SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K

               ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                     FOR THE FISCAL YEAR ENDED JUNE 30, 1999

                         COMMISSION FILE NUMBER: 0-24077

                         Mobius Management Systems, Inc.
             (Exact name of registrant as specified in its charter)



                  Delaware                             13-3078745
       (State or other jurisdiction of              (I.R.S. Employer
       incorporation or organization)            Identification Number)

      120 Old Post Road, Rye, New York                         10580
(Address of registrant's principal executive offices)       (Zip code)

                                  914-921-7200
              (Registrant's telephone number, including area code)


          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of Each Class                  Name of Each Exchange on Which Registered

Common Stock, $.0001 par value                           NASDAQ

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) of the Act:   NONE

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1943  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. Yes |x| No | |

     Indicate by check mark if disclosure of delinquent  filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K |x|

         The aggregate  market value of the voting stock held by  non-affiliates
of the  Registrant,  based  upon  the  closing  sale  price of  common  stock on
September  15, 1999 as  reported on NASDAQ,  was  approximately  $27.5  million.
Shares of common  stock held by each officer and director and by each person who
owns 5% or more of the outstanding  common stock have been excluded in that such
persons may be deemed affiliates.  This determination of affiliate status is not
necessarily a conclusive determination for other purposes.

As of September 15, 1999, Registrant had outstanding 17,920,650 shares of common
stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Certain portions of the  Registrant's  definitive proxy statement to be
filed  no  later  than  October  28,  1999  pursuant  to  Regulation   14A,  are
incorporated  by  reference  in Items 10 through  13 of Part III of this  Annual
Report on Form 10-K.


<PAGE>



                         MOBIUS MANAGEMENT SYSTEMS, INC.
                    FISCAL YEAR 1998 FORM 10-K ANNUAL REPORT

                                TABLE OF CONTENTS


PART I.

ITEM 1.  Business
ITEM 2.  Properties
ITEM 3.  Legal Proceedings
ITEM 4.  Submission of Matters to a Vote of Security Holders

PART II.

ITEM 5.  Market for Registrant's Common Equity and Related
         Stockholder Matters
ITEM 6.  Selected Consolidated Financial Data
ITEM 7.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations
ITEM 7A  Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.  Financial Statements and Supplementary Data
ITEM 9.  Changes in and Disagreements with Accountants on
         Accounting and Financial Disclosure

PART III.

ITEM 10. Directors and Executive Officers of the Registrant
ITEM 11. Executive Compensation
ITEM 12. Security Ownership of Certain Beneficial
         Owners and Management
ITEM 13. Certain Relationships and Related Transactions

PART IV.

ITEM 14. Exhibits, Financial Statement Schedules and
         Reports on Form 8-K

SIGNATURES


<PAGE>



FORWARD LOOKING STATEMENTS

         Statements  contained  in this  annual  report,  other than  historical
financial results, may contain forward-looking  statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks and uncertainties.  In particular, any statements contained herein
regarding  expectations with respect to future sales and profitability,  as well
as product  development and/or  introductions,  are subject to known and unknown
risks,  uncertainties and contingencies,  many of which are beyond the Company's
control,  which may cause actual results,  performance or achievements to differ
materially from those projected or implied in such  forward-looking  statements.
Factors that might affect actual results,  performance or achievements  include,
among other things, those discussed in "Factors Affecting Future Performance" in
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 software
products  designed to provide  network- and Web-based  access,  presentation and
distribution of large volumes of diverse enterprise information. Major financial
services, healthcare, manufacturing, retail and telecommunications companies and
government  entities use the Company's  software to facilitate  customer service
and other  mission-critical  functions.  The Company's  software products store,
retrieve and present  computer and  non-computer  generated  documents,  such as
text, images, video or audio recordings,  customer statements,  checks, external
correspondence  and  remittance  forms.  The  products  can be used by a  single
department, multiple departments or centrally by an entire enterprise.

         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 their telephone number is (914) 921-7200.

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  voluminous
information  must be  quickly  and  accurately  retrieved  to  support  customer
service,  meet legal  requirements and reach more informed  business  decisions.
Customers have become  dependent upon  organizations  to accurately  account for
transaction,  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.


<PAGE>



         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 seeks to provide  integrated system solutions
capable of storing,  retrieving  and presenting  all  information  relevant to a
customer or transaction, regardless of format or storage site.

Products

         Mobius's  products  include  server  products,  which  act as  hosts on
central  processing  computers or networks,  and client products that access the
host software whenever host resources are needed. The Company's primary products
are  ViewDirect,  which stores and retrieves  documents;  DocumentDirect,  which
enables  document  viewing;   DocumentDirect  for  the  Internet,   which  makes
information available over the Internet and corporate intranets;  DocumentDirect
Application  Suite,  a series of  industry-specific  application  templates  for
document  viewing and  DocuAnalyzer,  a data mining tool.  In  addition,  Mobius
offers  INFOPAC-ABS which is a data center quality control product and until its
sale in January 1999 offered  INFOPAC-TapeSaver  for managing large tape storage
facilities.

         ViewDirect.  ViewDirect  stores and presents  virtually any record of a
business  transaction,  including  computer-generated  reports;  print-formatted
documents,   such  as  customer   statements;   scanned  images;  and  undefined
transactions created in other computing  environments for example, those created
for display  devices  such as generic  Internet  browsers.  ViewDirect  provides
direct,  on-line access to information  stored on disk, tape or optical devices.
It supports both host-based and network-based  implementations,  and operates on
desktop  computers  and  on  the  largest   enterprise  servers  or  "mainframe"
computers.

         DocumentDirect. DocumentDirect is a Windows-based full-function viewer.
It provides a common  "dashboard"  through  which the user is able to access any
type or number of documents stored in ViewDirect  archives.  DocumentDirect  can
simultaneously   display  diversely  formatted  documents  and  facilitates  the
annotation and reformatting of documents.

         DocumentDirect  for the  Internet.  DocumentDirect  for the Internet is
designed to provide secure,  self-service  access to documents over the Internet
and corporate intranets. DocumentDirect for the Internet makes all the documents
in ViewDirect archives available for viewing via Internet browsers.  It supports
e-business   applications  such  as  electronic  bill  presentment  and  payment
("EBPP").

         DocumentDirect  Application Suite.  DocumentDirect Application Suite is
designed to be used by those who need fast access to  documents  in a customized
environment.  It provides  customized  report views with  secured  access to all
reports and documents  across the  enterprise  as well as templates  that meet a
wide  range  of  vertical  industry  application  needs in  banking,  insurance,
financial services, telecommunications and healthcare.

         DocuAnalyzer.  DocuAnalyzer is a Windows-based data mining product that
makes  the  data  in the  ViewDirect  archive  available  for  analysis  without
re-keying. It simplifies the conversion of character data into a table format to
help with "drill-down",  analysis,  graphing and creation of new reports. Mobius
sells DocuAnalyzer in connection with a license arrangement with a third party.


<PAGE>



         INFOPAC-ABS.  INFOPAC-ABS (Automated Balancing System) is an enterprise
server-based  data integrity and quality control software tool. Data in computer
systems,  databases, and end user applications originates from many sources. Due
to the  large  number  of input  sources,  computer  systems  can and do  become
unsynchronized.  INFOPAC-ABS provides  cross-application  balancing of numerical
data  resident  in  databases,  files and  reports  to detect  and assist in the
correction  of  out-of-balance  situations.  INFOPAC-ABS  is used  in Year  2000
conversions  to audit  applications,  verify  the  accuracy  of output  and load
databases that include dates beyond 2000.

         INFOPAC-TapeSaver.  INFOPAC-TapeSaver  is  an  enterprise  server-based
software  product that is designed to optimize the  utilization of tape and tape
devices. In January 1999, the Company sold this product to Technologic  Software
Concepts,   Incorporated  of  Irvine,  California.  See  Note  17  of  Notes  to
Consolidated Financial Statements.

Sales and Marketing

         The Company sells and markets its products  primarily  through a direct
sales force based in Chicago,  with  additional  sales  offices in Atlanta,  GA;
Boston,  MA; Dallas,  TX; Denver,  CO; Falls Church,  VA; Fountain  Valley,  CA;
Morristown, NJ; Madison, WI; Minneapolis, MN; Rye, NY and St. Louis, MO.

         In March 1993, Mobius established its first foreign subsidiary,  Mobius
UK,  in  England.  From  fiscal  1995 to fiscal  1999,  Mobius  has  established
subsidiaries in 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. In addition, Mobius hires independent professional
service  organizations to provide  customers with post sale assistance for their
products, on-site implementation services and customizations.

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,  1999,  Mobius  employed  438  people:  252 in Sales and
Marketing; 47 in Customer Satisfaction;  82 in Research and Development;  and 57
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 to a
significant extent 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 1997, 1998 or 1999.

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.


<PAGE>



                      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.  Such  comparisons  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 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.


<PAGE>



Product Concentration

         To  date,  a  substantial   portion  of  Mobius's  revenues  have  been
attributable to the licensing of its ViewDirect and DocumentDirect  software and
the provision of related maintenance services.  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 and financial condition.

Competition

         The market for Mobius's products is intensely  competitive,  subject to
rapid change and significantly  affected by new product  introductions and other
market activities of industry  participants.  The Company 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.,  Eastman  Kodak Co., New
Dimension Software Ltd., 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 the  Company's  business,  operating  results  and
financial  condition.  There can be no  assurance  that  Mobius  will be able to
compete  successfully  against current or future competitors or that competitive
pressures  will  not  have a  material  adverse  effect  on  Mobius's  business,
operating results and financial condition.


<PAGE>



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, the Company's international subsidiaries have not achieved budgeted sales
and have been unprofitable to date, and Mobius expects  achieving  profitability
will 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 and financial
condition.

         An  increase  in the  value  of the U.S.  dollar  relative  to  foreign
currencies  could  make  Mobius's  products  more  expensive,   and,  therefore,
potentially  less  competitive  in  those  markets.  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
the Company  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 7 and Notes 2 and 16 of Notes to Consolidated Financial Statements.

Expansion of Indirect Channels

         To  date,   sales  through   indirect  sales  channels  have  not  been
significant  although  Mobius  intends  to invest  resources  to  develop  these
channels.  Mobius's  ability to  achieve  revenue  growth in the future  will be
affected  by its  success in  expanding  existing  and  establishing  additional
relationships  with  strategic  partners.  Mobius  expects to receive lower unit
prices  when  selling  through  indirect  channels;   therefore,  if  Mobius  is
successful in selling products through indirect channels, its gross margins as a
percentage of revenue will decrease.

Extended Payment Risk

         Terms of sale are a  competitive  factor in  Mobius's  markets.  Mobius
offers  extended  payment terms to some of its customers,  generally three years
for server products and five years for client products.  The license revenue for
these extended payment agreements is recorded at the time of sale as the present
value of the contract payments  expected over the life of the agreement,  net of
bundled  maintenance  fees.  Interest income from these agreements is recognized
over the term of the financing based on the discount rate used by the Company to
determine  present  value.  Although  Mobius has  established  reserves  against
possible  future bad debts and believes  that these  installment  contracts  are
enforceable and that ultimate collection is probable, there can be no assurances
that customers will not default under such financing  arrangements,  or that any
such  default  would not have a material  adverse  effect on Mobius's  business,
operating  results  and  financial  condition.  For  more  information  on these
extended payment agreements see Notes 2 and 3 of Notes to Consolidated Financial
Statements.


<PAGE>



Protection of Intellectual Property

         Mobius's  success  is  heavily  dependent  upon  its  confidential  and
proprietary intellectual property.  Mobius has no patents or patent applications
pending covering any aspect of its software products. Mobius relies primarily on
a combination  of  confidentiality  agreements,  copyright,  trademark and trade
secret laws and  confidentiality  procedures to protect its proprietary  rights.
Trade secret and copyright laws afford only limited protection. Despite Mobius's
efforts to protect its proprietary rights,  unauthorized  parties may attempt to
copy aspects of its products or obtain and use  information  that Mobius regards
as proprietary.  In addition,  the laws of some foreign countries do not protect
its  proprietary  rights  to as great  an  extent  as do the laws of the  United
States.  There can be no  assurance  that its  means of  attempting  to  protect
Mobius's  proprietary  rights will be adequate or that its competitors  will not
independently develop similar or competitive technology.

         Mobius's  products are  generally  provided to customers in object code
format only.  However,  Mobius enters into  arrangements with its customers that
releases the source code to the customer upon the occurrence of certain  events,
such as bankruptcy or insolvency of Mobius or certain  material  breaches of the
license  agreement  by Mobius.  In the event of any  release of the source  code
pursuant to these  arrangements,  the customer's license is generally limited to
use of the source code to maintain, support and configure its software products.
Notwithstanding  such  provision,  the delivery of source code to customers  may
increase the likelihood of  misappropriation or other misuse of its intellectual
property.

         Mobius  is  not  aware  that  any  of  its  products  infringe  on  the
proprietary rights of third parties.  There can be no assurance,  however,  that
third parties will not claim  infringement  by Mobius with respect to current or
future  products.  Defense of any such claims,  with or without merit,  could be
time-consuming,  result in costly  litigation,  cause product shipment delays or
require  Mobius to enter into royalty or licensing  agreements.  Such royalty or
licensing agreements,  if required,  may not be available on terms acceptable to
Mobius or at all,  which could have a material  adverse  effect on its business,
operating results and financial condition.

Dependence on Licensed Technology

         Mobius  relies  on  certain  software  and  other  information  that it
licenses from third parties,  including software that is used to perform certain
functions in its products.  Although Mobius believes that there are alternatives
for these  products,  any significant  interruption in the  availability of such
third-party  software  could have a material  adverse impact on its sales unless
and until the Company can replace the functionality  provided by these products.
In addition,  Mobius is to a certain  extent  dependent upon such third parties'
abilities to enhance their current products, to develop new products on a timely
and cost-effective basis and to respond to emerging industry standards and other
technological  changes.  There can be no assurance  that Mobius would be able to
replace the functionality provided by the third party software currently offered
in  conjunction  with its  products  in the  event  that such  software  becomes
obsolete or  incompatible  with future  versions of its products or is otherwise
not adequately maintained or updated. The absence of or any significant delay in
the replacement of that  functionality  could have a material  adverse effect on
its business, operating results and financial condition.

Risk of Product Defects; Product Liability

         Software  products  as  complex as those  offered by Mobius  frequently
contain  defects,  especially  when first  introduced  or when new  versions are
released.  Although Mobius conducts extensive product testing, Mobius has in the
past discovered software defects in certain of its new products and enhancements
after their introduction.  Mobius could in the future lose, or delay recognition
of, revenues as a result of software errors or defects. Mobius believes that its
customers  and  potential  customers  are  highly  sensitive  to  defects in the
Company's software. Although Mobius's business has not been materially adversely
affected by any such errors to date,  there can be no  assurance  that,  despite
testing by Mobius and by current  and  potential  customers,  errors will not be
found in new products or releases after  commencement  of commercial  shipments,
resulting  in loss of  revenue  or  delay in  market  acceptance,  diversion  of
development resources,  damage to Mobius's reputation,  or increased service and
warranty  costs,  any of which  could  have a  material  adverse  effect  on its
business, operating results and financial condition.

      Mobius's  license   agreements  with  its  customers   typically   contain
provisions designed to limit its exposure to potential product liability claims.
However, it is possible that the limitation of liability provisions contained in
its  license  agreements  may  not  be  effective  under  the  laws  of  certain
jurisdictions.  Although Mobius has not experienced any product liability claims
to date,  the sale and support of products by Mobius may entail the risk of such
claims,  and there can be no  assurance  that the Company will not be subject to
such claims in the future. Mobius does not maintain product liability insurance.
A  successful  product  liability  claim  brought  against  Mobius  could have a
material  adverse  effect  on its  business,  operating  results  and  financial
condition.

Year 2000 Compliance

      Many currently installed operating systems and software products are coded
to accept only two digit entries in the date code field.  These date code fields
need  additional  digits to  distinguish  21st  century  dates from 20th century
dates. As a result,  computer systems and/or software used by many companies may
need to be upgraded to comply  with such "Year 2000"  requirements.  Significant
uncertainty  exists in the software  industry  concerning the potential  effects
associated  with such  compliance.  For a discussion on Year 2000  compliance by
Mobius and how Year 2000  compliance  may affect  its  future  performance,  see
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" in Item 7.

Management of Growth; Dependence on Senior Management and Other Key Employees

         Mobius's ability to effectively  manage its future growth, if any, will
require it to continue  to improve  the  Company's  operational,  financial  and
management  controls,  accounting  and  reporting  systems,  and other  internal
processes.  There  can be no  assurance  that  Mobius  will be able to make such
improvements in an efficient or timely manner or that any such improvements will
be sufficient to manage its growth, if any. If Mobius is unable to manage growth
effectively,  its business,  operating results and financial  condition would be
materially adversely affected.

      Mobius's  success  depends  to  a  significant   extent  upon  its  senior
management and certain other key employees of Mobius. The loss of the service of
senior management or other key employees could have a material adverse effect on
Mobius.  Furthermore,  the Company  believes  that its future  success will also
depend to a  significant  extent upon its  ability to attract,  train and retain
highly skilled technical, management, sales and marketing personnel. Competition
for such  personnel is intense,  and Mobius expects that such  competition  will
continue for the foreseeable  future.  Mobius has from time to time  experienced
difficulty in locating candidates with appropriate  qualifications.  The failure
to attract or retain  such  personnel  could have a material  adverse  effect on
Mobius's business, operating results and financial condition.


<PAGE>



ITEM 2. PROPERTIES

         Mobius is  headquartered in Rye, New York, where it leases an aggregate
of approximately 57,200 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.  Mobius  leases an aggregate of
approximately   87,900  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. 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 and financial condition.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters  were  submitted  to a vote of security  holders  during the
fourth quarter of fiscal 1999.

PART II.
ITEM 5.           MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
                           RELATED STOCKHOLDER MATTERS

         Mobius's  common  stock has been quoted on the NASDAQ  National  Market
under the symbol of MOBI since the initial  public  offering on April 27,  1998.
According to records of Mobius's  transfer agent,  Mobius had  approximately  65
stockholders of record as of September 15, 1999. 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 the
Common Stock on the NASDAQ National Market for the periods indicated.
                                                         High            Low

Quarter ended June 30, 1998(beginning April 27, 1998)   $19.75          $11.50
Quarter ended September 30, 1998                        $16.25           $5.62
Quarter ended December 31, 1998                         $14.88           $5.88
Quarter ended March 31, 1999                            $24.44          $13.00
Quarter ended June 30, 1999                             $20.75           $7.38

         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.


<PAGE>



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,
1999 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, 1998 and 1999
and for each of the years in the three year period ended June 30, 1999,  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 Form 10-K. <TABLE> <CAPTION>

                                                                              Years Ended June 30,
                                                             1995       1996      1997       1998        1999
                                                            ------    -------   -------     ------      ------
<S>                                                         <C>        <C>      <C>         <C>         <C>
Consolidated Statement of Income Data
(in thousands, except per share data):

Revenues:
  Software license revenues                                $12,729    $18,769   $26,112     $37,929     $48,811
  Maintenance and other revenues                             9,676     12,189    15,215      18,598      25,025
                                                           -------    -------   -------     -------     -------
         Total revenues                                     22,405     30,958    41,327      56,527      73,836
                                                           -------    -------   -------     -------     -------
Costs of revenues:
  Software license revenues                                    614        626     1,336       1,443       1,223
  Maintenance and other revenues                             2,049      2,716     2,923       3,593       5,011
                                                           -------    -------   -------     -------      ------
         Total costs of revenues                             2,663      3,342     4,259       5,036       6,234
                                                           -------    -------   -------     -------      ------
Gross profit                                                19,742     27,616    37,068      51,491      67,602
Operating expenses:
  Sales and marketing                                       12,523     15,136    21,971      28,171      41,074
  Research and development                                   3,478      4,600     5,904       7,925      10,478
  General and administrative                                 2,063      2,832     4,350       6,430       9,362
  Stock compensation expense                                    --         --        --         642       1,046
                                                           -------    -------   -------     -------      ------
         Total operating expenses                           18,064     22,568    32,225      43,168      61,960
                                                           -------    -------   -------     -------      ------
Income from operations                                       1,678      5,048     4,843       8,323       5,642
License and other interest income                              375        339       922       1,871       2,920
Interest expense                                               (58)       (41)      (22)        (14)        (16)
Foreign currency transaction gains (losses)                     34        (72)      (12)        (15)       (191)
                                                           -------     -------    -------   -------      ------
Income before income taxes
                                                             2,029      5,274     5,731      10,165       8,355
Provision for income taxes                                     880      2,657     3,348       5,500       4,057
Accretion on Preferred Stock                                    --         --        --         102          --
                                                           -------    -------   -------     -------      ------
Net income available to common stock                       $ 1,149    $ 2,617   $ 2,383     $ 4,563     $ 4,298
                                                           =======    =======   =======     =======     =======

Basic earnings per share(1)                                $  0.08    $  0.17   $  0.17     $  0.38     $  0.24
Basic weighted average shares outstanding(1)                15,000     15,000    14,318      12,156      17,813
Diluted earnings per share(1)                              $  0.08    $  0.17   $  0.15     $  0.27     $  0.23
Diluted weighted average  shares outstanding(1)             15,000     15,000    15,882      16,738      18,964

Consolidated Balance Sheet Data
  (in thousands):
Total assets                                               $12,713   $18,446    $28,502     $78,800     $89,201
Total long term obligations                                    479     1,639      5,176       8,776       7,612
Convertible preferred stock                                     --        --     11,898          --          --
Stockholders' equity (deficit)                               2,586     5,226     (4,344)     46,122     $51,528

<FN>

(1)      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.
</FN>
</TABLE>


<PAGE>



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 its fiscal  years ended
June 30, 1999 and June 30, 1998, respectively.

Overview

         Mobius is a leading provider of software  products  designed to provide
network- and Web-based access, presentation and distribution of large volumes of
diverse   enterprise   information.   Major  financial   services,   healthcare,
manufacturing, retail and telecommunications companies and governmental entities
use  the   Company's   products  to  facilitate   customer   service  and  other
mission-critical  functions.  Founded in 1981, the Company provided  information
storage,  retrieval and presentation products and support, as well as consulting
services  throughout  its first decade.  In 1991,  the Company  decided to focus
primarily on developing and marketing  software products and, as a result,  sold
its consulting services business.

         In April  1998,  the  Company's  registration  statement  was  declared
effective  for its initial  public  offering  ("IPO") of 2.5  million  shares of
common  stock at a price of $14.50 per share.  Further  detail  about the IPO is
provided in the "Liquidity and Capital  Resources"  section below and in Notes 8
and 9 of the Notes to the Consolidated Financial Statements.

         The Company's total revenues have increased over each of the past three
fiscal years,  from $41.3 million in fiscal 1997 to $56.5 million in fiscal 1998
and to $73.8 million in fiscal 1999. The Company derives its revenues  primarily
from server and client product license fees and related annual maintenance fees.
This year 66.1% of total  revenues were  generated by software  license fees and
33.9% 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 89.6% of license revenues and approximately
59.3% of total revenues. Last year license revenues for these products accounted
for  approximately  84.3% of license revenues and  approximately  56.6% 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  revenues,  from $15.2  million in fiscal 1997 to $18.6 million last
year to $25.0 million this year.  Maintenance consists primarily of revenue from
customer  support by the Company for its products.  Other  revenue  results when
Mobius  occasionally  hires independent  professional  service  organizations to
provide customers with post-sale assistance.

         International  revenues  increased  this year to $9.5 million from $7.2
million  last year and $3.2 million in fiscal 1997.  As a group,  the  Company's
international  subsidiaries  have not  achieved  budgeted  sales  and have  been
unprofitable to date, and Mobius expects  achieving  profitability  will 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 cannot be consolidated  for United
States income tax purposes. Consequently, the Company has a substantially higher
effective tax rate than the U.S.  Federal  statutory  rate as no tax benefit has
been provided for the majority of these foreign  losses.  To the extent that the
Company is successful at bringing its foreign subsidiaries to profitability, the
Company's  effective tax rate will be below the U.S.  Federal tax statutory rate
as a result of  realizing  the benefit of the tax loss  carryforwards  currently
being generated  outside of the United States.  In addition,  to the extent that
Mobius uses different tax structures for new foreign  subsidiaries,  which would
permit  consolidation  of losses for U.S. tax  purposes,  the effective tax rate
will approach the U.S. Federal statutory rate.

         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 and
are expensed as incurred.  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 Income as a  percentage  of total  revenues  for the
fiscal years indicated:



                                                      Years Ended June 30,
                                               1997        1998          1999
                                               ----        ----          ----


Revenues:
  Software license revenues                      63.2%        67.1%        66.1%
  Maintenance and other revenues                 36.8         32.9         33.9
                                                -----        -----        -----
         Total revenues                         100.0        100.0        100.0
                                                -----        -----        -----
Costs of revenues:
  Software license revenues                       3.2          2.5          1.6
  Maintenance and other revenues                  7.1          6.4          6.8
                                                -----        -----        -----
         Total costs of revenues                 10.3          8.9          8.4
                                                -----        -----        -----
Gross profit                                     89.7         91.1         91.6
Operating expenses:
  Sales and marketing                            53.2         49.9         55.6
  Research and development                       14.3         14.0         14.2
  General and administrative                     10.5         11.4         12.7
  Stock compensation expense                     --            1.1          1.4
                                                -----        -----        -----
         Total operating expenses                78.0         76.4         83.9
                                                -----        -----        -----
Income from operations                           11.7         14.7          7.7
License and other interest income                 2.3          3.3          3.9
Interest expense                                 (0.1)          --         (0.3)
Foreign currency transaction gains(losses)         --           --           --
                                                -----        -----        -----
Income before income taxes                       13.9         18.0         11.3
Provision for income taxes                        8.1          9.7          5.5
Accretion on Preferred Stock                       --          0.2           --
                                                -----        -----        -----
Net income available to common stock              5.8%         8.1%         5.8%
                                                =====        =====        =====


<PAGE>



     Year Ended June 30, 1997 Compared to Year Ended June 30, 1998 Compared
                           to Year Ended June 30, 1999

         Revenues.  Total revenues  increased 36.8% from $41.3 million in fiscal
1997 to $56.5  million in fiscal 1998 and 30.6% to $73.8 million in fiscal 1999.
Domestic  revenues  increased  29.2% from $38.2  million in fiscal 1997 to $49.3
million in fiscal  1998 and  increased  30.4% to $64.3  million in fiscal  1999.
International revenues increased 127.6% from $3.2 million in fiscal 1997 to $7.2
million in fiscal 1998 and increased 32.3% to $9.5 million in fiscal 1999. Total
revenues have increased primarily because the Company sold more licenses for its
products to new and existing customers.

         Software license revenues  increased 45.3% from $26.1 million in fiscal
1997 to $37.9  million in fiscal 1998 and  increased  28.7% to $48.8  million in
fiscal 1999.  These increases were primarily  attributable to increased sales of
licenses for ViewDirect and DocumentDirect products.

         Maintenance  and other revenues  increased  22.2% from $15.2 million in
fiscal 1997 to $18.6 million in fiscal 1998 and increased 34.4% to $25.0 million
in fiscal 1999.  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 to a lesser extent,  increases in
the maintenance fees charged by the Company. Other revenues for all periods were
not significant.

Costs of Revenues.

         The costs of software license revenues increased 8.0% from $1.3 million
in fiscal  1997 to $1.4  million  in  fiscal  1998 and  decreased  15.2% to $1.2
million in fiscal  1999,  representing  5.1%,  3.8% and 2.5%,  respectively,  of
software  license revenues in those years. The costs of software license revenue
as a percentage of software license  revenues  decreased in fiscal 1998 and 1999
primarily due to increased  license  revenues from products that were  developed
exclusively by the Company and therefore do not require royalty payments.

         The costs of maintenance  and other revenues  increased 22.9% from $2.9
million in fiscal  1996 to $3.6  million in fiscal 1998 and  increased  39.5% to
$5.0 million in fiscal 1999, representing 19.2%, 19.3% and 20.0%,  respectively,
of  maintenance  and other  revenues in those years.  The  increases in costs of
maintenance and other revenues were primarily attributable to increased staffing
and personnel-related costs.

Operating Expenses.

         Sales and  marketing  expenses  increased  28.2% from $22.0  million in
fiscal 1997 to $28.2 million in fiscal 1998 and increased 45.8% to $41.1 million
in fiscal 1999,  representing  53.2%,  49.9% and 55.6%,  respectively,  of total
revenues in those years. Sales and marketing  expenses have increased  primarily
because the Company paid more  commissions and bonuses for selling more software
licenses,  hired  additional  sales  personnel and  increased  personnel-related
costs.

         Research and development  expenses increased 34.2% from $5.9 million in
fiscal 1997 to $7.9 million in fiscal 1998 and increased  32.2% to $10.5 million
for fiscal 1999,  representing  14.3%, 14.0% and 14.2%,  respectively,  of total
revenues in those years. The increases in research and development expenses were
primarily  attributable to increased  staffing and  personnel-related  costs for
technical staff.

         General and  administrative  expenses increased 47.8% from $4.4 million
in fiscal  1997 to $6.4  million  in  fiscal  1998 and  increased  45.6% to $9.4
million in fiscal 1999,  representing 10.5%, 11.4% and 12.7%,  respectively,  of
total  revenues in those years.  The increases were  generally  attributable  to
increased  professional  services  fees,  costs  for  additional  personnel  and
$600,000 in legal and  professional  fees  relating to an  acquisition  that the
Company does not believe will be completed.

         Stock compensation  expense of $642,000 in fiscal 1998 and $1.0 million
in fiscal  1999 was due to certain  stock  option  grants made in fiscal 1998 at
below fair market value. There is approximately $547,000, $264,000, $134,000 and
$37,000 of expense  relating to these 1998  option  grants to be  recognized  in
fiscal years 2000, 2001, 2002 and 2003,  respectively.  For further  information
see Note 10 of the Notes to the Consolidated Financial Statements.

         License and other interest income;  interest expense;  foreign currency
transaction gains (losses).  License and other interest income was $0.9 million,
$1.9 million and $2.9 million in fiscal 1997, 1998, and 1999, respectively.  The
increase was primarily due to the increase in earnings on higher cash  balances.
During fiscal 1997, 1998 and 1999 interest  expense was  insignificant.  Foreign
currency  transaction losses were $12,000,  $15,000 and $191,000 in fiscal 1997,
1998 and 1999,  respectively.  These  losses are the result of foreign  currency
fluctuations  in  the  foreign  jurisdictions  within  which  the  Company  does
business.

         Provision  for Income  Taxes.  The  provision for income taxes was $3.3
million in fiscal  1997,  $5.5 million in fiscal 1998 and $4.1 million in fiscal
1999.  The Company had effective  tax rates of  approximately  58.4%,  54.1% and
48.6% in fiscal years 1997, 1998 and 1999, respectively.  The difference between
these rates and the U.S. Federal statutory rate is primarily attributable to the
Company not being able to  consolidate  foreign  subsidiary  losses for U.S. tax
purposes.  The changes in the effective tax rate from fiscal 1997 to fiscal 1999
principally  reflect the impact of changes in the amount of operating  losses of
the Company's foreign subsidiaries.  For more information see Note 7 of Notes to
Consolidated Financial Statements.

Selected Quarterly Operating Results

         The following table presents certain  consolidated  statement of income
data for the eight  fiscal  quarters  in the  period  ended  June 30,  1999.  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.


<PAGE>
<TABLE>
<CAPTION>




                                                                    Quarters Ended
                                           Sept. 30, Dec. 31,  March 31,  June 30, Sept. 30,   Dec. 31, March 31, June 30,
                                              1997     1997       1998      1998      1998      1998      1999     1999
                                            ------    ------   -------   -------    -------   -------   -------   -------
<S>                                         <C>       <C>       <C>      <C>        <C>       <C>       <C>       <C>
Revenues:
  Software license revenues                 $5,697    $8,596    $8,075   $15,561    $10,169   $13,253   $11,223   $14,166
  Maintenance and other revenues             4,183     4,595     4,816     5,004      5,587     5,852     6,660     6,926
                                            ------    ------   -------   -------    -------   -------   -------   -------
         Total revenues                      9,880    13,191    12,891    20,565     15,756    19,105    17,883    21,092
Costs of revenues:
  Software license revenues                    366       312       217       548        311       232       282       398
  Maintenance and other revenues               692       862       866     1,173      1,304     1,174     1,209     1,324
                                            ------    ------   -------   -------    -------   -------   -------   -------
         Total costs of revenues             1,058     1,174     1,083     1,721      1,615     1,406     1,491     1,722
                                            ------    ------   -------   -------    -------   -------   -------   -------
Gross profit                                 8,822    12,017    11,808    18,844     14,141    17,699    16,392    19,370
Operating expenses:
  Sales and marketing                        4,700     6,097     6,566    10,808      8,346     9,702     9,684    13,342
  Research and development                   1,681     1,869     1,975     2,400      2,571     2,706     2,630     2,571
  General and administrative                 1,462     1,542     1,740     1,686      1,654     2,326     2,098     3,284
  Stock compensation expense                    --        --       313       329        323       343       213       167
                                            ------    ------   -------   -------    -------   -------   -------   -------
         Total operating expenses            7,843     9,508    10,594    15,223     12,894    15,077    14,625    19,364
                                            ------    ------   -------   -------    -------   -------   -------   -------
Income from operations                         979     2,509     1,214     3,621      1,247     2,622     1,767         6
License and other interest income              325       507       541       498        672       766       700       782
Interest expense                                (4)       (2)       (3)       (5)        (7)       (4)       (4)       (1)
Foreign currency transaction gains
  (losses)                                      (3)       (3)       (5)       (4)       (33)      (60)       (9)      (89)
                                            ------    ------    ------    ------    -------   -------   -------   -------
Income before income taxes                   1,297     3,011     1,747     4,110      1,879     3,324     2,454       698
Provision for income taxes                     750     1,605       979     2,166        988     1,595     1,174       300
Accretion on Preferred Stock                    --       102        --        --         --        --        --        --
                                            ------    ------    ------   -------    -------   -------   -------   -------
Net income available to common stock        $  547    $1,304    $  768   $ 1,944    $   891   $ 1,729   $ 1,280   $   398
                                            ======    ======    ======   =======    =======   =======   =======   =======

Basic earnings per share                     $0.05     $0.12     $0.07     $0.12     $0.05     $0.10     $0.07     $0.02
                                             =====     =====     =====     =====     =====     =====     =====     =====
Diluted earnings per share                   $0.03     $0.08     $0.05     $0.11     $0.05     $0.09     $0.07     $0.02
                                             =====     =====     =====     =====     =====     =====     =====     =====

As a Percentage of Total Revenues
Revenues:
 Software license revenues                    57.7%      65.2%     62.6%    75.7%     64.5%      69.4%     62.8%      67.2
  Maintenance and other revenues              42.3       34.8      37.4     24.3      35.5       30.6      37.2       32.8
                                             -----      -----     -----    -----     -----      -----     -----      -----
  Total revenues                             100.0      100.0     100.0    100.0     100.0      100.0     100.0      100.0
Costs of revenues:
  Software license revenues                    3.7        2.4       1.7      2.7       2.0        1.2       1.6        1.9
  Maintenance and other revenues               7.0        6.5       6.7      5.7       8.3        6.2       6.7        6.3
                                             -----      -----     -----    -----     -----      -----     -----      -----
    Total costs of revenues                   10.7        8.9       8.4      8.4      10.3        7.4       8.3        8.2
                                             -----      -----     -----    -----     -----      -----     -----      -----
Gross profit                                  89.3       91.1      91.6     91.6      89.7       92.6      91.7       91.8
Operating expenses:
  Sales and marketing                         47.6       46.2      51.0     52.5      53.0       50.7      54.2       63.2
  Research and development                    17.0       14.2      15.3     11.7      16.3       14.2      14.7       12.2
  General and administrative                  14.8       11.8      13.5      8.2      10.5       12.2      11.7       15.6
  Stock compensation expense                    --        --        2.4      1.6       2.0        1.8       1.2        0.8
                                             -----      ----      -----    -----     -----      -----     -----      -----
         Total operating expenses             79.4       72.2      82.2     74.0      81.8       78.9      81.8       91.8
Income from operations                         9.9       18.9       9.4     17.6       7.9       13.7       9.9         --
License and other interest income              3.2        3.8       4.2      2.4       4.0        3.7       3.8        3.7
Interest expense                                --         --        --       --        --         --        --         --
Foreign currency transaction gains(losses)      --        0.1        --       --        --         --        --       (0.4)
                                             -----      -----     -----    -----     -----      -----     -----      -----
Income before income taxes                    13.1       22.8      13.6     20.0      11.9       17.4      13.7        3.3
Provision for income taxes                     7.6       12.2       7.6     10.5       6.2        8.3       6.5        1.4
Accretion on Preferred Stock                    --        0.7        --       --        --         --        --         --
                                             -----      -----     -----    -----     -----      -----     -----      -----
Net income available to common stock           5.5%       9.9%      6.0%     9.5%      5.7%       9.1%      7.2%       1.9%
                                             =====      =====     =====    =====     =====      =====     =====      =====
</TABLE>


         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.


<PAGE>



Liquidity and Capital Resources

         Since its  inception,  Mobius  has funded  its  operations  principally
through  cash flows from  operating  activities  and, to a lesser  extent,  bank
financings  and capital  leases.  As of June 30, 1999,  Mobius had cash and cash
equivalents of $33.5 million,  a decrease of $8.7 million from the $42.2 million
held at June 30,  1998.  This  decrease is  primarily  the result of the Company
investing $10.9 million in marketable securities and long-term investments.

         Net cash  provided  by  operating  activities  was $2.5  million,  $5.2
million and $6.8 million in fiscal 1997, 1998 and 1999,  respectively.  Software
license installments, which, in total, increased 11.3% from $21.0 million at the
end of fiscal 1998 to $23.4  million at end of fiscal 1999,  represent  payments
due  from  customers  for  license  fees  that  are  paid  over  the term of the
installment agreement. These payments are typically made over 3 to 5 year terms.
Since  payments  are made over  multiple  reporting  periods,  software  license
installments  can  fluctuate  with the  amount  of  license  revenue  sold on an
installment basis.

         The Company's  cash position has also  benefited  from the stability in
deferred maintenance revenue,  which was $17.0 million at the end of fiscal 1998
and  $16.7  million  at the end of fiscal  1999.  Deferred  maintenance  revenue
represents the unrecognized portion of maintenance billings and the unrecognized
portion of maintenance  revenue unbundled from customer license agreements which
are recognized ratably over the maintenance period.

         Cash used in investing  activities  was $1.0 million,  $1.8 million and
$15.4 million in fiscal 1997, 1998 and 1999, respectively.  In each of the years
ended June 30, 1997, 1998 and 1999, cash of $1.0 million,  $1.8 million and $4.5
million  was  used  for  the  purchase  of  computer   equipment  and  leasehold
improvements.  In fiscal  1999,  Mobius  also  purchased  marketable  securities
totaling $10.9 million.

         Cash used in financing  activities  was $252,000 in fiscal 1997 and was
the  result  of  raising  $11.9  million  from a private  placement  of Series A
Convertible  Preferred  Stock,  repurchasing  $12.0  million of Common Stock and
payment of $150,000 of capital lease obligations.  In fiscal 1998, cash provided
by financing  activities was $33.1 million primarily due to the Company's IPO of
2,500,000  shares of common stock at a price of $14.50 per share. As a result of
the IPO,  its  outstanding  Series A  Convertible  Stock and Class A  Non-Voting
Common Stock were  converted  into an  aggregate  of 4,171,000  shares of Common
Stock.  This year,  cash  provided  by  financing  activities  of  $227,000  was
primarily due to cash received from the exercise of stock options.

         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.  The Company's  line of credit  expired on
October 20, 1998 and the Company  continues  negotiations to reinstate a line of
credit  for  working  capital  purposes.  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.

         In January  1999,  the Company  sold the  INFOPAC-TapeSaver  product to
Technologic   Software   Concepts,   Incorporated  of  Irvine,   California  for
approximately $3.0 million. Under the terms of the sale, Technologic will assume
responsibility for maintenance support for all existing TapeSaver licenses. As a
result of this  arrangement,  the Company will recognize $3.0 million of license
revenue  as  Technologic   makes   payments  over  the  next  five  years,   and
approximately $1.0 million of maintenance revenue through December 31, 1999. For
the year ended June 30, 1999, the Company recognized $666,000 of license revenue
and $795,000 of maintenance revenue related to this arrangement.  Future license
revenue  will be variable  through  December 31, 1999 as  Technologic  sells the
TapeSaver product to customers and will be $112,500 each quarter  thereafter for
the remaining four year term of the contract.


<PAGE>



Year 2000 Compliance

         Many currently  installed  operating  systems and software products are
coded to accept only two digit  entries in the date code field.  These date code
fields  need  additional  digits to  distinguish  21st  century  dates from 20th
century  dates.  As a result,  computer  systems  and/or  software  used by many
companies may need to be upgraded to comply with such "Year 2000"  requirements.
Significant uncertainty exists in the software industry concerning the potential
effects  associated  with such  compliance.  Since the  Company's  products  are
designed for long-term storage and retrieval of data with end of life dates well
beyond  2000,  Mobius  believes  that its  products  are and have been Year 2000
compliant.  There  can be no  assurance  that the  Company's  products  will not
experience  Year 2000  compliance  difficulties,  or that third party  products,
including  operating  systems,  that are not Year 2000 compliant will not have a
detrimental effect on the operation of the Company's products.

         The Company believes that Year 2000 issues may significantly affect the
purchasing  patterns of its customers and potential  customers.  Many  companies
have expended significant  resources to correct or modify their current software
systems for Year 2000 compliance. These expenditures may result in reduced funds
available to purchase software products such as those the Company offers.

         Management  has  implemented  a  Company-wide  program to  prepare  its
internal  computer  systems and  applications  (such as its  accounting and word
processing  programs)  for Year 2000  compliance.  The Company  expects to incur
internal  staff costs as well as other expenses  necessary  during the course of
such  efforts and the Company  expects to both  replace some systems and upgrade
others.  Maintenance  or  modification  costs will be expensed as incurred.  The
total cost is not expected to be material.  In addition the Company has obtained
assurance  from its  primary  service  and  product  providers  regarding  their
remediation efforts for the Year 2000 problem.

      In light of the above,  the Company does not  anticipate  any serious Year
2000 problems.  However,  in compliance with the SEC Release No.  34-40649,  the
Company is required to estimate the impact of a broad  systemic  failure that is
caused by the "Y2K" problem. While the Company does not expect this to occur, if
the Company's  primary  service and product  providers have not completed  their
remediation  efforts for the Year 2000  problem,  it could impact the  Company's
ability to develop and maintain its products,  apply cash  collections  and make
electronic  disbursements,   since  these  activities  are  dependent  upon  the
continued  operation of the national  power and telephony  grids and the banking
system.  Other aspects of Mobius's operations could be maintained  manually,  at
substantially   reduced  efficiency,   until  these  systems  were  restored  to
operation.


Recent Accounting Pronouncements

         In June 1998, the Financial  Accounting Standards Board issued SFAS No.
133,  "Accounting for Derivative  Instruments and Hedging  Activities." SFAS No.
133 requires  companies to recognize all  derivatives  as assets or  liabilities
measured at their fair value.  Gains and losses  resulting  from  changes in the
values of those  derivatives  would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. In July 1999, SFAS No.
137 was  issued  to defer the  effective  date of SFAS No.  133 to fiscal  years
beginning after June 15, 2000. The Company does not believe the adoption of SFAS
No.  133 will have a material  effect on its  financial  position  or results of
operations.

         On December 15, 1998, the AICPA issued SOP 98-9,  "Modification  of SOP
97-2, Software Revenue Recognition,  With Respect to Certain  Transactions." SOP
98-9, which is effective for transactions entered into in fiscal years beginning
after March 15, 1999,  requires the  application  of the  "residual  method" for
certain multiple element arrangements. Under this method, the arrangement fee is
recognized as follows: (1) the total fair value of the undelivered  elements, as
indicated by vendor-specific  objective  evidence,  is deferred and subsequently
recognized  in  accordance  with the  relevant  sections of SOP 97-2 and (2) the
difference  between the total  arrangement  fee and the amount  deferred for the
undelivered elements is recognized as revenue related to the delivered elements.
All other  provisions  of SOP 97-2 remain in effect.  The Company will adopt SOP
98-9 for software transactions  beginning July 1, 1999. The Company believes its
current  accounting  policies  substantially  comply with SOP 98-9 and therefore
does not expect  the  adoption  of SOP 98-9 will have a  material  effect on its
operations.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Not applicable.

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

         Information  required by this item is  incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 28, 1999
pursuant to Regulation 14A of the General Rules and Regulations under Securities
Exchange Act of 1934, as amended.

ITEM 11. EXECUTIVE COMPENSATION

         Information  required by this item is  incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 28, 1999
pursuant to Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information  required by this item is  incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 28, 1999
pursuant to Regulation 14A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information  required by this item is  incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 28, 1999
pursuant to Regulation 14A.


<PAGE>



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, 1998 and 1999 Consolidated Statements
of Income for the Years Ended June 30, 1997,
     1998 and 1999
Consolidated Statements of Stockholders' Equity for the Years Ended
     June 30, 1997, 1998, and 1999
Consolidated Statements of Cash Flows for the Years Ended June 30,
     1997, 1998, and 1999
Notes to Consolidated Financial Statements


(a)(2)     Financial Statement Schedules

           Schedule II - Valuation and Qualifying Accounts and Reserves





<PAGE>




                          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  generally  accepted  auditing
standards.  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, 1998 and 1999 and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period ended June 30, 1999, in conformity  with  generally  accepted
accounting  principles.  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 27, 1999
Stamford, CT








<PAGE>



                         MOBIUS MANAGEMENT SYSTEMS, INC.
                           CONSOLIDATED BALANCE SHEETS
              (in thousands, except share data and per share data)




                                                                   June 30,
                                                              1998       1999
                                                              ----       ----
ASSETS

Current assets:
     Cash and cash equivalents                            $ 42,222    $ 33,546
     Marketable securities, at market                           --       9,362
     Accounts receivable, net of allowance for doubtful
         accounts of $612 and $860, respectively            10,733      12,631
     Software license installments, current portion          7,330      10,603
     Other current assets                                    1,682       2,281
                                                           -------     -------
              Total current assets                          61,967      68,423

Software license installments, non-current portion,
     net of allowance for doubtful accounts of $767
     and $812, respectively                                 13,686      12,778
Investment, at cost                                             --       1,501
Property and equipment, net                                  2,932       6,039
Other assets                                                   215         460
                                                           --------    --------

              Total assets                                $ 78,800    $ 89,201
                                                          ========    ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued expenses                $  9,471    $ 13,892
     Deferred maintenance revenue                           11,408      12,840
     Deferred income taxes                                   2,054       3,293
     Other liabilities                                         969          36
                                                          --------    --------
              Total current liabilities                     23,902      30,061
                                                          --------    --------

Deferred maintenance revenue                                 5,616       3,811
Deferred income taxes                                        3,124       3,801
Capital lease obligations, less
     current portion                                            36          --

Stockholders' equity:
     Common  stock  $.0001  par  value;
     authorized  40,000,000  shares;  issued
     21,785,500 and 21,996,150 shares, respectively;
     outstanding 17,694,500 and 17,905,150
     shares, respectively                                        2           2
     Additional paid-in capital                             47,994      48,409
     Retained earnings                                      12,199      16,497
     Deferred stock compensation                            (2,076)       (982)
     Accumulated other comprehensive income                      3        (398)
     Treasury stock, at cost, 4,091,000
         and 4,091,000 shares, respectively                (12,000)    (12,000)
                                                          --------    --------
              Total stockholders' equity                    46,122      51,528
                                                          --------    --------

Total liabilities and stockholders' equity                $ 78,800    $ 89,201
                                                          ========    ========


          See accompanying notes to consolidated financial statements.


<PAGE>



                         MOBIUS MANAGEMENT SYSTEMS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                      (in thousands, except per share data)


                                                 Years Ended June 30,
                                           1997          1998           1999
                                           ----          ----           ----

Revenues:
     Software license revenues           $26,112       $37,929        $48,811
     Maintenance and other revenues       15,215        18,598         25,025
                                         -------       -------        -------
         Total revenues                   41,327        56,527         73,836
                                         -------       -------        -------
Costs of revenues:
     Software license revenues             1,336         1,443          1,223
     Maintenance and other revenues        2,923         3,593          5,011
                                         -------       -------        -------
         Total costs of revenues           4,259         5,036          6,234
                                         -------       -------        -------

Gross profit                              37,068        51,491         67,602
                                         -------        -------       -------
Operating expenses:
     Sales and marketing                  21,971        28,171         41,074
     Research and development              5,904         7,925         10,478
     General and administrative            4,350         6,430          9,362
     Stock compensation expense               --           642          1,046
                                         -------       -------        -------
         Total operating expenses         32,225        43,168         61,960
                                         -------       -------        -------

Income from operations                     4,843         8,323          5,642

License and other interest income            922         1,871          2,920
Interest expense                             (22)          (14)           (16)
Foreign currency transaction losses          (12)          (15)          (191)
                                         -------       -------        -------
Income before income taxes                 5,731        10,165          8,355

Provision for income taxes                 3,348         5,500          4,057
Accretion on Preferred Stock                  --           102             --
                                         -------       -------        -------
Net income available to
     common stock                        $ 2,383       $ 4,563        $ 4,298
                                         =======       =======        =======

Basic earnings per share                 $  0.17       $  0.38        $  0.24
Basic weighted average shares
     outstanding                          14,318        12,156         17,813

Diluted earnings per share               $  0.15       $  0.27        $  0.23
Diluted weighted average
     shares outstanding                   15,882        16,738         18,964


          See accompanying notes to consolidated financial statements.



<PAGE>



                         MOBIUS MANAGEMENT SYSTEMS, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                 (in thousands)

<TABLE>
<CAPTION>

                                                                                        Accumulated                       Total
                                                      Additional                           Other                       Stockholders'
                                        Common Stock   Paid-in   Retained    Deferred  Comprehensive  Treasury Stock     (Deficit)
                                       Shares  Amount  Capital   Earnings  Compensation    Income      Shares  Amount      Equity
                                       -------------------------------------------------------------------------------------------
<S>                                    <C>      <C>     <C>       <C>          <C>        <C>          <C>    <C>          <C>

Balance at June 30, 1996               16,727  $  2     $  77     $5,306       $   -      $ (28)       1,727  $   (131)    $5,226
Net income                                  -     -         -      2,383           -          -            -        -       2,383
Change in other comprehensive income        -     -         -         -            -         47            -        -          47
                                                                                                                           ------
Comprehensive income                        -     -         -         -            -          -            -        -       2,430
Retirement of treasury stock           (1,727)   (1)      (77)       (53)          -          -       (1,727)      131          -
Shares repurchased in connection with
 issuance of preferred stock           (4,091)    -         -         -           -          -         4,091   (12,000)   (12,000)
                                      -------- ----------------------------------------------------------------------------------
Balance at June 30, 1997               10,909     1         -      7,636           -         19        4,091   (12,000)    (4,344)
Net income                                  -     -         -      4,563           -          -            -         -      4,563
Change in other comprehensive income        -     -         -         -            -        (16)           -         -        (16)
                                                                                                                           ------
Comprehensive income                        -     -         -         -            -          -            -        -       4,547
Issuance of common stock                2,500     -    33,034         -            -          -            -         -     33,034
Conversion of Seris A Preferred Stock   4,091     1    11,999         -            -          -            -         -     12,000
Conversion of Class A Common Stock         80     -       100         -            -          -            -         -        100
Stock options exercised                   115     -       143         -            -          -            -         -        143
Deferred compensation                       -     -     2,718         -       (2,718)         -            -         -          -
Change in deferred compensation
                                            -     -         -         -          642          -            -         -        642
                                      -------------------------------------------------------------------------------------------
Balance at June 30, 1998               17,695     2    47,994     12,199      (2,076)         3        4,091   (12,000)    46,122
Net income                                  -     -         -      4,298           -          -            -         -      4,298
Change in other comprehensive income        -     -         -          -           -       (401)           -         -       (401)
                                                                                                                            -----
Comprehensive income                        -     -         -         -            -          -            -         -      3,897
Stock options exercised                   210     -       463        -             -          -            -         -        463
Change in deferred compensation             -     -       (48)        -        1,094          -            -         -      1,046
                                      -------------------------------------------------------------------------------------------
Balance at June 30, 1999               17,905  $  2    $48,409   $16,497     $ (982)      $(398)       4,091  $(12,000)   $51,528
                                      ===========================================================================================

</TABLE>

            See accompanying notes to consolitedfinancial statements.

<PAGE>





                         MOBIUS MANAGEMENT SYSTEMS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
<TABLE>
<CAPTION>


                                                              Years Ended June 30,
                                                        1997         1998         1999
                                                        ----         ----         ----
<S>                                                   <C>          <C>           <C>


Cash flows provided by operating activities:
  Net income                                         $ 2,383       $ 4,563       $ 4,298
                                                     -------       -------       -------
Adjustments  to  reconcile   net  income  to  net  cash  provided  by  operating
  activities:
   Deferred income taxes                               1,857         2,207         1,916
   Depreciation and amortization                         406           760         1,372
   Stock compensation expense                             --           642         1,046
   Accretion of Preferred Stock                           --           102            --
   Loss on disposal of fixed assets                       --            78            --
   Change in operating assets
     and liabilities:
     Accounts receivable, net                           (465)       (2,940)       (1,898)
     Software license installments                    (7,497)       (8,530)       (2,365)
     Other assets                                       (235)       (1,236)         (644)
     Accounts payable and accrued expenses             2,112         2,878         4,421
     Other liabilities                                   (94)          835          (933)
     Deferred maintenance revenue                      4,002         5,869          (373)
                                                     -------        ------       -------
  Total adjustments                                       86           665         2,542
                                                      -------       ------       -------
  Net cash provided by operating activities            2,469         5,228         6,840
                                                     -------        ------       -------
Cash flows used in investing activities:
   Purchase of marketable securities                      --            --        (9,403)
   Purchase of investments, non-current                   --            --        (1,501)
   Capital expenditures                               (1,039)       (1,780)       (4,479)
                                                     -------        ------       -------
  Net cash used in investing activities               (1,039)       (1,780)      (15,383)
                                                     -------        ------       -------
Cash flows (used) provided by financing activities:
   Cash received from sale of preferred
     stock, net of issuance costs                     11,898            --            --
   Cash received from sale of common stock                --        33,713            --
   Payments relating to sale of common stock              --          (679)           --
   Cash received from exercise of stock options           --           143           263
   Cash payment for repurchase of common stock       (12,000)           --            --
   Payments on capital lease obligations                (150)          (59)          (36)
                                                     -------        ------       -------
  Net cash (used) provided by financing activities      (252)       33,118           227
                                                     -------        ------       -------
Effect of exchange rate changes on
   cash and cash equivalents                              47           (16)         (360)
                                                     -------        ------       -------
Net change in cash and cash equivalents                1,225        36,550        (8,676)
Cash and cash equivalents at beginning
   of period                                           4,447         5,672        42,222
                                                     -------       -------       -------
Cash and cash equivalents at end of period           $ 5,672       $42,222       $33,546
                                                     =======       =======       =======
Supplemental  disclosure of cash flow  information:  Cash paid during the period
   for:
     Interest                                        $    22       $    14        $   16
     Income taxes                                      1,544         2,419         3,304

</TABLE>

          See accompanying notes to consolidated financial statements.


<PAGE>



                         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 provider of enterprise  software  products
designed to provide network- and Web-based access, presentation and distribution
of large volumes of diverse enterprise information.  The Company is incorporated
in the State of Delaware and operates  wholly-owned  subsidiaries  in the 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
could be deferred until such sufficient  evidence exists,  or until all elements
have satisfied the requirements for revenue recognition.

         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  maintenance
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 maintenance revenue.


<PAGE>



  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 seven 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.

  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, 1998 and
1999,  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.  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 year ended June 30, 1999 are insignificant.  As of June
30, 1999 the unamortized  investment  premium,  and unrealized  holding gains
and losses were insignificant.


<PAGE>

  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

         Effective  December  1997, the Company  adopted  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. Such
dilutive   instruments  include  stock  options,  the  conversion  of  Series  A
Convertible Preferred Stock, and the conversion of the Class A Non-Voting Common
Stock.

         The following is a  reconciliation  of the numerators and  denominators
for the Basic and  Diluted  EPS  calculations  (in  thousands,  except per share
data):
<TABLE>
<CAPTION>

                                                                      Years Ended June 30,
                                                    1998                                            1999
                                -------------- --------------- ------------      ------------- --------------- -----------
                                 Net Income        Shares       Per Share         Net Income       Shares      Per Share
                                 (Numerator)   (Denominator)     Amount          (Numerator)   (Denominator)     Amount
<S>                                <C>             <C>           <C>                <C>            <C>           <C>

Basic EPS:
Net income                         $4,563                                           $4,298
                                   ======                                           ======
Weighted average shares
 outstanding                                       12,156                                          17,813
Basic EPS                                                         $0.38                                          $0.24
                                                                  =====                                          =====
Diluted EPS:
Net income                         $4,563                                           $4,298
                                   ======                                           ======
Dilutive effect of
convertible securities                              3,428                                              -
Dilutive effect of
 stock options                                      1,154                                           1,151
                                                   ------                                          ------
Diluted EPS                                        16,738         $0.27                            18,964        $0.23
                                                   ======         =====                            ======        =====

</TABLE>

<PAGE>




<TABLE>
<CAPTION>





                                                                           Year Ended
                                                                          June 30, 1997
                                                           ------------- ---------------- ------------
                                                            Net Income       Shares        Per Share
                                                           (Numerator)    (Denominator)     Amount

                             <S>                              <C>            <C>             <C>

                             Basic EPS:
                             Net income                       $2,383
                             Weighted average shares          ======
                              outstanding                                    14,318
                             Basic EPS                                                       $0.17
                                                                                             =====
                             Diluted EPS:
                             Net income                       $2,383
                             Dilutive effect of               ======
                             convertible securities                             682
                             Dilutive effect of
                              stock options                                     882
                                                                             ------
                             Diluted EPS                                     15,882          $0.15
                                                                             ======          =====

</TABLE>

         For the year ended June 30,  1999 there were  62,000  weighted  average
shares of options that were not included in the EPS  calculation  because  their
effect was anti-dilutive. There were no anti-dilutive shares for 1997 or 1998.

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  income  and pro forma  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.

Recent Accounting Pronouncements

     In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting  for Derivative  Instruments and Hedging  Activities."  SFAS No. 133
requires  companies  to  recognize  all  derivatives  as assets  or  liabilities
measured at their fair value.  Gains and losses  resulting  from  changes in the
values of those  derivatives  would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. In July 1999, SFAS No.
137 was  issued  to defer the  effective  date of SFAS No.  133 to fiscal  years
beginning after June 15, 2000. The Company does not believe the adoption of SFAS
No.  133 will have a material  effect on its  financial  position  or results of
operations.

         On December 15, 1998, the AICPA issued SOP 98-9,  "Modification  of SOP
97-2, Software Revenue Recognition,  With Respect to Certain  Transactions." SOP
98-9, which is effective for transactions entered into in fiscal years beginning
after March 15, 1999,  requires the  application  of the  "residual  method" for
certain multiple element arrangements. Under this method, the arrangement fee is
recognized as follows: (1) the total fair value of the undelivered  elements, as
indicated by vendor-specific  objective  evidence,  is deferred and subsequently
recognized  in  accordance  with the  relevant  sections of SOP 97-2 and (2) the
difference  between the total  arrangement  fee and the amount  deferred for the
undelivered elements is recognized as revenue related to the delivered elements.
All other  provisions  of SOP 97-2 remain in effect.  The Company will adopt SOP
98-9 for software transactions  beginning July 1, 1999. The Company believes its
current  accounting  policies  substantially  comply with SOP 98-9 and therefore
does not expect  the  adoption  of SOP 98-9 will have a  material  effect on its
operations.


<PAGE>



(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, 1998 and 1999 the
effective weighted average discount rate used for software license  installments
was 7.61% and 7.41%, respectively.  The discount is amortized to interest income
using the interest method over the term of the license contract.

         The present  values of  software  license  installments  to be received
after June 30, 1999 are as follows (in thousands):

   Year Ended:

   June 30, 2000                                              $12,307
   June 30, 2001                                                7,932
   June 30, 2002                                                4,965
   June 30, 2003                                                2,253
   June 30, 2004                                                   50
                                                              -------
   Total minimum payments to be received                       27,507
   Less unearned interest income                               (3,314)
   Less allowance for doubtful accounts                          (812)
                                                              -------
   Present value of software license installments, net         23,381
   Less current portion, net                                   10,603
                                                              -------
   Non-current portion, net                                   $12,778
                                                              =======

(4)  Property and Equipment

  Property and equipment consists of the following (in thousands):

                                    June 30,
                                    1998 1999
                                                         ------      ------

  Furniture, fixtures and office equipment               $  508      $  939
  Computer equipment                                      4,410       7,803
  Leasehold improvements                                    544       1,153
                                                         ------      ------
                                                          5,462       9,895
  Less accumulated depreciation and amortization         (2,530)     (3,856)
                                                         ------      ------
  Property and equipment, net                            $2,932      $6,039
                                                         ======      ======

     Depreciation and amortization expense on property and equipment,  including
capital  leases,  was $406,000,  $760,000 and  $1,372,000  for the twelve months
ended June 30, 1997, 1998 and 1999, respectively. At the end of the years` ended
June 30, 1998 and 1999 there was  $214,000 of  equipment  under  capital  leases
included in property and equipment with accumulated  depreciation of $74,000 and
$104,000, respectively.

(5)      Non-Current Investments

         In June 1999, the Company invested $1,501,000 in equity securities of a
privately-held,  information  technology company.  This investment was accounted
for under the cost method.  The Company will  regularly  review the  assumptions
underlying  the  operating  performance  and cash flow  forecasts to assess this
investment's recoverability.  If the events and circumstances indicate that this
investment  may be impaired,  the Company will record an impairment  loss. As of
June 30, 1999, no impairment has been recorded.


<PAGE>



(6)  Accounts Payable and Accrued Expenses

         Accounts  payable and accrued  expenses  consist of the  following  (in
thousands):

                                    June 30,
                                    1998 1999
                                                          ----        ----

         Accounts payable                                $  801     $ 2,179
         Compensation and related benefits                4,872       5,897
         Royalties payable                                1,318       1,358
         Other                                            2,480       4,458
                                                         ------     -------
                                                         $9,471     $13,892
                                                         ======     =======

(7)  Income Taxes

         Income before provision for income taxes is as follows (in thousands):



                                     Years Ended June 30,
                                 1997         1998         1999
                                 ----         ----         ----


         Domestic income       $ 7,923      $13,261       $13,236
         Foreign losses         (2,192)      (3,096)       (4,881)
                               -------      -------       -------
                               $ 5,731      $10,165       $ 8,355
                               =======      =======       =======


     The  components  of the provision for income taxes for the years ended June
30, 1997, 1998 and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>


                                                    Year Ended June 30,
                               1997                         1998                            1999
                   ----------------------------------------------------------------------------------------------------
                      Current    Deferred   Total      Current     Deferred     Total     Current     Deferred    Total
<S>                   <C>        <C>        <C>        <C>          <C>        <C>        <C>          <C>       <C>

Federal               $1,200     $1,521     $2,721     $2,704       $1,807     $4,511     $1,736       $1,569    $3,305
State                    276        336        612        542          400        942        350          347       697
Foreign                   15         --         15         47           --         47         55           --        55
                      ------     ------     ------     ------       ------     ------     ------       ------    ------
                      $1,491     $1,857     $3,348     $3,293       $2,207     $5,500     $2,141       $1,916    $4,057
                      ======     ======     ======     ======       ======     ======     ======       ======    ======

</TABLE>


     The following table reconciles the Federal statutory  corporate rate of 34%
to the  effective  income tax rate for the years ended June 30,  1997,  1998 and
1999:

                                                      Years Ended June 30,
                                                1997         1998        1999
                                                ----         ----        ----

Federal statutory corporate rate              $1,949       $3,456       $2,840
State income taxes, net of Federal benefit       344          610          501
Losses of foreign subsidiaries                   802        1,118        1,170
Research credit                                  (57)          --         (167)
Other                                            310          316         (287)
                                              ------       ------       ------
Total                                         $3,348       $5,500       $4,057
                                              ======       ======       ======

Pre-Tax Income                                $5,731      $10,165       $8,355
                                              ======      =======       ======

Effective Tax Rate                             58.4%        54.1%        48.6%
                                               =====        =====        =====



<PAGE>



         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,
                                                     1998          1999
                                                     ----          ----

Deferred tax assets:
   Accounts receivable, principally due
      to allowance for doubtful accounts           $  401        $  450
   Foreign net operating loss carryforwards         3,067         3,550
                                                   ------         -----
                                                    3,468         4,000
Valuation allowance                                (3,067)       (3,550)
                                                   ------        ------
   Net deferred tax assets                            401           450
Deferred tax liabilities:
   Software license installments                    5,376         7,274
   Depreciation                                       203           232
   Other                                               --            38
                                                   ------        ------
   Net deferred tax liability                      $5,178        $7,094
                                                   ======        ======

         The valuation allowance increased by $969,000,  $1,390,000 and $483,000
for the years ended June 30, 1997, 1998 and 1999 primarily due to uncertainty of
realization of net operating  losses incurred by certain  foreign  subsidiaries.
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 foreign
jurisdiction;   some  begin  to  expire  in  fiscal   2000  and  others   extend
indefinitely.

(8)  Common Stock

  Common Stock

         The Company has  authorized  40,000,000  shares of common  stock with a
$.0001 par  value.  This  includes  1,727,200  shares of common  stock that were
retired during 1997, having previously been held in treasury stock.

         On May 12, 1997, as part of the Preferred  Stock Agreement (see note 9)
the Company repurchased 4,091,000 shares of common stock, $.0001 par value, from
its founders  for  $12,000,130.  Such amount is being held in treasury  stock at
June 30, 1999.

         In April 1998, the Company sold  2,500,000  shares of common stock at a
price of  $14.50  per  share in an  Initial  Public  Offering  ("IPO").  The net
proceeds  to the Company  were  $33,034,000  after  deducting  the  underwriting
discount and offering  expenses  payable by the Company.  In connection with the
IPO, the Company's  outstanding Series A Convertible Preferred Stock and Class A
Non-Voting  Common Stock were converted into an aggregate of 4,171,000 shares of
common stock.

  Class A Non-Voting Common Stock

         The  Company  had  authorized  5,000,000  shares of Class A  Non-Voting
Common Stock with a $.0001 par value.  During  fiscal 1998,  80,000  shares were
issued.  Such shares of the Class A Non-Voting  Common  Stock were  converted to
common stock upon  completion of the IPO. In connection with the IPO, this class
of common stock was retired and no shares remain authorized or outstanding.

  Stock Split

         On February  19, 1998,  the Board of Directors  authorized a 100-to-one
stock  split of the  Company's  common  stock.  All  common  share and per share
amounts  have  been  retroactively  adjusted  in the  accompanying  consolidated
financial statements to reflect the stock split.

(9)  Preferred Stock

         The Company has authorized  1,000,000  shares of Preferred Stock with a
par value of $.01.  Before any shares are issued,  the Board of Directors  shall
fix the specific  provisions of the shares  including the designation of series,
voting rights, dividend features, redemption and liquidation provision and other
features.

         On May 12, 1997, the Company  entered into a Stock  Purchase  Agreement
(the  "Agreement")  whereby  certain  investors  purchased  40,910 shares of the
Preferred  Stock that the Board of Directors  designated as Series A Convertible
Preferred Stock ("Seris A Convertible Preferred Stock") for $12,000,130.

     Such Seris A  Convertible  Preferred  Stock was  converted  into  4,091,000
shares of the Company's common stock in connection with the IPO.

(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 3,480,000  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.


<PAGE>



Total stock option activity during the periods indicated was as follows:

                                                         Weighted
                                                          Average
                                    Number of            Exercise
                                     Shares                Price

Balance at June 30, 1996                    --                 --
   Granted                           2,045,500             $ 1.25
   Exercised                                --                 --
   Forfeited                                --                 --
   Expired                                  --                 --
                                     ---------
Balance at June 30, 1997             2,045,500             $ 1.25
   Granted                           1,248,500               8.88
   Exercised                          (194,500)              1.25
   Forfeited                          (702,000)              1.43
   Expired                                  --                --
                                     ---------
Balance at June 30, 1998             2,397,500             $ 5.17
   Granted                             374,000              10.10
   Exercised                          (210,650)              1.25
   Forfeited                           (78,000)              6.58
   Expired                                  --                --
                                     ---------
Balance at June 30, 1999             2,482,850             $ 6.20
                                     =========


         The  following  table  summarizes  information  about the stock  option
plans:
                             OPTIONS OUTSTANDING          OPTIONS EXERCISABLE
                    ----------------------------------   ---------------------
                      Number       Weighted   Weighted      Number    Weighted
                    Outstanding    Average     Average   Exercisable   Average
     Range of          as of     Contractual  Exercise      as of     Exercise
 Exercise Prices   June 30,1999      Life       Price   June 30, 1999   Price

  $1.25 - $1.25       928,350        7.24      $1.25       310,600      $1.25
  $5.28 - $9.75       656,500        8.56      $6.83       261,346      $6.32
 $9.86 - $10.25       370,000        8.58      $9.88       112,500      $9.89
 $11.00 - $11.00      375,000        8.66      $11.00      118,875      $11.00
 $11.25 - $17.50      153,000        9.44      $12.85         -           -

 $1.25 - $17.50      2,482,850       8.14      $6.20       803,321      $5.55



     At June 30, 1999,  there were 632,000 shares  available for grant under the
Plan and 210,000 shares available for grant under the Directors' Plan.

         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 $642,000 and $1,046,000 for the years
ended June 30, 1998 and 1999,  respectively.  There is  approximately  $547,000,
$264,000,  $134,000 and $37,000 of expense  relating to these 1998 option grants
to be recognized in fiscal years 2000, 2001, 2002 and 2003, respectively,  to be
adjusted for option holders' terminations.


<PAGE>




     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 and  earnings  per share  would have been  reduced to the
amounts indicated below.

                                                    Year Ended June 30,
                                              1997         1998       1999
                                              ----         ----       ----
Net income and earnings per share
as would be reported under SFAS No. 123:

   Net income                               $2,317       $4,209      $2,629
   Basic earnings per share                 $ 0.16       $ 0.35      $ 0.15
   Diluted earnings per share               $ 0.15       $ 0.25      $ 0.14

         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, 1997, 1998 and 1999 was
$0.80,  $5.93 and $10.07 on the date of grant,  respectively.  The grants during
the years ended June 30, 1997 and 1998 assumed no volatility,  expected dividend
yield of 0.0%,  and an expected  life of 7 years.  Grants  during the year ended
June 30, 1999 assumed 568%  volatility,  expected  dividend yield of 0.0% and an
expected  life of 3.2 years.  The assumed risk free interest rate on the date of
grants was 6.5% in fiscal 1997,  ranged between 5.7% and 6.8% in fiscal 1998 and
was 5.25% in fiscal 1999.

(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 300,000  authorized
and unissued  shares of common stock,  treasury shares and/or shares acquired by
the Company for the purposes of the ESPP. During fiscal 1998 and 1999 there were
no shares  issued  under  this  plan.  As of June 30,  1999,  73,787  shares are
reserved  for  issuance and there were  226,213  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, 1997, 1998 and 1999.

         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. As of June 30, 1999, there were no awards 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,  foreign  currency  translation  adjustments and unrealized
gains and losses on  marketable  securities  classified  as  available-for-sale.
Comprehensive  income  for the years  ended June 30,  1997,  1998 and 1999 is as
follows:

                                               Year ended June 30,
                                           1997       1998        1999
                                           ----       ----        ----

Net income                                $2,383     $4,563      $4,298
Unrealized marketable securities loss         --         --         (41)
Unrealized translation gain (loss)            47        (16)       (360)
                                          -----------------------------
Comprehensive income                      $2,430     $4,547      $3,897
                                          =============================

(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  Company  leases  some  office
equipment under a capital lease which expires in fiscal 2000.

     The following is a schedule of future  minimum  lease  payments for capital
and operating leases as of June 30, 1999 (in thousands):

                                             Capital         Operating
                                             Leases           Leases
Year Ended:

June 30, 2000                                $ 38             $ 2,649
June 30, 2001                                  --               2,328
June 30, 2002                                  --               1,969
June 30, 2003                                  --               1,872
June 30, 2004                                  --               1,890
Thereafter                                     --               5,932
                                             ----             -------
Total minimum lease payments                   38             $16,640
                                                              =======
Less interest component                       ( 2)
                                             ----
Present value of minimum lease payments      $ 36
                                             ====

     Rental  expense  for all  operating  leases was  approximately  $1,046,000,
$1,521,000  and  $2,419,000  for the years ended June 30,  1997,  1998 and 1999,
respectively.

(15)  Commitments and Contingencies

         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.

(16)  Segment and Geographic Information

         In fiscal 1999, the Company  adopted SFAS No. 131,  "Disclosures  about
Segments  of an  Enterprise  and Related  Information"  ("SFAS  131").  SFAS 131
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
or geographic area accounted for more than 10% of revenue,  10% of net income or
10% of identifiable assets in any of the periods presented.


<PAGE>




                                    United
                                    States  Foreign(a)  Eliminations    Total
                                    ------------------------------------------
Year Ended June 30, 1997:
Revenue:
   From unaffiliated customers(b)   $38,149     3,178         --       $41,327
   Between geographic areas(c)          942        --       (942)           --
                                    -------   -------    -------       -------
Total revenue                       $39,091     3,178       (942)      $41,327
                                    =======   =======    =======       =======

Net income                          $ 4,888    (2,505)        --       $ 2,383
Identifiable assets                 $31,304     3,758     (6,560)      $28,502

Year Ended June 30, 1998:
Revenue:
   From unaffiliated customers(b)   $49,294     7,233         --       $56,527
   Between geographic areas(c)        1,819        --     (1,819)           --
                                    -------   -------    --------      -------
Total revenue                       $51,113     7,233     (1,819)      $56,527
                                    =======   =======    ========      =======

Net income                          $ 6,755    (2,192)        --       $ 4,563
Identifiable assets                 $81,284     9,028    (11,512)      $78,800

Year Ended June 30, 1999:
Revenue:
   From unaffiliated customers(b)   $64,269     9,567         --       $73,836
   Between geographic areas(c)        2,594        --     (2,594)           --
                                    -------   -------    --------      -------
Total revenue                       $66,863     9,567     (2,594)      $73,836
                                    =======   =======    ========      =======

Net income                          $ 5,436    (1,138)        --       $ 4,298
Identifiable assets                 $95,082    12,225    (18,106)      $89,201


(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 and maintenance fees paid
         by customers to such foreign subsidiaries.

(17) Sale of INFOPAC-Tapesaver

         In January 1999,  the Company sold the  INFOPAC-TapeSaver  product to a
third party for  approximately  $3.0 million.  Under the terms of the sale,  the
buyer will  assume  responsibility  for  maintenance  support  for all  existing
TapeSaver licenses. As a result of this arrangement,  the Company will recognize
$3.0 million of license  revenue as the buyer makes  payments over the next five
years, and  approximately  $1.0 million of maintenance  revenue through December
31, 1999. For the year ended June 30, 1999, the Company  recognized  $666,000 of
license revenue and $795,000 of maintenance revenue related to this arrangement.
Future license revenue will be variable  through  December 31, 1999 as the buyer
sells  TapeSaver  products  to  customers  and  will be  $112,500  each  quarter
thereafter for the remaining four year term of the contract.


<PAGE>









                                   SCHEDULE II

                         MOBIUS MANAGEMENT SYSTEMS, INC.

                        Valuation and Qualifying Accounts
                                 (In thousands)
<TABLE>
<CAPTION>



                                                                   Additions
                                           Balance at     Charged to       Charges                        Balance
                                            beginning      costs and      to other                        at end
Description                                 of period      expenses       accounts     Deductions        of period
<S>                                         <C>             <C>              <C>             <C>          <C>

Year ended June 30, 1997: Deductions from asset account:
  Allowance for doubtful accounts           $  423            817             --            (519)        $  721
Year ended June 30, 1998:
Deductions from asset account:
  Allowance for doubtful accounts           $  721          1,199             --            (541)        $1,379
Year ended June 30, 1999:
Deductions from asset account:
  Allowance for doubtful accounts           $1,379            636             --            (343)        $1,672

</TABLE>

         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.



<PAGE>




(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.


<PAGE>




Exhibit No.     Description

21.1         --    Subsidiaries of the Registrant.
23.1         --    Consent of KPMG LLP.
27.1         --    Financial Data Schedule (EDGAR only)

 *  Filed  as  an  exhibit  to  Mobius'  Registration   Statement  on  Form  S-1
(Registration  Number 333-47117) or an amendment thereto and incorporated herein
by reference to the same exhibit number.



<PAGE>



                                   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 and
                                             President)

                                   Date:    September 24, 1999


         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.

      Signatures         Title(s)                                 Date



 /s/ Mitchell Gross      Chairman of the Board, Chief       September 24, 1999
    Mitchell Gross       Executive Officer, President
                         (Principal Executive Officer
                         and Director)


/s/ Joseph J. Albracht   Executive Vice President, Chief    September 24, 1999
  Joseph J. Albracht     Operating Officer, Secretary
                         and Director



/s/ E. Kevin Dahill      Vice President, Finance, Chief     September 24, 1999
    E. Kevin Dahill      Financial Officer and Treasurer
                         (Principal Financial
                         and Accounting Officer)


/s/ Peter J. Barris      Director                           September 24, 1999
    Peter J. Barris



/s/ Edward F. Glassmeyer Director                           September 24, 1999
 Edward F. Glassmeyer




/s/ Kenneth P. Kopelman  Director                           September 24, 1999
  Kenneth P. Kopelman



/s/ Gary G. Greenfield   Director                           September 24, 1999
  Gary G. Greenfield

<PAGE>




(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.


<PAGE>




Exhibit No.     Description

21.1    --    Subsidiaries of the Registrant.
23.1     --    Consent of KPMG LLP.
27.1     --    Financial Data Schedule (EDGAR only)

 *  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.