in achieving
revenue and net income goals during fiscal 2004.
Stock Options
We use stock options as a long-term, non-cash incentive and to align the
long-term interests of executives and stockholders. The stock options are
priced at the market price of Mobius's common stock on the date of grant. The
options are therefore linked to future performance of our stock because the
options do not become valuable to the holder unless the price of our stock
increases above the
39
price on the date of grant. The number of stock options granted to an executive
as a form of non-cash compensation is determined by the following factors:
(1) number of stock options previously granted to an executive;
(2) the executive's remaining options exercisable; and
(3) the value of those remaining stock options, as compared to the
anticipated value that an executive will add to Mobius in the
future.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan commenced in fiscal 1999 and provides
employees who wish to acquire Mobius's common stock with the opportunity to
purchase shares through the convenience of accumulated payroll deductions. We
believe that employee participation in the ownership of Mobius on this basis
will be to the mutual benefit of the employees and Mobius.
Executive Incentive Plan
The Executive Incentive Plan ("Incentive Plan") was established in fiscal
1998 and participation in the Incentive Plan is limited to those executives and
key employees who, in the judgment of the Compensation Committee, are in a
position to have a significant impact on the performance of Mobius. Awards
under the Incentive Plan are based upon the extent to which performance goals
established by the Compensation Committee for a designated performance period
are satisfied. The Incentive Plan also provides for grants of discretionary
bonuses. To date, no awards have been made under the Incentive Plan.
Revised Compensation Committee Charter
The Board of Directors, based on a recommendation from the Compensation
Committee, recently revised the Compensation Committee Charter to be effective
for fiscal 2005, to comply with changes to the Nasdaq listing standards and the
rules and regulations of the Securities and Exchange Commission.
Robert H. Levitan (Chair)
Joseph J. Albracht
Arthur J. Marks
STOCK PERFORMANCE CHART
The following chart depicts a comparison of the cumulative total return
(assuming the reinvestment of dividends) for a $100 investment on June 30, 1999
in each of the common stock of Mobius, the Goldman Sachs Technology Composite
Index (a published industry index), and the Nasdaq Composite (a broad market
index). The Company paid no dividends during the periods shown.
June June June June June
30,2000 30,2001 29,2002 28,2003 30,2004
------- ------- ------- ------- -------
Mobius $ 55.27 $ 40.00 $ 39.39 $ 91.64 $73.70
Goldman Sachs
Technology Composite
Index 157.66 76.95 44.58 47.91 60.89
Nasdaq Composite 147.87 80.55 54.55 60.50 76.35
40
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table shows the number of shares of Mobius common stock of
each Named Officer and each non-employee director owned as of August 20, 2004.
Name and Address of Named Executive
Officers, Certain Stockholders and Shares Percent
Directors / Nominees Owned(1) of Class
-------------------- -------- --------
Mitchell Gross (2)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580 ........................... 5,549,500 30.3%
Joseph J. Albracht (3)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 3,973,500 21.7%
Karry D. Kleeman (4)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 337,000 1.8%
Joseph G. Tinnerello (5)
c/o Mobius Management Systems, Inc.
200 South Wacker Drive
Chicago, Illinois 60606........................ 306,350 1.6%
Robert J. Lawrence (6)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, NY 10580 ................................ 212,151 1.2%
Michael J. Festa (7)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 113,200 *
Arthur J. Marks (8)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 72,224 *
Kenneth P. Kopelman (9)
c/o Kramer, Levin, Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022....................... 63,850 *
Gary G. Greenfield (10)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 60,481 *
Robert H. Levitan (11)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 40,000 *
Patrick W. Gross (11)
c/o Mobius Management Systems, Inc.
120 Old Post Road
Rye, New York 10580............................ 40,000 *
41
Name and Address of Named Executive
Officers, Certain Stockholders and Shares Percent
Directors / Nominees Owned(1) of Class
-------------------- -------- --------
All Executive Officers and Directors
As a group (13 persons) ....................... 10,816,900 55.5%
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission ("SEC"), and generally includes voting
power and/or investment power with respect to securities. Shares of common
stock subject to options currently exercisable or exercisable within 60
days ("Currently Exercisable Options") are deemed outstanding for
computing the percentage beneficially owned by the person holding such
options but are not deemed outstanding for computing the percentage
beneficially owned by any other person.
(2) Includes 3,732,259 shares of common stock held by HARMIT, LP, of which
Mitchell Gross is the General Partner.
(3) Includes 40,000 shares issuable pursuant to Currently Exercisable Options.
(4) Includes 336,000 shares issuable pursuant to Currently Exercisable
Options.
(5) Includes 297,750 shares issuable pursuant to Currently Exercisable
Options.
(6) Includes 129,000 shares issuable pursuant to Currently Exercisable
Options.
(7) Includes 106,500 shares issuable pursuant to Currently Exercisable
Options.
(8) Includes 11,484 shares of common stock held in trust for Mr. Marks'
children. Mr. Marks disclaims beneficial ownership of such shares. Also
includes 40,000 shares issuable pursuant to Currently Exercisable Options.
(9) Includes 1,500 shares of common stock held in trust by Mr. Kopelman's
wife, as trustee, for Mr. Kopelman's three minor children. Mr. Kopelman
disclaims beneficial ownership of such shares. Also includes 2,350 shares
of common stock held jointly by Mr. Kopelman and his wife, as well as
60,000 shares issuable pursuant to Currently Exercisable Options.
(10) Includes 60,000 shares issuable pursuant to Currently Exercisable Options.
(11) Includes 40,000 shares issuable pursuant to Currently Exercisable Options.
42
Equity Compensation Plan Information
The following table provides information as of June 30, 2004 with
respect to the shares of Mobius's common stock that may be issued under
Mobius's existing equity compensation plans.
(a) (b) (c)
Number of securities remaining
Number of securities to be available for future issuance
issued upon exercise of Weighted-average exercise under equity compensation plans
outstanding options, price of outstanding (excluding securities reflected in
Plan category warrants and rights options, warrants and rights column (a))
------------- ------------------- ---------------------------- -----------
Equity compensation
plans approved by
security holders (1) 4,089,073 $ 4.89 1,019,841
Equity compensation
plans not approved
by security holders -- -- --
--------- -------- ---------
Total 4,089,073 $ 4.89 1,019,841
========= ======== =========
(1) Consists of the 1996 Stock Incentive Plan and the Non-Employee
Directors' 1998 Stock Option Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Relationship With Kramer Levin Naftalis & Frankel LLP
Since 1981 the Company has engaged, and plans to continue to engage, the
Kramer Levin law firm to provide the Company with legal counsel. Mr. Kopelman,
a member of Mobius's Board of Directors, is a partner of Kramer Levin Naftalis
& Frankel LLP. Fees paid to Kramer Levin during fiscal 2004 were approximately
$1.0 million. Mobius believes that fees charged by Kramer Levin are at rates
and on terms no less favorable to the Company than could have been obtained
from unaffiliated third parties.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The total fees and related expenses for professional services provided by
the Company's independent registered public accounting firm,
PricewaterhouseCoopers LLP, for the fiscal years ended June 30, 2003 and 2004
are presented in the table below.
Year Ended June 30,
---------------------
2003 2004
-------- --------
Audit Fees $148,750 $170,434
Audit-Related Fees 106,805 140,034
Tax Fees 37,820 139,245
All Other Fees - -
----------- -----------
Total $293,375 $449,713
=========== ===========
43
Audit Fees consist of fees billed for the audit of the Company's
consolidated financial statement, reviews of the Company's annual report on
Form 10-K and quarterly reports on Form 10-Q and reviews of various Securities
and Exchange Commission ("SEC") and other regulatory filings.
Audit-Related Fees consist of fees for assurance and related services
that are related to accounting consultations and consultations concerning
financial accounting and reporting standards, internal control reviews and
attest services that are not required by statute or regulation.
Tax Fees consist of fees for tax compliance, tax advice and tax planning.
The Audit Committee considered the compatibility of non-audit services
provided by the auditors with maintaining the auditors' independence, and
determined that the auditors' independence relative to financial audits was not
jeopardized by the non-audit services. The auditors did not employ leased
personnel in connection with their work.
PRE-APPROVAL POLICY
The services performed by the independent auditor in fiscal 2004 were
pre-approved in accordance with the pre-approval policy and procedures adopted
by the Audit Committee on October 20, 2003. This policy describes the permitted
audit, audit-related and tax services (collectively, the "Disclosure
Categories") that the independent auditor may perform up to a pre-determined
dollar limit per project. The policy requires that prior to the beginning of
each fiscal year, a description of the material services (the "Service List")
expected to be performed by the independent auditor in each of the Disclosure
Categories in the following fiscal year be presented to the Audit Committee for
approval.
Any requests for audit, audit-related and tax services not contemplated
on the Service List or exceeding the pre-determined dollar limit per project
must be submitted to the Audit Committee for specific pre-approval and cannot
commence until such approval has been granted. Normally, pre-approval is
provided at regularly scheduled meetings. However, the authority to grant
specific pre-approval between meetings, as necessary, has been delegated to the
Chairman of the Audit Committee. The Chairman must update the Audit Committee
at the next regularly scheduled meeting of any services that were granted
specific pre-approval. On a quarterly basis, the Audit Committee reviews the
status of services and fees incurred year-to-date against the original Service
List and the forecast of remaining services and fees for the fiscal year.
44
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of June 30, 2003 and 2004
Consolidated Statements of Operations for the Years Ended June 30, 2002, 2003
and 2004
Consolidated Statements of Stockholders' Equity and Comprehensive Income for the
Years Ended June 30, 2002, 2003 and 2004
Consolidated Statements of Cash Flows for the Years Ended June 30, 2002, 2003
and 2004
Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
(a)(3) Index of Exhibits
The list of exhibits required by this Item 15(a)(3) is set forth in the
section entitled "Exhibits."
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders of
Mobius Management Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and
comprehensive income and of cash flows present fairly, in all material
respects, the financial position of Mobius Management Systems, Inc. and its
subsidiaries at June 30, 2004 and 2003, and the results of their operations and
their cash flows for each of the three years in the period ended June 30, 2004
in conformity with accounting principles generally accepted in the United
States of America. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
July 28, 2004
Stamford, CT
46
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data and per share data)
June 30,
------------------------
2003 2004
-------- --------
ASSETS
Current assets:
Cash and cash equivalents $ 37,315 $ 33,592
Accounts receivable, net of allowance for
doubtful accounts of $819 and $674,
respectively 10,551 11,874
Software license installments, current portion 8,017 14,172
Other current assets 2,897 2,348
-------- --------
Total current assets 58,780 61,986
-------- --------
Software license installments, non-current
portion, net of allowance for doubtful
accounts of $671 and $420, respectively 15,435 22,358
Property and equipment, net 4,546 4,257
Deferred income taxes 328 2,514
Other assets 2,729 4,461
-------- --------
Total assets $ 81,818 $ 95,576
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 15,726 $ 18,039
Deferred revenue 21,306 21,973
Deferred income taxes 2,869 5,482
-------- --------
Total current liabilities 39,901 45,494
Deferred revenue 5,560 4,704
Deferred income taxes -- 239
-------- --------
Total liabilities 45,461 50,437
-------- --------
Stockholders' equity:
Common stock $.0001 par value; authorized
40,000,000 shares; issued 22,879,401
and 23,633,381 shares, respectively;
outstanding 17,525,178 and 18,279,158
shares, respectively 2 2
Additional paid-in capital 50,653 54,301
Retained earnings 1,466 6,268
Accumulated other comprehensive income 218 550
Treasury stock, at cost, 5,354,223 shares (15,982) (15,982)
-------- --------
Total stockholders' equity 36,357 45,139
-------- --------
Total liabilities and stockholders' equity $ 81,818 $ 95,576
======== ========
See accompanying notes to consolidated financial statements.
47
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Years Ended June 30,
-----------------------------------------
2002 2003 2004
---- ---- ----
Revenues:
Software license $ 28,026 $ 38,353 $ 42,858
Maintenance 34,776 38,448 40,151
Professional service and other 5,111 5,855 5,079
-------- -------- --------
Total revenues 67,913 82,656 88,088
-------- -------- --------
Cost of revenues:
Software license 1,128 1,146 1,115
Maintenance 5,919 6,631 7,048
Professional service and other 5,035 5,934 5,506
-------- -------- --------
Total cost of revenues 12,082 13,711 13,669
-------- -------- --------
Gross profit 55,831 68,945 74,419
-------- -------- --------
Operating expenses:
Sales and marketing 38,151 34,776 35,090
Research and development 15,741 18,025 20,797
General and administrative 10,380 10,838 11,397
Acquired in-process research and
development -- 910 956
Facilities restructuring 1,394 194 --
-------- -------- --------
Total operating expenses 65,666 64,743 68,240
-------- -------- --------
Income (loss) from operations (9,835) 4,202 6,179
Interest income, net 1,659 1,514 1,840
Other income (expense) 143 220 (90)
-------- -------- --------
Income (loss) before income taxes (8,033) 5,936 7,929
Provision for (benefit from) income taxes (2,812) 1,860 3,127
-------- -------- --------
Net income (loss) $ (5,221) $ 4,076 $ 4,802
======== ======== ========
Basic earnings (loss) per share $ (0.30) $ 0.23 $ 0.27
Basic weighted average shares outstanding 17,459 17,363 17,964
Diluted earnings (loss) per share $ (0.30) $ 0.23 $ 0.24
Diluted weighted average shares outstanding 17,459 18,089 19,937
See accompanying notes to consolidated financial statements.
48
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(in thousands)
Accumulated
Other
Common Stock Additional Comprehensive Treasury Stock Total
------------ Paid-in Retained Deferred Income -------------- Stockholders'
Shares Amount Capital Earnings Compensation (Loss) Shares Amount Equity
------ ------ ------- -------- ------------ ------ ------ ------ ------
Balance at June 30, 2001 18,193 $ 2 $ 49,624 $ 2,611 $ (168) $ (878) 4,275 $(12,721) $ 38,470
Net loss -- -- -- (5,221) -- -- -- -- (5,221)
Change in other
comprehensive income
(loss), net of tax -- -- -- -- -- 804 -- -- 804
--------
Comprehensive loss (4,417)
Stock options exercised,
net of tax 15 -- 25 -- -- -- -- -- 25
Stock purchase plan, net
of tax 85 -- 178 -- -- -- -- -- 178
Stock repurchase program (1,079) -- -- -- -- -- 1,079 (3,261) (3,261)
Change in deferred
compensation -- -- -- -- 125 -- -- -- 125
------- -------- -------- -------- -------- -------- -------- -------- --------
Balance at June 30, 2002 17,214 2 49,827 (2,610) (43) (74) 5,354 (15,982) 31,120
Net income -- -- -- 4,076 -- -- -- -- 4,076
Change in other
comprehensive income,
net of tax -- -- -- -- -- 292 -- -- 292
--------
Comprehensive income 4,368
Stock options exercised,
net of tax 152 -- 491 -- -- -- -- -- 491
Stock purchase plan,
net of tax 160 -- 335 -- -- -- -- -- 335
Change in deferred
compensation -- -- -- -- 43 -- -- -- 43
------- -------- -------- -------- -------- -------- -------- -------- --------
Balance at June 30, 2003 17,526 2 50,653 1,466 -- 218 5,354 (15,982) 36,357
Net income -- -- -- 4,802 -- -- -- -- 4,802
Change in other
comprehensive income,
net of tax -- -- -- -- -- 332 -- -- 332
--------
Comprehensive income 5,134
Stock options exercised,
net of tax 602 -- 3,219 -- -- -- -- -- 3,219
Stock purchase plan,
net of tax 151 -- 429 -- -- -- -- -- 429
------- -------- -------- -------- -------- -------- -------- -------- --------
Balance at June 30, 2004 18,279 $ 2 $ 54,301 $ 6,268 $ -- $ 550 5,354 $(15,982) $ 45,139
======= ======== ======== ======== ======== ======== ======== ======== ========
See accompanying notes to consolidated financial statements.
49
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended June 30,
2002 2003 2004
-------- -------- --------
Cash flows provided by (used in) operating
activities:
Net income (loss) $ (5,221) $ 4,076 $ 4,802
-------- -------- --------
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Deferred income taxes (1,142) 1,726 2,025
Depreciation and amortization 4,106 2,966 1,904
Other 245 322 --
Change in operating assets and liabilities:
Accounts receivable, net (3,107) 5,408 (1,323)
Software license installments 4,204 (13,123) (13,078)
Other assets (1,121) (2,290) (1,465)
Accounts payable and accrued expenses 1,954 (1,566) 2,313
Deferred revenue 2,240 6,278 (189)
-------- -------- --------
Total adjustments 7,379 (279) (9,813)
-------- -------- --------
Net cash provided by (used in) operating
activities 2,158 3,797 (5,011)
-------- -------- --------
Cash flows provided by (used in) investing
activities:
Purchase of marketable securities (8,418) -- --
Sale of marketable securities 16,958 2,536 --
Capital expenditures (1,141) (1,180) (1,314)
Other (204) -- --
-------- -------- --------
Net cash provided by (used in) investing
activities 7,195 1,356 (1,314)
-------- -------- --------
Cash flows provided by (used in) financing
activities:
Cash received from exercise of stock options 19 341 1,998
Cash received from employee stock purchase plan 178 331 291
Cash used for stock repurchase program (3,261) -- --
-------- -------- --------
Net cash provided by (used in) financing
activities (3,064) 672 2,289
-------- -------- --------
Effect of exchange rate changes on
cash and cash equivalents 711 391 313
-------- -------- --------
Net change in cash and cash equivalents 7,000 6,216 (3,723)
Cash and cash equivalents at beginning of year 24,099 31,099 37,315
-------- -------- --------
Cash and cash equivalents at end of year $ 31,099 $ 37,315 $ 33,592
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 15 $ 18 $ 9
Income taxes, net 21 250 215
See accompanying notes to consolidated financial statements.
50
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
Mobius Management Systems, Inc., together with its consolidated
subsidiaries (the "Company"), is a leading provider of integrated solutions for
total content management. Mobius was incorporated in New York in 1981 and
reincorporated in Delaware in 1997. The Company has international subsidiaries
in the United Kingdom, Canada, France, Germany, Italy, Sweden, the Benelux,
Switzerland, Australia and Japan.
(2) Significant Accounting Policies
Principles of Consolidation
The Company and its subsidiaries are consolidated for financial statement
purposes after the elimination of all significant intercompany accounts and
transactions.
Revenue Recognition
The Company recognizes license and maintenance revenue in accordance with
the provisions of Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," as amended by SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions." The Company
generates license revenues from licensing the rights to use its software
products to its customers. The Company also generates maintenance revenues from
renewable support and software enhancements and professional service revenues
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.
Historically, Mobius's contracts included a software license and an obligation
to provide maintenance. Assuming all other revenue recognition criteria were
met, revenue was recognized upon delivery using the residual method in
accordance with SOP 98-9, where the fair value of the undelivered elements was
deferred and the remaining portion of the arrangement fee was recognized as
revenue. Accordingly, when the Company entered into a contract that included
both a software license and an obligation to provide maintenance, the
maintenance revenue was unbundled from the initial license fee and recognized
ratably over the maintenance period, starting from the inception of the
software license agreement. The Company determined 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 was 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 did not exist, all revenue from the
arrangement was deferred until such evidence exists or until all elements are
delivered. Beginning in the third quarter of fiscal 2004, the vast majority of
the Company's software license revenue contracts provide for optional
maintenance in the first year, billed separately from the software license
arrangement. Accordingly, license revenue is recognized upon delivery of the
software under the provisions of SOP 97-2 and SOP 98-9. Maintenance revenue is
recognized ratably over the maintenance period.
51
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. The Company recently entered into an arrangement to sell long-term
installments receivable to General Electric Capital Corporation, which provides
enhanced flexibility in offering financing alternatives to our customers and to
manage our cash flows.
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.
Property and Equipment
Property and equipment are carried at cost. Depreciation is computed on
a straight-line basis over the estimated life of the related asset, ranging
from two to fifteen years. Assets acquired under capital leases are
depreciated on a straight-line basis over the asset's estimated life. Repairs
and maintenance are expensed as incurred.
Goodwill and Other Intangible Assets
The acquisition of the Contenuity Software and certain other assets of
Cytura Corp. (see Note 19, Cytura Assets Acquisition, for more information) and
the acquisition of the technology and certain other assets of eManage Inc. (see
Note 20, eManage Asset Acquisition, for more information) resulted in
intangible assets. Completed technology, representing developed technology of
the acquired business, is stated at cost and is amortized on a straight-line
basis over the products' estimated useful lives, which ranges from 3 years to
3.75 years. Customer relationships are
52
being amortized on a straight-line basis over their useful life of 3 years. The
portion of a purchase which pertains to in-process research and development is
expensed in the period of acquisition.
Goodwill arising from acquisitions is recorded as the excess of the
purchase price over the fair value of the assets acquired. Under SFAS No. 142,
"Goodwill and Other Intangible Assets," all goodwill and those intangible assets
with indefinite useful lives are not amortized, but rather are tested for
impairment annually and when events and circumstances indicate that their fair
value has been reduced below carrying value. The Company performed its annual
goodwill impairment test as of June 1, 2003 and 2004, and no goodwill was
considered impaired as of either date.
Income Taxes
The Company accounts for income taxes under SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires the use of the asset and liability method
of accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities, and their respective tax bases. Deferred tax assets are
recognized for deductible temporary differences, net operating loss
carryforwards, and tax credit carryforwards if it is more likely than not that
the tax benefits will be realized. A valuation allowance is established if it
is more likely than not that a deferred tax asset will not be realized.
Foreign Currency Translation
Balance sheet accounts of the Company's international subsidiaries are
translated into U.S. dollars at exchange rates in effect at the balance sheet
date. Revenues, costs and expenses are translated into U.S. dollars at average
exchange rates for the year. Gains or losses that result from translation are
shown as a separate component of stockholders' equity. Net gains and losses
resulting from foreign exchange transactions are included in the determination
of net income or loss.
Cash Equivalents
The Company considers investments with maturities at the date of purchase
of three months or less to be cash equivalents. At June 30, 2003 and 2004, cash
equivalents were comprised of overnight deposits and money market investments
with financial institutions.
Marketable Securities
Marketable securities are categorized as available-for-sale securities,
as defined by SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." Unrealized holding gains and losses are reflected as a net
amount in a separate component of stockholders' equity until realized. For the
purpose of computing realized gains and losses, cost is identified on a
specific identification basis. Realized gains and losses for the years ended
June 30, 2002 and 2004 were insignificant. Realized gains for the year ended
June 30, 2003 were $113,000. As of June 30, 2003 and 2004, the unamortized
investment premium and unrealized holding gains and losses were also
insignificant.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a
concentration of credit risk consist of substantially all of the trade accounts
receivables and software license installments. The Company sells its products
to a large number of customers in diversified industries across many domestic
and international geographies.
53
Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments,"
defines the fair value of a financial instrument as the amount at which the
instrument could be exchanged in a current transaction between willing
parties. The fair value of the Company's cash and cash equivalents, marketable
securities, accounts receivable, software license installments, non current
investments, accounts payable, accrued expenses and deferred maintenance
amounts approximate their carrying value.
Earnings Per Share
The Company calculates earnings per share in accordance with SFAS
No. 128, "Earnings Per Share." SFAS No. 128 stipulates that the calculation of
earnings per share (EPS) be shown for all historical periods as Basic EPS and
Diluted EPS. Basic EPS is computed by dividing net income (loss) by the
weighted average number of common shares outstanding during the period. The
computation of Diluted EPS is similar to the computation of Basic EPS except
that it gives effect to all potentially dilutive instruments that were
outstanding during the period. See Note 3, Earnings Per Share, for the EPS
calculations for the fiscal years ended June 30, 2002, 2003 and 2004.
Stock-Based Compensation
The Company accounts for employee stock options under the intrinsic value
method of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations ("APB No. 25"). The Company
applies the disclosure requirements of SFAS No. 148, "Accounting for
Stock-Based Compensation Transition and Disclosure, an amendment of FASB
Statement No. 123."
The Company has adopted the disclosure provisions of SFAS No. 148,
"Accounting for Stock-Based Compensation - Transition and Disclosure, an
amendment of FASB Statement No. 123." SFAS No. 148 requires prominent
disclosures in both annual and interim financial statements regarding the
method of accounting for stock-based employee compensation and the effect of
the method used on reported results. The Company does not recognize
compensation expense related to employee stock options, since options are
granted at exercise prices equal to the fair market value on the date of grant.
The following table presents the effect on the Company's net income (loss) and
net income (loss) per share if the Company had applied the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" (in thousands, except per share data):
54
Years Ended June 30,
---------------------------------
2002 2003 2004
---- ---- ----
Net income (loss), as reported $(5,221) $ 4,076 $ 4,802
Add: Stock-based compensation
expense included in reported net
income (loss), net of tax 125 43 -
Less: Total stock-based employee
compensation expense determined under
fair value based method for all awards,
net of tax (1,844) (1,334) (1,389)
-------- --------- --------
Pro forma net income (loss) $(6,940) $ 2,785 $ 3,413
======== ========= ========
Basic net income (loss) per share-as reported $ (0.30) $ 0.23 $ 0.27
Basic net income (loss) per share- pro forma $ (0.40) $ 0.16 $ 0.19
Diluted net income (loss) per share-as reported $ (0.30) $ 0.23 $ 0.24
Diluted net income (loss) per share-pro forma $ (0.40) $ 0.15 $ 0.17
Additional disclosures required under SFAS 123 are presented in Note 10,
Stock Option Plans.
Comprehensive Income (Loss)
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" requires the disclosure of comprehensive income, which
includes net income (loss), foreign currency translation adjustments and
unrealized gains and losses on marketable securities classified as
available-for-sale.
Segment and Geographic Information
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information", establishes standards for reporting information about operating
segments in annual financial statements and requires that certain selected
information about operating segments be reported in interim financial
statements. It also establishes standards for related disclosures about
products or services, and geographic areas. Operating segments are defined as
components of an enterprise about which separate financial information is
evaluated regularly by the chief operating decision maker, or decision-making
group, in deciding how to allocate resources and in assessing performance.
55
(3) Earnings Per Share
The following is a reconciliation of the numerators and denominators for
the Basic and Diluted EPS calculations (in thousands, except per share data):
Years Ended June 30,
--------------------
2002 2003
------------------------------------------ -------------------------------------------
Net (Loss) Shares Per Share Net Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- ------ ----------- ------------- ------
Basic EPS:
Net income (loss) $(5,221) $4,076
======= ======
Weighted average shares
outstanding 17,459 17,363
Basic earnings (loss)
per share $(0.30) $0.23
====== =====
Diluted EPS:
Net earnings (loss) $(5,221) $4,076
======= ======
Dilutive effect of
stock options - 726
------ ----
Weighted average shares
outstanding 17,459 18,089
====== ======
Diluted earnings (loss)
per share $(0.30) $0.23
====== =====
Year Ended June 30, 2004
---------------------------------------------
Net Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS:
Net income $4,802
======
Weighted average shares outstanding 17,964
Basic earnings per share $0.27
=====
Diluted EPS:
Net income $4,802
======
Dilutive effect of stock options 1,973
------
Weighted average shares outstanding 19,937
======
Diluted earnings per share $0.24
=====
All outstanding stock options for the year ended June 30, 2002,
representing an aggregate of 3,764,350 shares of common stock, and certain
outstanding stock options for the years ended June 30, 2003 and 2004,
representing an aggregate of 1,453,356 and 550,981 shares, respectively, of
common stock, were excluded from the calculation of diluted earnings (loss) per
share because the effect would be antidilutive. Stock options were the only
dilutive instruments outstanding for the years ended June 30, 2003 and 2004.
(4) Software License Installments
In the ordinary course of business, the Company offers extended payment
terms to some of its customers. For software license contracts of 15 years,
the related financing period is generally 5 years. For software installment
contracts of 3 to 5 years, the payments are generally spread ratably over the
related term. Software license installments are discounted at a market rate of
interest. During the year
56
ended June 30, 2004, the discount rate used for software license installments
ranged between 3.1% and 7.0%. The discount is amortized to interest income using
the interest method over the term of the financing.
The present values of software license installments to be received after
June 30, 2004 are as follows (in thousands):
Year Ended:
June 30, 2005 $15,622
June 30, 2006 11,696
June 30, 2007 9,295
June 30, 2008 3,612
June 30, 2009 241
-------
Total minimum payments to be received 40,466
Less imputed interest (3,516)
Less allowance for doubtful accounts (420)
-------
Present value of software license installments, net 36,530
Less current portion, net (14,172)
-------
Non-current portion, net $22,358
=======
(5) Property and Equipment
Property and equipment consists of the following (in thousands):
June 30,
Useful -------
Life 2003 2004
---- ---- ----
Computer equipment 2 - 5 years $7,265 $ 8,316
Furniture, fixtures and office equipment 5 years 1,437 1,506
Leasehold improvements 5 - 15 years 4,026 4,127
------- -------
12,728 13,949
Less accumulated depreciation and amortization (8,182) (9,692)
------- -------
Property and equipment, net $ 4,546 $ 4,257
======= =======
Depreciation and amortization expense on property and equipment,
including capital leases, was $3,929,000, $2,740,000 and $1,600,000 for the
years ended June 30, 2002, 2003 and 2004, respectively.
(6) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in
thousands):
June 30,
--------
2003 2004
---- ----
Accounts payable $3,110 $3,044
Compensation and related benefits 6,934 7,997
Royalties payable 1,025 991
Other 4,657 6,007
------- -------
$15,726 $18,039
======= =======
57
(7) Income Taxes
Income (loss) before provision for (benefit from) income taxes is as
follows (in thousands):
Years Ended June 30,
--------------------
2002 2003 2004
---- ---- ----
Domestic income (loss) $(3,015) $ 8,900 $ 7,651
Foreign income (loss) (5,018) ( 2,964) 278
------- ------- -------
$(8,033) $ 5,936 $ 7,929
======= ======= =======
The components of the provision for (benefit from) income taxes for the
years ended June 30, 2002, 2003 and 2004 are as follows (in thousands):
Years Ended June 30,
----------------------------------------------------------------------------------------------------------------
2002 2003 2004
----------------------------------------------------------------------------------------------------------------
Current Deferred Total Current Deferred Total Current Deferred Total
------- -------- ----- ------- -------- ----- ------- -------- -----
Federal $(1,613) $ (777) $(2,390) $ (380) $ 1,209 $ 829 $ 71 $1,901 $1,972
State (103) (365) (468) 23 517 540 71 515 586
Foreign 46 - 46 491 - 491 835 (266) 569
------- ------- ------- ------- ------- ------- ------ ------ ------
$(1,670) $(1,142) $(2,812) $ 134 $ 1,726 $ 1,860 $ 977 $2,150 $3,127
======= ======= ======= ======= ======= ======= ====== ====== ======
The following table reconciles the actual provision (benefit) for income
taxes to the provision (benefit) for income taxes calculated at the Federal
statutory corporate rate of 34% for the years ended June 30, 2002, 2003 and
2004 (in thousands):
Years Ended June 30,
-------------------
2002 2003 2004
---- ---- ----
Expected federal statutory corporate rate $(2,731) $ 2,018 $ 2,696
State income taxes, net (309) 356 387
Foreign taxes 46 491 932
Losses of international subsidiaries
for which no benefit has been recognized 304 582 28
Research credit (200) (389) (650)
Reversal of previously accrued taxes -- (700) --
Reduction in valuation allowance -- (271) (266)
Other 78 (227) --
------- ------- -------
Total income tax provision (benefit) $(2,812) $ 1,860 $ 3,127
======= ======= =======
Pre-tax income (loss) $(8,033) $ 5,936 $ 7,929
======= ======= =======
Effective tax rate (35.0)% 31.3% 39.4%
======= ======= =======
In March of 2003, the Internal Revenue Service (IRS) closed its
examination of the Company's tax return for the year ended June 30, 2000. As a
result of the completion of the audit, the Company reversed previously accrued
taxes, reducing the tax provision for fiscal 2003 by $700,000.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below (in thousands):
58
June 30,
-------
2003 2004
---- ----
Deferred tax assets:
Accounts receivable related $ 527 $ 382
Domestic net operating loss carryforwards
attributable to operating activities 1,611 3,579
Domestic net operating loss carryforwards
attributable to employee stock options -- 1,508
Foreign net operating loss carryforwards 5,797 6,414
Depreciation and amortization 524 1,326
Tax credit carryforwards 2,181 2,831
Capital loss carryforwards 1,077 1,033
Other 142 204
-------- --------
11,859 17,277
Valuation allowance (6,874) (7,258)
-------- --------
Net deferred tax assets 4,985 10,019
Deferred tax liabilities:
Software license installments 7,465 12,901
U.S. taxes on foreign income -- 264
Other 61 61
-------- --------
Net deferred tax liability $ 2,541 $ 3,207
======== ========
The valuation allowance increased by $384,000 for the year ended June 30,
2004 primarily due to the uncertainty regarding the realization of net
operating losses incurred by certain international subsidiaries. The Company
reduces the valuation allowance when it is concluded that it is more likely
than not that these deferred tax assets will be realized. For the year ended
June 30, 2004, the Company reversed $266,000 of valuation allowance relating to
net operating losses and other temporary differences in the United Kingdom.
As of June 30, 2004, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $13.2 million which will begin to
expire, if unused, in the year 2023. The Company also has $18.9 million in
foreign net operating loss carryforwards as of June 30, 2004. The carryforward
period of these losses varies by jurisdictions; some begin to expire in fiscal
2005 and others extend indefinitely.
As of June 30, 2003 and 2004, the Company had capital loss carryforwards
of approximately $2.8 million and $2.7 million, respectively. These capital
loss carryforwards will expire, if unused, in fiscal 2006 and 2007,
respectively.
(8) Preferred Stock
The Company has authorized 1,000,000 shares of Preferred Stock with a par
value of $.01. Before any shares are issued, the Board of Directors shall fix
the specific provisions of the shares including the designation of series,
voting rights, dividend features, redemption and liquidation provision and
other features. No shares were outstanding as of June 30, 2003 and 2004.
(9) Treasury Stock
Since the inception of the Company's stock repurchase program in December
2000 through October 2001, Mobius repurchased the entire 1,250,000 shares of
its common stock authorized under the program for an aggregate cost of
approximately $3.9 million. The number of shares repurchased and timing of
purchases were based on a variety of factors, including general market
conditions and the market price and trading volume of Mobius's common stock.
59
(10) Stock Option Plans
1996 Stock Incentive Plan
In November 1996, the Company adopted the 1996 Stock Incentive Plan (the
"Plan") pursuant to which the Company's Board of Directors may grant stock
options to officers, employees, directors and consultants. The Plan authorizes
grants of options to purchase up to 5,964,366 shares of authorized but unissued
common stock. Stock options are generally granted with an exercise price equal
to the stock's fair market value at the date of grant as determined by the
Company's Board of Directors. Stock options generally vest as to 20% of the
shares subject thereto on the first anniversary of the date of grant and the
remainder vest ratably over the subsequent 16 quarters.
Non-Employee Directors' 1998 Stock Option Plan
In February 1998, the Board of Directors and stockholders of the Company
approved and adopted the Non-Employee Directors' 1998 Stock Option Plan (the
"Directors' Plan"). The purpose of the Directors' Plan is to provide an
incentive to the Company's non-employee directors to serve on the Board of
Directors and to maintain and enhance the Company's long-term performance. The
Directors' Plan provides for the issuance of a total of 500,000 authorized and
unissued shares of common stock, treasury shares and/or shares acquired by the
Company for purposes of the Directors' Plan.
The Directors' Plan provides for initial grants (i.e. upon adoption of
the Directors' Plan or upon a non-employee director's initial election to the
Board of Directors) of non-qualified stock options to purchase 10,000 shares of
common stock. At each annual meeting thereafter, each non-employee director
will receive an option to purchase 10,000 shares. Each option granted under the
Directors' Plan will have a term of ten years and will become exercisable upon
grant. The exercise price of each option granted under the Directors' Plan will
equal the fair market value of a share of common stock on the date of grant.
* * *
Total stock option activity during the periods indicated was as follows:
Weighted
Average
Number of Exercise
Shares Price
------ -----
Balance at June 30, 2001 3,070,150 $5.29
Granted 1,051,500 2.71
Exercised (15,500) 1.25
Forfeited (344,300) 8.48
Expired -- --
---------
Balance at June 30, 2002 3,761,850 4.30
Granted 742,975 2.32
Exercised (152,225) 2.24
Forfeited (272,050) 3.87
Expired -- --
---------
Balance at June 30, 2003 4,080,550 4.04
Granted 842,700 7.75
Exercised (602,977) 3.31
Forfeited (231,200) 4.47
Expired -- --
---------
Balance at June 30, 2004 4,089,073 $4.89
=========
60
The following table summarizes information about the stock option plans:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------- -----------------------
Number Weighted Weighted Number Weighted
Outstanding Average Average Exercisable Average
Range of as of Contractual Exercise as of Exercise
Exercise Prices June 30,2004 Life Price June 30, 2004 Price
--------------- ------------ ----------- -------- ------------- --------
$1.25 - $1.25 426,898 2.35 $ 1.25 426,898 $ 1.25
$1.81 - $2.41 725,615 8.14 $ 2.17 195,591 $ 2.20
$2.48 - $2.80 428,200 7.49 $ 2.74 197,725 $ 2.72
$2.81 - $3.10 422,260 6.99 $ 2.98 274,835 $ 2.99
$3.13 - $5.28 489,400 4.86 $ 4.39 430,600 $ 4.46
$6.00 - $6.33 20,000 6.48 $ 6.13 13,500 $ 6.08
$6.49 - $6.49 540,700 9.93 $ 6.49 - -
$6.59 - $9.86 573,500 4.44 $ 8.14 507,750 $ 8.19
$10.25 - $11.00 437,500 6.74 $10.68 267,500 $10.82
$12.50 - $15.00 25,000 6.50 $13.35 15,000 $13.33
--------- ---------
$1.25 - $15.00 4,089,073 6.51 $ 4.89 2,329,399 $ 4.97
========= =========
As of June 30, 2004, there were 839,841 shares available for grant under
the Plan and 180,000 shares available for grant under the Directors' Plan. As
of June 30, 2003 and 2004, there were 2,403,625 and 2,329,399 options
exercisable, respectively.
In January, February and March 1998 the Company granted 350,000, 370,000
and 53,000 stock options, respectively, under the 1996 Stock Incentive Plan at
an exercise price of $9.86, $11.00 and $11.00 per share, respectively, which
were deemed by the Board of Directors to be fair market values for the shares
on these dates. The Company subsequently determined that these options were
granted at exercise prices below the fair market value of $14.00 per share, the
low end of the range of per share prices for the IPO in April 1998. As a
result, the Company recognized compensation expense of $125,000 and $43,000 for
the years ended June 30, 2002 and 2003, respectively. Since the Company had
recognized the entire expense effective April 1, 2003, there was no additional
stock compensation expense relating to these 1998 option grants. Such
compensation expense is included within sales and marketing of $80,000 and
$27,000, research and development of $36,000 and $13,000 and general and
administrative expenses of $9,000 and $3,000 for the years ended June 30, 2002
and 2003, respectively.
The Black Scholes option pricing model has been used for grants
subsequent to July 1, 1998. The per share weighted average fair value of stock
options granted during the years ended June 30, 2002, 2003 and 2004 was $2.60,
$1.51 and $5.18 on the date of grant, respectively. Grants during the years
ended June 30, 2002, 2003 and 2004 assumed 116%, 110% and 101% of volatility,
expected dividend yield of 0.0% and an expected life of 3.2 years, 3.4 years
and 4.1 years, respectively. The assumed risk free interest rate on the date
of grants was 4.1%, 2.8% and 3.7% in fiscal years 2002, 2003 and 2004,
respectively.
61
(11) 1998 Employee Stock Purchase Plan
In February 1998, the Board of Directors and stockholders of the Company
approved and adopted the 1998 Employee Stock Purchase Plan (the "ESPP"). The
purpose of the ESPP is to provide eligible employees who wish to acquire common
stock of the Company the opportunity to purchase shares from the Company with
accumulated payroll deductions. The ESPP is intended to constitute an "employee
stock purchase plan" under section 423 of the Internal Revenue Code. The ESPP
provides for the issuance of an aggregate of up to 1,650,000 shares. During
fiscal 2002, 2003 and 2004; 84,573, 158,978 and 151,003 shares were issued
under the ESPP, respectively. As of June 30, 2004, 60,112 shares are reserved
for issuance and there were 902,959 remaining shares available to purchase
under this plan.
(12) Employee Savings Plan and Executive Incentive Plan
In fiscal 1995, the Company established a savings plan that qualifies
under Section 401(k) of the Internal Revenue Code. Under the plan,
participating U.S. employees may defer up to 20% of their pre-tax compensation,
but not more than Internal Revenue Code limitations. The Company, at the
discretion of the Board of Directors, may match the employee contributions. No
matching contributions were made in the years ended June 30, 2002, 2003 and
2004.
In February 1998, the Board of Directors and stockholders of the Company
approved and adopted the Mobius Management Systems, Inc. Executive Incentive
Plan (the "Incentive Plan"). The Incentive Plan is administered by the
Compensation Committee of the Board. Participation in the Incentive Plan is
limited to those executives and key employees who, in the judgment of the
Compensation Committee, are in a position to have a significant impact on the
performance of the Company.
Awards under the Incentive Plan are based upon the extent to which
performance goals established by the Compensation Committee for a designated
performance period are satisfied. The Incentive Plan also provides for grants
of discretionary bonuses. For the years ended June 30, 2002, 2003 and 2004, no
awards were made under the Incentive Plan.
(13) Comprehensive Income (Loss)
Comprehensive income (loss) for the years ended June 30, 2002, 2003 and
2004 is as follows:
Year ended June 30,
------------------
2002 2003 2004
---- ---- ----
Net income (loss) $(5,221) $4,076 $4,802
Unrealized marketable securities gain (loss) 94 (99) -
Unrealized translation gain 710 391 332
-------- --------- --------
Comprehensive income (loss), net of tax $(4,417) $4,368 $5,134
======== ========= ========
(14) Related Party Transactions
Since 1981 the Company has engaged, and plans to continue to engage, the
Kramer Levin law firm to provide the Company with legal counsel. Mr. Kopelman,
a member of Mobius's Board of Directors, is a partner of Kramer Levin Naftalis
& Frankel LLP. Fees paid to Kramer Levin during the years ended June 30, 2002,
2003 and 2004 were approximately $635,000, $787,000 and $1.0 million,
respectively.
(15) Lease Commitments
The Company has operating leases for its office facilities which expire
on various dates through fiscal 2010 and provide for escalation and additional
payments relating to operating expenses.
62
The following is a schedule of future minimum lease payments for
operating leases as of June 30, 2004 (in thousands):
Operating
Leases
Year Ended: ------
June 30, 2005 $ 2,842
June 30, 2006 2,516
June 30, 2007 2,089
June 30, 2008 1,937
June 30, 2009 1,833
Thereafter 1,629
-------
Total minimum lease payments $12,846
=======
Rental expense for all operating leases was approximately $3.5 million,
$2.8 million and $2.8 million for the years ended June 30, 2002, 2003 and 2004,
respectively.
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.
(16) Segment and Geographic Information
The Company operates in one principal business segment across domestic
and international markets. No foreign country accounted for more than 10% of
revenue or 10% of identifiable assets in any of the periods presented.
United
States Intl.(a) Eliminations Total
------ -------- ------------ -----
Year Ended June 30, 2002:
Revenue:
From external customers(b) $57,474 $10,439 $ -- $67,913
Between geographic areas(c) 2,848 -- (2,848) --
------- ------- ------- -------
Total revenue $60,322 $10,439 $(2,848) $67,913
======= ======= ======= =======
Long-lived assets $10,416 $ 1,575 $ -- $11,991
======= ======= ======= =======
Year Ended June 30, 2003:
Revenue:
From external customers(b) $70,689 $11,967 $ -- $82,656
Between geographic areas(c) 3,323 -- (3,323) --
------- ------- ------- -------
Total revenue $74,012 $11,967 $(3,323) $82,656
======= ======= ======= =======
Long-lived assets $20,202 $ 2,035 $ -- $22,237
======= ======= ======= =======
Year Ended June 30, 2004:
Revenue:
From external customers(b) $69,661 $18,427 $ -- $88,088
Between geographic areas(c) 5,241 -- (5,241) --
------- ------- ------- -------
Total revenue $74,902 $18,427 $(5,241) $88,088
======= ======= ======= =======
Long-lived assets $28,880 $ 4,723 $ -- $33,603
======= ======= ======= =======
63
(a) The Company operates wholly-owned subsidiaries in the United Kingdom,
Canada, France, Germany, Italy, Sweden, the Benelux, Switzerland,
Australia and Japan. Includes international net agent sales (agent sales
less agent commissions).
(b) Includes royalties paid to the Company and to its subsidiaries by agents.
Royalties from agents are a percentage of the license and maintenance fees
paid by customers to such agents.
(c) Represents transfer fees from international subsidiaries to Mobius
Management Systems, Inc. Transfer fees from international subsidiaries are
a percentage of the license and maintenance fees paid by customers to such
international subsidiaries.
(17) 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. The buyer has been delinquent on these payments since June
2001 and, as such, no license revenue relating to this agreement was recognized
in fiscal 2002, 2003 and 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 for the full amount of the debt due of approximately $1.2
million 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.
(18) Facilities Restructuring
In connection with management's plan to reduce costs and improve
operating efficiencies, the Company recorded a facilities restructuring charge
of $1.4 million in fiscal 2002. The charge reflected estimated future lease
obligations, net of estimated sublease income, for office space the Company
will no longer utilize. The Company worked with an external real estate
consultant to determine the best estimate for the accrual. During fiscal 2003,
the Company entered into an agreement with the landlord and the over-tenant
which released Mobius from all of its ongoing obligations under the original
terms of the lease effective as of February 15, 2003. Accordingly, the Company
recorded additional expenses of $78,000 associated with this new agreement in
fiscal 2003.
In connection with the second sales office, the Company recorded a
facilities restructuring charge of $116,000 in fiscal 2003, representing the
estimated future lease obligations for office space that the Company was
subleasing to a third party. The third party abandoned the space during fiscal
2003 and the Company believed that it was highly unlikely that it would be able
to sublease this space for the remainder of the lease term.
64
The balance of the facilities restructuring accrual and the transactions
for the fiscal years ended June 30, 2003 and 2004 are as follows (in thousands):
Balance at Balance at
beginning Cash Other end
of period Payments Adjustments of period
--------- -------- ----------- ---------
Year ended June 30, 2003:
Rent and related
facilities expense $1,066 $ 194 $1,148* $ 112
Other 328 - 328 -
------ ----- ------ -----
Total $1,394 $ 194 $1,476 $ 112
====== ===== ====== =====
Year ended June 30, 2004:
Rent and related
facilities expenses $ 112 $ 65 $ 41 $ 6
====== ===== ====== =====
* Includes a cash payment of $647,000 in connection with the release described
above.
(19) Cytura Asset Acquisition
On October 11, 2002 (the "Cytura Closing Date"), the Company, through a
wholly-owned subsidiary, acquired technology (the "Contenuity Software") and
certain other assets of Cytura Corp. ("Cytura"), a privately held company, for
an aggregate of approximately $2.2 million in cash, which was paid from the
Company's existing cash balances. In addition, the Company assumed capital
lease obligations of $36,000 and incurred acquisition-related expenses of
$250,000, for an aggregate purchase price of approximately $2.5 million. The
Contenuity Software provides a platform for Web site implementation and
management, document and digital asset management and content publishing.
Additionally, 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 if the average closing price of the Company's common stock for
a 30-day period in the thirteen months following the Cytura Closing Date
exceeded specified amounts set forth in the agreement. During the fiscal fourth
quarter of 2003, the average closing price of the Company's common stock
exceeded such specified amount. Accordingly, during the fourth quarter of
fiscal 2003, the Company recorded incremental goodwill and a payable to Cytura
of $800,000. Under the terms of a revised agreement with Cytura, the Company
made the $800,000 payment to Cytura in January 2004.
The purchase price for the Contenuity Software and the other Cytura
assets, adjusted for the additional payment of $800,000, has been allocated to
assets acquired and liabilities assumed based on their fair values at the
Cytura Closing Date, as follows (in thousands):
Property and equipment $ 249
Other current assets 27
Other non-current assets 2,136
Acquired in-process research and
development 910
-------
Purchase price $ 3,322
=======
Other non-current assets consist of completed technology of $900,000 and
goodwill of $1,236,000. Property and equipment is being amortized on a
comparable basis for similar property and equipment. Completed technology is
being amortized on a straight-line basis over the estimated useful life of 3.75
years. During fiscal 2003 and 2004, the Company had amortized $180,000 and
$240,000, respectively, of the completed technology, and will amortize $240,000
in each of the fiscal years 2005 and 2006. A valuation prepared using the
discounted net cash flow method was utilized by the Company to value the
acquired in-process research and development which had not reached the working
model stage and had no alternative future use, which resulted in an operating
expense of $910,000 in fiscal 2003.
65
(20) eManage Asset Acquisition
On April 26, 2004 (the "eManage Closing Date"), the Company, through a
wholly-owned subsidiary, acquired technology and certain other assets of
eManage Inc. ("eManage"), a privately held company, for an aggregate of
approximately $2.4 million in cash, which was paid from the Company's existing
cash balances. In addition, the Company assumed liabilities of $111,000 and
incurred acquisition-related expenses of $250,000, for an aggregate purchase
price of approximately $2.7 million. eManage develops software solutions for
e-mail archiving, records management and lifecycle management that enable
organizations to manage corporate records at an enterprise level. In addition,
under the terms of the agreement, Mobius may be obligated to pay eManage up to
an additional $1.2 million if certain revenue and other operating targets are
achieved as of the end of each quarter through June 30, 2005. During the fourth
quarter of fiscal 2004, certain targets were met, and, accordingly, the Company
recorded incremental goodwill and a payable to eManage of $340,000.
The purchase price for the technology and certain other assets of
eManage, adjusted for the additional payment of $340,000, has been allocated to
assets acquired and liabilities assumed based on their fair values at the
eManage Closing Date, as follows (in thousands):
Property and equipment $ 46
Other non-current assets 2,087
Acquired in-process research and
development 956
------
Purchase price $3,089
======
Other non-current assets consist of completed technology of $880,000,
identifiable intangibles of $277,000 and goodwill of $930,000. Property and
equipment is being amortized on a comparable basis for similar property and
equipment. Completed technology and intangibles are being amortized on a
straight-line basis over the estimated useful life of 3.0 years. During fiscal
2004, the Company had amortized $64,000 of the completed technology and
intangibles, and will amortize $386,000 in each of the fiscal years 2005 and
2006 and $321,000 in fiscal year 2007. A valuation prepared using the
discounted net cash flow method was utilized by the Company to value the
acquired in-process research and development which had not reached the working
model stage and had no alternative future use, which resulted in an operating
expense of $956,000 in fiscal 2004.
(21) Goodwill and Other Intangible Assets
Intangible assets as of June 30, 2003 and 2004 were as follows (in
thousands):
June 30,
---------------------------------------------------------------------------------
2003 2004
------------------------------------ ------------------------------------
Accumulated Accumulated
Gross Amortization Net Gross Amortization Net
----- ------------ ------ ----- ------------ ------
Completed technology $ 900 $ 180 $ 720 $1,780 $ 469 $1,311
Customer relationships -- -- -- 277 15 262
------ ------ ------ ------ ------ ------
Total $ 900 $ 180 $ 720 $2,057 $ 484 $1,573
====== ====== ====== ====== ====== ======
Aggregate amortization expense for intangible assets for the years ended
June 30, 2003 and 2004 was $180,000 and $304,000, respectively. Amortization
expense for the years ended June 30, 2005, 2006 and 2007, for acquisitions
completed through June 30, 2004, is estimated to be $626,000, $626,000 and
$321,000, respectively.
66
Changes in the carrying amount of goodwill for the years ended June 30,
2003 and 2004 were as follows (in thousands):
Total
-----
Balance as of June 30, 2002 $ 330
Goodwill acquired during the year 1,236
Effect of exchange rate changes and other 48
------
Balance as of June 30, 2003 1,614
Goodwill acquired during the year 930
Effect of exchange rate changes and other 22
------
Balance as of June 30, 2004 $2,566
======
67
Report of Independent Registered Public Accounting
Firm on Financial Statement Schedule
------------------------------------
To the Board of Directors of
Mobius Management Systems, Inc.
Our audit of the consolidated financial statements referred to in our report
dated July 28, 2004 appearing in this Annual Report on Form 10-K also included
an audit of the financial statement schedule for the years ended June 30, 2004,
June 30, 2003 and June 30, 2002 listed in Item 15(a)(2) of the Form 10-K. In
our opinion, this financial statement schedule presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements.
PricewaterhouseCoopers LLP
Stamford, CT
July 28, 2004
68
SCHEDULE II
MOBIUS MANAGEMENT SYSTEMS, INC.
Valuation and Qualifying Accounts
(In thousands)
Years Ended June 30,
----------------------------------------
2002 2003 2004
------- ------- -------
Allowance for Doubtful Accounts
Balance at July 1 $ 1,450 $ 1,496 $ 1,490
Additions charged to expense 330 710 103
Additions deducted from maintenance
revenues -- 250 175
Bad debt write-offs (284) (966) (674)
------- ------- -------
Balance at June 30 $ 1,496 $ 1,490 $ 1,094
======= ======= =======
Deferred Income Tax Valuation Allowance*
Balance at July 1 $ 3,997 $ 6,497 $ 6,874
Additions charged to deferred income
tax expense 2,796 1,518 1,104
Deductions credited to deferred income
tax expense (296) (1,141) (720)
------- ------- -------
Balance at June 30 $ 6,497 $ 6,874 $ 7,258
======= ======= =======
* See also Note 7, Income Taxes, to the Consolidated Financial Statements.
All other schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements or the
notes thereto.
69
15(a)(3) Exhibits
- -----------------
Exhibit No. Description
- ---------- -----------
3.1(1) -- Form of Second Amended and Restated Certificate of Incorporation
of the Registrant.
3.2(1) -- Form of Restated By-Laws of the Registrant.
4.1(1) -- Specimen certificate representing the Common Stock.
10.1(1) -- Mobius Management Systems, Inc. 1996 Stock Incentive Plan.*
10.2(1) -- Amendment No. 1 to Mobius Management Systems, Inc. 1996 Stock
Incentive Plan.*
10.2A(9) -- Amendment No. 2 to Mobius Management Systems, Inc. 1996 Stock
Incentive Plan.*
10.2B(10) -- Amendment No. 3 to Mobius Management Systems, Inc. 1996 Stock
Incentive Plan.*
10.3(1) -- Mobius Management Systems, Inc. 1998 Employee Stock Purchase
Plan.*
10.4(1) -- Mobius Management Systems, Inc. Non-Employee Directors' 1998
Stock Option Plan.*
10.4A(2) -- Amendment No. 1 to Mobius Management Systems, Inc. Non-Employee
Directors' 1998 Stock Option Plan.*
10.4B(7) -- Amendment No. 2 to Mobius Management Systems, Inc. Non-Employee
Directors' 1998 Stock Option Plan.*
10.5(1) -- Mobius Management System, Inc. 1998 Executive Incentive Plan.*
10.6(1) -- Form of Grantee Option Agreement.*
10.7(1) -- Lease dated December 4, 1997 by and between Old Boston Post Road
Associates LLC and the Registrant.
10.8(1) -- Lease dated February 14, 1983 by and between American National
Bank and Trust Company of Chicago and the Registrant.
10.9(3) -- Sublease dated January 5, 1999 by and between Fluor Daniel, Inc.
and the Registrant.
10.10(1) -- Stock Purchase Agreement dated as of May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.11(1) -- Stockholders' Agreement dated as of May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.12(1) -- Registration Rights Agreement dated May 12, 1997 by and among
the Registrant and the other parties listed on the signature
pages thereto.
10.13(1) -- Severance Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.*
10.14(1) -- Option Agreement dated as of September 30, 1997 between the
Registrant and Joseph Tinnerello.*
10.15(1) -- Letter Agreement, dated as of December 28, 1997 between the
Registrant and Joseph Tinnerello.*
10.16(1) -- Stockholder Agreement, dated as of December 30, 1997 between the
Registrant and Joseph Tinnerello.*
10.17(1) -- Software Assets Purchase Agreement dated as of December 10, 1990
among the Registrant, Compucept of Nevada and Software Assist
Corporation.
10.18(1) -- OEM Agreement between the Registrant and CDP Communications,
Inc. dated as of October 15, 1993.
10.19(1) -- Source Code License and Amendment to OEM Agreement between the
Registrant and CDP Communications Inc. dated as of August 12,
1997.
10.20(1) -- Amendment No. 1 to License and Amendment to OEM Agreement
between the Registrant and CDP Communications, Inc. dated
November 21, 1997.
10.21(4) -- Lease Modification Agreement dated July 12, 1999 by and between
Old Boston Post Road Associates LLC and the Registrant.
10.22(5) -- Amendment No. 1 to Mobius Management Systems, Inc. 1998 Employee
Stock Purchase Plan.*
10.23(6) -- Amendment No. 2 to Mobius Management Systems, Inc. 1998 Employee
Stock Purchase Plan.*
70
10.24(8) -- Asset Purchase and Sale Agreement, dated as of October 11, 2002,
by and between Cytura Corp. and certain shareholders of Cytura
Corp., on the one hand, and MMS Acquisition I LLC, on the other
hand.
10.25(10) -- Amendment No. 3 to Mobius Management Systems, Inc. 1998 Employee
Stock Purchase Plan.*
10.26(11) -- Description of Raymond F. Kunzmann's Compensation, dated as of
December 16, 2003.*
10.27 -- Vendor Program Agreement, dated as of July 21, 2004, by and
between General Electric Capital Corporation and the Registrant.
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of Registered Independent Accounting Firm.
31.1 -- CEO Certification pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002.
31.2 -- CFO Certification pursuant to Section 302(a) of the
Sarbanes-Oxley Act of 2002.
32.1 -- CEO Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
32.2 -- CFO Certification pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
* Management contract or compensatory plan or arrangement.
(1) Filed as an exhibit to Mobius's Registration Statement on Form S-1
(Registration Number 333-47117) or an amendment thereto, and incorporated
herein by reference.
(2) Filed as Exhibit No. 10.4A to Mobius Management Systems, Inc.'s Form 10-Q
for the quarter ended September 30, 2001, and incorporated herein by
reference.
(3) Filed as an exhibit to Mobius Management Systems, Inc.'s Annual Report
filed on Form 10-K for the year ended June 30, 1999, and incorporated
herein by reference.
(4) Filed as Exhibit No. 10.1 to Mobius Management Systems, Inc.'s Form 10-Q
for the quarter ended December 31, 1999, and incorporated herein by
reference.
(5) Filed as Exhibit No. 10.24 to Mobius Management Systems, Inc.'s Annual
Report filed on Form 10-K for the year ended June 30, 2000, and
incorporated herein by reference.
(6) Filed as Exhibit No. 10.25 to Mobius Management Systems, Inc.'s Form 10-Q
for the quarter ended December 31, 2001, and incorporated herein by
reference.
(7) Filed as Exhibit No. 10.4B to Mobius Management Systems, Inc.'s Form 10-Q
for the quarter ended March 31, 2003, and incorporated herein by
reference.
(8) Filed as Exhibit No. 10.26 to Mobius Management Systems, Inc.'s Current
Report on Form 8-K filed on October 17, 2002, and incorporated herein by
reference.
(9) 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.
(10) Filed as an exhibit to Mobius Management Systems, Inc.'s Registration
Statement on Form S-8 (Registration Number 333-112553) filed on February
6, 2004, and incorporated herein by reference.
(11) Filed as Exhibit 10.4 to Mobius Management Systems, Inc.'s Form 10-Q for
the quarter ended December 31, 2003, and incorporated herein by reference.
71
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MOBIUS MANAGEMENT SYSTEMS, INC.
By: /s/ Mitchell Gross
---------------------------------
Mitchell Gross
Chairman of the Board, Chief
Executive Officer and President
(Principal Executive Officer)
Date: September 10, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signatures Title(s) Date
---------- -------- ----
/s/ Mitchell Gross Chairman of the Board, Chief September 10, 2004
----------------------- Executive Officer, President
Mitchell Gross and Director (Principal
Executive Officer)
/s/ Raymond F. Kunzmann Chief Financial Officer September 10, 2004
----------------------- (Principal Financial
Raymond F. Kunzmann and Accounting Officer)
/s/ Joseph J. Albracht Director September 10, 2004
----------------------
Joseph J. Albracht
/s/ Robert H. Levitan Director September 10, 2004
----------------------
Robert H. Levitan
/s/ Arthur J. Marks Director September 10, 2004
----------------------
Arthur J. Marks
/s/ Kenneth P. Kopelman Director September 10, 2004
----------------------
Kenneth P. Kopelman
/s/ Gary G. Greenfield Director September 10, 2004
----------------------
Gary G. Greenfield
/s/ Patrick W. Gross Director September 10, 2004
----------------------
Patrick W. Gross
72