Item 1 - Business. Mobius accepts no obligation 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 Web-based software solutions that manage and present enterprise content. Mobius was incorporated in New York in 1981 and reincorporated in Delaware in 1997. The Company has foreign subsidiaries in the United Kingdom, France, Germany, Italy, Sweden, Australia, Switzerland, Japan and the Benelux. Mobius's company headquarters are located at 120 Old Post Road, Rye, NY 10580 and the telephone number is (914) 921-7200.
For over two decades, Mobius has delivered innovative technology that provides access through a common portal to mission-critical documents, reports and images. Mobius solutions have achieved industry-wide recognition for their ability to support high-volume, high-performance, simultaneous-access requirements in distributed environments that range from the desktop to the mainframe. Today, our ViewDirect(R) technology stores and integrates information in virtually any format, presenting and distributing it over the Internet and corporate networks. Personalized views and automated distribution options deliver information in the format needed by each employee, customer and partner.
This versatile technology supports a broad range of e-business requirements, including corporate portals, customer service, customer relationship management, electronic bill presentment and payment, and archiving and output management for enterprise resource planning systems. Nearly 1,300 major organizations worldwide, including more than half of the Fortune 100, use Mobius software to manage enterprise content and enable e-relationships.
Industry Background
Organizations need to retain information for long periods of time to meet operational, regulatory and legal requirements or to satisfy customer and other inquiries. For example, credit card companies store records of each charge transaction; brokerage firms store records of every trade; and telephone companies store records of individual telephone calls. This information must be quickly and accurately retrieved to support customer service, meet legal requirements and to reach more informed business decisions. Customers have become dependent upon organizations to accurately account for transactions and other information and demand rapid and consistent access to their records. Increasingly, customers expect self-service access via the Internet using readily available Web-browser technology.
Organizations are also faced with the need to store and distribute large volumes of report output produced by various applications, particularly enterprise resource planning ("ERP") systems. Furthermore, organizations wish to present customized views of this information to their employees, customers and suppliers over intranets with easy to learn common graphical user interfaces such as Web-browsers.
Traditional approaches such as paper, microfiche, and relational databases are usually cumbersome and do not lend themselves to a fully integrated, comprehensive information management system solution. Moreover, many organizations maintain a number of discrete, non-integrated systems, each of which provides access to only a portion of the organization's stored information. When the organization needs to access all information about a particular customer or transaction, these disparate systems make retrieval costly and time consuming.
Mobius's ViewDirect(R) technology is an integrated architecture to capture, index, store, distribute and Web-enable all enterprise documents, reports and images. Its versatile architecture interfaces with all back-office systems, capturing scanned documents as well as output from enterprise applications, including many major ERP systems. ViewDirect(R) creates an integrated repository of documents, reports and images from multiple applications and sources. It makes these documents available for online access, delivered via fax or e-mail, or Web-enabled for use with front-office systems such as customer service, electronic statement presentment (ESP), and electronic bill presentment and payment (EBPP). Capabilities include powerful search functions, personalized views of enterprise documents, automated distribution, and tools for data analysis and export.
The ViewDirect(R) 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 primary products are ViewDirect(R), e-Search & View(R), DocumentDirect(R) for the Internet, Click-n-Done(TM), DocumentDirect(R) Application Suite, DocumentDirect(R), DocuAnalyzerTM and Infopac-ABS.
ViewDirect(R) is market-leading software for high-volume storage, high-speed indexed access and electronic distribution of enterprise information. It is the document server of the ViewDirect technology product suite, capturing, indexing, and storing information in multiple formats from multiple sources.
e-Search & View(R) is a powerful Web-based tool for searching any document stored in high-volume, indexed enterprise archives: application report output, bills, statements, scanned forms, e-mail, policies, images, customer correspondence, and more. e-Search & View is the ideal Web searching solution for customer-support and customer-relationship systems management.
DocumentDirect(R) for the Internet makes all the documents in the enterprise available over the Internet/intranet using generic Web browsers. It is ideal for both internal users who require only browsing capability, and for customers and suppliers, who want "self-service" access in a completely secure environment. It offers robust functionality for Web presentment of enterprise information, providing the ability to produce a replica of the original document or to extract data from a document and embed it in a customized Web page.
Click-n-Done(TM) is application software that supports electronic bill presentment and payment ("EBPP") and electronic statement presentment ("ESP.") Click-n-Done supports multiple billing models including "consumer consolidation," in which bills and statements are presented on the consumer's desktop processor. Click-n-Done's distributed architecture offers the enterprise maximum flexibility for centralized or decentralized processing. Its primary components -- the document repository, presentment server and payment server -- are designed to operate independently, supporting both self-hosting and outsourcing.
DocumentDirect(R) Application Suite supports fast implementation of personalized document search, retrieval, and processing applications. Its fully configurable interface provides the flexibility to deliver powerful customer care applications and support ad-hoc searching needs.
DocumentDirect(R) is a Windows-based portal to information stored anywhere in the enterprise. Its robust functionality supports the "power" user who needs maximum flexibility in navigating the document repository and manipulating documents.
DocuAnalyzerTM is an analytical tool that turns the data in documents into information that supports the decision-making process. It can help highlight trends, discover patterns and uncover opportunities.
Infopac-ABS is an automated balancing tool that enforces quality control and ensures data integrity throughout the computing complex. Complex computer systems with multiple sources of input can and do become unsynchronized. INFOPAC-ABS provides continuous and automatic cross-application balancing of numerical data resident in databases and files to detect and assist in the correction of out-of-balance situations. It eliminates slow and costly manual balancing, speeding procedures such as item reconciliation and control-total balancing.
Sales and Marketing
The Company sells and markets its products primarily through a direct sales force based in Chicago, IL, with 12 additional sales offices in the United States. In addition, Mobius has international subsidiaries in the United Kingdom, France, Germany, Italy, Australia, Switzerland, Sweden, Japan and the Benelux. These subsidiaries provide Mobius with an international direct sales force.
Customer Satisfaction
Mobius provides twenty-four hour, seven-day-a-week support services for all of its products through its United States and foreign support centers. Complex diagnostics and product corrections are provided exclusively through the United States support center.
Research and Development
The Company intends to continue to make substantial investments in research and development to maintain and enhance its product lines. Mobius believes that its future success will, in large part, depend on its ability to maintain and improve current products and develop 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) typically is less than six months 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 advanced Rapid Application Development ("RAD") tools to facilitate short development cycles for functional enhancements while maintaining product reliability.
Employees
As of June 30, 2001, Mobius employed 415 people: 207 in Sales and Marketing; 51 in Customer Satisfaction; 99 in Research and Development; and 58 in General and Administrative. None of the employees are represented by a labor union or are subject to a collective bargaining agreement. The Company has not experienced any work stoppages and believes it has a good relationship with its employees. The Company believes that its future success will depend upon its ability to attract, train and retain highly skilled technical, management, sales and marketing personnel.
Customers
No single customer accounted for 10% or more of consolidated revenues in fiscal years 1999, 2000 or 2001.
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. "Factors Affecting Future Performance" below, includes a description of the competitive environment in which the Company does business.
FACTORS AFFECTING FUTURE PERFORMANCE
Fluctuations in Period to Period Results; Seasonality; Uncertainty of Future Operating Results
Mobius's quarterly revenues and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. Quarterly revenues and operating results are expected to fluctuate as a result of a variety of factors, including lengthy product sales cycles, changes in the level of operating expenses, demand for Mobius's products, introductions of new products and product enhancements by Mobius or its competitors, changes in customer budgets, competitive conditions in the industry and general domestic and international economic conditions.
The timing, size and nature of individual license transactions are important factors in Mobius's quarterly operating results. Many of Mobius's license transactions involve large dollar commitments by customers, and the sales cycles for these transactions are often lengthy and unpredictable. There can be no assurance that Mobius will be successful in closing large license transactions within the fiscal period in which they are budgeted, if at all.
Mobius's business has experienced and is expected to continue to experience significant seasonality, with revenues typically peaking primarily in the fourth (June) fiscal quarter and to a lesser extent in the second (December) fiscal quarter. These fluctuations are caused primarily by customer purchasing patterns and Mobius's sales force incentive programs, which recognize and reward sales personnel on the basis of achievement of annual and other periodic performance quotas, as well as by the factors described above.
Due to all of the foregoing factors and other factors described below, revenues for any period are subject to significant variation, and Mobius believes that period-to-period comparisons of its operating results are not necessarily meaningful and may not be reliable indicators of future performance.
Technological Change
The market for Mobius's software is characterized by a high degree of technological change, frequent new product introductions, evolving industry standards and changes in customer demands. The introduction of competitive products embodying new technologies and the emergence of new industry standards could render Mobius's existing products obsolete and unmarketable. Mobius's future success will depend in part on its ability to enhance existing products, to develop and introduce new products to meet diverse and evolving customer requirements, and to keep pace with technological developments and emerging industry standards such as web-based functionality, new operating systems, hardware platforms, user interfaces and storage media. The development of new products or enhanced versions of existing products and services entails significant technical risks. There can be no assurance that Mobius will be successful in developing and marketing product enhancements or that new products will respond to technological change or evolving industry standards, or that Mobius will not experience difficulties that could delay or prevent the successful development, introduction, implementation and marketing of these products and enhancements, or that any new products and product enhancements Mobius may introduce will achieve market acceptance.
Product Concentration
To date, a substantial portion of Mobius's revenues have been attributable to the licensing and related maintenance service of its ViewDirect and DocumentDirect suite of products. Mobius currently expects this to continue for the foreseeable future. As a result, factors adversely affecting the pricing of, or demand for, these products and services, such as competition or technological change, could have a material adverse effect on its business, operating results or financial condition.
Competition
The market for Mobius's products is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. Mobius believes that the most important competitive factors in the market for storage, retrieval and presentation software are scalability, breadth of supported operating systems and document formats, ease of use, product reputation, quality, performance, price, sales and marketing effort and customer service. Mobius currently encounters direct competition from a number of public and private companies including Computer Associates International, Computron Software, Inc., FileNet Corporation, International Business Machines Corp., BMC Software, Inc., Quest Software, Inc. and RSD S.A. Due to the relatively low barriers to entry in the software market, additional competition from other established and emerging companies is likely as the market for storage, retrieval and presentation software continues to develop and expand. Some of these companies are substantially larger than Mobius and have significantly greater financial, technical and marketing resources, and a larger installed base of customers, than Mobius. Some of such competitors also have extensive direct and indirect channels of distribution. As a result, they may be able to respond more quickly to new or emerging technologies and changes in customer requirements, or to devote greater resources to the development, promotion and sale of their products than Mobius. In addition, current and potential competitors have established or may establish cooperative relationships among themselves with prospective customers. Accordingly, it is possible that new competitors or alliances among competitors may emerge and rapidly acquire significant market share. Increased competition may result in price reductions, reduced gross margins and loss of market share, any of which would have a material adverse effect on Mobius's business, operating results or financial condition. There can be no assurance that Mobius will be able to compete successfully against current or future competitors or that competitive pressures will not have a material adverse effect on Mobius's business, operating results or financial condition.
International Sales and Operations
Mobius believes that its revenues and future operating results will depend in part on its ability to increase sales in international markets. As a group, Mobius's international subsidiaries have not achieved budgeted sales and have been unprofitable to date, and Mobius expects achieving profitability will continue to require significant management attention and financial resources. There can be no assurance that Mobius will be able to maintain or increase international market demand for its products or hire additional qualified personnel who will successfully be able to market its products internationally. Mobius's international sales are subject to the general risks inherent in doing business abroad, including unexpected changes in regulatory requirements, tariffs and other trade barriers, costs and difficulties of localizing products for foreign countries, lack of acceptance of localized products in foreign countries, longer accounts receivable payment cycles, difficulties in managing international operations, potentially adverse tax consequences, restrictions on the repatriation of earnings, the burdens of complying with a wide variety of foreign laws and economic instability. There can be no assurance that such factors will not have a material adverse effect on Mobius's future international revenues and, consequently, on its business, operating results or financial condition.
An increase in the value of the U.S. dollar relative to foreign currencies could make Mobius's products more expensive, and, therefore, potentially less competitive in those markets. Although Mobius does not currently engage in international currency hedging transactions, we are exploring the possibility of doing so in the future. To the extent that the U.S. dollar strengthens against foreign currencies in
international markets in which Mobius maintains operations, its net assets that are denominated in such foreign currencies will be devalued, resulting in a foreign currency translation loss. For more information on its international operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 2
ITEM 2. PROPERTIES
Mobius is headquartered in Rye, New York, where it leases an aggregate of 70,500 square feet of space. Administrative, marketing, product development and customer support and service operations are located in the Rye space. Sales operations are based in Chicago, Illnois. Mobius leases an aggregate of approximately 90,000 additional square feet of space domestically and internationally for its other sales offices. Mobius believes that these facilities are adequate to meet its current needs and that suitable additional space will be available as needed to accommodate physical expansions of corporate operations and for additional sales and service field offices.
ITEM 3.
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 or financial condition.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2001.
PART II. ITEM 5(a). MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Mobius's common stock has been quoted on the NASDAQ National Market under the symbol of MOBI since its initial public offering on April 27, 1998. According to records of Mobius's transfer agent, Mobius had approximately 54 stockholders of record as of September 17, 2001. Because many of such shares are held by brokers and other institutions on behalf of stockholders, Mobius is unable to estimate the total number of stockholders represented by the record holders. The following table sets forth the high and low sales prices of Mobius's common stock on the NASDAQ National Market for the periods indicated.
Quarter ended: High Low ---- --- September 30, 1999 $9.25 $4.38 December 31, 1999 $10.38 $3.25 March 31, 2000 $16.88 $5.81 June 30, 2000 $13.63 $3.75 September 30, 2000 $5.00 $2.75 December 31, 2000 $5.13 $1.13 March 31, 2001 $5.25 $2.00 June 30, 2001 $4.03 $2.19
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.
5(b). On April 27, 1998, the Securities and Exchange Commission declared effective the Company's Registration Statement on Form S-1 (File No. 333-47117) with respect to the Company's public offering. To date, of the $33.0 million of proceeds received from the offering, the Company has used approximately $3.0 million for working capital. The remaining proceeds are currently invested in cash and short term, investment grade, interest bearing securities.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the captions "Consolidated Statement of Income Data" and "Consolidated Balance Sheet Data" as of and for each of the years in the five year period ended June 30, 2001 are derived from the consolidated financial statements of Mobius, which statements have been audited by KPMG LLP, independent certified public accountants. The consolidated financial statements as of June 30, 2000 and 2001 and for each of the years in the three-year period ended June 30, 2001, and the report 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.
---------- (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, 1998, 1999, 2000 and 2001 aggregating $642, $1,046, $537 and $277, respectively.
(2) For a description of the basic and diluted earnings per share ("EPS") calculations and the basic and diluted weighted average shares outstanding, see Note 2 of Notes to Consolidated Financial Statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this section, readers are given a more detailed assessment of the Company's operating results and changes in financial position over the periods discussed. This section should be read in conjunction with the Company's Consolidated Financial Statements and related Notes. Please note that references in this section to "this year" and "last year" refer to the Company's fiscal years ended June 30, 2001 and June 30, 2000, respectively.
Overview
Mobius is a leading provider of Web-based software solutions that manage and present enterprise content. For over two decades, Mobius has delivered innovative technology that provides access through a common portal to mission-critical documents, reports and images. Mobius solutions have achieved industry-wide recognition for their ability to support high-volume, high-performance, simultaneous-access requirements in distributed environments that range from the desktop to the mainframe. Today, our ViewDirect(R) technology stores and integrates information in virtually any format, presenting and distributing it over the Internet and corporate networks. Personalized views and automated distribution options deliver information in the format needed by each employee, customer and partner. This versatile technology supports a broad range of e-business requirements, including corporate portals, customer service, customer relationship management, electronic bill presentment and payment, and archiving and output management for enterprise resource planning systems.
The Company's total revenues decreased from $73.8 million in fiscal 1999 to $60.2 million in fiscal 2000 and increased to $74.2 million in fiscal 2001. Mobius believes that Year 2000 ("Y2K") issues significantly affected the purchasing patterns of its customers and potential customers during fiscal 2000. Many companies expended significant resources to correct or modify their existing software systems to be Y2K compliant and the Company believes these expenditures resulted in reduced funds to purchase software products such as those that Mobius offers. The Company believes that although the software marketplace remains turbulent, the market for Mobius's products may be returning to its pre-Y2K conditions and accordingly, total revenues increased primarily because Mobius sold more licenses for its products to new and existing customers.
Mobius derives its revenues primarily from product license fees and related annual maintenance fees. This year 53.0% of total revenues were generated by software license fees and 47.0% were generated by maintenance and other fees.
License revenues of ViewDirect and DocumentDirect products have historically accounted for a majority of the Company's license revenues and for a significant portion of total revenues. This year license revenues for these products accounted for approximately 89.5% of license revenues and approximately 47.4% of total revenues. Last year license revenues for these products accounted for approximately 93.0% of license revenues and approximately 47.4% of total revenues. The Company anticipates in the foreseeable future that license revenue from these products will continue to account for a significant portion of license and total revenues.
Mobius's growing customer base has led to continued growth in maintenance and other revenues, from $25.0 million in fiscal 1999 to $29.2 million last year to $34.9 million this year. Maintenance revenue consists primarily of customer support services and enhancements provided by the Company for its products. Other revenue consists of professional services provided to Mobius customers. Other revenues for all periods were not significant.
International revenues increased this year to $12.8 million from $9.9 million last year and $9.6 million in fiscal 1999. In fiscal 2001, international revenues increased due to Mobius's continued investment in developing its sales infrastructure. As a group, the Company's international subsidiaries have been unprofitable to date, and Mobius expects achieving profitability will continue to require significant management attention and financial resources. The Company intends to expand its
international sales activities as part of its business strategy. The majority of Mobius's current international revenues are derived from the operations of its wholly-owned subsidiaries and through agents. The Company receives a royalty that is a percent of agent or subsidiary sales of software licenses and maintenance contracts to international customers. 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. To date, most of these subsidiaries have operated at a loss, which losses prior to fiscal 2001, had not been consolidated for United States income tax purposes. Consequently, the Company has experienced a substantially higher effective tax rate in fiscal 1999 and a reduced effective tax benefit in fiscal 2000 than the U.S. Federal statutory rate as no tax benefit had been provided for the majority of these foreign losses. During fiscal 2001, the Company made certain U.S. Federal income tax elections which allow certain of these foreign tax losses to be included within its U.S. Federal consolidated income tax return. These elections will, in part, cause the Company's effective tax rate to begin to approach the U.S. Federal statutory rate. To the extent the Company is successful at bringing its foreign subsidiaries to profitability, the Company's effective tax rate could again exceed the U.S. Federal statutory rate depending on the availability of operating loss carryforwards in the profitable foreign jurisdictions and the operation of foreign tax credit limitations.
Capitalization of internally developed software costs is required once technological feasibility is established. The period between achieving technological feasibility, which we have defined as the establishment of a working model, and the general availability of such software has been short and, therefore, software development costs qualifying for capitalization have been insignificant. Accordingly, the Company has not capitalized any software development costs and currently does not anticipate having significant development costs that are eligible for capitalization in the foreseeable future. Software development costs are included in research and development expenses. For more information on the Company's capitalization of software development costs see Note 2 of Notes to Consolidated Financial Statements.
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, 1999 2000 2001 ----- ----- ----- Revenues: Software license revenues 66.1% 51.5% 53.0% Maintenance and other revenues 33.9 48.5 47.0 ----- ----- ----- Total revenues 100.0 100.0 100.0 Costs of revenues: Software license revenues 1.6 1.6 1.6 Maintenance and other revenues 6.8 10.1 8.3 ----- ----- ----- Total costs of revenues 8.4 11.7 9.9 ----- ----- ----- Gross profit 91.6 88.3 90.1 Operating expenses: Sales and marketing 56.7 73.6 60.5 Research and development 14.5 24.6 21.9 General and administrative 12.7 20.1 14.1 ----- ----- ----- Total operating expenses 83.9 118.3 96.5 ----- ----- ----- Income (loss) from operations 7.7 (30.0) (6.4) License and other interest income 3.9 4.9 3.6 Interest expense -- (0.1) -- Foreign currency transactions (0.3) 0.1 0.1 Other income -- -- 0.2 Investment impairments -- (3.7) (1.0) ----- ----- ----- Income (loss) before income taxes 11.3 (28.8) (3.5) Provision (benefit) for income taxes 5.5 (9.0) (0.8) ----- ----- ----- Net income (loss) available to common stock 5.8% (19.8)% (2.7)% ===== ===== =====
Year Ended June 30, 1999 Compared to Year Ended June 30, 2000 Compared to Year Ended June 30, 2001
Revenues
o Total revenues decreased 18.4% from $73.8 million in fiscal 1999 to $60.2 million in fiscal 2000 and increased 23.3% to $74.2 million in fiscal 2001. Domestic revenues decreased 21.8% from $64.3 million in fiscal 1999 to $50.3 million in fiscal 2000 and increased 22.1% to $61.4 million in fiscal 2001. International revenues increased 3.1% from $9.6 million in fiscal 1999 to $9.9 million in fiscal 2000 and increased 29.3% to $12.8 million in fiscal 2001.
o Software license revenues decreased 36.5% from $48.8 million in fiscal 1999 to $31.0 million in fiscal 2000 and increased 26.8% to $39.3 million in fiscal 2001. The decrease in fiscal 2000 was primarily attributable to decreased sales of licenses. Mobius believes that Year 2000 ("Y2K") issues significantly affected the purchasing patterns of its customers and potential customers. Many companies expended significant resources to correct or modify their existing software systems to be Y2K compliant and these expenditures resulted in reduced funds to purchase software products such as those that Mobius offers. The Company believes that although the software marketplace remains turbulent, the market for Mobius's products may be returning to its pre-Y2K conditions and accordingly, total revenues increased primarily because Mobius sold more licenses for its products to new and existing customers.
o Maintenance and other revenues increased 16.8% from $25.0 million in fiscal 1999 to $29.2 million in fiscal 2000 and increased 19.5% to $34.9 million in fiscal 2001. The increases in maintenance and other revenues during these years were primarily attributable to the growth in the amount of licensed software covered by maintenance agreements and increases in the maintenance fees charged by the Company. Other revenues for all periods were not significant.
Costs of Revenues.
o Costs of software license revenues decreased 22.7% from $1.2 million in fiscal 1999 to $900,000 in fiscal 2000 and increased 28.9% to $1.2 million in fiscal 2001, representing 2.5%, 3.0% and 3.1%, respectively, of software license revenues in those years. The costs of software license revenues are a function of license sales which were subject to royalties.
o Costs of maintenance and other revenues increased 20.0% from $5.0 million in fiscal 1999 to $6.0 million in fiscal 2000 and increased 1.3% to $6.1 million in fiscal 2001, representing 20.0%, 20.8% and 17.6%, respectively, of maintenance and other revenues in those years. In fiscal 2000, the increases in costs of maintenance and other revenues was primarily attributable to increased staffing and personnel-related costs and subcontractor costs associated with post sales assistance. In fiscal 2001, the decrease in the percentage of cost of maintenance and other revenues in relation to the maintenance and other revenues was primarily attributable to supporting more maintenance agreements with an insignificant increase in maintenance costs.
Operating Expenses.
o Sales and marketing expenses consist primarily of the cost of personnel associated with the selling and marketing of Mobius's products, including salaries, commissions, performance based bonuses, and travel and entertainment costs. Sales and marketing costs also include the cost of branch sales offices, marketing, promotional materials and advertising. These expenses increased 5.7% from $41.9 million in fiscal 1999 to $44.3 million in fiscal 2000 and increased 1.3% to $44.9 million in fiscal 2001, representing 56.7%, 73.6% and 60.5%, respectively, of total revenues in those years. The increase in fiscal 2000 is related to additional spending for the Click-n-Done products, and increased personnel related costs for marketing, partially offset by a decrease in sales commissions and bonuses due to decreased sales of software licenses. In fiscal 2001, sales and marketing expenses increased slightly since Mobius paid more commissions and bonuses for selling more software licenses and hired additional marketing personnel, offset by a decrease in sales and marketing expenses related to the consolidation of dedicated Click-n-Done sales and marketing departments into Mobius's established sales and marketing structures.
o Research and development expenses consist primarily of personnel costs attributable to the development of new software products and the enhancement of existing products. Research and development expenses increased 38.3% from $10.7 million in fiscal 1999 to $14.8 million in fiscal 2000 and increased 9.7% to $16.3 million for fiscal 2001, representing 14.5%, 24.6% and 21.9%, respectively, of total revenues in those years. The increase in expenses in fiscal 2000, including the development costs associated with Click-n-Done, were primarily attributable to increased subcontractor costs, increased staffing and personnel-related costs. In fiscal 2001, the increase in research and development expenses was attributable to higher personnel-related costs. Research and development expenses as a percentage of total revenues fluctuate with the changes in development projects and annual revenues.
o General and administrative expenses consist of personnel costs related to general management, accounting, human resources, network services, administration and associated overhead costs, as well as fees for professional services. General and administrative expenses increased 28.7% from $9.4 million in fiscal 1999 to $12.1 million in fiscal 2000 and decreased 13.5% to $10.5 million in fiscal 2001, representing 12.7%, 20.1% and 14.1%, respectively, of total revenues in those years. The increase in expenses in fiscal 2000 was primarily attributable to additional staffing and personnel-related costs, including costs to administer Click-n-Done and also the depreciation of improvements made to the Company's infrastructure. The decrease in fiscal 2001 was attributable to the elimination of Click-n-Done's administration department, decreased bonuses, completion of special projects and the implementation of administrative cost savings strategies. These decreases were partially offset by increased depreciation for capitalized infrastructure projects.
License and other interest income; interest expense; foreign currency transaction gains (losses).
License and other interest income was $2.9 million, $2.9 million and $2.7 million in fiscal 1999, 2000, and 2001, respectively. During fiscal 1999, 2000 and 2001 interest expense and foreign currency transaction gains were insignificant.
Income Taxes.
The provision (benefit) for income taxes was $4.0 million in fiscal 1999, $(5.4) million in fiscal 2000 and $(605,000) in fiscal 2001. The Company had effective tax rates of approximately 48.6%, (31.3)% and (23.3)% in fiscal years 1999, 2000 and 2001, respectively. The difference between the Company's 1999 effective tax rate and the U.S. Federal statutory rate is primarily attributable to the Company not being able to consolidate certain foreign subsidiary losses for U.S. tax purposes. The effective tax rate for fiscal 2000 and 2001 reflects the statutory tax benefit for the losses in the United States offset by limitations on the tax benefit, which can be taken from losses in Mobius's foreign subsidiaries.
Investments
In June 1999, Mobius invested $1,501,000 in Home Account Network ("HAN"), a privately-held, information technology company providing processing and Internet outsourcing to financial services companies. During fiscal 2000, Mobius provided an additional $750,000 to HAN in short term loans that were converted to preferred stock in May 2000. In fiscal 2001, Mobius provided an additional $375,000 to HAN as short term loans.
Mobius regularly assessed the recoverability of the HAN investment and had concluded that an other than temporary impairment loss had occurred. Accordingly, impairment losses were recorded in connection with this investment aggregating $2.2 million and $218,000 for the years ended June 30, 2000 and 2001, respectively.
In January 2001, HAN was purchased by Intelidata Technologies ("Intelidata"). The merger agreement established a fixed number of shares to be allocated between debt holders and all shareholders, including Mobius. The Intelidata shares will be released at specified time periods beginning after the Intelidata shares are registered. The number of shares to be received by debt holders will be based upon a formula that utilizes the market value of Intelidata stock on each release date. After the debtors are repaid, any remaining shares will be distributed to HAN's management and shareholders based on percentages in the merger agreement. Once the stock is released to the debtors and shareholders, it is subject to a variety of trading restrictions. As of June 30, 2001, Mobius has not received any Intelidata shares.
As of June 30, 2001, the carrying value of the HAN investment is $188,000 and is included within other current assets. Mobius believes that the carrying value is recoverable based on estimates of the amount and value of shares to be received from the transaction, discounted for the restrictions and estimated time until the Intelidata shares are expected to be received.
In January 2000, Mobius made an investment of $500,000 in Flooz.com, a startup Internet company. This was an investment in preferred stock, which would convert into common stock if Flooz.com had completed an initial public offering. Mobius held a minority ownership position, which, if the preferred shares converted to common stock, would be less than 5%. The Chief Executive Officer of Flooz.com is currently a member of the Board of Directors of Mobius. Flooz.com has ceased operations and filed for bankruptcy protection. Accordingly, Mobius recorded an impairment loss of $500,000 in the year ended June 30, 2001.
Selected Quarterly Operating Results
The following table presents certain consolidated statement of operations data for the eight fiscal quarters in the two-year period ended June 30, 2001. 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.
(1) Included within sales and marketing, research and development and general and administrative expense is stock compensation expense associated with the granting of stock options to employees immediately prior to the Company's IPO. Such stock compensation expense for the 8 quarters ended June 30, 2001 was $166,000, $167,000, $113,000, $91,000, $91,000, $91,000, $56,000 and $39,000, respectively.
The Company's quarterly revenues and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. Quarterly revenues and operating results are expected to fluctuate as a result of a variety of factors, including lengthy product sales cycles, changes in the level of operating expenses, demand for the Company's products, introductions of new products and product enhancements by Mobius or Mobius's competitors, changes in customer budgets, competitive conditions in the industry and general domestic and international economic conditions. License revenues typically peak during the fourth fiscal quarter and to a lesser extent in the second fiscal quarter. These fluctuations are caused primarily by customer purchasing patterns and the Company's sales force incentive programs which recognize and reward sales personnel on the basis of achievement of annual and other periodic performance quotas, as well as the factors described above.
Liquidity and Capital Resources
Since its inception, Mobius has funded its operations principally through cash flows from operating activities and, to a lesser extent, equity or bank financings. As of June 30, 2001, Mobius had cash and cash equivalents of $24.1 million, a 12.7% increase from the $21.4 million held at June 30, 2000. In addition, Mobius had marketable securities of $10.3 million and $10.5 million as of June 30, 2000 and June 30, 2001, respectively.
In fiscal 1999, $6.8 million net cash was provided by operating activities. In fiscal 2000, $4.0 million net cash was used by operating activities and in fiscal 2001, $8.3 million net cash was provided by operating activities. Mobius's primary sources of cash during fiscal 1999 was its net income supported by increases in its deferred income taxes and decreases in items requiring working capital. During fiscal 2000, Mobius's use of cash in operating activities was primarily caused by its net loss and an increase in accounts receivable offset by collections of software license installments and growth in deferred revenues. During fiscal 2001, Mobius's depreciation and amortization expense adjustment in operating activities was $4.2 million. Depreciation and amortization expense increased during fiscal 2001 due to infrastructure investments. Mobius's sources of cash during fiscal 2001 was collections of software installments and accounts receivable. Software license installments, which decreased 18.5% from $17.8 million at June 30, 2000 to $14.5 million at June 30, 2001, represent payments due from customers for license fees that are paid over the term of the installment agreement. Since payments are made over multiple reporting periods, software license installments can fluctuate with the amount of license revenue sold on an installment basis. Net accounts receivable decreased 13.5% from $14.9 million at June 30, 2000 to $12.9 million at June 30, 2001, largely as a result of better collections.
Net cash used in investing activities was $15.4 million, $8.6 million and $5.2 million in fiscal 1999, 2000 and 2001, respectively. For the years ended June 30, 1999, 2000 and 2001, cash of $4.5 million, $6.2 million and $4.2 million, respectively was used for the purchase of computer equipment, furniture and fixtures and leasehold improvements. The Company continues to invest capital resources into its infrastructure, including the installation of an automated sales force computer system, implementation of a new accounting system and expansion of the Rye headquarters building.
Marketable securities of $9.4 million, $3.5 million and $23.4 million were purchased and $0, $2.3 million and $23.2 million marketable securities were sold, in fiscal 1999, 2000, 2001, respectively. Mobius made investments of $1.5 million, $1.3 million and $375,000 in Home Account Network and Flooz.com during fiscal 1999, 2000 and 2001, respectively. These investments are disclosed in detail in a separate section of Management's Discussion and Analysis and in Note 5 of the Consolidated Financial Statements.
Net cash provided by financing activities was $227,000 in fiscal 1999, which was primarily due to cash received from the exercise of stock options. In fiscal 2000, cash provided by financing activities of $327,000 was primarily due to cash received from the exercise of stock options and sales of Mobius's common stock through the employee stock purchase plan. Net cash provided by financing activities was $147,000
in fiscal 2001, primarily due to the sale of Mobius's common stock through the employee stock purchase plan, offset by the cash used to repurchase Mobius's common stock.
Bad Debt Reserves
Accounts receivable reserves are primarily calculated by identifying problem accounts and in recognition that some customers decide to cancel or reduce the number of products covered by maintenance arrangements upon their anniversary but do not always notify Mobius in sufficient time to prevent some portion of the annual maintenance billings from being recognized. Mobius also has a small reserve to absorb losses based upon historical experience that may result from current receivables. Mobius specifically identifies problem accounts by the age of the receivable and through discussions with the customer and Mobius sales representatives. Based on that information, Mobius exercises its best judgment as to what portion of the accounts receivable balance requires a reserve. At June 30, 2000 and June 30, 2001 approximately 78% and 80% of the total accounts receivable reserve balances were related to specific accounts. To the extent that an account for which a specific reserve was provided is subsequently collected, Mobius reduces the reserves in the period of collection.
Software license installment reserves have consistently been determined as a percentage of software license installments to provide for potential bankruptcies and contractual disputes. At June 30, 2000 and June 30, 2001, net software license installments were approximately $17.8 million and $14.5 million of which 84% and 80% were customer balances greater than $100,000, respectively. Customer balances for software license installments tend to be large due to the selling price of Mobius's products. Software license installment and accounts receivable reserves were $1.7 million and $1.5 million at June 30, 2000 and 2001, respectively.
Other Matters
In January 1999, the Company sold the INFOPAC-TapeSaver product to a third party for approximately $3.0 million payable over a five year period. The buyer assumed responsibility for maintenance support for all existing TapeSaver licenses, however, the Company recognized approximately $1.1 million of TapeSaver maintenance revenue through December 31, 1999 for TapeSaver maintenance billings collected prior to the sale, $795,000 of which was recognized in fiscal 1999 and $302,000 of which was recognized in fiscal 2000. No TapeSaver maintenance revenue was recognized in fiscal 2001. For the years ended June 30, 1999, 2000 and 2001, the Company recognized $756,000, $673,000 and $450,000 of TapeSaver license revenue, respectively. Future TapeSaver license revenue of $112,500 each quarter, will be recognized as the buyer makes scheduled payments through December 31, 2003. The buyer is delinquent on these payments since June 2001.
During fiscal 2001, Mobius integrated Click-n-Done with Mobius's other products, to provide an integrated architecture that supports electronic statement presentment, electronic bill presentment and payment and electronic invoice presentment and payment. Mobius's segregated expenses for Click-n-Done were approximately $8.2 million and $4.4 million in fiscal 2000 and 2001, respectively. Through June 30, 2000, Mobius had not generated any revenue from the sale of its Click-n-Done products. In fiscal 2001 Mobius recognized $173,000 of license revenue from Click-n-Done products.
In compliance with the lease of the Company's corporate headquarters in Rye, NY, the landlord holds a letter of credit with Silicon Valley Bank for $275,000. This letter of credit is secured by a certificate of deposit.
The Company believes that its existing cash balances and cash flows expected from future operations will be sufficient to meet the Company's capital requirements for at least 12 months.
Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" which addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Pre-acquisition Contingencies of Purchased Enterprises". All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. The Statement also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. The provisions of this Statement apply to all business combinations initiated after June 30, 2001.
Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which addresses financial accounting and reporting for acquired goodwill and other intangible assets. Statement 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Goodwill will be tested for impairment annually or whenever events or circumstances occur that indicate goodwill could have been impaired. Upon adoption of Statement 141, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 will cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under Statement 141 will be reclassified to goodwill. Companies are required to adopt Statement 142 for fiscal years beginning after December 15, 2001. In connection with the adoption of Statement 142, companies will be required to perform a transitional goodwill impairment assessment. The adoption of SFAS No. 142 is not expected to have a significant impact on the Company's financial position or results of operations as the Company does not have significant amounts of recorded goodwill or intangible assets associated with any prior business combination.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Mobius's investment portfolio is subject to interest rate sensitivity. The primary objective of Mobius's investment activities is to preserve principal, while at the same time maximizing the interest income, without significantly increasing risk. Some of the marketable securities that Mobius has invested in may be subject to market rate interest risk. This means a change in prevailing interest rates may cause the market value of the security to fluctuate. For example, if Mobius holds a security that was issued with a fixed interest rate at the then-prevailing rates and the prevailing interest rates later rise, the market value of the security will probably decline. At June 30, 2001, Mobius primarily held debt securities.
Mobius may be subject to foreign currency fluctuations in relation to accounts receivable and accounts payable that may be denominated in a foreign currency other than the functional currency in certain foreign jurisdictions. To the extent that such foreign currency transactions are negatively or positively effected by foreign currency fluctuations, foreign currency transaction losses or gains would be recognized. We do not use derivative financial investments to limit our foreign exchange expense.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements are included in Item 14 (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
None.
PART III. ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are currently six members of the Board of Directors. During fiscal year 2001, Peter Barris resigned from the Board of Directors. The Board is divided into three classes with terms expiring, respectively, at the 2001, 2002 and 2003 annual meeting of stockholders. All Mobius directors are elected for three-year terms, except Robert H. Levitan who was elected for a two-year term. Personal information on each of our directors is given below.
The Board oversees the management of the Company on the stockholder's behalf. It reviews Mobius's long-term strategic plans and exercises direct decision-making authority in key areas. The Board chooses the Chief Executive Officer, sets the scope of his authority to manage Mobius's business day to day, and evaluates his performance.
Five of Mobius's six directors are not Mobius employees. Only non-employee directors serve on Mobius's Audit and Compensation committees. The Board met five times during fiscal 2001. Each director attended all of the meetings of the Board except Edward Glassmeyer who attended four of the five meetings of the Board.
DIRECTORS
Set forth below are the names, ages, positions and certain other information concerning the current Directors of Mobius.
Mitchell Gross........... Co-Founder of Mobius. President since 1981 and Age 51 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 a M.B.A. in finance from The Wharton School at the University of Pennsylvania.
Gary G. Greenfield....... President and Chief Executive Officer of MERANT plc Age 46 (software development company) from 1998 to 2001. Director since 1998 Holds a M.S. in information systems from George Washington University and a M.B.A from Harvard Business School. Serves as a director of MERANT plc, Hyperion Solutions, Inc. and Managed Object Solutions.
Edward F. Glassmeyer..... Co-Founder of Oak Investment Partners (venture Age 60 capital firm) and its General Partner since 1978. Director Since 1997 Holds a B.A. from Princeton University and a M.B.A. from the Tuck School at Dartmouth College. Serves as a Director of TheStreet.com.
Kenneth P. Kopelman...... Partner of Kramer Levin Naftalis & Frankel LLP(1) Age 49 (law firm). Attended Cornell University (A.B.) and Director since 1997 the London School of Economics and received his J.D. from Columbia University School of Law. Serves as a Director of Liz Claiborne, Inc.
Joseph J. Albracht....... Co-founder of Mobius. Executive Vice President and Age 52 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 a M.B.A. from Pennsylvania State University.
Robert H. Levitan........ Co-founder and Chief Executive Officer of Age 40 Flooz.com. Co-founder of iVillage.com. Holds a Director since 2000 B.A. in history and public policy studies from Duke University. Serves as a director of New York Cares.
(1) Kramer Levin has served as legal counsel to Mobius since its founding in 1981.
DIRECTOR COMPENSATION
Mobius employees receive no extra pay for serving as directors. Non-employee directors are each paid a $10,000 annual retainer fee for serving on the Board, payable quarterly in advance, and are paid meeting fees of $1,250 for each Board meeting attended and $500 for each telephonic Board meeting attended, each payable promptly after each meeting. Mr. Kopelman's fees are net of the amounts paid to Kramer Levin for time Mr. Kopelman devotes to preparation for and attendance at Board meetings.
The Mobius Non-Employee Directors' 1998 Stock Option Plan provides for the grant to Mobius directors of non-qualified stock options to purchase Mobius shares. These include an initial grant of 10,000 options, made upon a non-employee director's first election to the Board, as well as an annual grant of 10,000 options, made at each annual meeting to those directors having at least nine months of Board service on the grant date. All such options have an exercise price equal to the fair market value of the underlying Mobius shares on the date of grant.
INFORMATION CONCERNING EXECUTIVE OFFICERS
Set forth below are the names, positions and certain other information concerning the current Executive Officers of Mobius. Personal information on Mitchell Gross is given above. Executive officers are elected by the Board and serve until the next meeting of the Board following the annual meeting of stockholders and until their successors have been duly executed and qualified.
Name Position ---- --------
Mitchell Gross Chairman of the Board, Chief Executive Officer and President.
Sandra A. Becker Senior Vice President, Marketing since 1998. Prior to joining Mobius, Ms. Becker was employed by Ceridian Employer Services as Vice President of Marketing and held several marketing and strategy leadership positions for U.S. West Communications. Holds a B.S. from College of St. Catherine and a M.B.A. from the University of Minnesota.
Michael J. Festa Vice President, Sales (United States and Latin America) since 2000. Joined Mobius in 1991 and served as Area Director from 1998-2000 and Regional Manager from 1996-1997. Holds a B.B.A. in management from Iona College.
David J. Gordon Interim Chief Financial Officer since 2000. 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 Kleeman Vice President, World Sales since 1999. Joined Mobius in 1990 and served as Vice President, Sales (North and South America) from 1997-1999, National Sales Manager from 1995 to 1997 and Regional Manager from 1992 to 1995. Holds a B.A. in marketing from Elmhurst College.
Robert Lawrence Vice President, Product Engineering since 1992. Joined Mobius in 1985. Holds a B.S. in physics from the University of Massachusetts.
Joseph Tinnerello Vice President, Business Development since January, 1998. Joined Mobius in 1990 and served as Vice President, Sales from 1995 to 1997. 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.
Hiromasa Yazaki Vice President, Sales (North Asia) since 1999. Prior to joining Mobius, Mr. Yazaki was employed by Kodak Japan Ltd. in 1997 and 1998 as a General Manger/Consumer Imaging Marketing and employed by Informix K.K. in 1996 as Director of Sales. Holds a B.A. from Dokkyo University.
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 year ended June 30, 2001, there was compliance of all Section 16(a) filing requirements applicable to its directors, executive officers and 10% stockholders.
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."
(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, car premiums, tax preparation fees and sales incentive trip added to compensation. These amounts have been grossed up to include taxes.
(4) Michael J. Festa was elected by the Board of Directors as an Executive Officer on September 13, 2001. If Mr. Festa had been an executive officer as of June 30, 2001, he would have been required to be included in this disclosure.
(5) Includes sales incentive trip. The value of the trip has been grossed up to include taxes.
(6) Ms. Becker was employed by Mobius for approximately 7 months of fiscal 1999.
(7) Includes relocation expenses.
(8) Disqualifying disposition of shares obtained through the exercise of incentive stock options.
BOARD COMMITTEES
The Board appoints committees to help carry out its duties. Each committee reviews the results of its meetings with the full Board. The Board established its committees in February 1998 in connection with Mobius's initial public offering.
The Audit Committee is responsible for accounting and internal control matters. Subject to stockholder and Board approval, the Audit Committee chooses the independent public accountants to audit Mobius's financial statements and reviews the scope, results and costs of the audit with such accountants. The Audit Committee also reviews the financial statements and accounting and control practices of Mobius. The Audit Committee consists of Messrs. Glassmeyer, Greenfield and Levitan. The Audit Committee met twice last year.
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 consisted of Messrs. Albracht and Glassmeyer. The Compensation Committee met one time last year.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview
The Compensation Committee:
(1) reviews and approves the compensation of Mr. Gross;
(2) approves the general policies applicable to salaries and bonuses for the other executive officers and reviews and acts on bonuses for those officers; and
(3) makes recommendations to the full Board and senior management with respect to the adoption and administration of Mobius's compensation programs.
Mobius's executive compensation program is designed to attract, retain, motivate and reward the management talent Mobius needs to achieve its business goals and maintain its leadership in the increasingly competitive environment of enterprise software products.
The three major components of Mobius's compensation program are salary, annual bonus and stock options.
The salary and bonus components of Mobius's executive compensation are designed to facilitate the fulfillment of the following objectives:
(1) retaining competent management;
(2) rewarding management for the achievement of short and long term accomplishments;
(3) aligning the interests of management with the interests of Mobius's stockholders; and
(4) relating executive compensation to the achievement of our goals and financial performance.
Salary
We base salary on an executive'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 our executives annual bonuses 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 is determined solely by the Compensation Committee.
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, therefore the options are linked to future performance of our stock because the options do not become valuable to the holder unless the price of our stock increases above the price on the date of grant. The number of stock options granted to an executive as a form of non-cash compensation is determined by the following factors:
(1) number of stock options previously granted to an executive;
(2) the executive's remaining options exercisable; and
(3) the value of those remaining stock options, as compared to the anticipated value that an executive will add to Mobius in the future.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan commenced in fiscal 1999 and provides employees who wish to acquire Mobius's common stock with the opportunity to purchase shares with a convenient way of doing so by accumulated payroll deductions. We believe that employee participation in 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. As of September 17, 2001, there were no awards made under the Incentive Plan.
Compensation of the Chief Executive Officer
Mr. Gross is one of the founders of Mobius. He beneficially owns approximately 5,550,000 shares of common stock constituting approximately 30.6% of the total amount outstanding. Accordingly, his interest is very much aligned with the interest of all stockholders and Mobius has not considered it sensible to relate Mr. Gross's compensation to Mobius's performance through long-term stock incentives such as restricted stock or stock options. Mr. Gross's compensation package consists primarily of salary and bonus. The members of the Compensation Committee 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 certain goals during fiscal 2001.
Joseph J. Albracht Edward F. Glassmeyer
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 2001.
---------- (1) Options were granted on October 20, 2000 and have a maximum term of 10 years measured from the grant date, subject to earlier termination in the event of the optionee's cessation of service with the Company. The vesting of these options is 20% on October 20, 2001 and 5% of the remaining stock options will become exercisable every three months thereafter until October 20, 2005.
(2) Michael J. Festa was elected by the Board of Directors as an Executive Officer on September 13, 2001. If Mr. Festa had been an executive officer as of June 30, 2001, he would have been required to be included in this disclosure.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information with respect to the Named Officers concerning their exercise of options during fiscal year 2001 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
---------- (1) Based on the closing sale price on the Nasdaq National Market of the common stock on June 29, 2001 of $3.30.
(2) Michael J. Festa was elected by the Board of Directors as an Executive Officer on September 13, 2001. If Mr. Festa had been an executive officer as of June 30, 2001, he would have been required to be included in this disclosure.
STOCK PERFORMANCE GRAPH
The following graph depicts a comparison of the cumulative total return (assuming the reinvestment of dividends) for a $100 investment on June 30, 1998 in each of the common stock of Mobius, the Goldman Sachs Technology Composite Index (a published industry index), and the Nasdaq Composite (a broad market index). The Company paid no dividends during the periods shown. The graph lines merely connect measurement dates and do not reflect fluctuations between those dates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares of Mobius common stock each Named Officer, each non-employee director, and certain stockholders known by the Company to be the beneficial owner of more than 5% of the outstanding common stock, owned as of September 17, 2001.
Name and Address of Named Executive Officers, Certain Stockholders and Shares Percent of Directors / Nominees Owned(1) Class ------------------------------------ -------- -----
Mitchell Gross(2) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, New York 10580 ........................... 5,550,000 30.6%
Joseph J. Albracht (3) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, New York 10580............................ 3,943,500 21.7%
Karry Kleeman(4) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, NY 10580 ................................. 315,526 1.7%
Michael J. Festa (5) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, New York 10580 56,590 *
Robert Lawrence (6) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, New York 10580............................ 319,000 1.7%
Joseph Tinnerello(7) c/o Mobius Management Systems, Inc. 600 West Fulton Street Chicago, IL 60661.............................. 291,600 1.6%
Edward F. Glassmeyer(8) c/o Oak Investments 1 Gorham Island Westport, CT 06880............................. 100,847 *
Gary G. Greenfield (9) c/o MERANT plc 9420 Key West Avenue Rockville, MD 20850............................ 30,481 *
Kenneth P. Kopelman(10) c/o Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, NY 10022............................. 33,850 *
Robert H. Levitan(11) c/o Flooz.com, Inc. 160 East 88th Street New York, NY 10128............................ 10,000 *
Name and Address of Named Executive Officers, Certain Stockholders and Shares Percent of Directors / Nominees Owned(1) Class ------------------------------------ -------- -----
Sandra A. Becker(12) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, New York 10580............................ 60,428 *
All Executive Officers and Directors as a group (13 persons) ....................... 10,777,981 56.2%
---------- * 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 10,000 shares issuable pursuant to Currently Exercisable Options.
(4) Includes 314,526 shares issuable pursuant to Currently Exercisable Options.
(5) Includes 49,600 shares issuable pursuant to Currently Exercisable Options.
(6) Includes 204,000 shares issuable pursuant to Currently Exercisable Options.
(7) Includes 281,000 shares issuable pursuant to Currently Exercisable Options.
(8) Includes 30,000 shares issuable pursuant to Currently Exercisable Options.
(9) Includes 30,000 shares issuable pursuant to Currently Exercisable Options.
(10) Includes 1,500 shares of Common Stock held in trust by Mr. Kopelman's wife, as trustee, for Mr. Kopelman's three minor children and 2,350 shares of Common Stock held jointly by Mr. Kopelman and his wife. Mr. Kopelman disclaims beneficial ownership to such shares. Also includes 30,000 shares issuable pursuant to Currently Exercisable Options.
(11) Includes 10,000 shares issuable pursuant to Currently Exercisable Options.
(12) Includes 52,999 shares issuable pursuant to Currently Exercisable Options.
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. Mobius believes that fees charged by Kramer Levin are at rates and on terms no less favorable to the Company than could have been obtained from unaffiliated third parties.
Relationship With Mr. Tinnerello
Following a personal leave, on September 30, 1997, Mobius entered into a severance agreement with Mr. Joseph Tinnerello, presently Mobius's Vice President, Business Development, pursuant to which Mr. Tinnerello left Mobius's employment on October 1, 1997 and agreed to certain non-competition and non-solicitation restrictions in consideration for (1) the acceleration of 80,000 options to purchase shares of our common stock previously granted to him and (2) the grant of 100,000 new options to purchase shares of our common stock at an exercise price equal to the fair market value of the shares at the time of the grant. Due to his termination and the terms of Mobius's 1996 Employee Stock Incentive Plan, Mr. Tinnerello forfeited 640,000 options to purchase shares of common stock that were previously granted to him in November 1996. On December 26, 1997, Mr. Tinnerello agreed to return to Mobius effective January 15, 1998. On December 28, 1997, Mobius agreed to advance $160,000 to Mr. Tinnerello against future commissions. As of September 17, 2001, the full amount of such advance remains outstanding. Such monies (net of applicable taxes) were used by Mr. Tinnerello to exercise options to purchase 80,000 shares of Common Stock. On January 15, 1998, Mobius granted Mr. Tinnerello options to purchase 180,000 shares of Common Stock in accordance with and on terms similar to, our standard hiring practices.
Agreements With Employees
In February, 1998, Mobius entered into employment agreements with each of Messrs. Gross and Albracht providing for the employment of Mr. Gross as our Chairman of the Board, Chief Executive Officer and President and Mr. Albracht as our Executive Vice President and Chief Operating Officer. Each employment agreement provides for a three-year term ending on April 27, 2001, the third anniversary of our initial public offering. In October 1999, Mr. Albracht ended his employment with the Company. These employment agreements expired during fiscal 2001.
Compensation Committee Interlocks And Insider Participation
The current members of our Board's Compensation Committee are Messrs. Albracht and Glassmeyer. There are no compensation committee interlocks which are required to be disclosed by applicable SEC rules. 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.
PART IV. ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets as of June 30, 2000 and 2001 Consolidated Statements of Operations for the Years Ended June 30, 1999, 2000 and 2001 Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1999, 2000, and 2001 Consolidated Statements of Cash Flows for the Years Ended June 30, 1999, 2000, and 2001 Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Mobius Management Systems, Inc.:
We have audited the consolidated financial statements and financial statement schedule of Mobius Management Systems, Inc. and subsidiaries as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mobius Management Systems, Inc. and subsidiaries as of June 30, 2000 and 2001 and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects the information set forth therein.
KPMG LLP
July 25, 2001 Stamford, CT
MOBIUS MANAGEMENT SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data and per share data)
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Years Ended June 30, 1999 2000 2001 ---- ---- ----
Revenues: Software license revenues $48,811 $31,018 $39,321 Maintenance and other revenues 25,025 29,187 34,891 ------ ------ ------ Total revenues 73,836 60,205 74,212 ------ ------ ------ Costs of revenues: Software license revenues 1,223 946 1,219 Maintenance and other revenues 5,011 6,070 6,148 ------ ----- ------ Total costs of revenues 6,234 7,016 7,367 ------ ------- ------
Gross profit 67,602 53,189 66,845 ------ ------ ------
Operating expenses: Sales and marketing 41,877 44,289 44,886 Research and development 10,674 14,823 16,267 General and administrative 9,409 12,086 10,460 ------ ------ ------ Total operating expenses 61,960 71,198 71,613 ------ ------ ------
Income (loss) from operations 5,642 (18,009) (4,768)
License and other interest income 2,920 2,930 2,689 Interest expense (16) (58) (9) Foreign currency transactions (191) 44 102 Other income -- -- 109 Investment impairments -- (2,220) (718) ------ ------ ------ Income (loss) before income taxes 8,355 (17,313) (2,595)
Provision (benefit)for income taxes 4,057 (5,417) (605) ------ ------ ------ Net income (loss) $ 4,298 $(11,896) $(1,990) ======= ========- =======
Basic earnings (loss) per share $ 0.24 $ (0.66) $(0.11) Basic weighted average shares outstanding 17,813 17,988 18,225
Diluted earnings (loss) per share $ 0.23 $ (0.66) $(0.11) Diluted weighted average shares outstanding 18,964 17,988 18,225
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
Mobius Management Systems, Inc., together with its wholly-owned subsidiaries (the "Company"), is a leading provider of software that supports content-intensive e-business applications. The Company is incorporated in Delaware and operates wholly-owned subsidiaries in the United States, United Kingdom, France, Germany, Italy, Sweden, Switzerland, Australia, Japan and the Benelux.
(2) Significant Accounting Policies
Principles of consolidation
The Company and its subsidiaries are consolidated for financial statement purposes after the elimination of all significant intercompany transactions.
Revenue recognition
License and maintenance revenue are recognized in accordance with Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). Revenue from software license contracts includes license fees related to long-term licenses, typically 5 or 15 years, and fees for term license contracts, which are generally 3 to 5 years. Revenue from executed software license contracts is recognized upon delivery of the software to the customer if no significant vendor obligations remain and collection of the resulting receivable is probable. Software license revenue includes the present value of future payments under non-cancelable license arrangements which provide for payment in installments generally over periods from 3 to 5 years. A portion of the discount is recognized as interest income over the term of the arrangement.
SOP 97-2 generally requires revenue earned on multiple element software arrangements, such as additional software products, upgrades or enhancements, rights to exchange or return software, maintenance or services, including elements deliverable only on a when-and-if-available basis, to be allocated to the various elements of such sale based on "vendor-specific objective evidence of fair values" allocable to each such element. If sufficient vendor-specific objective evidence of fair market values does not exist, revenue from the sale is deferred until such sufficient evidence exists, or until all elements have satisfied the requirements for revenue recognition. Statement of Position (SOP) 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions", which amended SOP 97-2 and clarified what is considered vendor-specific evidence of fair value for the various elements in a multiple element arrangement was adopted by Mobius on July 1, 1999.
According to these guidelines, when the Company sells a software license contract that includes maintenance, the maintenance revenue is unbundled from the initial license fee and recognized ratably over the maintenance period, starting from the inception of the software license agreement. The unearned portion of such maintenance revenue is classified as deferred revenue with amounts extending beyond one-year reported as non-current.
Revenue on maintenance contracts is recognized on a straight-line basis over the term of the maintenance contract, generally twelve months. The unearned portion of maintenance revenue is classified as deferred revenue.
Software Development Costs
Statement of Financial Accounting Standards No. 86 (SFAS No. 86) 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 its 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 three to fifteen years. Assets acquired under capital leases are depreciated on a straight-line basis over the shorter of the asset's life or the respective lease.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS No. 109 requires using 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 foreign 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, 2000 and 2001, 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 Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, and are carried at market value. 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, 1999, 2000 and 2001 are insignificant. As of June 30, 2000 and 2001, the unamortized investment premium and unrealized holding gains and losses were also insignificant.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of substantially all of the trade accounts receivables and software license installments. The Company sells its products to a large number of customers in diversified industries across many domestic and international geographies.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS 107) 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 Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128 stipulates that the calculation of earnings per share (EPS) be shown for all historical periods as Basic EPS and Diluted EPS. Basic EPS is computed by dividing income available to common shareholders 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. Stock options were the only dilutive instruments for the years ended June 30, 1999, 2000 and 2001.
The following is a reconciliation of the numerators and denominators for the Basic and Diluted EPS calculations (in thousands, except per share data):
Year Ended June 30, 1999 -------------------------------------- Net Income Shares Per Share (Numerator) (Denominator) (Amount) ----------- ------------- --------- Basic EPS: Net income $4,298 ====== Weighted average shares outstanding 17,813 Basic EPS $0.24 ===== Diluted EPS: Net income $4,298 ====== Dilutive effect of stock options 1,151 ----- Diluted EPS 18,964 $0.23 ====== =====
Outstanding stock options, representing an aggregate of 113,000, 2,684,150 and 3,048,150 shares of Common Stock equivalents, are antidilutive for the year ended June 30, 1999, 2000 and 2001, respectively.
Stock Based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation", and elected to continue to apply the provisions of Accounting Principles Board (APB) Opinion No. 25 in determining measurement of compensation expense and provide pro forma net earnings and pro forma net earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair value-based method, as defined in SFAS No. 123, had been applied. As such, compensation expense is generally recorded on the date of grant only if the current fair market value of the underlying stock exceeded the exercise price.
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation" (FIN 44) provides guidance for applying APB Opinion No. 25, "Accounting for Stock Issued to Employees". With certain exceptions, FIN 44 applies prospectively to new awards, exchanges of awards in a business combination, modifications to outstanding awards and changes in grantee status on or after July 1, 2000.
Reclassifications
Certain reclassifications have been made to the 2000 and 1999 amounts to conform to the 2001 presentation.
Recently Adopted Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133, as amended by SFAS No. 137 and No. 138 is effective for fiscal years beginning after June 15, 2000. As of July 1, 2000, the Company has adopted these statements, however the Company has not identified any derivative instruments subject to the provisions of SFAS No. 133. The adoption did not have a material impact on the Company's consolidated results of operations or financial position.
(3) Software License Installments
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 term. Software license installments are discounted at a market rate of interest at the date the software license contract revenue is
recognized. At June 30, 2000 and 2001 the effective weighted average discount rate used for software license installments was 7.4% in both fiscal years. 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, 2001 are as follows (in thousands):
Year Ended:
June 30, 2002 $10,124 June 30, 2003 4,649 June 30, 2004 1,249 June 30, 2005 659 June 30, 2006 58 ------- Total minimum payments to be received 16,739 Less unearned interest income (1,655) Less allowance for doubtful accounts (551) ------- Present value of software license installments, net 14,533 Less current portion, net (9,317) ------- Non-current portion, net $ 5,216 =======
(4) Property and Equipment
Property and equipment consists of the following (in thousands):
June 30, 2000 2001 ------- ------- Computer equipment $12,349 $12,689 Furniture, fixtures and office equipment 1,089 1,650 Leasehold improvements 1,542 4,665 Construction in progress 1,062 -- ------- ------- 16,042 19,004 Less accumulated depreciation and amortization (6,747) (9,773) ------- ------- Property and equipment, net $ 9,295 $ 9,231 ======= =======
Depreciation and amortization expense on property and equipment, including capital leases, was $1,372,000, $2,874,000 and $4,133,000 for the years ended June 30, 1999, 2000 and 2001, respectively.
(5) Non-Current Investments
In June 1999, Mobius invested $1,501,000 in Home Account Network ("HAN"), a privately-held, information technology company providing processing and Internet outsourcing to financial services companies. During fiscal 2000, Mobius provided an additional $750,000 to HAN in short term loans that were converted to preferred stock in May 2000. In fiscal 2001, Mobius provided an additional $375,000 to HAN as short term loans.
Mobius regularly assessed the recoverability of the HAN investment and had concluded that an other than temporary impairment loss had occurred. Accordingly, impairment losses were recorded in connection with this investment aggregating $2.2 million and $218,000 for the years ended June 30, 2000 and 2001, respectively.
In January 2001, HAN was purchased by Intelidata Technologies ("Intelidata"). The merger agreement established a fixed number of shares to be allocated between debt holders and all shareholders, including Mobius. The Intelidata shares will be released at specified time periods beginning after the Intelidata shares are registered. The number of shares to be received by debt holders will be based upon a formula that utilizes the market value of Intelidata stock on each release date. After the debtors are repaid, any remaining shares will be distributed to HAN's
management and shareholders based on percentages in the merger agreement. Once the stock is released to the debtors and shareholders, it is subject to a variety of trading restrictions. As of June 30, 2001, Mobius has not received any Intelidata shares.
As of June 30, 2001, the carrying value of the HAN investment is $188,000 and is included within other current assets. Mobius believes that the carrying value is recoverable based on estimates of the amount and value of shares to be received from the transaction, discounted for the restrictions and estimated time until the Intelidata shares are expected to be received.
In January 2000, Mobius made an investment of $500,000 in Flooz.com, a startup Internet company. This was an investment in preferred stock, which would convert into Common Stock if Flooz.com had completed an initial public offering. Mobius held a minority ownership position, which, if the preferred shares converted to Common Stock, would be less than 5%. The Chief Executive Officer of Flooz.com is currently a member of the Board of Directors of Mobius. Flooz.com has ceased operations and has filed for bankruptcy protection. Accordingly, Mobius recorded an impairment loss of $500,000 in the year ended June 30, 2001.
(6) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in thousands): June 30, 2000 2001 ------- ------- Accounts payable $ 2,563 $ 2,101 Compensation and related benefits 6,569 6,728 Royalties payable 1,168 1,143 Other 4,746 5,526 ------- ------- $15,046 $15,498
(7) Income Taxes
Income(loss)before provision (benefit) for income taxes is as follows (in thousands):
Years Ended June 30, ---------------------------- 1999 2000 2001 ------- -------- ------ Domestic income (loss) $13,236 $(15,575) $1,216 Foreign losses (4,881) (1,738) (3,811) ------- -------- ------ $ 8,355 $(17,313) $(2,595) ======== ======== =======
The components of the provision (benefit) for income taxes for the years ended June 30, 1999, 2000 and 2001 are as follows (in thousands):
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, 1999, 2000 and 2001 (in thousands):
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):
June 30, 2000 2001 ------ ------ Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts $ 483 $ 551 Net operating loss carryforwards 2,811 4,124 Depreciation and amortization -- 103 AMT tax credit 222 309 Research and development credit carryforwards -- 541 Unrealized loss on investments -- 1,135 Other -- 71 ------ ------ 3,516 6,834 Valuation allowance (2,219) (3,289) ------ ------ Net deferred tax assets 1,297 3,545 Deferred tax liabilities: Software license installments 4,899 5,464 Depreciation 254 -- Other 38 38 ------ ------ Net deferred tax liability $3,894 $1,957 ====== ======
The valuation allowance increased by $1.1 million for the year ended June 30, 2001 primarily due to uncertainty of realization of net operating losses incurred by certain foreign subsidiaries. The valuation allowance decreased by $1.3 million between fiscal 1999 and 2000 primarily as a result of utilization of some of the foreign losses in certain foreign jurisdictions. The Company will reduce the valuation allowance when it is concluded that it is more likely than not that these deferred tax assets will be realized.
The expiration of net operating loss carryforwards varies by jurisdiction; some begin to expire in fiscal 2002 and others extend indefinitely.
(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, 2000 and 2001.
(9) Treasury Stock
In December 2000, the Board of Directors authorized a stock repurchase program under which Mobius may repurchase up to 1,000,000 shares of Mobius's outstanding common stock. The number of shares to be repurchased and timing of purchases will be based on a variety of factors, including general market conditions, the market price and trading volume of Mobius shares. Through June 30, 2001, 170,800 shares at an approximate cost of $636,000 were repurchased under this program.
(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 4,388,400 shares of authorized but unissued common stock. Stock options are generally granted with an exercise price equal to the stock's fair market value at the date of grant as determined by the Company's Board of Directors. Stock options generally vest as to 20% of the shares subject thereto on the first anniversary of the date of grant and the remainder vest ratably over the subsequent 16 quarters.
1998 Non-Employee Directors' Stock Option Plan
In February 1998, the Board of Directors and stockholders of the Company approved and adopted the 1998 Non-Employee Director 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 250,000 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, 1998 2,397,500 $ 5.17 Granted 374,000 10.10 Exercised (210,650) 1.25 Forfeited (79,000) 6.63 Expired -- -- --------- Balance at June 30, 1999 2,481,850 6.20 Granted 609,750 4.67 Exercised (154,950) 1.25 Forfeited (252,500) 5.60 Expired -- -- --------- Balance at June 30, 2000 2,684,150 6.19 Granted 813,750 3.04 Exercised (24,650) 1.29 Forfeited (425,100) 6.80 Expired -- -- --------- Balance at June 30, 2001 3,048,150 $5.31 =========
The following table summarizes information about the stock option plans:
At June 30, 2001, there were 895,500 shares available for grant under the Plan and 110,000 shares available for grant under the Directors' Plan. At June 30, 1999 and 2000, there were 803,321 and 1,242,276 options exercisable.
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 $1,046,000, $537,000 and $277,000 for the years ended June 30, 1999, 2000 and 2001, respectively. Such compensation expense is included within Sales and marketing of $802,000, $397,000 and $193,000, Research and development of $195,000, $112,000 and $67,000 and General and administrative expenses of $49,000, $28,000 and $17,000 for the years ended June 30, 1999, 2000 and 2001, respectively. There is approximately, $125,000 and $43,000 of expense relating to these 1998 option grants to be recognized as stock compensation expense in fiscal years 2002 and 2003, respectively, to be adjusted for option holders' terminations.
If the Company had determined compensation cost based on the fair value of the option on the grant date for its stock options under SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have been as indicated below.
Year Ended June 30, 1999 2000 2001 ---- ---- ---- Proforma net income (loss) and earnings (loss) per share as would be reported under SFAS No. 123: Net income (loss) $2,629 $(14,449) $(4,379) Basic earnings (loss) per share $ 0.15 $(0.80) $ (0.24) Diluted earnings (loss) per share $ 0.14 $(0.80) $ (0.24)
The modified Black Scholes option pricing model was used for grants prior to June 30, 1998 and 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, 1999, 2000 and 2001 was $10.07, $4.54 and $2.95 on the date of grant, respectively. Grants during the year ended June 30, 1999, 2000 and 2001 assumed 568%, 412% and 343% of volatility, expected dividend yield of 0.0% and an expected life of 3.2 years, 3.1 years and 3.2 years, respectively. The assumed risk free interest rate on the date of grants was 5.25%, 6.2% and 5.0% in fiscal 1999, fiscal 2000 and fiscal 2001, respectively.
(11) 1998 Employee Stock Purchase Plan ("ESPP")
In February 1998, the Board of Directors and stockholders of the Company approved and adopted the 1998 Employee Stock Purchase Plan (the "ESPP"). The purpose of the ESPP is to provide eligible employees who wish to acquire common stock of the Company the opportunity to purchase shares from the Company with accumulated payroll deductions. The ESPP is intended to constitute an "employee stock purchase plan" under section 423 of the Internal Revenue Code. The ESPP provides for the issuance of an aggregate of up to 1,150,000 shares. During fiscal 1999 there were no shares issued under this plan. During fiscal 2000 and fiscal 2001, 53,812 and 238,563 shares were issued under the ESPP, respectively. As of June 30, 2001, 111,768 shares are reserved for issuance and there were 745,857 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, 1999, 2000 and 2001.
In February 1998, the Board of Directors and stockholders of the Company have 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, 1999, 2000 and 2001, no awards were made under the Incentive Plan.
(13) Comprehensive Income
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. Comprehensive income (loss) for the years ended June 30, 1999, 2000 and 2001 is as follows:
Year ended June 30, 1999 2000 2001 ---- ---- ---- Net income (loss) $4,298 $(11,896) $(1,990) Unrealized marketable securities gain (loss) (41) 4 43 Unrealized translation gain (loss) (360) 81 (608) -------------------------------- Comprehensive income (loss) $3,897 $(11,811) $(2,555) ================================
(14) Lease Commitments
The Company has operating leases for its office facilities which expire on various dates through fiscal 2008 and provide for escalation and additional payments relating to operating expenses.
The following is a schedule of future minimum lease payments for operating leases as of June 30, 2001 (in thousands):
Operating Leases Year Ended:
June 30, 2002 $ 3,154 June 30, 2003 2,876 June 30, 2004 2,591 June 30, 2005 2,404 June 30, 2006 1,112 Thereafter 5,159 -------
Total minimum lease payments $17,296 =======
Rental expense for all operating leases was approximately $2,419,000, $3,319,000 and $3,516,000 for the years ended June 30, 1999, 2000 and 2001, respectively.
In compliance with the lease of the corporate headquarters, the Company's landlord holds a letter of credit with Silicon Valley Bank for $275,000. This letter of credit is secured by a certificate of deposit.
(15) 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. 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.
---------- (a) The Company operates wholly-owned subsidiaries in the United Kingdom, France, Germany, Italy, Sweden, Switzerland, Australia, Japan and the Benelux. Includes international sales with agents.
(b) Includes royalties paid to the Company and to its subsidiaries by agents. Royalties from agents are a percentage of the license and maintenance fees paid by customers to such agents.
(c) Represents royalties from foreign subsidiaries. Royalties from foreign subsidiaries are a percentage of the license land maintenance fees paid by customers to such foreign subsidiaries.
(16) 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. The buyer assumed responsibility for maintenance support for all existing TapeSaver licenses, however, the Company recognized approximately $1.1 million of TapeSaver maintenance revenue through December 31, 1999 for TapeSaver maintenance billings collected prior to the sale, $795,000 of which was recognized in fiscal 1999 and $302,000 of which was recognized in fiscal 2000. No TapeSaver maintenance revenue was recognized in fiscal 2001. For the years ended June 30, 1999, 2000 and 2001, the Company recognized $756,000, $673,000 and $450,000 of TapeSaver license revenue, respectively. Future TapeSaver license revenue of $112,500 each quarter, will be recognized as the buyer makes scheduled payments through December 31, 2003. The buyer is delinquent on these payments since June 2001.
SCHEDULE II
MOBIUS MANAGEMENT SYSTEMS, INC.
Valuation and Qualifying Accounts (In thousands)
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.
(a)(3) Exhibits
Exhibit No. Description ----------- -----------
3.1* -- Form of Second Amended and Restated Certificate of Incorporation of the Registrant. 3.2* -- Form of Restated By-Laws of the Registrant. 4.1* -- Specimen certificate representing the Common Stock. 10.1* -- Mobius Management Systems, Inc. 1996 Stock Incentive Plan. 10.2* -- Amendment No. 1 to Mobius Management Systems, Inc. 1996 Stock Incentive Plan. 10.3* -- Mobius Management Systems, Inc. 1998 Employee Stock Purchase Plan. 10.4* -- Mobius Management Systems, Inc. 1998 Non-Employee Director Stock Option Plan. 10.5* -- Mobius Management System, Inc. 1998 Executive Incentive Plan. 10.6* -- Form of Grantee Option Agreement. 10.7* -- Lease dated December 4, 1997 by and between Old Boston Post Road Associates LLC and the Registrant. 10.8* -- Lease dated February 14, 1983 by and between American National Bank and Trust Company of Chicago and the Registrant. 10.9 -- Sublease dated January 5, 1999 by and between Fluor Daniel, Inc. and the Registrant 10.10* -- 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* -- 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* -- Registration Rights Agreement dated May 12, 1997 by and among the Registrant and the other parties listed on the signature pages thereto. 10.13* -- Employment Agreement between the Registrant and Mitchell Gross, dated February 26, 1998. 10.14* -- Employment Agreement between the Registrant and Joseph Albracht, dated February 26, 1998. 10.15* -- Severance Agreement dated as of September 30, 1997 between the Registrant and Joseph Tinnerello. 10.16* -- Option Agreement dated as of September 30, 1997 between the Registrant and Joseph Tinnerello. 10.17* -- Letter Agreement, dated as of December 28, 1997 between the Registrant and Joseph Tinnerello. 10.18* -- Stockholder Agreement, dated as of December 30, 1997 between the Registrant and Joseph Tinnerello. 10.19* -- Software Assets Purchase Agreement dated as of December 10, 1990 among the Registrant, Compucept of Nevada and Software Assist Corporation. 10.20* -- OEM Agreement between the Registrant and CDP Communications, Inc. dated as of October 15, 1993. 10.21* -- Source Code License and Amendment to OEM Agreement between the Registrant and CDP Communications Inc. dated as of August 12, 1997. 10.22* -- Amendment #1 to License and Amendment to OEM Agreement between the Registrant and CDP Communications, Inc. dated November 21, 1997. 10.23** -- Lease Modification Agreement dated July 12, 1999 by and between Old Boston Post Road Associates LLC and the Registrant. 10.24 -- Amendment #1 to Mobius Management Systems, Inc. 1998 Employee Stock Purchase Plan.
Exhibit No. Description ----------- -----------
21.1* -- Subsidiaries of the Registrant. 23.1 -- Consent of KPMG LLP.
* Filed as an exhibit to Mobius's Registration Statement on Form S-1 (Registration Number 333-47117) or an amendment thereto and incorporated herein by reference to the same exhibit number.
** 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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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 26, 2001
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the captions "Consolidated Statement of Income Data" and "Consolidated Balance Sheet Data" as of and for each of the years in the five year period ended June 30, 2001 are derived from the consolidated financial statements of Mobius, which statements have been audited by KPMG LLP, independent certified public accountants. The consolidated financial statements as of June 30, 2000 and 2001 and for each of the years in the three-year period ended June 30, 2001, and the report 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.
---------- (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, 1998, 1999, 2000 and 2001 aggregating $642, $1,046, $537 and $277, respectively.
(2) For a description of the basic and diluted earnings per share ("EPS") calculations and the basic and diluted weighted average shares outstanding, see Note 2 of Notes to Consolidated Financial Statements.
ITEM 7.
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, 2001 and June 30, 2000, respectively.
Overview
Mobius is a leading provider of Web-based software solutions that manage and present enterprise content. For over two decades, Mobius has delivered innovative technology that provides access through a common portal to mission-critical documents, reports and images. Mobius solutions have achieved industry-wide recognition for their ability to support high-volume, high-performance, simultaneous-access requirements in distributed environments that range from the desktop to the mainframe. Today, our ViewDirect(R) technology stores and integrates information in virtually any format, presenting and distributing it over the Internet and corporate networks. Personalized views and automated distribution options deliver information in the format needed by each employee, customer and partner. This versatile technology supports a broad range of e-business requirements, including corporate portals, customer service, customer relationship management, electronic bill presentment and payment, and archiving and output management for enterprise resource planning systems.
The Company's total revenues decreased from $73.8 million in fiscal 1999 to $60.2 million in fiscal 2000 and increased to $74.2 million in fiscal 2001. Mobius believes that Year 2000 ("Y2K") issues significantly affected the purchasing patterns of its customers and potential customers during fiscal 2000. Many companies expended significant resources to correct or modify their existing software systems to be Y2K compliant and the Company believes these expenditures resulted in reduced funds to purchase software products such as those that Mobius offers. The Company believes that although the software marketplace remains turbulent, the market for Mobius's products may be returning to its pre-Y2K conditions and accordingly, total revenues increased primarily because Mobius sold more licenses for its products to new and existing customers.
Mobius derives its revenues primarily from product license fees and related annual maintenance fees. This year 53.0% of total revenues were generated by software license fees and 47.0% were generated by maintenance and other fees.
License revenues of ViewDirect and DocumentDirect products have historically accounted for a majority of the Company's license revenues and for a significant portion of total revenues. This year license revenues for these products accounted for approximately 89.5% of license revenues and approximately 47.4% of total revenues. Last year license revenues for these products accounted for approximately 93.0% of license revenues and approximately 47.4% of total revenues. The Company anticipates in the foreseeable future that license revenue from these products will continue to account for a significant portion of license and total revenues.
Mobius's growing customer base has led to continued growth in maintenance and other revenues, from $25.0 million in fiscal 1999 to $29.2 million last year to $34.9 million this year. Maintenance revenue consists primarily of customer support services and enhancements provided by the Company for its products. Other revenue consists of professional services provided to Mobius customers. Other revenues for all periods were not significant.
International revenues increased this year to $12.8 million from $9.9 million last year and $9.6 million in fiscal 1999. In fiscal 2001, international revenues increased due to Mobius's continued investment in developing its sales infrastructure. As a group, the Company's international subsidiaries have been unprofitable to date, and Mobius expects achieving profitability will continue to require significant management attention and financial resources. The Company intends to expand its
international sales activities as part of its business strategy. The majority of Mobius's current international revenues are derived from the operations of its wholly-owned subsidiaries and through agents. The Company receives a royalty that is a percent of agent or subsidiary sales of software licenses and maintenance contracts to international customers. 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. To date, most of these subsidiaries have operated at a loss, which losses prior to fiscal 2001, had not been consolidated for United States income tax purposes. Consequently, the Company has experienced a substantially higher effective tax rate in fiscal 1999 and a reduced effective tax benefit in fiscal 2000 than the U.S. Federal statutory rate as no tax benefit had been provided for the majority of these foreign losses. During fiscal 2001, the Company made certain U.S. Federal income tax elections which allow certain of these foreign tax losses to be included within its U.S. Federal consolidated income tax return. These elections will, in part, cause the Company's effective tax rate to begin to approach the U.S. Federal statutory rate. To the extent the Company is successful at bringing its foreign subsidiaries to profitability, the Company's effective tax rate could again exceed the U.S. Federal statutory rate depending on the availability of operating loss carryforwards in the profitable foreign jurisdictions and the operation of foreign tax credit limitations.
Capitalization of internally developed software costs is required once technological feasibility is established. The period between achieving technological feasibility, which we have defined as the establishment of a working model, and the general availability of such software has been short and, therefore, software development costs qualifying for capitalization have been insignificant. Accordingly, the Company has not capitalized any software development costs and currently does not anticipate having significant development costs that are eligible for capitalization in the foreseeable future. Software development costs are included in research and development expenses. For more information on the Company's capitalization of software development costs see Note 2 of Notes to Consolidated Financial Statements.
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, 1999 2000 2001 ----- ----- ----- Revenues: Software license revenues 66.1% 51.5% 53.0% Maintenance and other revenues 33.9 48.5 47.0 ----- ----- ----- Total revenues 100.0 100.0 100.0 Costs of revenues: Software license revenues 1.6 1.6 1.6 Maintenance and other revenues 6.8 10.1 8.3 ----- ----- ----- Total costs of revenues 8.4 11.7 9.9 ----- ----- ----- Gross profit 91.6 88.3 90.1 Operating expenses: Sales and marketing 56.7 73.6 60.5 Research and development 14.5 24.6 21.9 General and administrative 12.7 20.1 14.1 ----- ----- ----- Total operating expenses 83.9 118.3 96.5 ----- ----- ----- Income (loss) from operations 7.7 (30.0) (6.4) License and other interest income 3.9 4.9 3.6 Interest expense -- (0.1) -- Foreign currency transactions (0.3) 0.1 0.1 Other income -- -- 0.2 Investment impairments -- (3.7) (1.0) ----- ----- ----- Income (loss) before income taxes 11.3 (28.8) (3.5) Provision (benefit) for income taxes 5.5 (9.0) (0.8) ----- ----- ----- Net income (loss) available to common stock 5.8% (19.8)% (2.7)% ===== ===== =====
Year Ended June 30, 1999 Compared to Year Ended June 30, 2000 Compared to Year Ended June 30, 2001
Revenues
o Total revenues decreased 18.4% from $73.8 million in fiscal 1999 to $60.2 million in fiscal 2000 and increased 23.3% to $74.2 million in fiscal 2001. Domestic revenues decreased 21.8% from $64.3 million in fiscal 1999 to $50.3 million in fiscal 2000 and increased 22.1% to $61.4 million in fiscal 2001. International revenues increased 3.1% from $9.6 million in fiscal 1999 to $9.9 million in fiscal 2000 and increased 29.3% to $12.8 million in fiscal 2001.
o Software license revenues decreased 36.5% from $48.8 million in fiscal 1999 to $31.0 million in fiscal 2000 and increased 26.8% to $39.3 million in fiscal 2001. The decrease in fiscal 2000 was primarily attributable to decreased sales of licenses. Mobius believes that Year 2000 ("Y2K") issues significantly affected the purchasing patterns of its customers and potential customers. Many companies expended significant resources to correct or modify their existing software systems to be Y2K compliant and these expenditures resulted in reduced funds to purchase software products such as those that Mobius offers. The Company believes that although the software marketplace remains turbulent, the market for Mobius's products may be returning to its pre-Y2K conditions and accordingly, total revenues increased primarily because Mobius sold more licenses for its products to new and existing customers.
o Maintenance and other revenues increased 16.8% from $25.0 million in fiscal 1999 to $29.2 million in fiscal 2000 and increased 19.5% to $34.9 million in fiscal 2001. The increases in maintenance and other revenues during these years were primarily attributable to the growth in the amount of licensed software covered by maintenance agreements and increases in the maintenance fees charged by the Company. Other revenues for all periods were not significant.
Costs of Revenues.
o Costs of software license revenues decreased 22.7% from $1.2 million in fiscal 1999 to $900,000 in fiscal 2000 and increased 28.9% to $1.2 million in fiscal 2001, representing 2.5%, 3.0% and 3.1%, respectively, of software license revenues in those years. The costs of software license revenues are a function of license sales which were subject to royalties.
o Costs of maintenance and other revenues increased 20.0% from $5.0 million in fiscal 1999 to $6.0 million in fiscal 2000 and increased 1.3% to $6.1 million in fiscal 2001, representing 20.0%, 20.8% and 17.6%, respectively, of maintenance and other revenues in those years. In fiscal 2000, the increases in costs of maintenance and other revenues was primarily attributable to increased staffing and personnel-related costs and subcontractor costs associated with post sales assistance. In fiscal 2001, the decrease in the percentage of cost of maintenance and other revenues in relation to the maintenance and other revenues was primarily attributable to supporting more maintenance agreements with an insignificant increase in maintenance costs.
Operating Expenses.
o Sales and marketing expenses consist primarily of the cost of personnel associated with the selling and marketing of Mobius's products, including salaries, commissions, performance based bonuses, and travel and entertainment costs. Sales and marketing costs also include the cost of branch sales offices, marketing, promotional materials and advertising. These expenses increased 5.7% from $41.9 million in fiscal 1999 to $44.3 million in fiscal 2000 and increased 1.3% to $44.9 million in fiscal 2001, representing 56.7%, 73.6% and 60.5%, respectively, of total revenues in those years. The increase in fiscal 2000 is related to additional spending for the Click-n-Done products, and increased personnel related costs for marketing, partially offset by a decrease in sales commissions and bonuses due to decreased sales of software licenses. In fiscal 2001, sales and marketing expenses increased slightly since Mobius paid more commissions and bonuses for selling more software licenses and hired additional marketing personnel, offset by a decrease in sales and marketing expenses related to the consolidation of dedicated Click-n-Done sales and marketing departments into Mobius's established sales and marketing structures.
o Research and development expenses consist primarily of personnel costs attributable to the development of new software products and the enhancement of existing products. Research and development expenses increased 38.3% from $10.7 million in fiscal 1999 to $14.8 million in fiscal 2000 and increased 9.7% to $16.3 million for fiscal 2001, representing 14.5%, 24.6% and 21.9%, respectively, of total revenues in those years. The increase in expenses in fiscal 2000, including the development costs associated with Click-n-Done, were primarily attributable to increased subcontractor costs, increased staffing and personnel-related costs. In fiscal 2001, the increase in research and development expenses was attributable to higher personnel-related costs. Research and development expenses as a percentage of total revenues fluctuate with the changes in development projects and annual revenues.
o General and administrative expenses consist of personnel costs related to general management, accounting, human resources, network services, administration and associated overhead costs, as well as fees for professional services. General and administrative expenses increased 28.7% from $9.4 million in fiscal 1999 to $12.1 million in fiscal 2000 and decreased 13.5% to $10.5 million in fiscal 2001, representing 12.7%, 20.1% and 14.1%, respectively, of total revenues in those years. The increase in expenses in fiscal 2000 was primarily attributable to additional staffing and personnel-related costs, including costs to administer Click-n-Done and also the depreciation of improvements made to the Company's infrastructure. The decrease in fiscal 2001 was attributable to the elimination of Click-n-Done's administration department, decreased bonuses, completion of special projects and the implementation of administrative cost savings strategies. These decreases were partially offset by increased depreciation for capitalized infrastructure projects.
License and other interest income; interest expense; foreign currency transaction gains (losses).
License and other interest income was $2.9 million, $2.9 million and $2.7 million in fiscal 1999, 2000, and 2001, respectively. During fiscal 1999, 2000 and 2001 interest expense and foreign currency transaction gains were insignificant.
Income Taxes.
The provision (benefit) for income taxes was $4.0 million in fiscal 1999, $(5.4) million in fiscal 2000 and $(605,000) in fiscal 2001. The Company had effective tax rates of approximately 48.6%, (31.3)% and (23.3)% in fiscal years 1999, 2000 and 2001, respectively. The difference between the Company's 1999 effective tax rate and the U.S. Federal statutory rate is primarily attributable to the Company not being able to consolidate certain foreign subsidiary losses for U.S. tax purposes. The effective tax rate for fiscal 2000 and 2001 reflects the statutory tax benefit for the losses in the United States offset by limitations on the tax benefit, which can be taken from losses in Mobius's foreign subsidiaries.
Investments
In June 1999, Mobius invested $1,501,000 in Home Account Network ("HAN"), a privately-held, information technology company providing processing and Internet outsourcing to financial services companies. During fiscal 2000, Mobius provided an additional $750,000 to HAN in short term loans that were converted to preferred stock in May 2000. In fiscal 2001, Mobius provided an additional $375,000 to HAN as short term loans.
Mobius regularly assessed the recoverability of the HAN investment and had concluded that an other than temporary impairment loss had occurred. Accordingly, impairment losses were recorded in connection with this investment aggregating $2.2 million and $218,000 for the years ended June 30, 2000 and 2001, respectively.
In January 2001, HAN was purchased by Intelidata Technologies ("Intelidata"). The merger agreement established a fixed number of shares to be allocated between debt holders and all shareholders, including Mobius. The Intelidata shares will be released at specified time periods beginning after the Intelidata shares are registered. The number of shares to be received by debt holders will be based upon a formula that utilizes the market value of Intelidata stock on each release date. After the debtors are repaid, any remaining shares will be distributed to HAN's management and shareholders based on percentages in the merger agreement. Once the stock is released to the debtors and shareholders, it is subject to a variety of trading restrictions. As of June 30, 2001, Mobius has not received any Intelidata shares.
As of June 30, 2001, the carrying value of the HAN investment is $188,000 and is included within other current assets. Mobius believes that the carrying value is recoverable based on estimates of the amount and value of shares to be received from the transaction, discounted for the restrictions and estimated time until the Intelidata shares are expected to be received.
In January 2000, Mobius made an investment of $500,000 in Flooz.com, a startup Internet company. This was an investment in preferred stock, which would convert into common stock if Flooz.com had completed an initial public offering. Mobius held a minority ownership position, which, if the preferred shares converted to common stock, would be less than 5%. The Chief Executive Officer of Flooz.com is currently a member of the Board of Directors of Mobius. Flooz.com has ceased operations and filed for bankruptcy protection. Accordingly, Mobius recorded an impairment loss of $500,000 in the year ended June 30, 2001.
Selected Quarterly Operating Results
The following table presents certain consolidated statement of operations data for the eight fiscal quarters in the two-year period ended June 30, 2001. 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.
(1) Included within sales and marketing, research and development and general and administrative expense is stock compensation expense associated with the granting of stock options to employees immediately prior to the Company's IPO. Such stock compensation expense for the 8 quarters ended June 30, 2001 was $166,000, $167,000, $113,000, $91,000, $91,000, $91,000, $56,000 and $39,000, respectively.
The Company's quarterly revenues and operating results have varied significantly in the past and are likely to vary substantially from quarter to quarter in the future. Quarterly revenues and operating results are expected to fluctuate as a result of a variety of factors, including lengthy product sales cycles, changes in the level of operating expenses, demand for the Company's products, introductions of new products and product enhancements by Mobius or Mobius's competitors, changes in customer budgets, competitive conditions in the industry and general domestic and international economic conditions. License revenues typically peak during the fourth fiscal quarter and to a lesser extent in the second fiscal quarter. These fluctuations are caused primarily by customer purchasing patterns and the Company's sales force incentive programs which recognize and reward sales personnel on the basis of achievement of annual and other periodic performance quotas, as well as the factors described above.
Liquidity and Capital Resources
Since its inception, Mobius has funded its operations principally through cash flows from operating activities and, to a lesser extent, equity or bank financings. As of June 30, 2001, Mobius had cash and cash equivalents of $24.1 million, a 12.7% increase from the $21.4 million held at June 30, 2000. In addition, Mobius had marketable securities of $10.3 million and $10.5 million as of June 30, 2000 and June 30, 2001, respectively.
In fiscal 1999, $6.8 million net cash was provided by operating activities. In fiscal 2000, $4.0 million net cash was used by operating activities and in fiscal 2001, $8.3 million net cash was provided by operating activities. Mobius's primary sources of cash during fiscal 1999 was its net income supported by increases in its deferred income taxes and decreases in items requiring working capital. During fiscal 2000, Mobius's use of cash in operating activities was primarily caused by its net loss and an increase in accounts receivable offset by collections of software license installments and growth in deferred revenues. During fiscal 2001, Mobius's depreciation and amortization expense adjustment in operating activities was $4.2 million. Depreciation and amortization expense increased during fiscal 2001 due to infrastructure investments. Mobius's sources of cash during fiscal 2001 was collections of software installments and accounts receivable. Software license installments, which decreased 18.5% from $17.8 million at June 30, 2000 to $14.5 million at June 30, 2001, represent payments due from customers for license fees that are paid over the term of the installment agreement. Since payments are made over multiple reporting periods, software license installments can fluctuate with the amount of license revenue sold on an installment basis. Net accounts receivable decreased 13.5% from $14.9 million at June 30, 2000 to $12.9 million at June 30, 2001, largely as a result of better collections.
Net cash used in investing activities was $15.4 million, $8.6 million and $5.2 million in fiscal 1999, 2000 and 2001, respectively. For the years ended June 30, 1999, 2000 and 2001, cash of $4.5 million, $6.2 million and $4.2 million, respectively was used for the purchase of computer equipment, furniture and fixtures and leasehold improvements. The Company continues to invest capital resources into its infrastructure, including the installation of an automated sales force computer system, implementation of a new accounting system and expansion of the Rye headquarters building.
Marketable securities of $9.4 million, $3.5 million and $23.4 million were purchased and $0, $2.3 million and $23.2 million marketable securities were sold, in fiscal 1999, 2000, 2001, respectively. Mobius made investments of $1.5 million, $1.3 million and $375,000 in Home Account Network and Flooz.com during fiscal 1999, 2000 and 2001, respectively. These investments are disclosed in detail in a separate section of Management's Discussion and Analysis and in Note 5 of the Consolidated Financial Statements.
Net cash provided by financing activities was $227,000 in fiscal 1999, which was primarily due to cash received from the exercise of stock options. In fiscal 2000, cash provided by financing activities of $327,000 was primarily due to cash received from the exercise of stock options and sales of Mobius's common stock through the employee stock purchase plan. Net cash provided by financing activities was $147,000
in fiscal 2001, primarily due to the sale of Mobius's common stock through the employee stock purchase plan, offset by the cash used to repurchase Mobius's common stock.
Bad Debt Reserves
Accounts receivable reserves are primarily calculated by identifying problem accounts and in recognition that some customers decide to cancel or reduce the number of products covered by maintenance arrangements upon their anniversary but do not always notify Mobius in sufficient time to prevent some portion of the annual maintenance billings from being recognized. Mobius also has a small reserve to absorb losses based upon historical experience that may result from current receivables. Mobius specifically identifies problem accounts by the age of the receivable and through discussions with the customer and Mobius sales representatives. Based on that information, Mobius exercises its best judgment as to what portion of the accounts receivable balance requires a reserve. At June 30, 2000 and June 30, 2001 approximately 78% and 80% of the total accounts receivable reserve balances were related to specific accounts. To the extent that an account for which a specific reserve was provided is subsequently collected, Mobius reduces the reserves in the period of collection.
Software license installment reserves have consistently been determined as a percentage of software license installments to provide for potential bankruptcies and contractual disputes. At June 30, 2000 and June 30, 2001, net software license installments were approximately $17.8 million and $14.5 million of which 84% and 80% were customer balances greater than $100,000, respectively. Customer balances for software license installments tend to be large due to the selling price of Mobius's products. Software license installment and accounts receivable reserves were $1.7 million and $1.5 million at June 30, 2000 and 2001, respectively.
Other Matters
In January 1999, the Company sold the INFOPAC-TapeSaver product to a third party for approximately $3.0 million payable over a five year period. The buyer assumed responsibility for maintenance support for all existing TapeSaver licenses, however, the Company recognized approximately $1.1 million of TapeSaver maintenance revenue through December 31, 1999 for TapeSaver maintenance billings collected prior to the sale, $795,000 of which was recognized in fiscal 1999 and $302,000 of which was recognized in fiscal 2000. No TapeSaver maintenance revenue was recognized in fiscal 2001. For the years ended June 30, 1999, 2000 and 2001, the Company recognized $756,000, $673,000 and $450,000 of TapeSaver license revenue, respectively. Future TapeSaver license revenue of $112,500 each quarter, will be recognized as the buyer makes scheduled payments through December 31, 2003. The buyer is delinquent on these payments since June 2001.
During fiscal 2001, Mobius integrated Click-n-Done with Mobius's other products, to provide an integrated architecture that supports electronic statement presentment, electronic bill presentment and payment and electronic invoice presentment and payment. Mobius's segregated expenses for Click-n-Done were approximately $8.2 million and $4.4 million in fiscal 2000 and 2001, respectively. Through June 30, 2000, Mobius had not generated any revenue from the sale of its Click-n-Done products. In fiscal 2001 Mobius recognized $173,000 of license revenue from Click-n-Done products.
In compliance with the lease of the Company's corporate headquarters in Rye, NY, the landlord holds a letter of credit with Silicon Valley Bank for $275,000. This letter of credit is secured by a certificate of deposit.
The Company believes that its existing cash balances and cash flows expected from future operations will be sufficient to meet the Company's capital requirements for at least 12 months.
Recent Accounting Pronouncements
In July 2001, the FASB issued SFAS No. 141, "Business Combinations" which addresses financial accounting and reporting for business combinations and supersedes APB Opinion No. 16, "Business Combinations" and SFAS No. 38, "Accounting for Pre-acquisition Contingencies of Purchased Enterprises". All business combinations in the scope of this Statement are to be accounted for using one method, the purchase method. The Statement also provides guidance on purchase accounting related to the recognition of intangible assets and accounting for negative goodwill. The provisions of this Statement apply to all business combinations initiated after June 30, 2001.
Also in July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which addresses financial accounting and reporting for acquired goodwill and other intangible assets. Statement 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Goodwill will be tested for impairment annually or whenever events or circumstances occur that indicate goodwill could have been impaired. Upon adoption of Statement 141, amortization of goodwill recorded for business combinations consummated prior to July 1, 2001 will cease, and intangible assets acquired prior to July 1, 2001 that do not meet the criteria for recognition under Statement 141 will be reclassified to goodwill. Companies are required to adopt Statement 142 for fiscal years beginning after December 15, 2001. In connection with the adoption of Statement 142, companies will be required to perform a transitional goodwill impairment assessment. The adoption of SFAS No. 142 is not expected to have a significant impact on the Company's financial position or results of operations as the Company does not have significant amounts of recorded goodwill or intangible assets associated with any prior business combination.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Mobius's investment portfolio is subject to interest rate sensitivity. The primary objective of Mobius's investment activities is to preserve principal, while at the same time maximizing the interest income, without significantly increasing risk. Some of the marketable securities that Mobius has invested in may be subject to market rate interest risk. This means a change in prevailing interest rates may cause the market value of the security to fluctuate. For example, if Mobius holds a security that was issued with a fixed interest rate at the then-prevailing rates and the prevailing interest rates later rise, the market value of the security will probably decline. At June 30, 2001, Mobius primarily held debt securities.
Mobius may be subject to foreign currency fluctuations in relation to accounts receivable and accounts payable that may be denominated in a foreign currency other than the functional currency in certain foreign jurisdictions. To the extent that such foreign currency transactions are negatively or positively effected by foreign currency fluctuations, foreign currency transaction losses or gains would be recognized. We do not use derivative financial investments to limit our foreign exchange expense.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements are included in Item 14 (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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III. ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
There are currently six members of the Board of Directors. During fiscal year 2001, Peter Barris resigned from the Board of Directors. The Board is divided into three classes with terms expiring, respectively, at the 2001, 2002 and 2003 annual meeting of stockholders. All Mobius directors are elected for three-year terms, except Robert H. Levitan who was elected for a two-year term. Personal information on each of our directors is given below.
The Board oversees the management of the Company on the stockholder's behalf. It reviews Mobius's long-term strategic plans and exercises direct decision-making authority in key areas. The Board chooses the Chief Executive Officer, sets the scope of his authority to manage Mobius's business day to day, and evaluates his performance.
Five of Mobius's six directors are not Mobius employees. Only non-employee directors serve on Mobius's Audit and Compensation committees. The Board met five times during fiscal 2001. Each director attended all of the meetings of the Board except Edward Glassmeyer who attended four of the five meetings of the Board.
DIRECTORS
Set forth below are the names, ages, positions and certain other information concerning the current Directors of Mobius.
Mitchell Gross........... Co-Founder of Mobius. President since 1981 and Age 51 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 a M.B.A. in finance from The Wharton School at the University of Pennsylvania.
Gary G. Greenfield....... President and Chief Executive Officer of MERANT plc Age 46 (software development company) from 1998 to 2001. Director since 1998 Holds a M.S. in information systems from George Washington University and a M.B.A from Harvard Business School. Serves as a director of MERANT plc, Hyperion Solutions, Inc. and Managed Object Solutions.
Edward F. Glassmeyer..... Co-Founder of Oak Investment Partners (venture Age 60 capital firm) and its General Partner since 1978. Director Since 1997 Holds a B.A. from Princeton University and a M.B.A. from the Tuck School at Dartmouth College. Serves as a Director of TheStreet.com.
Kenneth P. Kopelman...... Partner of Kramer Levin Naftalis & Frankel LLP(1) Age 49 (law firm). Attended Cornell University (A.B.) and Director since 1997 the London School of Economics and received his J.D. from Columbia University School of Law. Serves as a Director of Liz Claiborne, Inc.
Joseph J. Albracht....... Co-founder of Mobius. Executive Vice President and Age 52 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 a M.B.A. from Pennsylvania State University.
Robert H. Levitan........ Co-founder and Chief Executive Officer of Age 40 Flooz.com. Co-founder of iVillage.com. Holds a Director since 2000 B.A. in history and public policy studies from Duke University. Serves as a director of New York Cares.
(1) Kramer Levin has served as legal counsel to Mobius since its founding in 1981.
DIRECTOR COMPENSATION
Mobius employees receive no extra pay for serving as directors. Non-employee directors are each paid a $10,000 annual retainer fee for serving on the Board, payable quarterly in advance, and are paid meeting fees of $1,250 for each Board meeting attended and $500 for each telephonic Board meeting attended, each payable promptly after each meeting. Mr. Kopelman's fees are net of the amounts paid to Kramer Levin for time Mr. Kopelman devotes to preparation for and attendance at Board meetings.
The Mobius Non-Employee Directors' 1998 Stock Option Plan provides for the grant to Mobius directors of non-qualified stock options to purchase Mobius shares. These include an initial grant of 10,000 options, made upon a non-employee director's first election to the Board, as well as an annual grant of 10,000 options, made at each annual meeting to those directors having at least nine months of Board service on the grant date. All such options have an exercise price equal to the fair market value of the underlying Mobius shares on the date of grant.
INFORMATION CONCERNING EXECUTIVE OFFICERS
Set forth below are the names, positions and certain other information concerning the current Executive Officers of Mobius. Personal information on Mitchell Gross is given above. Executive officers are elected by the Board and serve until the next meeting of the Board following the annual meeting of stockholders and until their successors have been duly executed and qualified.
Name Position ---- --------
Mitchell Gross Chairman of the Board, Chief Executive Officer and President.
Sandra A. Becker Senior Vice President, Marketing since 1998. Prior to joining Mobius, Ms. Becker was employed by Ceridian Employer Services as Vice President of Marketing and held several marketing and strategy leadership positions for U.S. West Communications. Holds a B.S. from College of St. Catherine and a M.B.A. from the University of Minnesota.
Michael J. Festa Vice President, Sales (United States and Latin America) since 2000. Joined Mobius in 1991 and served as Area Director from 1998-2000 and Regional Manager from 1996-1997. Holds a B.B.A. in management from Iona College.
David J. Gordon Interim Chief Financial Officer since 2000. 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 Kleeman Vice President, World Sales since 1999. Joined Mobius in 1990 and served as Vice President, Sales (North and South America) from 1997-1999, National Sales Manager from 1995 to 1997 and Regional Manager from 1992 to 1995. Holds a B.A. in marketing from Elmhurst College.
Robert Lawrence Vice President, Product Engineering since 1992. Joined Mobius in 1985. Holds a B.S. in physics from the University of Massachusetts.
Joseph Tinnerello Vice President, Business Development since January, 1998. Joined Mobius in 1990 and served as Vice President, Sales from 1995 to 1997. 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.
Hiromasa Yazaki Vice President, Sales (North Asia) since 1999. Prior to joining Mobius, Mr. Yazaki was employed by Kodak Japan Ltd. in 1997 and 1998 as a General Manger/Consumer Imaging Marketing and employed by Informix K.K. in 1996 as Director of Sales. Holds a B.A. from Dokkyo University.
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 year ended June 30, 2001, there was compliance of all Section 16(a) filing requirements applicable to its directors, executive officers and 10% stockholders.
ITEM 11.
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."
(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, car premiums, tax preparation fees and sales incentive trip added to compensation. These amounts have been grossed up to include taxes.
(4) Michael J. Festa was elected by the Board of Directors as an Executive Officer on September 13, 2001. If Mr. Festa had been an executive officer as of June 30, 2001, he would have been required to be included in this disclosure.
(5) Includes sales incentive trip. The value of the trip has been grossed up to include taxes.
(6) Ms. Becker was employed by Mobius for approximately 7 months of fiscal 1999.
(7) Includes relocation expenses.
(8) Disqualifying disposition of shares obtained through the exercise of incentive stock options.
BOARD COMMITTEES
The Board appoints committees to help carry out its duties. Each committee reviews the results of its meetings with the full Board. The Board established its committees in February 1998 in connection with Mobius's initial public offering.
The Audit Committee is responsible for accounting and internal control matters. Subject to stockholder and Board approval, the Audit Committee chooses the independent public accountants to audit Mobius's financial statements and reviews the scope, results and costs of the audit with such accountants. The Audit Committee also reviews the financial statements and accounting and control practices of Mobius. The Audit Committee consists of Messrs. Glassmeyer, Greenfield and Levitan. The Audit Committee met twice last year.
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 consisted of Messrs. Albracht and Glassmeyer. The Compensation Committee met one time last year.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Overview
The Compensation Committee:
(1) reviews and approves the compensation of Mr. Gross;
(2) approves the general policies applicable to salaries and bonuses for the other executive officers and reviews and acts on bonuses for those officers; and
(3) makes recommendations to the full Board and senior management with respect to the adoption and administration of Mobius's compensation programs.
Mobius's executive compensation program is designed to attract, retain, motivate and reward the management talent Mobius needs to achieve its business goals and maintain its leadership in the increasingly competitive environment of enterprise software products.
The three major components of Mobius's compensation program are salary, annual bonus and stock options.
The salary and bonus components of Mobius's executive compensation are designed to facilitate the fulfillment of the following objectives:
(1) retaining competent management;
(2) rewarding management for the achievement of short and long term accomplishments;
(3) aligning the interests of management with the interests of Mobius's stockholders; and
(4) relating executive compensation to the achievement of our goals and financial performance.
Salary
We base salary on an executive'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 our executives annual bonuses 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 is determined solely by the Compensation Committee.
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, therefore the options are linked to future performance of our stock because the options do not become valuable to the holder unless the price of our stock increases above the price on the date of grant. The number of stock options granted to an executive as a form of non-cash compensation is determined by the following factors:
(1) number of stock options previously granted to an executive;
(2) the executive's remaining options exercisable; and
(3) the value of those remaining stock options, as compared to the anticipated value that an executive will add to Mobius in the future.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan commenced in fiscal 1999 and provides employees who wish to acquire Mobius's common stock with the opportunity to purchase shares with a convenient way of doing so by accumulated payroll deductions. We believe that employee participation in 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. As of September 17, 2001, there were no awards made under the Incentive Plan.
Compensation of the Chief Executive Officer
Mr. Gross is one of the founders of Mobius. He beneficially owns approximately 5,550,000 shares of common stock constituting approximately 30.6% of the total amount outstanding. Accordingly, his interest is very much aligned with the interest of all stockholders and Mobius has not considered it sensible to relate Mr. Gross's compensation to Mobius's performance through long-term stock incentives such as restricted stock or stock options. Mr. Gross's compensation package consists primarily of salary and bonus. The members of the Compensation Committee 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 certain goals during fiscal 2001.
Joseph J. Albracht Edward F. Glassmeyer
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 2001.
---------- (1) Options were granted on October 20, 2000 and have a maximum term of 10 years measured from the grant date, subject to earlier termination in the event of the optionee's cessation of service with the Company. The vesting of these options is 20% on October 20, 2001 and 5% of the remaining stock options will become exercisable every three months thereafter until October 20, 2005.
(2) Michael J. Festa was elected by the Board of Directors as an Executive Officer on September 13, 2001. If Mr. Festa had been an executive officer as of June 30, 2001, he would have been required to be included in this disclosure.
OPTION EXERCISES AND HOLDINGS
The table below sets forth information with respect to the Named Officers concerning their exercise of options during fiscal year 2001 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
---------- (1) Based on the closing sale price on the Nasdaq National Market of the common stock on June 29, 2001 of $3.30.
(2) Michael J. Festa was elected by the Board of Directors as an Executive Officer on September 13, 2001. If Mr. Festa had been an executive officer as of June 30, 2001, he would have been required to be included in this disclosure.
STOCK PERFORMANCE GRAPH
The following graph depicts a comparison of the cumulative total return (assuming the reinvestment of dividends) for a $100 investment on June 30, 1998 in each of the common stock of Mobius, the Goldman Sachs Technology Composite Index (a published industry index), and the Nasdaq Composite (a broad market index). The Company paid no dividends during the periods shown. The graph lines merely connect measurement dates and do not reflect fluctuations between those dates.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows the number of shares of Mobius common stock each Named Officer, each non-employee director, and certain stockholders known by the Company to be the beneficial owner of more than 5% of the outstanding common stock, owned as of September 17, 2001.
Name and Address of Named Executive Officers, Certain Stockholders and Shares Percent of Directors / Nominees Owned(1) Class ------------------------------------ -------- -----
Mitchell Gross(2) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, New York 10580 ........................... 5,550,000 30.6%
Joseph J. Albracht (3) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, New York 10580............................ 3,943,500 21.7%
Karry Kleeman(4) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, NY 10580 ................................. 315,526 1.7%
Michael J. Festa (5) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, New York 10580 56,590 *
Robert Lawrence (6) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, New York 10580............................ 319,000 1.7%
Joseph Tinnerello(7) c/o Mobius Management Systems, Inc. 600 West Fulton Street Chicago, IL 60661.............................. 291,600 1.6%
Edward F. Glassmeyer(8) c/o Oak Investments 1 Gorham Island Westport, CT 06880............................. 100,847 *
Gary G. Greenfield (9) c/o MERANT plc 9420 Key West Avenue Rockville, MD 20850............................ 30,481 *
Kenneth P. Kopelman(10) c/o Kramer, Levin, Naftalis & Frankel 919 Third Avenue New York, NY 10022............................. 33,850 *
Robert H. Levitan(11) c/o Flooz.com, Inc. 160 East 88th Street New York, NY 10128............................ 10,000 *
Name and Address of Named Executive Officers, Certain Stockholders and Shares Percent of Directors / Nominees Owned(1) Class ------------------------------------ -------- -----
Sandra A. Becker(12) c/o Mobius Management Systems, Inc. 120 Old Post Road Rye, New York 10580............................ 60,428 *
All Executive Officers and Directors as a group (13 persons) ....................... 10,777,981 56.2%
---------- * 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 10,000 shares issuable pursuant to Currently Exercisable Options.
(4) Includes 314,526 shares issuable pursuant to Currently Exercisable Options.
(5) Includes 49,600 shares issuable pursuant to Currently Exercisable Options.
(6) Includes 204,000 shares issuable pursuant to Currently Exercisable Options.
(7) Includes 281,000 shares issuable pursuant to Currently Exercisable Options.
(8) Includes 30,000 shares issuable pursuant to Currently Exercisable Options.
(9) Includes 30,000 shares issuable pursuant to Currently Exercisable Options.
(10) Includes 1,500 shares of Common Stock held in trust by Mr. Kopelman's wife, as trustee, for Mr. Kopelman's three minor children and 2,350 shares of Common Stock held jointly by Mr. Kopelman and his wife. Mr. Kopelman disclaims beneficial ownership to such shares. Also includes 30,000 shares issuable pursuant to Currently Exercisable Options.
(11) Includes 10,000 shares issuable pursuant to Currently Exercisable Options.
(12) Includes 52,999 shares issuable pursuant to Currently Exercisable Options.
ITEM 13.
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. Mobius believes that fees charged by Kramer Levin are at rates and on terms no less favorable to the Company than could have been obtained from unaffiliated third parties.
Relationship With Mr. Tinnerello
Following a personal leave, on September 30, 1997, Mobius entered into a severance agreement with Mr. Joseph Tinnerello, presently Mobius's Vice President, Business Development, pursuant to which Mr. Tinnerello left Mobius's employment on October 1, 1997 and agreed to certain non-competition and non-solicitation restrictions in consideration for (1) the acceleration of 80,000 options to purchase shares of our common stock previously granted to him and (2) the grant of 100,000 new options to purchase shares of our common stock at an exercise price equal to the fair market value of the shares at the time of the grant. Due to his termination and the terms of Mobius's 1996 Employee Stock Incentive Plan, Mr. Tinnerello forfeited 640,000 options to purchase shares of common stock that were previously granted to him in November 1996. On December 26, 1997, Mr. Tinnerello agreed to return to Mobius effective January 15, 1998. On December 28, 1997, Mobius agreed to advance $160,000 to Mr. Tinnerello against future commissions. As of September 17, 2001, the full amount of such advance remains outstanding. Such monies (net of applicable taxes) were used by Mr. Tinnerello to exercise options to purchase 80,000 shares of Common Stock. On January 15, 1998, Mobius granted Mr. Tinnerello options to purchase 180,000 shares of Common Stock in accordance with and on terms similar to, our standard hiring practices.
Agreements With Employees
In February, 1998, Mobius entered into employment agreements with each of Messrs. Gross and Albracht providing for the employment of Mr. Gross as our Chairman of the Board, Chief Executive Officer and President and Mr. Albracht as our Executive Vice President and Chief Operating Officer. Each employment agreement provides for a three-year term ending on April 27, 2001, the third anniversary of our initial public offering. In October 1999, Mr. Albracht ended his employment with the Company. These employment agreements expired during fiscal 2001.
Compensation Committee Interlocks And Insider Participation
The current members of our Board's Compensation Committee are Messrs. Albracht and Glassmeyer. There are no compensation committee interlocks which are required to be disclosed by applicable SEC rules. 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.
PART IV. ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
MOBIUS MANAGEMENT SYSTEMS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets as of June 30, 2000 and 2001 Consolidated Statements of Operations for the Years Ended June 30, 1999, 2000 and 2001 Consolidated Statements of Stockholders' Equity for the Years Ended June 30, 1999, 2000, and 2001 Consolidated Statements of Cash Flows for the Years Ended June 30, 1999, 2000, and 2001 Notes to Consolidated Financial Statements
(a)(2) Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts and Reserves
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Mobius Management Systems, Inc.:
We have audited the consolidated financial statements and financial statement schedule of Mobius Management Systems, Inc. and subsidiaries as listed in the accompanying index. These consolidated financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mobius Management Systems, Inc. and subsidiaries as of June 30, 2000 and 2001 and the results of their operations and their cash flows for each of the years in the three-year period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects the information set forth therein.
KPMG LLP
July 25, 2001 Stamford, CT
MOBIUS MANAGEMENT SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share data and per share data)
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data)
Years Ended June 30, 1999 2000 2001 ---- ---- ----
Revenues: Software license revenues $48,811 $31,018 $39,321 Maintenance and other revenues 25,025 29,187 34,891 ------ ------ ------ Total revenues 73,836 60,205 74,212 ------ ------ ------ Costs of revenues: Software license revenues 1,223 946 1,219 Maintenance and other revenues 5,011 6,070 6,148 ------ ----- ------ Total costs of revenues 6,234 7,016 7,367 ------ ------- ------
Gross profit 67,602 53,189 66,845 ------ ------ ------
Operating expenses: Sales and marketing 41,877 44,289 44,886 Research and development 10,674 14,823 16,267 General and administrative 9,409 12,086 10,460 ------ ------ ------ Total operating expenses 61,960 71,198 71,613 ------ ------ ------
Income (loss) from operations 5,642 (18,009) (4,768)
License and other interest income 2,920 2,930 2,689 Interest expense (16) (58) (9) Foreign currency transactions (191) 44 102 Other income -- -- 109 Investment impairments -- (2,220) (718) ------ ------ ------ Income (loss) before income taxes 8,355 (17,313) (2,595)
Provision (benefit)for income taxes 4,057 (5,417) (605) ------ ------ ------ Net income (loss) $ 4,298 $(11,896) $(1,990) ======= ========- =======
Basic earnings (loss) per share $ 0.24 $ (0.66) $(0.11) Basic weighted average shares outstanding 17,813 17,988 18,225
Diluted earnings (loss) per share $ 0.23 $ (0.66) $(0.11) Diluted weighted average shares outstanding 18,964 17,988 18,225
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (in thousands)
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
See accompanying notes to consolidated financial statements.
MOBIUS MANAGEMENT SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization
Mobius Management Systems, Inc., together with its wholly-owned subsidiaries (the "Company"), is a leading provider of software that supports content-intensive e-business applications. The Company is incorporated in Delaware and operates wholly-owned subsidiaries in the United States, United Kingdom, France, Germany, Italy, Sweden, Switzerland, Australia, Japan and the Benelux.
(2) Significant Accounting Policies
Principles of consolidation
The Company and its subsidiaries are consolidated for financial statement purposes after the elimination of all significant intercompany transactions.
Revenue recognition
License and maintenance revenue are recognized in accordance with Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). Revenue from software license contracts includes license fees related to long-term licenses, typically 5 or 15 years, and fees for term license contracts, which are generally 3 to 5 years. Revenue from executed software license contracts is recognized upon delivery of the software to the customer if no significant vendor obligations remain and collection of the resulting receivable is probable. Software license revenue includes the present value of future payments under non-cancelable license arrangements which provide for payment in installments generally over periods from 3 to 5 years. A portion of the discount is recognized as interest income over the term of the arrangement.
SOP 97-2 generally requires revenue earned on multiple element software arrangements, such as additional software products, upgrades or enhancements, rights to exchange or return software, maintenance or services, including elements deliverable only on a when-and-if-available basis, to be allocated to the various elements of such sale based on "vendor-specific objective evidence of fair values" allocable to each such element. If sufficient vendor-specific objective evidence of fair market values does not exist, revenue from the sale is deferred until such sufficient evidence exists, or until all elements have satisfied the requirements for revenue recognition. Statement of Position (SOP) 98-9, "Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions", which amended SOP 97-2 and clarified what is considered vendor-specific evidence of fair value for the various elements in a multiple element arrangement was adopted by Mobius on July 1, 1999.
According to these guidelines, when the Company sells a software license contract that includes maintenance, the maintenance revenue is unbundled from the initial license fee and recognized ratably over the maintenance period, starting from the inception of the software license agreement. The unearned portion of such maintenance revenue is classified as deferred revenue with amounts extending beyond one-year reported as non-current.
Revenue on maintenance contracts is recognized on a straight-line basis over the term of the maintenance contract, generally twelve months. The unearned portion of maintenance revenue is classified as deferred revenue.
Software Development Costs
Statement of Financial Accounting Standards No. 86 (SFAS No. 86) 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 its 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 three to fifteen years. Assets acquired under capital leases are depreciated on a straight-line basis over the shorter of the asset's life or the respective lease.
Income Taxes
The Company accounts for income taxes under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109). SFAS No. 109 requires using 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 foreign 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, 2000 and 2001, 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 Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities, and are carried at market value. 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, 1999, 2000 and 2001 are insignificant. As of June 30, 2000 and 2001, the unamortized investment premium and unrealized holding gains and losses were also insignificant.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to a concentration of credit risk consist of substantially all of the trade accounts receivables and software license installments. The Company sells its products to a large number of customers in diversified industries across many domestic and international geographies.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments" (SFAS 107) 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 Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No. 128 stipulates that the calculation of earnings per share (EPS) be shown for all historical periods as Basic EPS and Diluted EPS. Basic EPS is computed by dividing income available to common shareholders 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. Stock options were the only dilutive instruments for the years ended June 30, 1999, 2000 and 2001.
The following is a reconciliation of the numerators and denominators for the Basic and Diluted EPS calculations (in thousands, except per share data):
Year Ended June 30, 1999 -------------------------------------- Net Income Shares Per Share (Numerator) (Denominator) (Amount) ----------- ------------- --------- Basic EPS: Net income $4,298 ====== Weighted average shares outstanding 17,813 Basic EPS $0.24 ===== Diluted EPS: Net income $4,298 ====== Dilutive effect of stock options 1,151 ----- Diluted EPS 18,964 $0.23 ====== =====
Outstanding stock options, representing an aggregate of 113,000, 2,684,150 and 3,048,150 shares of Common Stock equivalents, are antidilutive for the year ended June 30, 1999, 2000 and 2001, respectively.
Stock Based Compensation
The Company adopted SFAS No. 123, "Accounting for Stock-Based Compensation", and elected to continue to apply the provisions of Accounting Principles Board (APB) Opinion No. 25 in determining measurement of compensation expense and provide pro forma net earnings and pro forma net earnings per share disclosures for employee stock option grants made in 1995 and future years as if the fair value-based method, as defined in SFAS No. 123, had been applied. As such, compensation expense is generally recorded on the date of grant only if the current fair market value of the underlying stock exceeded the exercise price.
FASB Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation" (FIN 44) provides guidance for applying APB Opinion No. 25, "Accounting for Stock Issued to Employees". With certain exceptions, FIN 44 applies prospectively to new awards, exchanges of awards in a business combination, modifications to outstanding awards and changes in grantee status on or after July 1, 2000.
Reclassifications
Certain reclassifications have been made to the 2000 and 1999 amounts to conform to the 2001 presentation.
Recently Adopted Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities" which establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133, as amended by SFAS No. 137 and No. 138 is effective for fiscal years beginning after June 15, 2000. As of July 1, 2000, the Company has adopted these statements, however the Company has not identified any derivative instruments subject to the provisions of SFAS No. 133. The adoption did not have a material impact on the Company's consolidated results of operations or financial position.
(3) Software License Installments
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 term. Software license installments are discounted at a market rate of interest at the date the software license contract revenue is
recognized. At June 30, 2000 and 2001 the effective weighted average discount rate used for software license installments was 7.4% in both fiscal years. 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, 2001 are as follows (in thousands):
Year Ended:
June 30, 2002 $10,124 June 30, 2003 4,649 June 30, 2004 1,249 June 30, 2005 659 June 30, 2006 58 ------- Total minimum payments to be received 16,739 Less unearned interest income (1,655) Less allowance for doubtful accounts (551) ------- Present value of software license installments, net 14,533 Less current portion, net (9,317) ------- Non-current portion, net $ 5,216 =======
(4) Property and Equipment
Property and equipment consists of the following (in thousands):
June 30, 2000 2001 ------- ------- Computer equipment $12,349 $12,689 Furniture, fixtures and office equipment 1,089 1,650 Leasehold improvements 1,542 4,665 Construction in progress 1,062 -- ------- ------- 16,042 19,004 Less accumulated depreciation and amortization (6,747) (9,773) ------- ------- Property and equipment, net $ 9,295 $ 9,231 ======= =======
Depreciation and amortization expense on property and equipment, including capital leases, was $1,372,000, $2,874,000 and $4,133,000 for the years ended June 30, 1999, 2000 and 2001, respectively.
(5) Non-Current Investments
In June 1999, Mobius invested $1,501,000 in Home Account Network ("HAN"), a privately-held, information technology company providing processing and Internet outsourcing to financial services companies. During fiscal 2000, Mobius provided an additional $750,000 to HAN in short term loans that were converted to preferred stock in May 2000. In fiscal 2001, Mobius provided an additional $375,000 to HAN as short term loans.
Mobius regularly assessed the recoverability of the HAN investment and had concluded that an other than temporary impairment loss had occurred. Accordingly, impairment losses were recorded in connection with this investment aggregating $2.2 million and $218,000 for the years ended June 30, 2000 and 2001, respectively.
In January 2001, HAN was purchased by Intelidata Technologies ("Intelidata"). The merger agreement established a fixed number of shares to be allocated between debt holders and all shareholders, including Mobius. The Intelidata shares will be released at specified time periods beginning after the Intelidata shares are registered. The number of shares to be received by debt holders will be based upon a formula that utilizes the market value of Intelidata stock on each release date. After the debtors are repaid, any remaining shares will be distributed to HAN's
management and shareholders based on percentages in the merger agreement. Once the stock is released to the debtors and shareholders, it is subject to a variety of trading restrictions. As of June 30, 2001, Mobius has not received any Intelidata shares.
As of June 30, 2001, the carrying value of the HAN investment is $188,000 and is included within other current assets. Mobius believes that the carrying value is recoverable based on estimates of the amount and value of shares to be received from the transaction, discounted for the restrictions and estimated time until the Intelidata shares are expected to be received.
In January 2000, Mobius made an investment of $500,000 in Flooz.com, a startup Internet company. This was an investment in preferred stock, which would convert into Common Stock if Flooz.com had completed an initial public offering. Mobius held a minority ownership position, which, if the preferred shares converted to Common Stock, would be less than 5%. The Chief Executive Officer of Flooz.com is currently a member of the Board of Directors of Mobius. Flooz.com has ceased operations and has filed for bankruptcy protection. Accordingly, Mobius recorded an impairment loss of $500,000 in the year ended June 30, 2001.
(6) Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses consist of the following (in thousands): June 30, 2000 2001 ------- ------- Accounts payable $ 2,563 $ 2,101 Compensation and related benefits 6,569 6,728 Royalties payable 1,168 1,143 Other 4,746 5,526 ------- ------- $15,046 $15,498
(7) Income Taxes
Income(loss)before provision (benefit) for income taxes is as follows (in thousands):
Years Ended June 30, ---------------------------- 1999 2000 2001 ------- -------- ------ Domestic income (loss) $13,236 $(15,575) $1,216 Foreign losses (4,881) (1,738) (3,811) ------- -------- ------ $ 8,355 $(17,313) $(2,595) ======== ======== =======
The components of the provision (benefit) for income taxes for the years ended June 30, 1999, 2000 and 2001 are as follows (in thousands):
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, 1999, 2000 and 2001 (in thousands):
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are presented below (in thousands):
June 30, 2000 2001 ------ ------ Deferred tax assets: Accounts receivable, principally due to allowance for doubtful accounts $ 483 $ 551 Net operating loss carryforwards 2,811 4,124 Depreciation and amortization -- 103 AMT tax credit 222 309 Research and development credit carryforwards -- 541 Unrealized loss on investments -- 1,135 Other -- 71 ------ ------ 3,516 6,834 Valuation allowance (2,219) (3,289) ------ ------ Net deferred tax assets 1,297 3,545 Deferred tax liabilities: Software license installments 4,899 5,464 Depreciation 254 -- Other 38 38 ------ ------ Net deferred tax liability $3,894 $1,957 ====== ======
The valuation allowance increased by $1.1 million for the year ended June 30, 2001 primarily due to uncertainty of realization of net operating losses incurred by certain foreign subsidiaries. The valuation allowance decreased by $1.3 million between fiscal 1999 and 2000 primarily as a result of utilization of some of the foreign losses in certain foreign jurisdictions. The Company will reduce the valuation allowance when it is concluded that it is more likely than not that these deferred tax assets will be realized.
The expiration of net operating loss carryforwards varies by jurisdiction; some begin to expire in fiscal 2002 and others extend indefinitely.
(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, 2000 and 2001.
(9) Treasury Stock
In December 2000, the Board of Directors authorized a stock repurchase program under which Mobius may repurchase up to 1,000,000 shares of Mobius's outstanding common stock. The number of shares to be repurchased and timing of purchases will be based on a variety of factors, including general market conditions, the market price and trading volume of Mobius shares. Through June 30, 2001, 170,800 shares at an approximate cost of $636,000 were repurchased under this program.
(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 4,388,400 shares of authorized but unissued common stock. Stock options are generally granted with an exercise price equal to the stock's fair market value at the date of grant as determined by the Company's Board of Directors. Stock options generally vest as to 20% of the shares subject thereto on the first anniversary of the date of grant and the remainder vest ratably over the subsequent 16 quarters.
1998 Non-Employee Directors' Stock Option Plan
In February 1998, the Board of Directors and stockholders of the Company approved and adopted the 1998 Non-Employee Director 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 250,000 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, 1998 2,397,500 $ 5.17 Granted 374,000 10.10 Exercised (210,650) 1.25 Forfeited (79,000) 6.63 Expired -- -- --------- Balance at June 30, 1999 2,481,850 6.20 Granted 609,750 4.67 Exercised (154,950) 1.25 Forfeited (252,500) 5.60 Expired -- -- --------- Balance at June 30, 2000 2,684,150 6.19 Granted 813,750 3.04 Exercised (24,650) 1.29 Forfeited (425,100) 6.80 Expired -- -- --------- Balance at June 30, 2001 3,048,150 $5.31 =========
The following table summarizes information about the stock option plans:
At June 30, 2001, there were 895,500 shares available for grant under the Plan and 110,000 shares available for grant under the Directors' Plan. At June 30, 1999 and 2000, there were 803,321 and 1,242,276 options exercisable.
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 $1,046,000, $537,000 and $277,000 for the years ended June 30, 1999, 2000 and 2001, respectively. Such compensation expense is included within Sales and marketing of $802,000, $397,000 and $193,000, Research and development of $195,000, $112,000 and $67,000 and General and administrative expenses of $49,000, $28,000 and $17,000 for the years ended June 30, 1999, 2000 and 2001, respectively. There is approximately, $125,000 and $43,000 of expense relating to these 1998 option grants to be recognized as stock compensation expense in fiscal years 2002 and 2003, respectively, to be adjusted for option holders' terminations.
If the Company had determined compensation cost based on the fair value of the option on the grant date for its stock options under SFAS No. 123, the Company's net income (loss) and earnings (loss) per share would have been as indicated below.
Year Ended June 30, 1999 2000 2001 ---- ---- ---- Proforma net income (loss) and earnings (loss) per share as would be reported under SFAS No. 123: Net income (loss) $2,629 $(14,449) $(4,379) Basic earnings (loss) per share $ 0.15 $(0.80) $ (0.24) Diluted earnings (loss) per share $ 0.14 $(0.80) $ (0.24)
The modified Black Scholes option pricing model was used for grants prior to June 30, 1998 and 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, 1999, 2000 and 2001 was $10.07, $4.54 and $2.95 on the date of grant, respectively. Grants during the year ended June 30, 1999, 2000 and 2001 assumed 568%, 412% and 343% of volatility, expected dividend yield of 0.0% and an expected life of 3.2 years, 3.1 years and 3.2 years, respectively. The assumed risk free interest rate on the date of grants was 5.25%, 6.2% and 5.0% in fiscal 1999, fiscal 2000 and fiscal 2001, respectively.
(11) 1998 Employee Stock Purchase Plan ("ESPP")
In February 1998, the Board of Directors and stockholders of the Company approved and adopted the 1998 Employee Stock Purchase Plan (the "ESPP"). The purpose of the ESPP is to provide eligible employees who wish to acquire common stock of the Company the opportunity to purchase shares from the Company with accumulated payroll deductions. The ESPP is intended to constitute an "employee stock purchase plan" under section 423 of the Internal Revenue Code. The ESPP provides for the issuance of an aggregate of up to 1,150,000 shares. During fiscal 1999 there were no shares issued under this plan. During fiscal 2000 and fiscal 2001, 53,812 and 238,563 shares were issued under the ESPP, respectively. As of June 30, 2001, 111,768 shares are reserved for issuance and there were 745,857 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, 1999, 2000 and 2001.
In February 1998, the Board of Directors and stockholders of the Company have 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, 1999, 2000 and 2001, no awards were made under the Incentive Plan.
(13) Comprehensive Income
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. Comprehensive income (loss) for the years ended June 30, 1999, 2000 and 2001 is as follows:
Year ended June 30, 1999 2000 2001 ---- ---- ---- Net income (loss) $4,298 $(11,896) $(1,990) Unrealized marketable securities gain (loss) (41) 4 43 Unrealized translation gain (loss) (360) 81 (608) -------------------------------- Comprehensive income (loss) $3,897 $(11,811) $(2,555) ================================
(14) Lease Commitments
The Company has operating leases for its office facilities which expire on various dates through fiscal 2008 and provide for escalation and additional payments relating to operating expenses.
The following is a schedule of future minimum lease payments for operating leases as of June 30, 2001 (in thousands):
Operating Leases Year Ended:
June 30, 2002 $ 3,154 June 30, 2003 2,876 June 30, 2004 2,591 June 30, 2005 2,404 June 30, 2006 1,112 Thereafter 5,159 -------
Total minimum lease payments $17,296 =======
Rental expense for all operating leases was approximately $2,419,000, $3,319,000 and $3,516,000 for the years ended June 30, 1999, 2000 and 2001, respectively.
In compliance with the lease of the corporate headquarters, the Company's landlord holds a letter of credit with Silicon Valley Bank for $275,000. This letter of credit is secured by a certificate of deposit.
(15) 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. 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.
---------- (a) The Company operates wholly-owned subsidiaries in the United Kingdom, France, Germany, Italy, Sweden, Switzerland, Australia, Japan and the Benelux. Includes international sales with agents.
(b) Includes royalties paid to the Company and to its subsidiaries by agents. Royalties from agents are a percentage of the license and maintenance fees paid by customers to such agents.
(c) Represents royalties from foreign subsidiaries. Royalties from foreign subsidiaries are a percentage of the license land maintenance fees paid by customers to such foreign subsidiaries.
(16) 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. The buyer assumed responsibility for maintenance support for all existing TapeSaver licenses, however, the Company recognized approximately $1.1 million of TapeSaver maintenance revenue through December 31, 1999 for TapeSaver maintenance billings collected prior to the sale, $795,000 of which was recognized in fiscal 1999 and $302,000 of which was recognized in fiscal 2000. No TapeSaver maintenance revenue was recognized in fiscal 2001. For the years ended June 30, 1999, 2000 and 2001, the Company recognized $756,000, $673,000 and $450,000 of TapeSaver license revenue, respectively. Future TapeSaver license revenue of $112,500 each quarter, will be recognized as the buyer makes scheduled payments through December 31, 2003. The buyer is delinquent on these payments since June 2001.
SCHEDULE II
MOBIUS MANAGEMENT SYSTEMS, INC.
Valuation and Qualifying Accounts (In thousands)
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.
(a)(3) Exhibits
Exhibit No. Description ----------- -----------
3.1* -- Form of Second Amended and Restated Certificate of Incorporation of the Registrant. 3.2* -- Form of Restated By-Laws of the Registrant. 4.1* -- Specimen certificate representing the Common Stock. 10.1* -- Mobius Management Systems, Inc. 1996 Stock Incentive Plan. 10.2* -- Amendment No. 1 to Mobius Management Systems, Inc. 1996 Stock Incentive Plan. 10.3* -- Mobius Management Systems, Inc. 1998 Employee Stock Purchase Plan. 10.4* -- Mobius Management Systems, Inc. 1998 Non-Employee Director Stock Option Plan. 10.5* -- Mobius Management System, Inc. 1998 Executive Incentive Plan. 10.6* -- Form of Grantee Option Agreement. 10.7* -- Lease dated December 4, 1997 by and between Old Boston Post Road Associates LLC and the Registrant. 10.8* -- Lease dated February 14, 1983 by and between American National Bank and Trust Company of Chicago and the Registrant. 10.9 -- Sublease dated January 5, 1999 by and between Fluor Daniel, Inc. and the Registrant 10.10* -- 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* -- 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* -- Registration Rights Agreement dated May 12, 1997 by and among the Registrant and the other parties listed on the signature pages thereto. 10.13* -- Employment Agreement between the Registrant and Mitchell Gross, dated February 26, 1998. 10.14* -- Employment Agreement between the Registrant and Joseph Albracht, dated February 26, 1998. 10.15* -- Severance Agreement dated as of September 30, 1997 between the Registrant and Joseph Tinnerello. 10.16* -- Option Agreement dated as of September 30, 1997 between the Registrant and Joseph Tinnerello. 10.17* -- Letter Agreement, dated as of December 28, 1997 between the Registrant and Joseph Tinnerello. 10.18* -- Stockholder Agreement, dated as of December 30, 1997 between the Registrant and Joseph Tinnerello. 10.19* -- Software Assets Purchase Agreement dated as of December 10, 1990 among the Registrant, Compucept of Nevada and Software Assist Corporation. 10.20* -- OEM Agreement between the Registrant and CDP Communications, Inc. dated as of October 15, 1993. 10.21* -- Source Code License and Amendment to OEM Agreement between the Registrant and CDP Communications Inc. dated as of August 12, 1997. 10.22* -- Amendment #1 to License and Amendment to OEM Agreement between the Registrant and CDP Communications, Inc. dated November 21, 1997. 10.23** -- Lease Modification Agreement dated July 12, 1999 by and between Old Boston Post Road Associates LLC and the Registrant. 10.24 -- Amendment #1 to Mobius Management Systems, Inc. 1998 Employee Stock Purchase Plan.
Exhibit No. Description ----------- -----------
21.1* -- Subsidiaries of the Registrant. 23.1 -- Consent of KPMG LLP.
* Filed as an exhibit to Mobius's Registration Statement on Form S-1 (Registration Number 333-47117) or an amendment thereto and incorporated herein by reference to the same exhibit number.
** 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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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 26, 2001
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of 1934, this report has been signed below by the following persons in the capacities and on the dates indicated.