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, 2000

                         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
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |x| No | |

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

         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  18, 2000 as  reported on NASDAQ,  was  approximately  $38.0  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 18, 2000, Registrant had outstanding 18,116,600 shares of common
stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Certain portions of the  Registrant's  definitive proxy statement to be
filed  no  later  than  October  30,  2000  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 2000 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 the 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
transactions  and other  information  and demand rapid and consistent  access to
their  records.  Increasingly,  customers  expect  self-service  access  via the
Internet using readily available Web browser technology.

         Organizations  are also  faced  with the need to store  and  distribute
large volumes of report output  produced by various  applications,  particularly
enterprise resource planning ("ERP") systems. Furthermore, organizations wish to
present  customized views of this information to their employees,  customers and
suppliers  over intranets  with easy to learn common  graphical user  interfaces
such as Web browsers.

         Traditional  approaches  such  as  paper,  microfiche,  and  relational
databases,  are  usually  cumbersome  and  do not  lend  themselves  to a  fully
integrated, comprehensive information management system solution. Moreover, many
organizations  maintain a number of discrete,  non-integrated  systems,  each of
which  provides  access  to  only  a  portion  of  the   organization's   stored
information.  When the  organization  needs to access  all  information  about a
particular  customer or  transaction,  these  disparate  systems make  retrieval
costly and time consuming.  Mobius 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.

<PAGE>

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;  e-Search &
View, which enables browser-based  searching of information stored on ViewDirect
archives;  DocumentDirect  Application  Suite,  a  series  of  industry-specific
application  templates for document viewing;  DocuAnalyzer,  a data mining tool;
and  INFOPAC-ABS,  a data center quality control  product.  In fiscal year 2000,
Mobius's subsidiary Click-n-Done.com LLC introduced Click-n-Done, an application
that over the internet,  presents  bills and statements  and  facilitates  their
payment.

         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 "portal"  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").

         e-Search & View.  e-Search & View is a Web search facility that enables
browser-based  searching of information stored in ViewDirect  archives.  It uses
ViewDirect's  high-performance indexing and integrates with any Web application,
providing an efficient, easy-to-use document search application.

         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.

         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.

         Click-n-Done.   Click-n-Done  is  application  software  that  supports
electronic  bill  presentment  and payment  ("EBPP")  and  electronic  statement
presentment  ("ESP.")  Click-n-Done  supports  multiple billing models including
"consumer  consolidation,"  in which bills and  statements  are presented on the
consumer's desktop processor.

<PAGE>

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;
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,  2000,  Mobius  employed  423  people:  215 in Sales and
Marketing; 51 in Customer Satisfaction;  97 in Research and Development;  and 60
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.

<PAGE>

Customers

         No single customer  accounted for 10% or more of consolidated  revenues
in fiscal years 1998, 1999 or 2000.

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.

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.

<PAGE>

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., Quest Software,  Inc., RSD
S.A.,  Checkfree  Corporation,  Billserv.com,  Inc.  and edocs,  Inc. 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.

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 of this Form 10-K.

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

<PAGE>

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 could
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.
Protection of Intellectual Property

         Mobius's  success  is  heavily  dependent  upon  its  confidential  and
proprietary intellectual property. Mobius generally does not patent its software
products  but  rather  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

<PAGE>

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.

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.

Click-n-Done.com Related Factors

         On December 9, 1999, Mobius announced the formation of a new subsidiary
called  Click-n-Done.com  and  its  intended  release  of  a  new  consumer  and
business-focused  suite of Internet-based  bill presentment and payment systems.
Through June 30, 2000, Mobius has not generated any revenue from the sale of its
Click-n-Done.com   products.   Mobius's  expenses  for   Click-n-Done.com   were
approximately  $8.2  million in fiscal  2000.  Mobius  anticipates  that it will
continue to incur  additional  costs  related to this  business for at least the
next  year.  The  following   factors  may  affect

<PAGE>

Click-n-Done.com's  future performance,  and as a result, the future performance
of Mobius on a consolidated  basis.  Mobius May Not  Successfully  Implement The
Click-n-Done.com Business Plan.

         The Click-n-Done.com business model is still in development.  Mobius is
subject   to   greater   expenses   and   difficulties   in   implementing   the
Click-n-Done.com  business  plan as  compared  to  those  associated  with  more
traditional  ventures,  since the Click-n-Done.com  products are Internet-based.
The risks associated with implementing the Click-n-Done.com business plan relate
to:

o    establishing and building out the operations infrastructure;
o    implementing and expanding the sales structure and marketing programs;
o    increasing and developing brand awareness;
o    providing services to customers that are reliable and cost-effective;
o    responding   to   technological   development   or  service   offerings  by
     competitors; and
o    attracting and retaining qualified personnel.

         If  Mobius  is not  successful  in  implementing  the  Click-n-Done.com
business  plan,   Mobius's  future  financial  or  operating  results  could  be
materially adversely effected.

Mobius Has Incurred Significant Expenses for Click-n-Done.com and Mobius Expects
These Expenses to Continue for the Foreseeable Future.

         Mobius has incurred  significant  expenses relating to Click-n-Done.com
in the twelve months since Click-n-Done.com's  inception and anticipates that it
will continue to incur additional expenses for sales and marketing,  technology,
customer support and personnel for the foreseeable future.  Mobius cannot assure
that Click-n-Done.com will achieve or sustain revenue or profitability on either
a quarterly or an annual basis.

Click-n-Done.com May Need Additional Funds Which, if Available,  Could Result in
Dilution  of Mobius's  Equity  Interest  in  Click-n-Done.com  or an Increase in
Click-n-Done.com's   Interest  Expense.   If  These  Funds  Are  Not  Available,
Click-n-Done.com's Business Could Be Materially Adversely Effected.

         To date, Mobius has provided the working capital for Click-n-Done.com's
operations.  Click-n-Done.com  will require  additional  working capital and may
need to raise these  additional  funds through  public or private debt or equity
financing in order to:

o    fully implement its business model;
o    take  advantage  of   unanticipated   opportunities   or   acquisitions  of
     complementary assets, technologies or businesses;
o    develop new products; or
o    respond to competitive pressures.

         If additional  funds become  necessary,  additional  capital may not be
available  on terms  favorable  to  Click-n-Done.com,  or  available  at all. If
adequate  funds are not available or are not available on acceptable  terms when
needed,  Click-n-Done.com's  business could be materially adversely effected. If
additional funds are raised through the issuance of equity securities,  Mobius's
percentage  ownership  in  Click-n-Done.com  may be reduced,  and the new equity
securities may have rights, preferences or privileges senior to those of Mobius.
If additional  funds are raised through the issuance of debt  securities,  these
securities would have some rights, preferences and privileges senior to those of
Mobius,   and  the   terms  of  this   debt   could   impose   restrictions   on
Click-n-Done.com's operations and result in significant interest expense.

<PAGE>

If Widespread  Internet  Adoption Does Not Continue,  or If the Internet  Cannot
Accommodate  Continued  Growth,  Click-n-Done.com's  Business Will Be Materially
Adversely Effected.

         Acceptance  of  Click-n-Done.com's   products  depends  upon  continued
acceptance  of the  Internet  for  commerce.  As is  typical  in the  case of an
emerging  industry  characterized  by  rapidly  changing  technology,   evolving
industry  standards and frequent new product and service  introductions,  demand
for and  acceptance  of recently  introduced  e-commerce  enabling  products and
services  are  subject  to a high  level  of  uncertainty.  To the  extent  that
businesses or consumers do not consider the Internet a viable commercial medium,
Click-n-Done.com's  customer  base may not grow.  In addition,  critical  issues
concerning the commercial use of the Internet  remain  unresolved and may affect
the  growth  of  Internet  use.  The  adoption  of the  Internet  for  commerce,
communications   and  access  to  content,   particularly   by  those  who  have
historically relied upon alternative methods,  generally requires  understanding
and acceptance of a new way of conducting  business and exchanging  information.
In particular,  companies and consumers may be reluctant or slow to adopt a new,
Internet-based  bill payment system that may render existing practices obsolete.
If the use of the  Internet  fails to  develop  or  develops  more  slowly  than
expected, our business may be seriously harmed.

         To the extent that there is an increase in Internet use, an increase in
frequency of use or an increase in the required bandwidth of users, the Internet
infrastructure  may not be able to  support  the  demands  placed  upon  it.  In
addition,  the Internet  could lose its viability as a commercial  medium due to
delays in  development  or adoption of new  standards or  protocols  required to
handle  increased  levels of  Internet  activity.  Changes  in, or  insufficient
availability of,  telecommunications or similar services to support the Internet
also could result in slower response times and could adversely impact use of the
Internet  generally.  If the Internet  infrastructure,  standards,  protocols or
complementary  products,  services or facilities do not effectively  support any
growth in Internet usage that may occur, our business may be seriously harmed.

The Expected Continued Growth in the Market for Click-n-Done.com's  Products and
Services  May Not  Materialize  or May  Materialize  in a Manner  Mobius Has Not
Anticipated.

         Click-n-Done.com's market is new and rapidly evolving. Whether, and the
manner in which,  the market for  Click-n-Done.com's  products and services will
continue to grow is  uncertain.  The market for its products and services may be
inhibited for a number of reasons, including:

o    the reluctance of businesses to adopt the Click-n-Done.com business model;
o    alternative,  competitive models for services similar to Click-n-Done.com's
     services;
o    Click-n-Done.com's failure to successfully market its products and services
     to new customers; and
o    Click-n-Done.com's   inability  to  maintain  and   strengthen   its  brand
     awareness.

Concerns   about    Transaction    Security   on   the   Internet   May   Hinder
Click-n-Done.com's Business.

         A significant  barrier to electronic commerce and communications is the
secure    transmission   of   private    information   over   public   networks.
Click-n-Done.com  relies on encryption and  authentication  technology,  some of
which it has  developed  and some of which is licensed  from third  parties,  to
provide  the  required  security  and  authentication  to ensure the  privacy of
Internet transactions. Advances in computer capabilities, new discoveries in the
field of cryptography or other events or developments may result in a compromise
or  breach  of  the  algorithms   Click-n-Done.com   uses  to  protect  customer
transaction data. Any breaches in security could cause a significant decrease in
the  use  of  Click-n-Done.com's  software  or  Web  site,  which  would  have a
materially adverse effect on its business.

<PAGE>

         Anyone who can circumvent  Click-n-Done.com's  security  measures could
misappropriate    proprietary    information   or   cause    interruptions    in
Click-n-Done.com or its operations. Click-n-Done.com could be required to expend
significant  capital  and other  resources  to  protect  against  the  threat of
security  breaches or to alleviate  problems caused by these breaches.  Consumer
concerns  about the  security of  electronic  commerce and user privacy may also
inhibit  the  growth  of  the  Internet  as a  means  of  conducting  commercial
transactions. To the extent that Click-n-Done.com's activities or the activities
of  third  party  contractors  involve  storing  and  transmitting   proprietary
information,  such as credit card numbers, security breaches could expose Mobius
to a risk of loss  or  litigation  and  possible  liability.  Click-n-Done.com's
security measures may not effectively prevent security breaches, and its failure
to prevent security breaches could significantly disrupt its operations.

The Internet Industry Is Characterized by Rapid Technological Change.

         Rapid technological developments,  evolving industry standards and user
demands,  and frequent new product  introductions and enhancements  characterize
the market for Internet products and services.  These market characteristics are
exacerbated  by the  emerging  nature  of the  market  and the  fact  that  many
companies  are expected to introduce  new Internet  products and services in the
near  future.   Click-n-Done.com's   success  will  depend  on  its  ability  to
continually improve its product offerings and services.

<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   97,000  additional   square  feet  of  space   domestically  and
internationally  for  its  other  sales  offices.  Mobius  believes  that  these
facilities  are adequate to meet its current needs and that suitable  additional
space  will be  available  as  needed  to  accommodate  physical  expansions  of
corporate operations and for additional sales and service field offices.

ITEM 3. 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 2000.

PART II.

ITEM 5(a).  MARKET FOR THE  REGISTRANT'S  COMMON EQUITY AND RELATED  STOCKHOLDER
MATTERS

         Mobius's  common  stock has been quoted on the NASDAQ  National  Market
under the symbol of MOBI since 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 18, 2000. 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.

      Quarter ended:                                     High              Low
                                                         ----              ---
       September 30, 1998                                $16.25           $5.62
       December 31, 1998                                 $14.88           $5.88
       March 31, 1999                                    $24.44          $13.00
       June 30, 1999                                     $20.75           $7.38
       September 30, 1999                                 $9.25           $4.38
       December 31, 1999                                 $10.38           $3.25
       March 31, 2000                                    $16.88           $5.81
       June 30, 2000                                     $13.63           $3.75

         Mobius has never paid any cash  dividends  on its common stock and does
not  anticipate  paying any cash  dividends in the  foreseeable  future.  Mobius
currently  intends to retain future  earnings to fund the development and growth
of its business.  Payment of future dividends, if any, will be at the discretion
of its Board of Directors after taking into account various  factors,  including
Mobius's financial  condition,  operating results,  current and anticipated cash
needs and plans for expansion.

         5(b).  On April  27,  1998,  the  Securities  and  Exchange  Commission
declared  effective the Company's  Registration  Statement on Form S-1 (File No.
333-47117) with respect to the Company's public  offering.  To date, of the 33.0
Million  of  proceeds   received  from  the  offering,   the  Company  has  used
approximately  $1.0  million for working  capital.  The  remaining  proceeds are
currently  invested in cash and short term,  investment grade,  interest bearing
securities.

<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,
2000 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, 1999 and 2000
and for each of the years in the three year period ended June 30, 2000,  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,
                                                                          --------------------
                                                             1996      1997       1998       1999       2000
                                                             ----      ----       ----       ----       ----
Consolidated Statement of Income Data
  (in thousands, except per share data):
Revenues:
<S>                                                        <C>        <C>       <C>         <C>      <C>
  Software license revenues                                $18,769    $26,112   $37,929     $48,811  $31,018
  Maintenance and other revenues                            12,189     15,215    18,598      25,025   29,187
                                                           -------    -------   -------     -------  -------
         Total revenues                                     30,958     41,327    56,527      73,836   60,205
                                                           -------    -------   -------     -------- -------
Costs of revenues:
  Software license revenues                                    626      1,336     1,443       1,223      946
  Maintenance and other revenues                             2,716      2,923     3,593       5,011    6,070
                                                           -------    -------   -------      ------   ------
         Total costs of revenues                             3,342      4,259     5,036       6,234    7,016
                                                           -------    -------   -------      ------   ------
Gross profit                                                27,616     37,068    51,491      67,602   53,189
                                                           -------    -------   -------      ------   ------
Operating expenses (2):
  Sales and marketing                                       15,136     21,971    28,613      41,877   44,289
  Research and development                                   4,600      5,904     8,013      10,674   14,823
  General and administrative                                 2,832      4,350     6,542       9,409   12,086
                                                           -------    -------   -------      ------   ------
         Total operating expenses                           22,568     32,225    43,168      61,960   71,198
                                                           -------    -------   -------      ------   ------
Income (loss) from operations                                5,048      4,843     8,323       5,642  (18,009)
License and other interest income                              339        922     1,871       2,920    2,930
Interest expense                                               (41)       (22)      (14)        (16)     (58)
Foreign currency transaction gains (loss)                      (72)       (12)      (15)       (191)      44
Investment impairment                                           --         --        --          --   (2,220)
                                                           -------    -------   -------      ------   ------
Income (loss) before income taxes
                                                             5,274      5,731    10,165       8,355  (17,313)
Provision (benefit) for income taxes                         2,657      3,348     5,500       4,057   (5,417)
Accretion on Preferred Stock                                    --         --       102          --       --
                                                           -------    -------   -------      ------   ------
Net income (loss) available to common stock                $ 2,617    $ 2,383   $ 4,563     $ 4,298 $(11,896)
                                                           =======    =======   =======     ======= ========
Basic earnings (loss) per share(1)                         $  0.17    $  0.17   $  0.38     $  0.24 $   (.66)
Basic weighted average shares outstanding(1)                15,000     14,318    12,156      17,813   17,988
Diluted earnings (loss) per share(1)                       $  0.17    $  0.15   $  0.27     $  0.23 $   (.66)
Diluted weighted average shares outstanding(1)              15,000     15,882    16,738      18,964   17,988

Consolidated Balance Sheet Data
  (in thousands):
Total assets                                               $18,446   $28,502    $78,800     $89,201  $78,393
Total long term obligations                                  1,639     5,176      8,776       7,612    3,698
Convertible preferred stock                                     --    11,898         --          --       --
Stockholders' equity (deficit)                               5,226    (4,344)    46,122      51,528   40,591
</TABLE>

(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.

(2)      Included  within  sales and  marketing,  research and  development  and
         general  and  administrative  expense  is  stock  compensation  expense
         associated with the granting of stock options to employees  immediately
         prior to the Company's  IPO for the year ended June 30, 1998,  1999 and
         2000 aggregating $642, $1,046 and $537, respectively. Prior to June 30,
         2000, stock compensation  expense was presented as a separate line item
         within  operating  expense.  See  note  10  to  Notes  to  Consolidated
         Financial Statements.

<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, 2000 and June 30, 1999, 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  increased  from $56.5 million in fiscal
1998 to $73.8  million in fiscal 1999 and  decreased to $60.2  million in fiscal
2000. The decrease in fiscal 2000 was primarily  attributable to decreased sales
of licenses.  The Company believes that Year 2000 issues significantly  affected
the  purchasing  patterns of its customers and potential  customers.  We believe
that many companies  expended  significant  resources to correct or modify their
existing  software  systems to be Year 2000  compliant.  We  believe  that these
expenditures  resulted in reduced funds to purchase  software  products such as
those that Mobius offers. The Company derives its revenues primarily from server
and client product license fees and related annual  maintenance  fees. This year
51.5% of total revenues were  generated by software  license fees and 48.5% 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 93.0% of license revenues and approximately
47.9% of total revenues. Last year license revenues for these products accounted
for  approximately  89.6% of license revenues and  approximately  59.3% 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 $18.6  million in fiscal 1998 to $25.0 million last
year to $29.1 million this year.  Maintenance  consists primarily of revenue for
post contract support services  provided 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 $9.9 million from $9.5
million  last year and $7.2 million in fiscal 1998.  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'  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

<PAGE>

currency  transaction losses or gains, which are outside of Mobius' control.  To
date,  most of these  subsidiaries  have  operated  at a loss,  which  cannot be
consolidated  for United  States  income tax  purposes.  Consequently,  in prior
years,  the Company has  experienced 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 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
expenses.  For more  information  on the  Company's  capitalization  of software
development costs see Note 2 of Notes to Consolidated Financial Statements.

Results of Operations

         The  following  table  sets  forth  certain  items  from the  Company's
Consolidated  Statement of Operations as a percentage of total  revenues for the
fiscal years indicated:

                                                  Years Ended June 30,
                                              1998         1999     2000
                                              ----         ----     ----
Revenues:
  Software license revenues                   67.1%        66.1%     51.5%
  Maintenance and other revenues              32.9         33.9      48.5
                                             -----        ------    -----
         Total revenues                      100.0        100.0     100.0
                                             -----        ------    -----
Costs of revenues:
  Software license revenues                    2.5          1.6       1.6
  Maintenance and other revenues               6.4          6.8      10.1
                                             -----        ------    -----
         Total costs of revenues               8.9          8.4      11.7
                                             -----        ------    -----
Gross profit                                  91.1         91.6      88.3
Operating expenses:
  Sales and marketing                         50.6         56.7      73.6
  Research and development                    14.2         14.5      24.6
  General and administrative                  11.6         12.7      20.1
                                              ----         -----    -----
         Total operating expenses             76.4         83.9     118.3
                                             -----        ------    -----
Income (loss) from operations                 14.7          7.7     (30.0)
License and other interest income              3.3          3.9       4.9
Interest expense                                --         (0.3)     (0.1)
Foreign currency transaction gains(losses)      --           --       0.1
Investment impairment                           --           --      (3.7)
                                             -----         ----      ----
Income (loss) before income taxes             18.0         11.3     (28.8)
Provision (benefit) for income taxes           9.7          5.5      (9.0)
Accretion on Preferred Stock                   0.2           --        --
                                             -----        -----     -----
Net income (loss) available to common stock    8.1%         5.8%    (19.8)%
                                             =====        =====     ======

<PAGE>

         Year Ended June 30, 1998  Compared to Year Ended June 30, 1999 Compared
to Year Ended June 30, 2000

Revenues

Total  revenues  increased  30.6%  from $56.5  million  in fiscal  1998 to $73.8
million in fiscal  1999 and  decreased  18.4% to $60.2  million in fiscal  2000.
Domestic  revenues  increased  30.4% from $49.3  million in fiscal 1998 to $64.3
million in fiscal  1999 and  decreased  21.7% to $50.3  million in fiscal  2000.
International  revenues increased 33.3% from $7.2 million in fiscal 1998 to $9.6
million in fiscal 1999 and increased 2.1% to $9.9 million in fiscal 2000.  Total
revenues have increased in fiscal 1999  primarily  because the Company sold more
licenses for its products to new and existing customers.  The decrease in fiscal
2000 was  primarily  attributable  to decreased  sales of licenses.  The Company
believes that Year 2000 issues significantly affected the purchasing patterns of
its customers and potential  customers.  We believe that many companies expended
significant resources to correct or modify their existing software systems to be
Year 2000  compliant.  We believe that these  expenditures  resulted in reduced
funds to purchase software products such as those that Mobius offers.

         Software license revenues  increased 28.7% from $37.9 million in fiscal
1998 to $48.8  million in fiscal 1999 and  decreased  36.5% to $31.0  million in
fiscal 2000. The increase in fiscal 1999 from 1998 was primarily attributable to
increased  sales of licenses for ViewDirect  and  DocumentDirect  products.  The
decrease  in  fiscal  2000 was  primarily  attributable  to  decreased  sales of
licenses.  The Company believes that Year 2000 issues significantly affected the
purchasing  patterns of its customers and potential  customers.  We believe that
many  companies  expended  significant  resources  to  correct  or modify  their
existing  software  systems to be Year 2000  compliant.  We  believe  that these
expenditures  resulted in reduced funds to purchase  software  products such as
those that Mobius offers.

         Maintenance  and other revenues  increased  34.4% from $18.6 million in
fiscal 1998 to $25.0 million in fiscal 1999 and increased 16.8% to $29.2 million
in fiscal 2000.  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  decreased  14.3%  from $1.4
million in fiscal  1998 to $1.2  million in fiscal 1999 and  decreased  33.3% to
$1.0 million in fiscal 2000, representing 2.5%, 1.6% and 1.6%, respectively,  of
software  license revenues in those years. The costs of software license revenue
decreased in fiscal 1999 versus 1998 primarily due to increased license revenues
from products that were  developed  exclusively  by the Company and therefore do
not require royalty  payments.  The decrease in fiscal 2000 is a result of lower
license sales which were subject to royalties.

         The costs of maintenance  and other revenues  increased 38.9% from $3.6
million in fiscal  1998 to $5.0  million in fiscal 1999 and  increased  20.0% to
$6.0 million in fiscal 2000, representing 19.3%, 20.0% and 20.1%,  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 and subcontractor costs associated with post sales
assistance.

Operating Expenses.

         Sales and marketing expenses consist primarily of the cost of personnel
associated  with the  selling and  marketing  of  Mobius's  products,  including
salaries,  commissions,  performance  based bonuses and travel and entertainment
costs.  Sales and marketing costs also include the cost of branch sales offices,
marketing, promotional materials and advertising. These expenses increased 46.5%
from $28.6  million in fiscal 1998 to $41.9 million in fiscal 1999 and increased
5.7% to $44.3  million  in fiscal  2000,  representing  50.6%,  56.7% and 73.6%,
respectively,  of total  revenues in those years.  Sales and marketing  expenses
have  increased  in  fiscal  1999  primarily   because  the  Company  paid  more
commissions and bonuses for selling more software  licenses and hired additional
sales personnel.  The increase in fiscal 2000 is related to additional  spending
for the  Click-n-Done.com  products,  and increased  personnel related costs for
marketing,  partially offset by a decrease in sales commissions and bonus due to
decreased sales of software licenses.

<PAGE>

         Research and development  expenses consist primarily of personnel costs
attributable to the development of new software  products and the enhancement of
existing products.  Research and development  expenses increased 33.7% from $8.0
million in fiscal 1998 to $10.7  million in fiscal 1999 and  increased  38.3% to
$14.8   million  for  fiscal  2000,   representing   14.2%,   14.5%  and  24.6%,
respectively,  of total  revenues in those  years.  The increase in research and
development  expenses in fiscal 1999 were  primarily  attributable  to increased
staffing and  personnel-related  costs. The increase in expenses in fiscal 2000,
including the development  costs  associated with  Click-n-Done,  were primarily
attributable  to  increased   subcontractor   costs,   increased   staffing  and
personnel-related costs.

         General and administrative  expenses consist of personnel costs related
to  general   management,   accounting,   human  resources,   network  services,
administration  and associated  overhead costs, as well as fees for professional
services.  General and administrative expenses increased 44.6% from $6.5 million
in fiscal  1998 to $9.4  million  in fiscal  1999 and  increased  28.7% to $12.1
million in fiscal 2000,  representing 11.6%, 12.7% and 20.1%,  respectively,  of
total  revenues in those  years.  The  increase  in general  and  administrative
expenses in fiscal 1999 were primarily  attributable  to increased  professional
service fees,  including  $600,000 in legal and professional fees relating to an
acquisition that was not completed, and increased staffing and personnel-related
cost.  The increase in expenses in fiscal 2000 were  primarily  attributable  to
additional staffing and personnel-related  costs,  including costs to administer
Click-N-Done.com   and  depreciation  of  improvements  made  to  the  Company's
infrastructure.

         Included  within  sales and  marketing,  research and  development  and
general and administrative expense is stock compensation expense associated with
the granting of stock  options to employees  immediately  prior to the Company's
IPO for the year  ended  June 30,  1998,  1999  and 2000  aggregating  $642,000,
$1,046,000  and  $537,000,   respectively.   Prior  to  June  30,  2000,   stock
compensation  expense was  presented  as a separate  line item within  operating
expense. See note (10) to Notes to Consolidated Financial Statements.

License  and  other  interest  income;   interest   expense;   foreign  currency
transaction gains (losses).

License  and other  interest  income was $1.9  million,  $2.9  million  and $2.9
million in fiscal 1998, 1999, and 2000, respectively.  The increase between 1998
and 1999 was primarily due to the increase in earnings on higher invested
balances.  During fiscal 1998, 1999 and 2000 interest expense was insignificant.
Foreign currency transaction losses were $15,000, $191,000 and a gain $44,000 in
fiscal 1998, 1999 and 2000,  respectively.  These transactions are the result of
foreign  currency  fluctuations  in the foreign  jurisdictions  within which the
Company does business.

Investment Impairment.

An  impairment  loss of $2.2 million was recorded in fiscal 2000 relating to the
Home  Account  Network  investment.  See  Investments  included in  Management's
Discussion  and Analysis of Financial  Condition and Results of  Operations  and
note (5) to Notes to Consolidated Financial Statements.

Provision for Income Taxes.

The provision for income taxes was $5.5 million in fiscal 1998,  $4.0 million in
fiscal  1999 and a benefit  of $5.4  million in fiscal  2000.  The  Company  had
effective tax rates of  approximately  54.1%,  48.6% and (31.3)% in fiscal years
1998,  1999 and 2000,  respectively.  The  difference  between the 1998 and 1999
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  change in the  effective  tax rate  from 1999 to 2000  primarily
reflects  a  statutory  benefit  for the loss in the  United  States  offset  by
limitations  on the tax benefit  which can be taken from losses in the Company's
foreign subsidiaries.

<PAGE>

Selected Quarterly Operating Results

         The  following  table  presents  certain   consolidated   statement  of
operations data for the eight fiscal quarters in the period ended June 30, 2000.
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.
<TABLE>
<CAPTION>

                                                                    Quarters Ended
                                           Sept. 30,  Dec. 31,  March 31, June 30, Sept. 30,  Dec. 31,  March 31, June 30,
                                              1998      1998     1999       1999      1999       1999      2000      2000
                                              ----      ----     ----       ----      ----       ----      ----      ----
Revenues:
<S>                                        <C>       <C>       <C>       <C>        <C>       <C>       <C>       <C>
  Software license revenues                $10,169   $13,253   $11,223   $14,166    $ 6,430   $ 7,256   $ 6,522   $10,810
  Maintenance and other revenues             5,587     5,852     6,660     6,926      6,953     7,089     7,478     7,667
                                           -------   -------   -------   -------    -------   -------   -------   -------
         Total revenues                     15,756    19,105    17,883    21,092     13,383    14,345    14,000    18,477
Costs of revenues:
  Software license revenues                    311       232       282       398        185       305       109       347
  Maintenance and other revenues             1,304     1,174     1,209     1,324      1,634     1,340     1,497     1,599
                                           -------   -------   -------   -------    -------   -------   -------   -------
         Total costs of revenues             1,615     1,406     1,491     1,722      1,819     1,645     1,606     1,946
                                           -------   -------   -------   -------    -------   -------   -------   -------
Gross profit                                14,141    17,699    16,392    19,370     11,564    12,700    12,394    16,531
Operating expenses (1):
  Sales and marketing                        8,597     9,973     9,839    13,468      9,868    10,102    11,388    12,932
  Research and development                   2,629     2,764     2,676     2,605      2,991     3,282     4,134     4,415
  General and administrative                 1,668     2,340     2,110     3,291      2,970     2,982     3,033     3,102
                                           -------   -------   -------   -------    -------   -------   -------   -------
         Total operating expenses           12,894    15,077    14,625    19,364     15,829    16,366    18,555    20,449
                                           -------   -------   -------   -------    -------   -------   -------   -------
Income (loss) from operations                1,247     2,622     1,767         6     (4,265)   (3,665)   (6,161)   (3,918)
License and other interest income              672       766       700       782        726       759       717       729
Interest expense                                (7)       (4)       (4)       (1)        (1)       (1)       (1)      (56)
Foreign currency transaction gains(losses)   (33)        (60)       (9)      (89)        46         2        (8)        4
Investment impairment                           --        --        --        --       (591)     (821)     (527)     (281)
                                           -------   -------   -------   -------    --------  --------  -------   --------
Income (loss) before income taxes            1,879     3,324     2,454       698     (4,085)   (3,726)   (5,980)   (3,522)
Provision (benefit) for income taxes           988     1,595     1,174       300     (1,242)   (1,202)   (1,875)   (1,098)
                                           -------   -------   -------   -------    -------   --------  --------  --------
Net income (loss) available to common stock  $ 891   $ 1,729   $ 1,280   $   398    $(2,843)  $(2,524)  $(4,105)  $(2,424)
                                             =====   =======   =======   =======    =======   =======   =======   =======
Basic earnings (loss) per share              $0.05     $0.10     $0.07     $0.02     $(0.16)   $(0.14)   $(0.23)   $(0.13)
                                             =====    =====    =======     =====     ======    ======    ======    ======
Diluted earnings per share                   $0.05     $0.09     $0.07     $0.02     $(0.16)   $(0.14)   $(0.23)   $(0.13)
                                             =====     =====     =====     =====     ======    ======    ======    ======
As a Percentage of Total Revenues
Revenues:
 Software license revenues                    64.5%     69.4%     62.8%     67.2%      48.0%     50.6%     46.6%     58.5%
Maintenance and other revenues                35.5      30.6      37.2      32.8       52.0      49.4      53.4      41.5
                                             -----     -----     -----     -----      -----     -----     -----     -----
  Total revenues                             100.0     100.0     100.0     100.0      100.0     100.0     100.0      100.0
Costs of revenues:
  Software license revenues                    2.0       1.2       1.6       1.9        1.4       2.1       0.8        1.9
  Maintenance and other revenues               8.3       6.2       6.7       6.3       12.2       9.4      10.7        8.7
                                             -----     -----     -----     -----      -----     -----     -----     ------
    Total costs of revenues                   10.3       7.4       8.3       8.2       13.6      11.5      11.5       10.5
                                             -----     -----     -----     -----      -----     -----     -----     ------
Gross profit                                  89.7      92.6      91.7      91.8       86.4      88.5      88.5       89.5
Operating expenses (1):
  Sales and marketing                         54.6      52.2      55.0      63.9       73.7      70.4      81.3       70.0
  Research and development                    16.7      14.5      15.0      12.4       22.3      22.9      29.5       23.9
  General and administrative                  10.6      12.3      11.8      15.6       22.1      20.8      21.7       16.8

         Total operating expenses             81.8      78.9      81.8      91.8      118.2     114.1     132.5      110.7
                                             -----     -----     -----     -----      -----     -----     -----      -----
Income (loss) from operations                  7.9      13.7       9.9        --      (31.8)    (25.6)    (44.0)     (21.2)
License and other interest income              4.0       3.7       3.8       3.7        5.4       5.3       5.1        3.9
Interest expense                                --        --        --        --         --        --        --       (0.2)
Foreign currency transaction gains(losses)      --        --        --      (0.4)       0.3        --        --         --
Investment impairment                           --        --        --        --       (4.4)     (5.7)     (3.8)      (1.5)
                                             -----     -----     -----     -----      -----     -----     -----      -----
Income (loss) before income taxes             11.9      17.4      13.7       3.3      (30.5)    (26.0)    (42.7)     (19.0)
Provision (benefit) for income taxes           6.2       8.3       6.5       1.4       (9.3)     (8.4)    (13.4)      (5.9)
                                             -----     -----     -----     -----      -----     -----     -----      -----
Net income (loss) available to common stock    5.7%      9.1%      7.2%      1.9%     (21.2)%   (17.6)%   (29.3)%    (13.1)%
                                             =====     =====     =====     =====      =====     =====    ======      =====
</TABLE>

(1)  Included  within sales and marketing,  research and development and general
     and administrative  expense is stock  compensation  expense associated with
     the  granting  of  stock  options  to  employees  immediately  prior to the
     Company's  IPO. Such stock  compensation  expense for the 8 quarters  ended
     June  30,2000  was  $323,000,   $343,000,   $213,000,  $167,000,  $166,000,
     $167,000,  $113,000,  $91,000  respectively.  Prior to June 30, 2000, stock
     compensation expense was presented as a separate line item within operating
     expense. See note 10 to Notes to Consolidated Financial Statements.

<PAGE>

         The  Company's  quarterly  revenues and  operating  results have varied
significantly in the past and are likely to vary  substantially  from quarter to
quarter in the future.  Quarterly revenues and operating results are expected to
fluctuate as a result of a variety of factors,  including  lengthy product sales
cycles,  changes in the level of operating  expenses,  demand for the  Company's
products,  introductions  of new products and product  enhancements by Mobius or
Mobius's competitors, changes in customer budgets, competitive conditions in the
industry and general domestic and  international  economic  conditions.  License
revenues  typically peak during the fourth fiscal quarter and to a lesser extent
in the  second  fiscal  quarter.  These  fluctuations  are caused  primarily  by
customer  purchasing  patterns and the Company's sales force incentive  programs
which recognize and reward sales personnel on the basis of achievement of annual
and other periodic performance quotas, as well as the factors described above.

Liquidity and Capital Resources

         Since its  inception,  Mobius  has funded  its  operations  principally
through cash flows from operating activities and, to a lesser extent,  equity or
bank  financings.  In April 1998,  the  Company  completed  its  initial  public
offering,  which  generated net proceeds of $33.0 million.  As of June 30, 2000,
Mobius had cash and cash  equivalents  of $21.4  million,  a  decrease  of $12.1
million from the $33.5  million held at June 30, 1999.  In addition,  Mobius had
marketable  securities of $9.4 million and $10.3 million as of June 30, 1999 and
June 30, 2000, respectively.

         Net cash provided by operating  activities  was $5.2 million,  and $6.8
million  in fiscal  1998 and  1999,  respectively.  Net cash  used by  operating
activities  was $4.0 million in fiscal 2000.  Mobius's  primary  sources of cash
during 1998 and 1999 was its net income  supported  by increases in its deferred
income taxes and decreases in items  requiring  working  capital.  During fiscal
2000,  Mobius' use of cash in operating  activities was primarily  caused by its
net loss and an  increase  in  accounts  receivable  offset  by  collections  on
software license installments and growth in deferred revenues.  Software license
installments, which decreased 23.9% from $23.4 million at June 30, 1999 to $17.8
million at end of fiscal 2000, 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.  Net  accounts  receivable
increased 18.3% from $12.6 million at June 30, 1999 to $14.9 million at June 30,
2000,  largely  as a result of the  timing of  license  sales  and  billings  of
maintenance renewals. Deferred revenue increased 8.6% from $17.4 million at June
30,  1999 to $18.9  million  at June  30,  2000 as a result  of an  increase  in
unrecognized  license  revenue.  Deferred  revenue  primarily  consists  of  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.

         Net cash used in investing  activities was $1.8 million,  $15.4 million
and $8.6  million in fiscal  1998,  1999 and 2000,  respectively.  For the years
ended June 30, 1998, 1999 and 2000, cash of $1.8 million,  $4.5 million and $6.2
million was used for the purchase of computer equipment,  furniture and fixtures
and leasehold  improvements,  respectively.  During fiscal 2000, the Company has
undertaken  significant  capital  projects,  including  the  installation  of an
automated sales force computer system, implementation of a new accounting system
and expansion of the Rye headquarters building.

         In addition, in fiscal 2000, $3.5 million of marketable securities were
purchased and $2.3 million of marketable  securities were sold. Mobius also made
investments  of $750,000  and $500,000 in Home  Account  Network and  Flooz.com,
respectively.

         Net cash provided by financing  activities  was $33.1 million in fiscal
1998,  primarily due to the Company's IPO of 2,500,000 shares of common stock at
a price of

<PAGE>

$14.50 per share.  In fiscal  1999,  cash  provided by financing  activities  of
$227,000 was primarily due to cash received from the exercise of stock  options.
This year,  cash provided by financing  activities of $327,000 was primarily due
to cash received from the exercise of stock options and sales of Company  common
stock through the employee stock purchase plan.

Bad Debt Reserves

         Accounts  receivable  reserves are primarily  calculated by identifying
problem  accounts and in  recognition  that some  customers  decide to cancel or
reduce the number of products  covered by  maintenance  arrangements  upon their
anniversary  but do not always notify Mobius in sufficient  time to prevent some
portion of the annual  maintenance  billings from being recognized.  Mobius also
has a small reserve to absorb losses based upon  historical  experience that may
result from current receivables. Mobius specifically identifies problem accounts
by the age of the  receivable  and through  discussions  with the  customer  and
Mobius sales  representatives.  Based on that information,  Mobius exercises its
best judgment as to what portion of the accounts  receivable  balance requires a
reserve.  At June 30,  1999 and June 30, 2000  approximately  83% and 78% of the
total  accounts  receivable  reserve  balances  related  to  specific  accounts,
respectively.  To the extent  that an account  for which a specific  reserve was
provided is subsequently collected, Mobius reduces the reserves in the period of
collection.

         Software license installment reserves have consistently been determined
as a  percentage  of software  license  installments  to provide  for  potential
bankruptcies  and  contractual  disputes.  At June 30,  1999 and June 30,  2000,
software license installments were approximately $24.2 million and $18.5 million
of which 85% and 81% were customer balances greater than $100,000, respectively.
Customer balances for software license  installments tend to be large due to the
selling price of Mobius'  products.  Software  license  installment and accounts
receivable reserves were $1.7 million at June 30, 1999 and 2000.

Investments

         Mobius investment decisions are divided into two categories, since they
are  managed  differently;   speculative  or  strategic  investments,  and  cash
management.  The latter is done by two fund managers,  Goldman Sachs and Bank of
Boston.  These firms follow policy guidelines approved by our Board of Directors
and  monitored  by the  Company's  finance  staff.  Longer term  speculative  or
strategic investment decisions are made by the Board of Directors based upon the
recommendation  of management  regarding the  investment  potential or strategic
fit.  These  investments  are  reviewed by the Board of Directors on a quarterly
basis.

         In June 1999, the Company  invested  $1,501,000 in Home Account Network
("HAN"), a privately-held,  information  technology company providing processing
and Internet  outsourcing to financial services  companies.  During fiscal 2000,
Mobius  provided  an  additional  $750,000  to HAN in short term loans that were
converted  to  preferred  stock in May 2000.  There are several  reasons for the
investment in Home Account  Network  ("HAN").  First,  we believe that they have
experienced  management  and  a  significant  market  opportunity  in a  related
industry  sector.  Second,  we believe that, if the venture was  successful,  it
would provide substantial return to Mobius shareholders.

         Mobius holds a minority  ownership  position,  which,  if the preferred
interest is converted to common  stock,  would be less than 5%.  Mobius does not
sit on the Board of Directors,  nor influence day to day  operations of HAN. The
short-term  loans accrued  interest at an annual rate of 10% for the first month
and 12% each month  until the loans were  converted  to  preferred  stock in May
2000.

         Mobius  regularly  reviews the  assumptions  underlying  the  operating
performance  and  cash  flow  forecasts  of  HAN  to  assess  the   investment's
recoverability.  During the most recent  quarter,  HAN continued to consume cash
and Mobius  concluded  that an other than  temporary  impairment  loss occurred.
Mobius  believes  that the  amount  of cash  consumed  by HAN is an  appropriate
indicator  for measuring the  impairment  of this  investment  since (1) HAN had
consumed  most of the cash  provided  through  June 30,  2000,  (2) there was no
equity below these  financing  rounds and (3) there is no obligation

<PAGE>

for any of the investors to provide additional capital.  Based on these factors,
we concluded  that the  investment had been impaired and that the impairment was
other than temporary.

         For the year ended June 30, 2000, a $2,220,000 impairment loss has been
recorded.  At June 30, 2000, the remaining  carrying value of the HAN investment
is $31,000 and is included within other non-current assets.

         We will continue to evaluate the recovery of our  remaining  investment
in HAN and expect that we will continue to use the amount of cash consumed as an
indicator of current value. To the extent that HAN continues to consume cash and
other  information  suggests  that the  impairment is other than  temporary,  we
expect to continue to write down the investment.

         In January 2000, the Company made a strategic investment of $500,000 in
Flooz.com, a startup Internet company. Flooz is online gift currency that can be
sent to a recipient  over the Internet.  The Flooz gift currency can be redeemed
by the recipient at Flooz.com participating merchants.  This is an investment in
preferred  stock,  which  converts  into  common  stock  if and  when  Flooz.com
completes  an  initial  public  offering.  Mobius  holds  a  minority  ownership
position,  which, if the preferred converted to common stock, would be less than
5%.  Mobius does not sit on the Board of  Directors,  nor  influence  day to day
operations of Flooz.com. Mobius's wholly owned subsidiary,  Click-n-Done.com has
signed a partnership  agreement  with  Flooz.com to offer Flooz as an innovative
means  of  rewarding  consumers,   prospective  partners,  clients  and  seminar
attendees.  Distribution  of  Flooz  will  take  place  via a  unique  Web-based
interface created by Flooz.com.

         In June 2000, Robert H. Levitan,  Chief Executive Officer of Flooz.com,
became a member of the Company's Board of Directors.

         Mobius  regularly  reviews the  assumptions  underlying  the  operating
performance  and cash flow  forecasts of  Flooz.com  to assess the  investment's
recoverability. At June 30, 2000, the investment is carried at its original cost
of $500,000 within other non-current assets.

Other Matters

         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 years ended June 30, 1999 and 2000,  the Company  recognized
$756,000  and  $673,000  of  license   revenue  and  $795,000  and  $302,000  of
maintenance revenue,  respectively  related to this arrangement.  Future license
revenue will be $112,500 each quarter thereafter through December 31, 2003.

         In December 1999,  Mobius announced the development of its new suite of
Internet-based   bill   and   presentment   products,    from   its   subsidiary
Click-n-Done.com.  Click-n-Done.com's  products are being designed to seamlessly
and  securely  retrieve,  consolidate,  and archive  bills and  statements  on a
consumer or business'  desktop,  while preserving the bill or statement  issuers
total control of their  one-to-one  relationship  with their customer.  Mobius's
expenses for  Click-n-Done.com  were  approximately $8.2 million in fiscal 2000.
Through June 30, 2000, Mobius has not generated any revenue from the sale of its
Click-n-Done.com  products.  Mobius  anticipates  that it will continue to incur
additional costs to bring Click-n-Done.com's products to market.

In compliance with the lease of the Company's corporate headquarters in Rye, NY,
the  landlord  holds a letter of credit with Silicon  Valley Bank for  $275,000.
This letter of credit is secured by a certificate of deposit.

                  The Company  believes that its existing cash balances and cash
flows expected from future  operations  will be sufficient to meet the Company's
capital requirements for at least 12 months.

<PAGE>


Recent Accounting Pronouncements

                  In June 1998, the Financial  Accounting Standards Board (FASB)
issued Statement of Financial  Accounting  Standard (SFAS) No. 133,  "Accounting
for Derivative  Instruments and Hedging Activities" which establishes accounting
and  reporting  standards  for  derivative  instruments,   including  derivative
instruments  embedded in other contracts,  and for hedging activities.  SFAS No.
133,  as  amended  by SFAS No. 137 and No.  138 is  effective  for fiscal  years
beginning   after  June  15,  2000.   These   statements  are  not  expected  to
significantly effect Mobius, as Mobius does not have any significant  derivative
instruments or hedging activities.

         Statement of Position (SOP) 98-9,  "Modification of SOP 97-2,  Software
Revenue Recognition,  With Respect to Certain  Transactions",  which amended SOP
97-2 and  clarified the  specification  of what was  considered  vendor-specific
evidence  of  fair  value  for  the  various  elements  in  a  multiple  element
arrangement  was  adopted  by  Mobius  on  July 1,  1999.  The  adoption  of the
provisions of this statement did not have a material impact on Mobius' operating
results, financial position or cash flows.

         On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No.
101, Revenue  Recognition in Financial  Statements (SAB 101). SAB 101 as amended
is  required  to be adopted no later  than  April 1, 2001.  Mobius is  currently
performing an analysis of SAB 101, as amended,  to determine the impact, if any,
on its future operating results, financial position or cash flows.

         FASB  Interpretation  No.  44,  "Accounting  for  Certain  Transactions
Involving  Stock  Compensation"  (FIN 44)  provides  guidance  for  applying APB
Opinion  No.  25,  "Accounting  for Stock  Issued to  Employees".  With  certain
exceptions, FIN 44 applies prospectively to new awards, exchanges of awards in a
business combination, modifications to outstanding awards and changes in grantee
status on or after July 1, 2000. Mobius does not believe that the implementation
of FIN 44 will  have a  significant  effect  on its  results  of  operations  or
financial position.

Other  pronouncements  issued  by the  FASB or  other  authoritative  accounting
standards  groups with future  effective  dates are either not applicable or are
not significant to the financial statements of Mobius.


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Mobius investment  portfolio is subject to interest rate sensitivity.  The
primary  objective of Mobius'  investment  activities is to preserve  principal,
while at the same time  maximizing the interest  income,  without  significantly
increasing  risk. Some of the marketable  securities that Mobius has invested in
may be subject to market rate interest  risk.  This means a change in prevailing
interest  rates may cause the market  value of the  security to  fluctuate.  For
example,  if Mobius holds a security that was issued with a fixed  interest rate
at the  then-prevailing  rates and the prevailing interest rates later rise, the
market value of the marketable security will probably decline. At June 30, 2000,
Mobius primarily held debt securities.

      Mobius may be subject to foreign  currency  fluctuations  in  relation  to
accounts  receivable  and accounts  payable that may be denominated in a foreign
currency other than the functional currency in certain foreign jurisdictions. To
the extent that such foreign currency  transactions are negatively or positively
effected by foreign currency  fluctuations,  foreign currency transaction losses
or gains would be recognized.  We do not use derivative financial investments to
limit our foreign exchange expense.

<PAGE>

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 30, 2000
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 30, 2000
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 30, 2000
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 30, 2000
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, 1999 and 2000
Consolidated Statements of Operations for the Years Ended June 30, 1998,
     1999 and 2000
Consolidated Statements of Stockholders' Equity for the Years Ended
     June 30, 1998, 1999, and 2000
Consolidated Statements of Cash Flows for the Years Ended June 30,
     1998, 1999, and 2000
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  schedules are the  responsibility  of the Company's  management.  Our
responsibility  is  to  express  an  opinion  on  these  consolidated  financial
statements and financial statement schedule based on our audits.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  Those standards  require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the  financial  position of Mobius
Management  Systems,  Inc. and subsidiaries as of June 30, 1999 and 2000 and the
results  of their  operations  and their cash flows for each of the years in the
three-year period ended June 30, 2000, in conformity with accounting  principles
generally  accepted in the United States of America.  Also, in our opinion,  the
related financial statement  schedule,  when considered in relation to the basic
consolidated  financial  statements taken as a whole,  presents  fairly,  in all
material respects the information set forth therein.


                                                                     KPMG LLP

August 9, 2000
Stamford, CT

<PAGE>


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

<TABLE>
<CAPTION>
                                                                        June 30,
                                                                   1999          2000
                                                                   ----          ----
ASSETS

Current assets:
<S>                                                        <C>             <C>
     Cash and cash equivalents                            $     33,546    $     21,380
     Marketable securities, at market value                      9,362          10,287
     Accounts receivable, net of allowance for doubtful
         accounts of $860 and $1,084, respectively              12,631          14,857
     Software license installments, current portion             10,603           9,836
     Other current assets                                        2,281           3,804
                                                          ------------    ------------
              Total current assets                              68,423          60,164

Software license installments, non-current portion,
     net of allowance for doubtful accounts of $812
     and $643, respectively                                     12,778           7,992
Investment, at cost                                              1,501             531
Property and equipment, net                                      6,039           9,295
Other assets                                                       460             411
                                                          ------------    ------------
              Total assets                                $     89,201    $     78,393
                                                          ============    ============
LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued expenses                $     13,220    $     15,046
     Deferred revenue                                           13,548          16,488
     Deferred income taxes                                       3,293           2,570
                                                          ------------    ------------
              Total current liabilities                         30,061          34,104

Deferred revenue                                                 3,811           2,374
Deferred income taxes                                            3,801           1,324
                                                          ------------    ------------
              Total liabilities                                 37,673          37,802
                                                          ------------    ------------
Stockholders' equity:
     Common  stock $.0001 par  value; authorized
         40,000,000    shares;  issued 21,996,150 and
         22,218,473 shares, respectively;
         outstanding 17,905,150 and 18,114,000
         shares, respectively                                        2               2
     Additional paid-in capital                                 48,409          48,831
     Retained earnings                                          16,497           4,601
     Deferred stock compensation                                  (982)           (445)
     Accumulated other comprehensive income                       (398)           (313)
     Treasury stock, at cost, 4,091,000
     and 4,104,473 shares, respectively                        (12,000)        (12,085)
                                                          ------------    ------------
              Total stockholders' equity                        51,528          40,591
                                                          ------------    ------------

Total liabilities and stockholders' equity                $     89,201    $     78,393
                                                          ============    ============
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

                         MOBIUS MANAGEMENT SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (in thousands, except per share data)
<TABLE>
<CAPTION>

                                                                    Years Ended June 30,
                                                                1998          1999          2000
                                                                ----          ----          ----
Revenues:
<S>                                                           <C>           <C>            <C>
     Software license revenues                                $37,929       $48,811        $31,018
     Maintenance and other revenues                            18,598        25,025         29,187
                                                              -------       -------       --------
         Total revenues                                        56,527        73,836         60,205
                                                              -------       -------       --------
Costs of revenues:
     Software license revenues                                  1,443         1,223            946
     Maintenance and other revenues                             3,593         5,011          6,070
                                                              -------       -------       --------
         Total costs of revenues                                5,036         6,234          7,016
                                                              -------       -------       --------

Gross profit                                                   51,491        67,602         53,189
                                                              -------       -------       --------
Operating expenses:
     Sales and marketing                                       28,613        41,877         44,289
     Research and development                                   8,013        10,674         14,823
     General and administrative                                 6,542         9,409         12,086
                                                              -------       -------       --------
         Total operating expenses                              43,168        61,960         71,198
                                                              -------       -------       --------

Income (loss) from operations                                   8,323         5,642        (18,009)

License and other interest income                               1,871         2,920          2,930
Interest expense                                                  (14)          (16)           (58)
Foreign currency transaction losses                               (15)         (191)            44
Investment impairment                                              --            --         (2,220)
                                                              -------       -------       ---------
Income (loss) before income taxes                              10,165         8,355        (17,313)

Provision (benefit)for income taxes                             5,500         4,057         (5,417)
Accretion on Preferred Stock                                      102            --             --
                                                              -------       -------       --------
Net income (loss) available to
     common stock                                             $ 4,563       $ 4,298       $(11,896)
                                                              =======       =======       ========

Basic earnings (loss) per share                               $  0.38        $ 0.24        $ (0.66)
Basic weighted average shares
     outstanding                                               12,156        17,813         17,988
Diluted earnings (loss) per share                             $  0.27      $   0.23        $ (0.66)
Diluted weighted average
     shares outstanding                                        16,738        18,964         17,988
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

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


                                                                Additional
                                         Common     Stock        Paid-in      Retained   Deferred
                                         Shares     Amount       Capital      Earnings   Compensation
                                         ------     ------       -------      --------   ------------
<S>                                        <C>      <C>         <C>            <C>      <C>
Balance at June 30, 1997                   10,909   $      1   $     --     $ 7,636    $     --
Net income                                     --         --         --       4,563          --
Change in other comprehensive income           --         --         --          --          --

  Comprehensive income                         --         --         --          --          --
Issuance of common stock                    2,500         --     33,034          --          --
Conversion of Series A Preferred Stock      4,091          1     11,999          --          --
Conversion of Class A Common Stock             80         --        100          --          --
Stock options exercised                       115         --        143          --          --
Deferred compensation                          --         --      2,718          --      (2,718)
Change in deferred compensation                --         --         --          --         642
                                         --------   --------   --------    --------    --------
Balance at June 30, 1998                   17,695          2     47,994      12,199      (2,076)
Net income                                     --         --         --       4,298          --
  Change in other comprehensive income         --         --         --          --          --

Comprehensive income                           --         --         --          --          --
Stock options exercised                       210         --        463          --          --
Change in deferred compensation                --         --        (48)         --       1,094
                                         --------   --------   --------    --------    --------
Balance at June 30, 1999                   17,905          2     48,409      16,497        (982)
Net loss                                       --         --         --     (11,896)         --
Change in other comprehensive income           --         --         --          --          --

  Comprehensive loss                           --         --         --          --          --
Stock options exercised                       155         --        252          --          --
Stock purchase plan shares issued              54         --        170          --          --
Change in deferred compensation                --         --         --          --         537
                                         --------   --------   --------    --------    --------
Balance at June 30, 2000                   18,114   $      2    $48,831    $  4,601    $   (445)
                                         ========   ========   ========    ========    ========


                                         Accumulated                                Total
                                           Other        Treasury     Treasury    Stockholders'
                                        Comprehensive    Stock        Stock        (Deficit)
                                           Income        Shares       Amount        Equity
                                           ------        ------      ------        ------
                                          <C>           <C>         <C>          <C>

Balance at June 30, 1997                  $    19       4,091      $(12,000)      $(4,344)
Net income                                     --          --            --         4,563
Change in other comprehensive income          (16)         --            --           (16)

                                         --------    --------      --------      --------
  Comprehensive income                         --          --            --         4,547
Issuance of common stock                       --          --            --        33,034
Conversion of Series A Preferred Stock         --          --            --        12,000
Conversion of Class A Common Stock             --          --            --           100
Stock options exercised                        --          --            --           143
Deferred compensation                          --          --            --            --
Change in deferred compensation                --          --            --           642
                                         --------    --------      --------      --------
Balance at June 30, 1998                        3       4,091       (12,000)       46,122
Net income                                     --          --            --         4,298
  Change in other comprehensive income       (401)         --            --          (401)

                                                                   --------      --------
Comprehensive income                           --          --            --         3,897
Stock options exercised                        --          --            --           463
Change in deferred compensation                --          --            --         1,046
                                         --------    --------      --------      --------
Balance at June 30, 1999                     (398)      4,091       (12,000)       51,528
Net loss                                       --          --            --       (11,896)
Change in other comprehensive income           85          --            --            85
                                                                                 --------
  Comprehensive loss                           --          --            --       (11,811)
Stock options exercised                        --          13           (85)          167
Stock purchase plan shares issued              --          --            --           170
Change in deferred compensation                --          --            --           537
                                         --------    --------      --------      --------
Balance at June 30, 2000                 $   (313)   $  4,104      $(12,085)     $ 40,591
                                         ========    ========      ========      ========
</TABLE>

          See accompanying notes to consolidated financial statements.

<PAGE>

<TABLE>
<CAPTION>

                         MOBIUS MANAGEMENT SYSTEMS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)

                                                                             Years Ended June 30,
                                                                       1998           1999           2000
                                                                       ----           ----           ----
Cash flows provided by (used in) operating activities:
<S>                                                                   <C>           <C>          <C>
  Net income (loss)                                                   $ 4,563       $ 4,298      $(11,896)
                                                                      -------       -------      ---------
Adjustments to reconcile net
  income (loss) to net cash provided
  by (used in)operating  activities:
   Deferred income taxes                                                2,207         1,916        (3,200)
   Depreciation and amortization                                          760         1,372         3,029
   Stock compensation expense                                             642         1,046           537
   Accretion of Preferred Stock                                           102            --            --
   Impairment of investment                                                --            --         2,220
   Loss on disposal of fixed assets                                        78            --            22
   Change in operating assets
     and liabilities:
     Accounts receivable, net                                          (2,940)       (1,898)       (2,226)
     Software license installments                                     (8,530)       (2,365)        5,553
     Other assets                                                      (1,236)         (644)       (1,430)
     Accounts payable and accrued expenses                              2,878         3,749         1,921
     Other liabilities                                                    835          (969)           --
     Deferred revenue                                                   5,869           335         1,503
                                                                      -------       -------         -----
         Total adjustments                                                665         2,542         7,929
                                                                      -------       -------         -----
         Net cash provided by (used in) operating activities            5,228         6,840        (3,967)
                                                                      -------       --------       -------
Cash flows used in investing activities:
   Purchase of marketable securities                                       --        (9,403)       (3,535)
   Purchase of investments                                                 --        (1,501)       (1,250)
   Marketable securities                                                   --            --         2,330
   Capital expenditures                                                (1,780)       (4,479)       (6,152)
                                                                       ------       -------        -------
         Net cash used in investing activities                         (1,780)      (15,383)       (8,607)
                                                                       ------       -------        -------
Cash flows provided by financing activities:
   Cash received from sale of common stock                             33,713            --           170
   Payments relating to sale of common stock                             (679)           --            --

   Cash received from exercise of stock options                           143           263           193
   Payments on capital lease obligations                                  (59)          (36)          (36)
                                                                       ------       -------       -------
         Net cash provided by financing activities                     33,118           227           327
                                                                       ------       -------       -------
Effect of exchange rate changes on
   cash and cash equivalents                                              (16)         (360)           81
                                                                       ------       -------       -------
Net change in cash and cash equivalents                                36,550        (8,676)      (12,166)
Cash and cash equivalents at beginning of year                          5,672        42,222        33,546
                                                                      -----         -------       -------
Cash and cash equivalents at end of year                              $42,222       $33,546       $21,380
                                                                      =======       ========      =======
Supplemental disclosure of cash flow
   information:
   Cash paid during the period for:
     Interest                                                         $    14        $   16         $  58
     Income taxes (refunds), net                                        2,419         3,304        (3,119)
</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
States, United Kingdom, France, Germany, Italy, Sweden, Switzerland,  Australia,
Japan and the Benelux.

(2)  Significant Accounting Policies

  Principles of consolidation

         The  Company  and  its  subsidiaries  are  consolidated  for  financial
statement  purposes  after  the  elimination  of  all  significant  intercompany
transactions.

  Revenue recognition

         License and  maintenance  revenue are  recognized  in  accordance  with
Statement of Position 97-2, "Software Revenue Recognition" ("SOP 97-2"). Revenue
from  software  license  contracts  includes  license  fees related to long-term
licenses,  typically 5 or 15 years, and fees for term license  contracts,  which
are generally 3 to 5 years.  Revenue from executed software license contracts is
recognized  upon  delivery  of the  software to the  customer if no  significant
vendor  obligations  remain  and  collection  of  the  resulting  receivable  is
probable. Software license revenue includes the present value of future payments
under   non-cancelable   license  arrangements  which  provide  for  payment  in
installments generally over periods from 3 to 5 years. A portion of the discount
is recognized as interest income over the term of the arrangement.

         SOP 97-2 generally requires revenue earned on multiple element software
arrangements,  such as additional  software products,  upgrades or enhancements,
rights to  exchange  or return  software,  maintenance  or  services,  including
elements deliverable only on a  when-and-if-available  basis, to be allocated to
the various elements of such sale based on  "vendor-specific  objective evidence
of fair values"  allocable to each such element.  If sufficient  vendor-specific
objective  evidence of fair market values does not exist,  revenue from the sale
is deferred until such sufficient  evidence  exists,  or until all elements have
satisfied the requirements for revenue recognition.

         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, 1999 and
2000,  cash  equivalents  were comprised of overnight  deposits and money market
investments with financial institutions.

  Marketable Securities

         Marketable securities are categorized as available-for-sale securities,
as defined by Statement of Financial  Accounting  Standards No. 115,  Accounting
for Certain  Investments  in Debt and Equity  Securities,  and carried at market
value.  Unrealized  holding  gains and losses are reflected as a net amount in a
separate  component of stockholders'  equity until realized.  For the purpose of
computing  realized  gains  and  losses,   cost  is  identified  on  a  specific
identification  basis.  Realized  gains and losses for the years  ended June 30,
1998,  1999  and  2000  are  insignificant.  As of June  30,  1999  and 2000 the
unamortized  investment  premium,  and unrealized  holding gains and losses were
also 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

         The Company calculates  earnings per share in accordance with Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share". SFAS No.
128 stipulates that the calculation of earnings per share (EPS) be shown for all
historical  periods  as Basic EPS and  Diluted  EPS.  Basic EPS is  computed  by
dividing income available to common  shareholders by the weighted average number
of common shares  outstanding  during the period. The computation of Diluted EPS
is similar to the  computation  of Basic EPS except that it gives  effect to all
potentially  dilutive  instruments that were outstanding during the period. Such
dilutive instruments include stock options and in 1998, 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,
                                                    1999                                            2000
                                ------------   -------------   ------------     -------------  ------------  -----------
                                                                                  Net Income
                                 Net Income        Shares       Per Share           (loss)         Shares      Per Share
                                 (Numerator)   (Denominator)     Amount          (Numerator)   (Denominator)     Amount
<S>                                <C>            <C>            <C>             <C>             <C>            <C>
Basic EPS:
Net income (loss)                  $4,298                                         $(11,896)
                                   ======                                         =========
Weighted average shares
 outstanding                                       17,813                                          17,988
Basic EPS                                                         $0.24                                         $(0.66)
                                                                  =====                                         =======
Diluted EPS:
Net income (loss)                  $4,298                                         $(11,896)
                                   ======                                         =========

Dilutive effect of
 stock options                                     1,151
                                                  ------
Diluted EPS                                       18,964          $0.23                            17,988       $(0.66)
                                                  ======          =====                                         =======
</TABLE>

<PAGE>

                                                         Year Ended
                                                       June 30, 1998
                                        -----------    -------------  ----------
                                         Net Income       Shares       Per Share
                                        (Numerator)    (Denominator)    Amount
            Basic EPS:
            Net income                     $4,563
                                           ======
            Weighted average shares
             outstanding                                  12,156
            Basic EPS                                                     $0.38
                                                                          =====
            Diluted EPS:
            Net income                     $4,563
                                           ======
            Dilutive effect of
            convertible securities                         3,428
            Dilutive effect of
             stock options                                 1,154
                                                          ------
            Diluted EPS                                   16,738          $0.27
                                                          ======          =====


         For the year ended June 30, 2000 all stock  options were  excluded from
the Diluted EPS calculation  because their effects were  anti-dilutive.  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 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.

Reclassifications

         Certain  reclassifications  have been made to the 1999 and 1998 amounts
to conform to the 2000 presentation.

Recent Accounting Pronouncements

                  In June 1998, the Financial  Accounting Standards Board (FASB)
issued Statement of Financial  Accounting  Standard (SFAS) No. 133,  "Accounting
for Derivative  Instruments and Hedging Activities" which establishes accounting
and  reporting  standards  for  derivative  instruments,   including  derivative
instruments  embedded in other contracts,  and for hedging activities.  SFAS No.
133,  as  amended  by SFAS No. 137 and No.  138 is  effective  for fiscal  years
beginning   after  June  15,  2000.   These   statements  are  not  expected  to
significantly effect Mobius, as Mobius does not have any significant  derivative
instruments or hedging activities.

         Statement of Position (SOP) 98-9,  "Modification of SOP 97-2,  Software
Revenue Recognition,  With Respect to Certain  Transactions",  which amended SOP
97-2 and  clarified the  specification  of what was  considered  vendor-specific
evidence  of  fair  value  for  the  various  elements  in  a  multiple  element
arrangement  was  adopted  by  Mobius  on  July 1,  1999.  The  adoption  of the
provisions of this statement did not have a material impact on Mobius' operating
results, financial position or cash flows.

<PAGE>

         On December 3, 1999, the SEC staff issued Staff Accounting Bulletin No.
101, Revenue  Recognition in Financial  Statements (SAB 101). SAB 101 as amended
is  required  to be adopted no later  than  April 1, 2001.  Mobius is  currently
performing an analysis of SAB 101, as amended,  to determine the impact, if any,
on our future operating results, financial position or cash flows.

         FASB  Interpretation  No.  44,  "Accounting  for  Certain  Transactions
Involving  Stock  Compensation"  (FIN 44)  provides  guidance  for  applying APB
Opinion  No.  25,  "Accounting  for Stock  Issued to  Employees".  With  certain
exceptions,  FIN 44 applies  prospectively new awards,  exchanges of awards in a
business combination, modifications to outstanding awards and changes in grantee
status on or after July 1, 2000. Mobius does not believe that the implementation
of FIN 44 will  have a  significant  effect  on its  results  of  operations  or
financial position.

 (3)  Software License Installments

         The Company offers extended payment terms to some of its customers. For
software  license  contracts  of 15  years,  the  related  financing  period  is
generally 5 years.  For  software  installment  contracts  of 3 to 5 years,  the
payments  are  generally   spread  ratably  over  the  term.   Software  license
installments  are  discounted  at a  market  rate of  interest  at the  date the
software license  contract revenue is recognized.  At June 30, 1999 and 2000 the
effective weighted average discount rate used for software license  installments
was 7.4%. 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, 2000 are as follows (in thousands):

         Year Ended:

         June 30, 2001                                            $11,104
         June 30, 2002                                              6,082
         June 30, 2003                                              2,945
         June 30, 2004                                                435
         June 30, 2005                                                 71
                                                                   ------
         Total minimum payments to be received                     20,637
         Less unearned interest income                             (2,166)
         Less allowance for doubtful accounts                        (643)
                                                                  -------
         Present value of software license installments, net       17,828
         Less current portion, net                                 (9,836)
                                                                  -------
         Non-current portion, net                                 $ 7,992
                                                                  =======

(4)  Property and Equipment

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

                                                                    June 30,
                                                               1999        2000
                                                               ----        ----

         Furniture, fixtures and office equipment             $  939     $1,089
         Computer equipment                                    7,803     12,349
         Leasehold improvements                                1,153      1,542
         Construction in progress                                  -      1,062
                                                              ------    -------
                                                               9,895     16,042
         Less accumulated depreciation and amortization       (3,856)    (6,747)
                                                              ------    -------
         Property and equipment, net                          $6,039    $ 9,295
                                                              ======    =======

         Depreciation  and  amortization  expense  on  property  and  equipment,
including capital leases, was $760,000, $1,372,000 and $2,874,000 for the twelve
months ended June 30, 1998,  1999 and 2000,  respectively.  At June 30, 1999 and
2000 there was $214,000 of equipment  under capital leases  included in property
and  equipment  with   accumulated   depreciation   of  $104,000  and  $135,000,
respectively.

<PAGE>

(5)      Non-Current Investments

         In June 1999, the Company  invested  $1,501,000 in Home Account Network
("HAN"), a privately-held,  information  technology company providing processing
and Internet  outsourcing to financial services  companies.  During fiscal 2000,
Mobius  provided  an  additional  $750,000  to HAN in short term loans that were
converted to preferred stock in May 2000.

         Mobius holds a minority  ownership  position,  which,  if the preferred
interest were converted to common stock,  would be less than 5%. Mobius does not
sit on the Board of Directors,  nor influence day to day  operations of HAN. The
short-term  loans accrued  interest at an annual rate of 10% for the first month
and 12% each month  until the loans were  converted  to  preferred  stock in May
2000.

         Mobius reviews the assumptions underlying the operating performance and
cash flow  forecasts of HAN to assess the  investment's  recoverability.  During
fiscal 2000 HAN consumed  most of the cash raised in its  financings  and Mobius
concluded that an other than temporary impairment loss occurred. Mobius believes
that  the  amount  of  cash  consumed  by HAN is an  appropriate  indicator  for
measuring the impairment of this  investment  since there is no equity below the
Mobius  financing  rounds and there is no obligation for any of the investors to
provide additional capital.

         For the year ended June 30, 2000 a $2,220,000  impairment loss has been
recorded. At June 30, 2000 the remaining carrying value of the HAN investment is
$31,000 and is included within investments.

         In January 2000, the Company made a strategic investment of $500,000 in
Flooz.com, a startup Internet company. Flooz is online gift currency that can be
sent to a recipient  over the Internet.  The Flooz gift currency can be redeemed
by the recipient at Flooz.com participating merchants.  This is an investment in
preferred  stock,  which  converts  into  common  stock  if and  when  Flooz.com
completes  an  initial  public  offering.  Mobius  holds  a  minority  ownership
position,  which, if the preferred converted to common stock, would be less than
5%.  Mobius does not sit on the Board of  Directors,  nor  influence  day to day
operations of Flooz.com.

         In June 2000, Robert H. Levitan,  Chief Executive Officer of Flooz.com,
became a member of the Company's Board of Directors.

         Mobius reviews the assumptions underlying the operating performance and
cash flow forecasts of Flooz.com to assess the investment's  recoverability.  At
June 30, 2000,  the  Flooz.com  investment  is carried at its  original  cost of
$500,000 within investments.

(6)  Accounts Payable and Accrued Expenses

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

                                                                    June 30,
                                                              1999         2000
                                                              ----         ----

         Accounts payable                                    $ 2,596     $ 2,563
         Compensation and related benefits                     5,897       6,569
         Royalties payable                                     1,358       1,168
         Other                                                 3,369       4,746
                                                             -------     -------
                                                             $13,220     $15,046

<PAGE>

(7)  Income Taxes

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


                                               Years Ended June 30,
                                           1998         1999          2000
                                           ----         ----          ----

         Domestic income (loss)            $13,261      $13,236    $(15,575)
         Foreign losses                     (3,096)      (4,881)     (1,738)
                                           -------      -------    ---------
                                           $10,165      $ 8,355    $(17,313)
                                           =======      ========   =========

         The  components  of the  provision  (benefit)  for income taxes for the
years ended June 30, 1998, 1999 and 2000 are as follows (in thousands):
<TABLE>
<CAPTION>

                                                          Years Ended June 30,
                                 1998                             1999                            2000
                   -------------------------------------------------------------------------------------------------
                      Current    Deferred   Total      Current     Deferred   Total     Current   Deferred   Total
                      -------    --------   -----      -------     --------   -----     -------   --------   -----
<S>                   <C>        <C>        <C>        <C>          <C>       <C>       <C>        <C>      <C>
Federal               $2,704     $1,807     $4,511     $1,736       $1,569    $3,305   $(1,734)   $(2,768) $(4,502)
State                    542        400        942        350          347       697      (532)      (432)    (964)
Foreign                   47         --         47         55           --        55        49          -       49
                      ------     ------     ------     ------       ------    ------   --------   -------  -------
                      $3,293     $2,207     $5,500     $2,141       $1,916    $4,057   $(2,217)   $(3,200) $(5,417)
                      ======     ======     ======     ======       ======    ======   ========   ======== =======
</TABLE>


         The  following  table  reconciles  the actual  provision  (benefit) for
income  taxes to the  provision  (benefit)  for income taxes  calculated  at the
Federal statutory  corporate rate of 34% for the years ended June 30, 1998, 1999
and 2000 (in thousands):
<TABLE>
<CAPTION>

                                                                     Years Ended June 30,
                                                                 1998         1999         2000
                                                                 ----         ----         ----

<S>                                                            <C>           <C>          <C>
Federal statutory corporate rate                               $3,456        $2,840       $(5,887)
State income taxes, net of Federal benefit                        610           501          (693)
Losses of foreign subsidiaries for which no benefit
  has been recognized                                           1,118         1,170           866
Research credit                                                    --          (167)            -
Other                                                             316          (287)          297
                                                               == ===        ======       =======
Total income tax provision (benefit)                           $5,500        $4,057       $(5,417)
                                                               ======        ======       ========

Pre-Tax Income(Loss)                                          $10,165       $ 8,355      $(17,313)
                                                              =======       =======      =========

Effective Tax Rate                                              54.1%        48.6%          (31.3)%
                                                                =====       =======        ======
</TABLE>

<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,
                                                              1999       2000
                                                              ----       ----

Deferred tax assets:
   Accounts receivable, principally due
      to allowance for doubtful accounts                      $  450    $  483
   Net operating loss carryforwards                            3,550     2,811
   AMT tax credit                                                 --       222
                                                               -----    ------
                                                               4,000     3,516
Valuation allowance                                           (3,550)   (2,219)
                                                              ------    -------
   Net deferred tax assets                                       450     1,297
Deferred tax liabilities:
   Software license installments                               7,274     4,899
   Depreciation                                                  232       254
   Other                                                          38        38
                                                              ------    ------
   Net deferred tax liability                                 $7,094    $3,894
                                                              ======    ======

         The valuation allowance  increased by $1,390,000,  and $483,000 for the
years ended June 30, 1998,  and 1999 primarily due to uncertainty of realization
of net operating losses incurred by certain foreign subsidiaries.  The valuation
allowance  decreased by $1,331,000  between  fiscal 1999 and 2000 primarily as a
result  of  utilization  of  some  of the  foreign  losses  in  certain  foreign
jurisdictions.  The  Company  will  reduce the  valuation  allowance  when it is
concluded that it is more likely than not that these deferred tax assets will be
realized.

         The   expiration  of  net  operating  loss   carryforwards   varies  by
jurisdiction;   some  began  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, 2000.

         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

<PAGE>

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 ("Series A Convertible Preferred Stock") for $12,000,130.

         Such Series 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 3,837,900  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.

<PAGE>

         The Directors'  Plan provides for initial grants (i.e. upon adoption of
the Directors' Plan or upon a non-employee  director's  initial  election to the
Board of Directors) of non-qualified  stock options to purchase 10,000 shares of
common stock. At each annual meeting thereafter, each non-employee director will
receive an option to  purchase  10,000  shares.  Each option  granted  under the
Directors' Plan will have a term of ten years and will become  exercisable  upon
grant.  The exercise price of each option granted under the Directors' Plan will
equal the fair market value of a share of common stock on the date of grant.
Total stock option activity during the periods indicated was as follows:

                                                                        Weighted
                                                                        Average
                                                      Number of        Exercise
                                                       Shares            Price

Balance at June 30, 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
  Granted                                                594,750           4.62
   Exercised                                            (154,950)          1.25
   Forfeited                                            (253,500)          5.60
   Expired                                                    --            --
                                                       ---------
Balance at June 30, 2000                               2,669,150         $ 6.09


         The  following  table  summarizes  information  about the stock  option
plans:
<TABLE>
<CAPTION>

                                      OPTIONS OUTSTANDING                                      OPTIONS EXERCISABLE
                            Number Outstanding     Weighted Average      Weighted        Number Exercisable       Weighted
                                  as of             Contractual          Average              as of              Average
Range of Exercise Prices      June 30,2000           Life             Exercise Price      June 30, 2000       Exercise Price
------------------------      ------------                            --------------      -------------       --------------

<S>    <C>     <C>                <C>                  <C>                <C>                 <C>                  <C>
      $1.25 - $1.25              680,900               6.18               $1.25               398,750              $1.25

      $4.00 - $5.28              600,250               8.72               $4.42               133,727              $5.28

      $6.00- $$8.50              542,000               8.12               $7.17               280,675              $7.22

     $9.75 - $11.00              699,000               7.63              $10.39               376,675             $10.37

     $11.25 - $17.50             147,000               8.43              $12.69                52,249             $12.76
     ---------------            ---------              ----              ------             ---------             ------
     $1.25 - $17.50             2,669,150              7.65               $6.19             1,242,276              $6.28
     ---------------            ---------              ----               -----             ----------            ------
</TABLE>

         At June 30, 2000,  there were 340,750 shares  available for grant under
the Plan and 160,000 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.

<PAGE>

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,  $1,046,000  and $537,000 for the
years  ended  June 30,  1998,  1999 and 2000,  respectively.  Such  compensation
expense is included within Sales and marketing of $442,000,  $802,000, $397,000,
Research  and  development  of  $88,000,  $195,000,  $112,000  and  General  and
administrative expenses of $112,000,  $49,000,  $28,000 for the years ended June
30,  1998,  1999,  and 2000,  respectively.  There is  approximately,  $264,000,
$134,000  and  $37,000 of expense  relating  to these 1998  option  grants to be
recognized as stock  compensation  expense in fiscal years 2001,  2002 and 2003,
respectively, to be adjusted for option holders' terminations.

If the Company had determined  compensation  cost based on the fair value of the
option on the grant date for its stock options under SFAS No. 123, the Company's
net income (loss) and earnings (loss) per share would have been indicated below.

                                                     Year Ended June 30,
                                                  1998        1999       2000
                                                  ----        ----       ----
Net income and earnings per share as
  would be reported under SFAS No. 123:
   Net income (loss)                             $4,209      $2,629    $(14,408)
   Basic earnings (loss) per share               $ 0.35      $ 0.15      $(0.81)
   Diluted earnings (loss) per share             $ 0.25      $ 0.14      $(0.81)

         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, 1998, 1999 and 2000 was
$5.93,  $10.07 and $4.50 on the date of grant,  respectively.  The grants during
the years ended June 30, 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 and 2000 assumed 568% and 412% of  volatility,  expected  dividend yield of
0.0% and an expected  life of 3.2 years and 5 years,  respectively.  The assumed
risk free interest  rate on the date of grants  ranged  between 5.7% and 6.8% in
fiscal 1998, was 5.25% in fiscal 1999 and 6.2% in fiscal 2000.

(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 650,000  shares.
During fiscal 1998 and 1999 there were no shares issued under this plan.  During
the year ending June 30, 2000,  53,812  shares were issued under the ESPP. As of
June 30, 2000,  274,255  shares are reserved for issuance and there were 321,933
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, 1998, 1999 and 2000.

         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

<PAGE>

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, 2000, 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  (loss) , foreign  currency  translation  adjustments  and
unrealized   gains  and   losses  on   marketable   securities   classified   as
available-for-sale.  Comprehensive  income  (loss) for the years  ended June 30,
1998, 1999 and 2000 is as follows:

                                                       Year ended June 30,
                                                     1998     1999      2000
                                                     ----     ----      ----

Net income (loss)                                  $4,563    $4,298  $(11,896)
Unrealized marketable securities gain (loss)           --       (41)        4
Unrealized translation gain (loss)                    (16)     (360)       81
                                                   ------    ------   -------
Comprehensive income (loss)                        $4,547    $3,897  $(11,811)
                                                   ======    ======  ========

(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 expired in fiscal 2000.

         The  following  is a schedule  of future  minimum  lease  payments  for
operating leases as of June 30, 2000 (in thousands):

                                                         Operating
                                                          Leases
                                                          ------
Year Ended:

June 30, 2001                                             $ 2,997
June 30, 2002                                               2,656
June 30, 2003                                               2,461
June 30, 2004                                               2,443
June 30, 2005                                               2,240
Thereafter                                                  3,728
                                                          -------
Total minimum lease payments                              $16,525
                                                          =======

         Rental expense for all operating leases was  approximately  $1,521,000,
$2,419,000  and  $3,319,460  for the years ended June 30,  1998,  1999 and 2000,
respectively.

         In  compliance  with  the  lease  of the  corporate  headquarters,  the
Company's  landlord  holds a letter  of  credit  with  Silicon  Valley  Bank for
$275,000. This letter of credit is secured by a certificate of deposit.

(15)  Segment and Geographic Information

         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

<PAGE>

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 loss or 10% of
identifiable assets in any of the periods presented.
<TABLE>
<CAPTION>

                                                              United
                                                              States         Foreign(a)       Eliminations        Total
                                                              ------         ----------       ------------        -----
Year Ended June 30, 1998:
Revenue:
<S>                                                             <C>                <C>            <C>              <C>
   From external 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
                                                                =======          =======         ========          =======

Long-lived assets                                               $14,725            2,108              --          $16,833

Year Ended June 30, 1999:
Revenue:
   From external 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
                                                                =======          =======         ========          =======

Long-lived assets                                               $18,642           2,136               --          $20,778

Year Ended June 30, 2000:
Revenue:
   From external customers(b)                                   $50,321            9,884              --           $60,205
   Between geographic areas(c)                                    1,233               --          (1,233)               --
                                                                -------          -------          ------           -------
Total revenue                                                   $51,554            9,884          (1,233)          $60,205
                                                                -------          -------          ------           -------

Long-lived assets                                               $16,422            1,807              --          $18,229
</TABLE>

(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.

(16)     Sale of INFOPAC-Tapesaver

         In January 1999,  the Company sold the  INFOPAC-TapeSaver  product to a
third party for  approximately  $3.0  million  payable  over a five year period.
Under the terms of the sale, the buyer assumed  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 over the contract
period,  as  the  buyer  makes  payments  and  approximately   $1.1  million  of
maintenance revenue through December 31, 1999. For the years ended June 30, 1999
and 2000, the Company  recognized  $756,000 and $673,000 of license  revenue and
$795,000 and $302,000 of maintenance revenue related to this arrangement. Future
license  revenue is scheduled to be $112,500  each  quarter  thereafter  through
December 31, 2003.

<PAGE>

<TABLE>
<CAPTION>
                                                                                                                SCHEDULE II

                         MOBIUS MANAGEMENT SYSTEMS, INC.

                        Valuation and Qualifying Accounts
                                 (In thousands)

                                                                            Additions
                                                     Balance at     Charged to     Charges                        Balance
                                                     beginning      costs and      to other                        at end
Description                                          of period      expenses       accounts     Deductions        of period
-----------                                          ---------      --------       --------     ----------        ---------

Year ended June 30, 1998: Deductions from asset account:
<S>                                                  <C>             <C>             <C>           <C>              <C>
  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
Year ended June 30, 2000:
Deductions from asset account:
  Allowance for doubtful accounts                    $1,672            470             --          (415)            $1,727
</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.
10.23**     --    Lease  Modification  Agreement  dated  July  12,  1999  by and
                  between   Old  Boston  Post  Road   Associates   LLC  and  the
                  Registrant.
10.24       --    Amendment #1 to Mobius Management Systems,  Inc. 1998 Employee
                  Stock Purchase Plan.

<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.

 **   Filed as exhibit no. 10.1 to Mobius Management Systems,  Inc. form 10Q for
      the quarter ended December 31, 1999 and incorporated herein by reference.

<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)

                                            Date: September 27, 2000

         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.
<TABLE>
<CAPTION>

       Signatures                         Title(s)                        Date
       ----------                         --------                        ----

<S>     <C>                         <C>                                <C>
     /s/ Mitchell Gross            Chairman of the Board, Chief       September   , 2000
     -----------------------       Executive Officer, President
         Mitchell Gross            and Director
                                   (Principal Executive Officer)


     /s/ Joseph J. Albracht         Director                          September   , 2000
     ------------------------
         Joseph J. Albracht


     /s/ David J. Gordon            Interim Chief Financial           September   , 2000
     -------------------------      Officer, Assistant Treasurer
                                    and Assistant Secretary
                                    (Principal Financial
                                    and Accounting Officer)


     /s/ Peter J. Barris            Director                          September   , 2000
     -------------------------
         Peter J. Barris


     /s/ Edward F. Glassmeyer       Director                          September   , 2000
     -------------------------
         Edward F. Glassmeyer


     /s/ Kenneth P. Kopelman        Director                          September   , 2000
     -------------------------
         Kenneth P. Kopelman


     /s/ Gary G. Greenfield         Director                          September   , 2000
     -------------------------
         Gary G. Greenfield


     /s/ Robert Levitan             Director                          September   , 2000
     -------------------------
         Robert Levitan
</TABLE>