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, 1998

                         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                                 (Zip code)
principal executive offices)                                 

                                  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

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

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

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

         The aggregate  market value of the voting stock held by  non-affiliates
of the  Registrant,  based  upon  the  closing  sale  price of  common  stock on
September_15,  1998 as reported on NASDAQ, was approximately $29 million. Shares
of common stock held by each officer and director and by each person who owns 5%
or more of the outstanding  common stock have been excluded in that such persons
may  be  deemed  affiliates.  This  determination  of  affiliate  status  is not
necessarily a conclusive determination for other purposes.

As of September 15, 1998, Registrant had outstanding 17,787,150 shares of common
stock.

                       DOCUMENTS INCORPORATED BY REFERENCE

         Certain portions of the  Registrant's  definitive proxy statement to be
filed  no  later  than  October  28,  1998  pursuant  to  Regulation   14A,  are
incorporated  by  reference  in Items 10 through  13 of Part III of this  Annual
Report on Form 10-K.


<PAGE>



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

                                TABLE OF CONTENTS

                                                     
PART I.

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

PART II.

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

PART III.

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

PART IV.

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

SIGNATURES


<PAGE>



FORWARD LOOKING STATEMENTS

         Statements  contained  in this  annual  report,  other than  historical
financial results, may contain forward-looking  statements within the meaning of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
involve risks and uncertainties.  In particular, any statements contained herein
regarding  expectations with respect to future sales and profitability,  as well
as product  development and/or  introductions,  are subject to known and unknown
risks,  uncertainties and contingencies,  many of which are beyond the Company's
control,  which may cause actual results,  performance or achievements to differ
materially from those projected or implied in such  forward-looking  statements.
Factors that might affect actual results,  performance or achievements  include,
among other things, those discussed in "Factors Affecting Future Performance" in
Item 1. Business. Mobius  accepts no obligation to update these  forward-looking
statements and does not intend to do so.

ITEM 1. BUSINESS

         Mobius  Management  Systems,   Inc.  (together  with  its  consolidated
subsidiaries,  "Mobius"  or the  "Company")  is a leading  provider  of software
products  designed to optimize the storage,  retrieval and presentation of large
volumes of  transactional  information.  Major financial  services,  healthcare,
manufacturing,  retail and telecommunications  companies and government entities
use our  software to  facilitate  customer  service  and other  mission-critical
functions.  Our  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. Our 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. In March 1993, we  established  our first foreign  subsidiary,
Mobius-  U.K.  and  subsequently  expanded  our  direct  sales  force to France,
Germany, Italy, Sweden, Australia and Switzerland.  Our company headquarters are
located at 120 Old Post Road,  Rye, NY 10580 and our  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 a record of each
charge transaction;  brokerage firms store records of every trade; and telephone
companies store records of individual telephone calls.

         Organizations need to quickly and accurately  retrieve such information
to improve  customer  service,  meet legal  requirements and reach more informed
business  decisions.  Customers  have become  dependent  upon  organizations  to
accurately account for transaction and other information. Customers demand rapid
and  consistent  access to their  records;  in recent years this has expanded to
include self-service via the Internet.

         Traditional  approaches (paper,  microfiche,  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 fill the need for 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' products can be divided into server products, which act as hosts on
central processing computers (or networks) and client products,  that access the
hosts  software  whenever host  resources are needed.  Our primary  products are
ViewDirect, which stores and retrieves documents;  DocumentDirect, which enables
document viewing; DocumentDirect for the Internet, the viewing application which
makes  information   available  over  the  Internet  and  corporate   intranets;
DocumentDirect  Application  Suite,  a series  of  industry-specific application
templates  for  document  viewing;  and  DocuAnalyzer,  a data mining  tool.  In
addition,  Mobius  offers  INFOPAC-Tapesaver  for  managing  large tape  storage
facilities and INFOPAC-ABS which is a data center quality control product.

  Server Products

         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; transparent or undefined
transactions created in other environments;  and associated  documents,  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,  scaling from the
desktop to the department to the largest enterprise server.

  Client Products

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

         DocumentDirect  Application Suite.  DocumentDirect Application Suite is
designed to be used by a clerk or customer service representative who needs fast
access  to  documents  in a  well-defined,  highly  customized  environment.  It
comprises  a seris of  templates  that meet a wide  range of  verticle  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
licenses DocuAnalyzer from a third party for resale.


  Other Products

         INFOPAC-TapeSaver.  INFOPAC-TapeSaver  is  an  enterprise  server-based
software  product that is designed to optimize the  utilization of tape and tape
devices.  Following  user-defined rules, the product automatically  consolidates
datasets,   eliminating   wasted   space  and   freeing   up  tape   cartridges.
INFOPAC-TapeSaver  improves the  efficiency  of robotic tape devices by ensuring
that every  cartridge is filled to its useful  capacity  and that  high-activity
datasets are available for automated mounting.

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


<PAGE>



Sales and Marketing

         We sell and market our 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; Houston,  TX;
Lawrenceville, NJ; Madison, WI; Minneapolis, MN; Rye, NY and St. Louis, MO.

         In March 1993, we established our first foreign subsidiary,  Mobius UK,
in England.  In fiscal 1995, we established  three more  subsidiaries in France,
Germany and Italy.  During this past fiscal year, we established  two additional
subsidiaries  in Sweden and  Australia.  In July  1998,  Mobius  established  an
additional subsidiary in Switzerland.  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 our products through our United States and European support centers (based in
New York and England, respectively). Complex diagnostics and product corrections
are provided  exclusively  through the United States support center.  First line
support  services for customers  outside North America and England are typically
provided by our subsidiaries. In addition, Mobius has trained and certified five
professional service  organizations--independent  companies located across North
America and  Europe--to  provide  customers  with post sale  assistance  for our
products and on-site implementation services, if necessary.

Research and Development

         We intend to continue to make  substantial  investments in research and
development to maintain and enhance our product  lines.  We believe that Mobius'
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.  Our research and development efforts focus on designing and
developing  reliable and easy-to-use  products.  Our product  development  cycle
(from funding a product  development project until the new product is shipped to
the marketplace) typically is less than six months in order 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.  We divide our development  team into
groups  delineated  by  product  functionality  and  we  employ  advanced  Rapid
Application Development ("RAD") tools to facilitate short development cycles for
functional enhancements while maintaining product reliability.

Employees

         As of June  30,  1998,  Mobius  employed  335  people;  183  Sales  and
Marketing  employees,  40 Customer  Satisfaction,  70 Research  and  Development
employees and 42 General and Administrative employees. None of the our employees
are  represented  by a labor  union or is  subject  to a  collective  bargaining
agreement.  The Company has not  experienced  any work stoppages and believes it
has a good relationship  with its employees.  We believe that our future success
will depend to a  significant  extent  upon our  ability to  attract,  train and
retain highly  skilled  technical,  management,  sales and marketing  personnel.
There can be no assurance  that we will be successful in attracting or retaining
such personnel,  and such a failure could have a material  adverse effect on our
business, operating results and financial condition.

Customers

         No single customer  accounted for 10% or more of consolidated  revenues
in fiscal years 1996, 1997 or 1998.


<PAGE>




Competition

         The market for the Company'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 we do business.


<PAGE>



                      FACTORS AFFECTING FUTURE PERFORMANCE

Fluctuations in Period to Period Results; Seasonality; Uncertainty of
Future Operating Results

         Our quarterly revenues and operating results have varied  significantly
in the past and are likely to vary  substantially from quarter to quarter in the
future.  Quarterly revenues and operating results are expected to fluctuate as a
result of a variety of factors,  including lengthy product sales cycles, changes
in the level of operating  expenses,  demand for our 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 the Company's  quarterly  operating  results.  Many of our
license  transactions  involve large dollar  commitments  by customers,  and the
sales cycles for these transactions are often lengthy and  unpredictable.  There
can be no  assurance  that  we will  be  successful  in  closing  large  license
transactions within the fiscal quarter in which they are budgeted, if at all.

         We have often  recognized a  substantial  portion of our revenue in the
last month of the quarter and often in the last week of that month. As a result,
license fees in any quarter are often  substantially  dependent on orders booked
and shipped in the last month or last week of that quarter. Accordingly,  delays
in the closing of sales near the end of a quarter could cause quarterly revenues
and, to a greater degree, net income, to fall substantially short of anticipated
levels.

         Our business has  experienced and is expected to continue to experience
significant seasonality, with revenues typically peaking primarily in our fourth
(June)  fiscal  quarter and to a lesser extent in our second  (December)  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 by the factors described above.

         We recognize  revenue in accordance with Statement of Position  ("SOP")
91-1,  "Software  Revenue  Recognition",  issued by the  American  Institute  of
Certified Public Accountants  ("AICPA").  For transactions occurring on or after
July 1, 1998, we will be required to recognize  revenue in  accordance  with SOP
97-2, "Software Revenue Recognition", issued by the AICPA in October 1997, which
supersedes SOP 91-1. For a discussion of the possible  effect the adoption of
SOP 97-2 may have on our financial  results in general,  and the  recognition of
revenues in specific  periods in particular,  see  "Management's  Discussion and
Analysis of Financial Condition and Results of Operations".

         Due to all of the foregoing  factors and other factors described below,
revenues  for any period are subject to  significant  variation,  and we believe
that period-to-period  comparisons of our operating  results are not necessarily
meaningful. Such  comparisons  may not be  reliable  indicators  of  future
performance.

Technological Change

         The  market  for our  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 our existing products obsolete and unmarketable. Our future success
will depend in part on our ability to enhance  existing  products and to develop
and  introduce new products to meet diverse and evolving  customer  requirements
and 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
we will be successful in developing and marketing  product  enhancements  or new
products that respond to technological  change or evolving  industry  standards,
that the Company will not  experience  difficulties  that could delay or prevent
the successful development, introduction,  implementation and marketing of these
products and enhancements,  or that any new products and product enhancements we
may introduce will achieve market acceptance.

Product Concentration

         To date, a substantial  portion of our revenues have been  attributable
to the licensing of our ViewDirect and DocumentDirect software and the provision
of related  maintenance  services.  We currently expect this to continue for the
foreseeable future. As a result,  factors adversely affecting the pricing of, or
demand for,  these products and services,  such as competition or  technological
change, could have a material adverse effect on our business,  operating results
and financial condition.

Competition

         The market for our products is intensely competitive,  subject to rapid
change and significantly  affected by new product introductions and other market
activities of industry  participants.  We think 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.  We currently  encounter direct  competition from a
number  of  public  and  private   companies   including   Computer   Associates
International,  Computron  Software,  Inc., FileNet  Corporation,  International
Business Machines Corp., Eastman Kodak Co., New Dimension Software Ltd., and RSD
S.A.  Due to the  relatively  low  barriers  to  entry in the  software  market,
additional  competition from other established and emerging  companies is likely
as the market for storage,  retrieval  and  presentation  software  continues to
develop and expand. Some of these companies are substantially larger than Mobius
and have significantly greater financial, technical and marketing resources, and
a larger installed base of customers, than Mobius. Some of such competitors also
have extensive direct and indirect channels of distribution.  As a result,  they
may be able to respond more quickly to new or emerging  technologies and changes
in customer  requirements,  or to devote greater  resources to the  development,
promotion  and sale of their  products  than Mobius.  In  addition,  current and
potential   competitors   have   established   or  may   establish   cooperative
relationships among themselves with prospective  customers.  Accordingly,  it is
possible that new  competitors  or alliances  among  competitors  may emerge and
rapidly acquire  significant market share.  Increased  competition may result in
price  reductions,  reduced gross margins and loss of market share, any of which
would  have a  material  adverse  effect on the  Company's  business,  operating
results and financial  condition.  There can be no assurance that Mobius will be
able to  compete  successfully  against  current or future  competitors  or that
competitive  pressures will not have a material  adverse effect on our business,
operating results and financial condition.



<PAGE>




International Sales and Operations

         We believe that our revenues and future  operating  results will depend
in  part  on our  ability  to  increase  sales  in  international  markets.  Our
international  subsidiaries  have not been  profitable  to date,  and we  expect
achieving  profitability  will  require  significant  management  attention  and
financial resources.  There can be no assurance that we will be able to maintain
or increase  international  market  demand for our  products or hire  additional
qualified  personnel  who will  successfully  be able to market  our  products
internationally.  Our  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
our future international revenues and, consequently,  on our business, operating
results and financial condition.

         An  increase  in the  value  of the U.S.  dollar  relative  to  foreign
currencies could make our products more expensive,  and, therefore,  potentially
less  competitive  in those  markets.  Although  we do 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 we maintain operations, our
net assets that are  denominated  in such foreign  currencies  will be devalued,
resulting in a foreign  currency  translation  loss. For more information on our
international operations, see "Management's Discussion and Analysis of Financial
Condition  and Results of  Operations"  in Item 7 and Notes 2 and 12 of Notes to
Consolidated Financial Statements.

Expansion of Indirect Channels

         To date, sales through indirect sales channels have been immaterial. We
intend to invest resources to develop these channels; however, if our efforts do
not  generate   sufficient  license  revenues  our  operating  results  will  be
negatively impacted. Our ability to achieve revenue growth in the future will be
affected  by our  success in  expanding  existing  and  establishing  additional
relationships  with strategic  partners.  We expect to receive lower unit prices
when selling  through  indirect  channels,  therefore,  if we are  successful in
selling products through indirect channels; our gross margins as a percentage of
revenue will decrease.

Extended Payment Risk

         Terms  of sale  are a  competitive  factor  in our  markets.  We  offer
extended  payment  terms to some of our  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 we have established reserves against possible
future bad debts and we believe 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 the  Company's  business,
operating  results  and  financial  condition.  For  more  information  on these
extended payment agreements see Notes 2 and 3 of Notes to Consolidated Financial
Statements.


<PAGE>



Protection of Intellectual Property

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

         Our products are generally  provided to customers in object code format
only.  However,  we enter into arrangements with our 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  our  software   products.
Notwithstanding  such  provision,  the delivery of source code to customers  may
increase the likelihood of  misappropriation or other misuse of our intellectual
property.

         We are not aware  that any of our  products  infringe  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 our business,
operating results and financial condition.

Dependence on Licensed Technology

         We rely on certain software and other  information that we license from
third parties,  including  software that is used to perform certain functions in
our  products.  Although  we  believe  that  there  are  alternatives  for these
products,  any significant  interruption in the availability of such third-party
software  could have a material  adverse impact on our sales unless and until we
can replace the functionality provided by these products. In addition, we are 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 we would be able to replace  the  functionality
provided by the third party software  currently  offered in conjunction with our
products in the event that such software becomes  obsolete or incompatible  with
future  versions of our products or is otherwise  not  adequately  maintained or
updated.  The absence of or any  significant  delay in the  replacement  of that
functionality  could have a material  adverse effect on our business,  operating
results and financial condition.

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 we conduct  extensive  product testing,  we have in the past
discovered  software  defects in certain of our new  products  and  enhancements
after their introduction.  We could in the future lose, or delay recognition of,
revenues  as a result  of  software  errors  or  defects.  We  believe  that our
customers  and  potential  customers  are  highly  sensitive  to  defects in our
software.  Although our 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 our reputation,  or increased  service and warranty costs,
any of which could have a material  adverse  effect on our  business,  operating
results and financial condition.

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

Year 2000 Compliance

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

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

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

         Our success depends to a significant  extent upon our 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,  we believe that our future  success will also depend to a
significant extent upon our ability to attract,  train and retain highly skilled
technical,  management,  sales and  marketing  personnel.  Competition  for such
personnel is intense,  and we expect that such competition will continue for the
foreseeable future. We have from time to time experienced difficulty in locating
candidates  with  appropriate  qualifications.  The failure to attract or retain
such personnel could have a material  adverse effect on our business,  operating
results and financial condition.


<PAGE>



ITEM 2. PROPERTIES

     Mobius is  headquartered  in Rye, New York,  where we lease an aggregate of
approximately 43,700 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.  We lease  an  aggregate  of
approximately   44,956  additional   square  feet  of  space   domestically  and
internationally  for our other sales offices.  We believe that these  facilities
are adequate to meet our 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,  we are  involved in  litigation  relating to claims
arising out of our  operations  in the normal  course of business.  We are not a
party to any legal proceedings, the adverse outcome of which, individually or in
the aggregate,  would have a material adverse effect on our 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 1998.

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

     During this past fiscal year, we granted in the aggregate 1,248,500 options
to purchase  shares of our common stock pursuant to our benefit  plans.  The per
share  exercise  prices for these  options  ranged from $5.28 to $11.00,  with a
weighted  average  exercise price of $8.88 per share.  In addition,  during this
past fiscal year we issued in the aggregate  194,500  shares of our common stock
upon the exercise by certain employees of vested stock options.  80,000 of these
shares were originally  issued as Class A non-voting  common stock and converted
to  common  stock on a one to one basis  upon the  consummation  of our  initial
public offering. The aggregate  consideration received by Mobius for all 194,500
shares was $243,125  ($1.25 per share).  We believe that such  issuance was made
based upon the exemption for the registration requirements of the Securities Act
contained in Section 3(b) of the Securities  Act because the subject  securities
were issued  pursuant to a compensatory  benefit plan pursuant to Rule 701 under
the Securities Act.  Restrictive  legends were placed on the stock  certificates
evidencing such shares of stock.

         On April 27, 1998,  the  Securities  and Exchange  Commission  declared
effective our Registration  Statement on Form S-1 (File No. 333-47117),  and our
common stock is traded in the NASDAQ National Market.  To date, we have not used
any of the proceeds of the  offering.  The proceeds  are  currently  invested in
short-term, investment-grade, interest-bearing securities.

         According to records of our transfer  agent,  we had  approximately  24
stockholders  of record as of August 31,  1998.  Because many of such shares are
held by brokers and other institutions on behalf of stockholders,  we are unable
to estimate the total number of stockholders  represented by the record holders.
The high and low sales price of our common  stock from April 27,  1998  (initial
public offering) to June 30, 1998 were $19.75 and $11.50.

         We have never paid any cash  dividends  on our common  stock and do not
anticipate paying any cash dividends in the foreseeable future. Our current loan
agreement  with a bank  prohibits  the payment of  dividends  without the bank's
consent.  We currently  intend to retain future earnings to fund the development
and growth of our business.  Payment of future dividends, if any, will be at the
discretion of our Board of Directors after taking into account various  factors,
including our financial  condition,  operating results,  current and anticipated
cash needs and plans for expansion.

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,
1998 are derived from the  consolidated  financial  statements of Mobius,  which
statements  have been audited by KPMG Peat Marwick  LLP,  independent  certified
public accountants.  The consolidated  financial  statements as of June 30, 1997
and 1998 and for each of the years in the three year period ended June 30, 1998,
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.


<PAGE>

<TABLE>
<CAPTION>



                                                               Years Ended June 30,
                                               1994       1995      1996        1997        1998
                                             -------    -------   -------     -------     ------- 
Consolidated Statement of Income Data 
(in thousands, except per share data):
<S>                                          <C>        <C>       <C>         <C>         <C>    
Revenues:                          
  Software license revenues                  $10,604    $12,729   $18,769     $26,112     $37,929
  Maintenance and other revenues               7,050      9,676    12,189      15,215      18,598
                                             -------    -------   -------     -------     -------
         Total revenues                       17,654     22,405    30,958      41,327      56,527
Costs of revenues:
  Software license revenues                      841        614       626       1,336       1,443
  Maintenance and other revenues               1,556      2,049     2,716       2,923       3,593
                                             -------    -------   -------     -------     -------
         Total costs of revenues               2,397      2,663     3,342       4,259       5,036
                                             -------    -------   -------     -------     -------
Gross profit                                  15,257     19,742    27,616      37,068      51,491
Operating expenses:
  Sales and marketing                          9,687     12,523    15,136      21,971      28,171
  Research and development                     2,669      3,478     4,600       5,904       7,925
  General and administrative                   1,911      2,063     2,832       4,350       6,430
  Stock compensation expense                      --         --        --          --         642
                                             -------    -------   -------     -------     -------
         Total operating expenses             14,267     18,064    22,568      32,225      43,168
                                             -------    -------   -------     -------     -------
Income from operations                           990      1,678     5,048       4,843       8,323
License and other interest income                186        375       339         922       1,871
Interest expense                                 (61)       (58)      (41)        (22)        (14)
Foreign currency transaction gains (losses)       31         34       (72)        (12)        (15)
                                             -------    -------   -------     -------     -------
Income before income taxes and change
         in accounting for income taxes        1,146      2,029     5,274       5,731      10,165
Provision for income taxes                       507        880     2,657       3,348       5,500
Accretion on Preferred Stock                      --         --        --          --         102
                                             -------    -------   -------     -------     -------
Income before cumulative effect of change
         in accounting for income taxes          639      1,149     2,617       2,383       4,563
Cumulative effect of change in accounting
         for income taxes(1)                     194         --        --          --          --
                                             -------    -------   -------     -------     -------
Net income available to common stock         $   833    $ 1,149   $ 2,617     $ 2,383     $ 4,563
                                             =======    =======   =======     =======     =======

Basic earnings per share(2)                  $  0.06    $  0.08   $  0.17     $  0.17     $  0.38

Basic weighted average shares outstanding(2)  15,000     15,000    15,000      14,318      12,156

Diluted earnings per share(2)                $  0.06    $  0.08   $  0.17     $  0.15     $  0.27

Diluted weighted average
  shares outstanding(2)                       15,000     15,000    15,000      15,882      16,738

Consolidated Balance Sheet Data
  (in thousands):
Total assets                                  $9,422   $12,713    $18,446     $28,502     $78,800
Total long term obligations                      421       479      1,639       5,176       8,776
Convertible preferred stock                       --        --         --      11,898          --
Stockholders' equity (deficit)                 1,465     2,586      5,226      (4,344)     46,122
<FN>


(1)      Represents  cumulative  effect of change in accounting for the adoption
         of Statement of Financial Accounting Standards No. 109, "Accounting for
         Income Taxes".

(2)      For a description  of the basic and diluted  earnings per share ("EPS")
         calculations   and  the  basic  and  diluted  weighted  average  shares
         outstanding, see Note 2 of Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
                    AND RESULTS OF OPERATIONS

         In this  section,  readers  are  given a more  detailed  assessment  of
Mobius' operating results and changes in financial  position over the past three
years.  This  section  should  be  read in  conjunction  with  our  Consolidated
Financial  Statements  and related  Notes.  Please note that  references in this
section to "this year" and "last year" refer to our fiscal  years ended June 30,
1998 and June 30, 1997, respectively.

Overview

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

         In April 1998,  Mobius'  registration  statement was declared effective
for our 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 7 and 8 of the
Notes to the Consolidated Financial Statements.

         Mobius'  total  revenues  have  increased  over each of the past  three
fiscal years,  from $31.0 million in fiscal 1996 to $41.3 million in fiscal 1997
and to $56.5  million in fiscal  1998.  We derive our  revenues  primarily  from
server and client product license fees and related annual maintenance fees. This
year 67.1% of our total  revenues  were  generated by software  license fees and
32.9% were generated by maintenance and other fees.

         License  revenues  of  ViewDirect  and  DocumentDirect   products  have
historically  accounted  for a  majority  of  our  license  revenues  and  for a
significant portion of our total revenues.  This year license revenues for these
products accounted for approximately 84.3% of license revenues and approximately
56.6% of total revenues. Last year license revenues for these products accounted
for  approximately  79.5% of license revenues and  approximately  50.3% of total
revenues. We anticipate that in the foreseeable future that license revenue from
these products will continue to account for a significant portion of license and
total revenues.

         Our growing  customer base has led to continued  growth in  maintenance
and other  revenues  from $15.2  million  last year to $18.6  million this year.
Except for the involvement of systems  engineers during the sales cycle,  Mobius
does not provide  implementation  services and has trained and certified a group
of independent professional services organizations to provide such services.

         International revenues more than doubled this year to $7.2 million from
$3.2 million last year. We intend to expand our  international  sales activities
as part of our business strategy.  The majority of Mobius' current international
revenues are derived from the operations of our seven wholly-owned  subsidiaries
and  through  agents.  We  receive  a  royalty  that is a  percent  of  agent or
subsidiary sales of software licenses and maintenance contracts to international
customers.  Our subsidiaries  conduct business in the currency of the country in
which they  operate,  exposing  Mobius to  currency  fluctuations  and  currency
transaction  losses or gains which are outside of Mobius' control.  To date, all
of these  subsidiaries have operated at a loss, which cannot be consolidated for
United States income tax purposes.  Consequently, we have a substantially higher
effective tax rate than the U.S. Federal and State statutory rates as no benefit
has been provided for the foreign  losses.  To the extent that we are successful
at bringing our foreign  subsidiaries to  profitability,  we will have effective
tax rates  that are  below the  statutory  rates 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 and State statutory rates.

         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,  we have not capitalized  any software  development
costs and we currently do not anticipate  having  significant  development costs
that are  eligible  for  capitalization  for the  foreseeable  future.  Software
development  costs are included in research and  development and are expensed as
incurred.  For more information on our  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 our  Consolidated
Statement  of Income as a  percentage  of total  revenues  for the fiscal  years
indicated:



                                              Years Ended June 30,
                                        1996         1997         1998
                                       -----        -----        -----
                                      
Revenues:
  Software license revenues             60.6%        63.2%        67.1
  Maintenance and other revenues        39.4         36.8         32.9
                                       -----        -----        -----
         Total revenues                100.0        100.0        100.0
Costs of revenues:
  Software license revenues              2.0          3.2          2.5
  Maintenance and other revenues         8.8          7.1          6.4
                                       -----        -----        -----
         Total costs of revenues        10.8         10.3          8.9
                                       -----        -----        -----
Gross profit                            89.2         89.7         91.1
Operating expenses:
  Sales and marketing                   48.9         53.2         49.9
  Research and development              14.9         14.3         14.0
  General and administrative             9.1         10.5         11.4
  Stock compensation expense              --           --          1.1
                                       -----        -----        -----        
         Total operating expenses       72.9         78.0         76.4
                                       -----        -----        -----
Income from operations                  16.3         11.7         14.7
License and other interest income        1.1          2.3          3.3
Interest expense                        (0.1)        (0.1)          --
Foreign currency transaction 
  gains(losses)                         (0.2)          --           --
                                       -----        -----        -----
Income before income taxes              17.1         13.9         18.0
Provision for income taxes               8.6          8.1          9.7
Accretion on Preferred Stock              --           --          0.2
                                       -----        -----        -----
Net income available to common stock     8.5%         5.8%         8.1%
                                       =====        =====        ===== 


<PAGE>



         Year Ended June 30, 1996  Compared to Year Ended June 30, 1997 Compared
to Year Ended June 30, 1998

         Revenues.  Total revenues  increased 33.5% from $31.0 million in fiscal
1996 to $41.3  million in fiscal 1997 and 36.8% to $56.5 million in fiscal 1998.
Domestic  revenues  increased  38.2% from $27.6  million in fiscal 1996 to $38.2
million in fiscal  1997 and  increased  29.2% to $49.3  million in fiscal  1998.
International  revenues  decreased 4.9% from $3.3 million in fiscal 1996 to $3.2
million in fiscal 1997 and increased  127.6% to $7.2 million in fiscal 1998. Our
total  revenues have increased  primarily  because we sold more licenses for our
products to new and existing customers.

         Software license revenues  increased 39.1% from $18.8 million in fiscal
1996 to $26.1  million in fiscal 1997 and  increased  45.3% to $37.9  million in
fiscal 1998.  These increases were primarily  attributable to increased sales of
licenses for ViewDirect and DocumentDirect products.

         Maintenance  and other revenues  increased  24.8% from $12.2 million in
fiscal 1996 to $15.2 million in fiscal 1997 and increased 22.2% to $18.6 million
in fiscal 1998.  The increases in maintenance  and other  revenues  during these
years  were  primarily  attributable  to the  growth in the  amount of  licensed
software covered by maintenance agreements and to a lesser extent,  increases in
the maintenance fees charged by the Company. Other revenues for all periods were
not significant.

Costs of Revenues.

         The costs of  software  license  revenues  increased  113.4%  from $0.6
million in fiscal 1996 to $1.3 million in fiscal 1997 and increased 8.0% to $1.4
million in fiscal  1998,  representing  3.3%,  5.1% and 3.8%,  respectively,  of
software  license revenues in those years. The costs of software license revenue
as a percentage of software license revenues  decreased in fiscal 1998 primarily
due to increased license revenues from products that were developed  exclusively
by the Company and therefore do not require royalty payments.

         The costs of maintenance  and other  revenues  increased 7.6% from $2.7
million in fiscal  1996 to $2.9  million in fiscal 1997 and  increased  22.9% to
$3.6 million in fiscal 1998, representing 22.3%, 19.2% and 19.3%,  respectively,
of  maintenance  and other  revenues in those years.  The  increases in costs of
maintenance and other revenues were primarily attributable to increased staffing
and personnel-related costs.

Operating Expenses.

         Sales and  marketing  expenses  increased  45.2% from $15.1  million in
fiscal 1996 to $22.0 million in fiscal 1997 and increased 28.2% to $28.2 million
in fiscal 1998. Sales and marketing expenses have increased primarily because we
paid more  commissions  and bonuses for selling more  software  licenses,  hired
additional sales personnel and increased our personnel-related costs.

         Research and development  expenses increased 28.3% from $4.6 million in
fiscal 1996 to $5.9 million in fiscal 1997 and  increased  34.2% to $7.9 million
for fiscal 1998,  representing  14.9%, 14.3% and 14.0%,  respectively,  of total
revenues in those years. The increases in research and development expenses were
primarily  attributable to increased  staffing and  personnel-related  costs for
technical staff.

         General and  administrative  expenses increased 53.6% from $2.8 million
in fiscal  1996 to $4.4  million  in  fiscal  1997 and  increased  47.8% to $6.4
million in fiscal 1998. The increases were generally  attributable  to increased
professional services fees and costs for additional personnel.

         Stock compensation  expense of $642,000 was due to certain stock option
grants made in fiscal 1998 at below fair market value. In total, $2.7 million of
expense  relating to these 1998 option grants will be  recognized  over the next
five years. For further  information see Note 9 of the Notes to the Consolidated
Financial Statements.


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

License and other interest income was $0.3 million,$0.9 million and $1.9 million
in fiscal 1996, 1997, and 1998, respectively. The increase from fiscal 1996 to  
fiscal  1998  was  primarily  due  to the  increase  in  the  number  of new
installment contracts and to a lesser extent,  increased earnings on higher cash
balances during fiscal 1997 and 1998.

         Interest  expense  decreased  from $41,000 in fiscal 1996 to $22,000 in
fiscal 1997 and to $14,000 in fiscal 1998.  The decreases  were primarily due to
reductions  in the principal  balances  associated  with the  Company's  capital
leases.

         Foreign currency  transaction losses were $72,000,  $12,000 and $15,000
in fiscal 1996, 1997 and 1998,  respectively.  Due to declining foreign currency
fluctuations  in  the  foreign  jurisdictions  within  which  the  Company  does
business, these losses have been minimal.

         Provision  for Income  Taxes.  The  provision for income taxes was $2.7
million in fiscal  1996,  $3.3 million in fiscal 1997 and $5.5 million in fiscal
1998.  The Company had effective  tax rates of  approximately  50.4%,  58.4% and
54.1% in fiscal years 1996, 1997 and 1998, respectively.  The difference between
these  rates  and the U.S.  Federal  and  State  statutory  rates  is  primarily
attributable to not being able to consolidate  foreign subsidiary losses for tax
purposes.  The changes in the effective tax rate from fiscal 1996 to fiscal 1998
principally  reflect the impact of changes in the amount of operating  losses of
the Company's foreign subsidiaries.  For more information see Note 6 of Notes to
Consolidated Financial Statements.

Selected Quarterly Operating Results

         The following table presents certain  consolidated  statement of income
data for the eight  fiscal  quarters  in the  period  ended  June 30,  1998.  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. Fourth quarter
and year end 1998 data differ from previously released  information as a result
of entries made during the 1998 year end audit.  The results of  operations  for
any quarter are not necessarily indicative of results for any future period.


<PAGE>

<TABLE>
<CAPTION>



                                                                    Quarters Ended
                                           Sept. 30, Dec. 31,   March 31, June 30, Sept. 30,   Dec. 31,  March 31, June 30,
                                              1996     1996       1997      1997      1997      1997      1998      1998
                                           -------------------------------------------------------------------------------  
<S>                                         <C>       <C>       <C>      <C>         <C>       <C>       <C>      <C>
Revenues:
  Software license revenues                 $3,714    $6,525    $5,237   $10,636     $5,697    $8,596    $8,075   $15,561
  Maintenance and other revenues             3,522     3,637     4,087     3,969      4,183     4,595     4,816     5,004
                                            ------    ------    ------    ------     ------    ------    ------    ------
         Total revenues                      7,236    10,162     9,324    14,605      9,880    13,191    12,891    20,565
Costs of revenues:
  Software license revenues                    308       220       276       532        366       312       217       548
  Maintenance and other revenues               639       802       751       731        692       862       866     1,173
                                            ------    ------    ------    ------     ------    ------    ------    ------
         Total costs of revenues               947     1,022     1,027     1,263      1,058     1,174     1,083     1,721
                                            ------    ------    ------    ------     ------    ------    ------    ------
Gross profit                                 6,289     9,140     8,297    13,342      8,822    12,017    11,808    18,844
Operating expenses:
  Sales and marketing                        3,616     5,564     5,255     7,536      4,700     6,097     6,566    10,808
  Research and development                   1,367     1,443     1,533     1,561      1,681     1,869     1,975     2,400
  General and administrative                   722     1,189     1,136     1,303      1,462     1,542     1,740     1,686
  Stock compensation expense                    --        --        --        --         --        --       313       329
                                            ------    ------    ------    ------     ------    ------    ------    ------
         Total operating expenses            5,705     8,196     7,924    10,400      7,843     9,508    10,594    15,223
                                            ------    ------    ------    ------     ------    ------    ------    ------
Income from operations                         584       944       373     2,942        979     2,509     1,214     3,621
License and other interest income              140       188       223       371        325       507       541       498
Interest expense                                (7)       (4)       (4)       (7)        (4)       (2)       (3)       (5)
Foreign currency transaction gains
  (losses)                                       1        --        (8)       (5)        (3)       (3)       (5)       (4)
                                            ------    ------    ------    ------     ------    ------    ------    ------
Income before income taxes                     718     1,128       584     3,301      1,297     3,011     1,747     4,110
Provision for income taxes                     351       692       354     1,951        750     1,605       979     2,166
Accretion on Preferred Stock                    --        --        --        --         --       102        --        --
                                            ------   -------    ------   -------     ------    ------    ------   -------
Net income available to common stock        $  367   $   436    $  230   $ 1,350     $  547    $1,304    $  768   $ 1,944
                                            ======   =======    ======   =======     ======    ======    ======   =======
As a Percentage of Total Revenues
Revenues:
 Software license revenues                   51.3%      64.2%     56.2%     72.8%     57.7%      65.2%     62.6%     75.7%
  Maintenance and other revenues             48.7       35.8      43.8      27.2      42.3       34.8      37.4      24.3
                                            -----      -----     -----     -----     -----      -----     -----     ----- 
  Total revenues                            100.0      100.0     100.0     100.0     100.0      100.0     100.0     100.0
Costs of revenues:
  Software license revenues                   4.3        2.2       3.0       3.6       3.7        2.4       1.7       2.7
  Maintenance and other revenues              8.8        7.9       8.0       5.0       7.0        6.5       6.7       5.7
                                            -----      -----     -----     -----     -----      -----     -----     -----
    Total costs of revenues                  13.1       10.1      11.0       8.6      10.7        8.9       8.4       8.4
                                            -----      -----     -----     -----     -----      -----     -----     -----     
Gross profit                                 86.9       89.9      89.0      91.4      89.3       91.1      91.6      91.6
Operating expenses:
  Sales and marketing                        50.0       54.7      56.4      51.6      47.6       46.2      51.0      52.5
  Research and development                   18.8       14.2      16.4      10.7      17.0       14.2      15.3      11.7
  General and administrative                 10.0       11.7      12.2       8.9      14.8       11.8      13.5       8.2
  Stock compensation expense                   --        --        --         --        --         --       2.4       1.6
                                            -----      -----     -----     -----     -----      -----     -----     ----- 
         Total operating expenses            78.8       80.6      85.0      71.2      79.4       72.2      82.2      74.0
                                            -----      -----     -----     -----     -----      -----     -----     -----
Income from operations                        8.1        9.3       4.0      20.2       9.9       18.9       9.4      17.6
License and other interest income             1.9        1.8       2.4       2.5       3.2        3.8       4.2       2.4
Interest expense                             (0.1)        --        --      (0.1)       --         --        --        --
Foreign currency transaction gains(losses)     --         --      (0.1)       --        --        0.1        --        --
                                            -----      -----     -----     -----     -----      -----     -----     -----
Income before income taxes                    9.9       11.1       6.3      22.6      13.1       22.8      13.6      20.0
Provision for income taxes                    4.8        6.8       3.8      13.4       7.6       12.2       7.6      10.5
Accretion on Preferred Stock                   --        --        --         --        --        0.7        --        --
                                            -----      -----     -----     -----     -----      -----     -----     -----
Net income available to common stock          5.1%       4.3%      2.5%      9.2%      5.5%       9.9%      6.0%      9.5%
                                            =====      =====     =====     =====     =====      =====     =====     =====
</TABLE>


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


<PAGE>



Liquidity and Capital Resources

         Since its  inception,  Mobius  has funded  its  operations  principally
through  cash flows from  operating  activities  and, to a lesser  extent,  bank
financings  and capital  leases.  As of June 30, 1998,  Mobius had cash and cash
equivalents of $42.2 million, an increase of $36.5 million from the $5.7 million
held at June 30, 1997. Our cash position was improved  primarily by the proceeds
from our IPO.

         Net cash  provided  by  operating  activities  was $2.7  million,  $2.5
million and $5.2 million in fiscal 1996, 1997 and 1998,  respectively.  Software
license installments, which, in total, increased 68.3% from $12.5 million at the
end of fiscal 1997 to $21.0  million at end of fiscal 1998,  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  will  increase  with  the  increase  in  license  revenue  if  the
percentage of licenses sold on this basis remains  relatively  stable, as it has
over the past 3 years.

         The  Company's  cash  position  has also  benefited  from  increases in
deferred  maintenance  revenue,  which has increased 52.6% from $11.2 million at
the end of fiscal  1997 to $17.0  million  at the end of fiscal  1998.  Deferred
maintenance revenue represents the unrecognized  portion of maintenance billings
and the  unrecognized  portion of  maintenance  revenue  unbundled from customer
license  agreements which are recognized ratably over the term of the agreement.
These  increases  are  primarily  due to  increases  in the  amount of  licensed
software covered by maintenance agreements and, to a lesser extent, increases in
the fees charged to customers for maintenance.

         Cash used in  investing  activities,  consisting  primarily  of capital
expenditures for the purchase of computer equipment and software used in product
development  and  customer  support,  was $0.6  million,  $1.0  million and $1.8
million in fiscal  1996 1997 and 1998,  respectively.  In  additional  in fiscal
1998, Mobius made expenditures for leasehold  improvements for our new corporate
headquarters.

         Cash used in financing  activities  in fiscal 1996 was $0.3 million and
primarily was for the repayment of capital lease  obligations and the retirement
of notes payable.  Last year, we raised $12.0 million in a private  placement of
Series A Convertible  Preferred  Stock and  repurchased  $11.9 million of common
stock.  This year, cash provided by financing  activities was $33.1 million.  In
April 1998,  the  Securities  and Exchange  Commission  declared  effective  our
Registration  Statement for our initial public  offering of 2,500,000  shares of
common  stock at a price of $14.50 per  share.  The net  proceeds  to Mobius was
$33.0 million after deducting the  underwriting  discount and offering  expenses
payable by Mobius. As a result of the IPO, our outstanding  Series A Convertible
Stock and Class A Non-Voting  Common Stock were  converted  into an aggregate of
4,171,000 shares of common stock.

         Mobius  currently has a $5.0 million line of credit for working capital
purposes  secured by certain assets of the Company.  The line of credit requires
Mobius to maintain  certain  financial  ratios and provides for certain negative
covenants  by Mobius  including,  among  others,  restrictions,  subject  to the
qualifications and limitations  contained  therein,  on the Company's ability to
(i) dispose of a substantial  part of its business or property;  (ii) change its
business;  (iii) materially change the Company's  ownership or management;  (iv)
merge or  consolidate  with any other business  organization,  or acquire all or
substantially all of the capital stock or property of another person;  (v) incur
any  indebtedness  or  encumbrances,  other than  indebtedness  or  encumbrances
specifically  permitted  by  the  line  of  credit;  and  (vi)  make  any  other
distribution  with respect to any capital  stock of the  Company.  There were no
borrowings  outstanding  at June  30,  1998 and the line of  credit  expires  on
October 20, 1998. Mobius intends to obtain a renewal of the line of credit.

         We  believe  that the net  proceeds  from the  IPO,  combined  with our
existing cash  balances,  our line of credit and cash flows expected from future
operations,  will be sufficient to meet our capital requirements for at least 12
months.

Inflation

         Inflation has not had a significant  impact on the Company's  operating
results to date, nor does the Company expect it to have a significant  impact in
the future.

Year 2000 Compliance

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

         We believe that the purchasing  patterns of our customers and potential
customers may be significantly  affected by Year 2000 issues. Many companies are
expending  significant  resources  to correct or modify their  current  software
systems for Year 2000 compliance. These expenditures may result in reduced funds
available to purchase  software  products  such as those offered by the Company.
Conversely,  Year 2000 issues may cause other companies to accelerate purchases,
thereby  causing an increase in short-term  demand and a consequent  decrease in
long-term demand for software products.

         Additionally,  Year 2000  compliance  issues could cause a  significant
number of  companies,  including our  customers,  to  re-evaluate  their current
systems'  needs,  and as a  result,  consider  switching  to  other  systems  or
suppliers. This could have a material adverse effect on our business,  operating
results and financial condition.

         Management  has  initiated  a  Company-wide   program  to  prepare  the
Company's internal computer systems and applications (such as our accounting and
word processing programs) for Year 2000 compliance.  We expect to incur internal
staff  costs as well as other  expenses  necessary  during  the  course  of such
efforts  and we  expect  to  both  replace  some  systems  and  upgrade  others.
Maintenance or modification  costs will be expensed as incurred.  The total cost
of this effort is still being  evaluated,  but is not expected to be material to
Mobius.

Recent Accounting Pronouncements

         In  October  1997,  the  AICPA  issued  SOP  97-2,   "Software  Revenue
Recognition",  which  supersedes SOP 91-1. SOP 97-2 generally  requires  revenue
earned on software arrangements involving multiple elements,  such as additional
software  products,  upgrades  or  enhancements,  rights to  exchange  or return
software,   postcontract  customer  support,  or  services,  including  elements
deliverable  only  on a  when-and-if-available  basis,  to be  allocated  to the
various elements of such sale based on  "vendor-specific  objective  evidence of
fair  values"  allocable to each such  element.  If  sufficient  vendor-specific
objective  evidence of fair market values does not exist,  revenue from the sale
could be deferred until such sufficient  evidence exists,  or until all elements
have satisfied the requirements for revenue recognition.

         On March  31,  1998,  the  AICPA  issued  SOP  98-4,  "Deferral  of the
Effective Date of a Provision of SOP 97-2,  Software Revenue  Recognition".  SOP
98-4 defers for one year the  application of what is considered  vendor-specific
objective  evidence  of the fair  value of the  various  elements  in a multiple
element  arrangement.  All other  provisions  of SOP 97-2 remain in effect.  The
Company will adopt SOP 97-2 for  software  transactions  entered into  beginning
July 1, 1998. The Company believes such adoption will not have a material effect
on its fiscal 1999 operations.

         In June 1997, the Financial  Accounting Standards Board issued SFAS No.
130, "Reporting  Comprehensive  Income" and No. 131, "Disclosures about Segments
of an Enterprise and Related  Information".  SFAS No. 130 will require companies
to report comprehensive income and SFAS No. 131 will require companies to report
segment  information as it is used internally to evaluate  segment  performance.
These statements merely provide for additional disclosure  requirements and will
be adopted by Mobius starting in fiscal 1999.

         In February 1998, the Financial  Accounting Standards Board issued SFAS
No.  132,  "Employers'  Disclosures  about  Pensions  and Other Post  Retirement
Benefits." SFAS No. 132  standardizes  the disclosure  requirements for pensions
and other postretirement  benefits. This statement is effective for fiscal years
beginning after December 15, 1997.

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Not applicable.


<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 28, 1998
pursuant to Regulation 14A of the General Rules and Regulations under Securities
Exchange Act of 1934, as amended.

ITEM 11. EXECUTIVE COMPENSATION

         Information  required by this item is  incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 28, 1998
pursuant to Regulation 14A.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         Information  required by this item is  incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 28, 1998
pursuant to Regulation 14A.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Information  required by this item is  incorporated by reference to the
Company's definitive proxy statement to be filed not later than October 28, 1998
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, 1997 and 1998....................
Consolidated Statements of Income for the Years Ended June 30, 1996,
     1997 and 1998..........................................................
Consolidated Statements of Stockholders' Equity for the Years Ended
     June 30, 1996, 1997, and 1998..........................................
Consolidated Statements of Cash Flows for the Years Ended June 30,
     1996, 1997, and 1998...................................................
Notes to Consolidated Financial Statements..................................








<PAGE>




                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Mobius Management Systems, Inc.:

     We have audited the consolidated  financial statements of Mobius Management
Systems,  Inc.  and  subsidiaries  as  listed  in  the  accompanying  index.  In
connection  with our audits of the  consolidated  financial  statements  we also
audited the financial  statement  schedule listed in the index at Item 14. These
consolidated  financial  statements  and  financial  statement  schedule are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these  consolidated  financial  statements  and  financial  statement
schedule based on our audits.

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

     In our opinion,  the consolidated  financial  statements  referred to above
present  fairly,  in all material  respects,  the  financial  position of Mobius
Management  Systems,  Inc. and subsidiaries as of June 30, 1997 and 1998 and the
results  of their  operations  and their cash flows for each of the years in the
three-year  period ended June 30, 1998, in conformity  with  generally  accepted
accounting  principles.  Also, in our opinion,  the related financial  statement
schedule,  when  considered  in  relation  to the basic  consolidated  financial
statements  taken as a whole,  presents  fairly,  in all  material  respects the
information set forth therein.


                                                          KPMG PEAT MARWICK LLP

July 28, 1998
Stamford, CT








<PAGE>



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


                                                                 June 30,
                                                             1997      1998
                                                           -------   -------
ASSETS                                                             

Current assets:
     Cash and cash equivalents                             $ 5,672   $42,222
     Accounts receivable, net of allowance
         for doubtful accounts of $308
         and $612 respectively                               7,793    10,733
     Software license installments,
         current portion                                     4,615     7,330
     Other current assets                                      474     1,682
                                                           -------   -------
              Total current assets                          18,554    61,967

Software license installments,
     non-current portion, net of
     allowance for doubtful accounts
     of $413 and $767, respectively                          7,871    13,686
Property and equipment, net                                  1,990     2,932
Other assets                                                    87       215
                                                          --------  --------
              Total assets                                $ 28,502  $ 78,800
                                                          ========  ========

LIABILITIES, PREFERRED STOCK AND STOCKHOLDERS' EQUITY

Current liabilities:
     Accounts payable and accrued expenses                $  6,593  $  9,471
     Deferred maintenance revenue                            7,494    11,408
     Deferred income taxes                                   1,551     2,054
     Other liabilities                                         134       969
                                                          --------   -------
              Total current liabilities                     15,772    23,902

Deferred maintenance revenue,
     non-current portion                                     3,661     5,616
Deferred income taxes                                        1,420     3,124
Capital lease obligations, less
     current portion                                            95        36
Convertible preferred stock, $.01 par
     value; 40,910 and 0 shares outstanding, respectively   11,898        --

Stockholders' (deficit) equity:
     Common stock $.0001 par value;
         authorized 40,000,000 shares;
         issued 15,000,000 and 17,694,500
         shares, respectively;
         outstanding 10,909,000 and
         17,694,500 shares, respectively                         1         2
     Additional paid-in capital                                 --    47,994
     Retained earnings                                       7,636    12,199
     Deferred stock compensation                                --    (2,076)
     Cumulative foreign currency
         translation adjustment                                 19         3
     Treasury stock, at cost, 4,091,000
         and 4,091,000 shares, respectively                (12,000)  (12,000)
                                                          --------  --------
              Total stockholders' (deficit) equity          (4,344)   46,122
                                                          --------  --------
Total liabilities, preferred stock
     and stockholders' equity                             $ 28,502  $ 78,800
                                                          ========  ========


                See accompanying notes to consolidated financial
                                  statements.


<PAGE>



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

                                                    Years Ended June 30,
                                             1996          1997           1998
                                           -------       -------       --------

Revenues:
     Software license revenues             $18,769       $26,112        $37,929
     Maintenance and other revenues         12,189        15,215         18,598
                                           -------       -------        -------
         Total revenues                     30,958        41,327         56,527
Costs of revenues:
     Software license revenues                 626         1,336          1,443
     Maintenance and other revenues          2,716         2,923          3,593
                                           -------       -------        -------
         Total costs of revenues             3,342         4,259          5,036
                                           -------       -------        -------
Gross profit                                27,616        37,068         51,491
Operating expenses:
     Sales and marketing                    15,136        21,971         28,171
     Research and development                4,600         5,904          7,925
     General and administrative              2,832         4,350          6,430
     Stock compensation expense                 --            --            642
                                           -------       -------        ------- 
         Total operating expenses           22,568        32,225         43,168
                                           -------       -------        -------
Income from operations                       5,048         4,843          8,323
License and other interest income              339           922          1,871
Interest expense                               (41)          (22)           (14)
Foreign currency transaction losses            (72)          (12)           (15)
                                           -------       -------        -------
Income before income taxes                   5,274         5,731         10,165
Provision for income taxes                   2,657         3,348          5,500
Accretion on Preferred Stock                    --            --            102
                                           -------       -------        -------
Net income available to common stock       $ 2,617       $ 2,383        $ 4,563
                                           =======       =======        =======

Basic earnings per share                   $  0.17       $  0.17        $  0.38
Basic weighted average shares
     outstanding                            15,000        14,318         12,156

Diluted earnings per share                 $  0.17       $  0.15        $  0.27
Diluted weighted average
     shares outstanding                     15,000        15,882         16,738


                See accompanying notes to consolidated financial
                                  statements.



<PAGE>

<TABLE>


                                                                MOBIUS MANAGEMENT SYSTEMS, INC.

                                                        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                                                                        (in thousands)
<CAPTION>

                                                                                    Cumulative                    
                                                                                     Foreign                          Total
                                               Additional                           Currency                       Stockholders'
                                 Common Stock    Paid in    Retained    Deferred   Translation   Treasury Stock     (Deficit)
                                Shares  Amount   Capital    Earnings  Compensation  Adjustment   Shares   Amount      Equity
                              ------------------------------------------------------------------------------------------------
<S>                             <C>     <C>       <C>        <C>          <C>         <C>         <C>     <C>         <C>
Balance at June 30, 1995        16,727  $  2      $  77      $2,689       $   -       $(51)       1,727    $ (131)    $2,586
Net Income                           -     -          -       2,617           -          -            -        -       2,617
Unrealized translation gain          -     -          -           -           -         23            -        -          23
                              ------------------------------------------------------------------------------------------------
Balance at June 30, 1996        16,727     2         77       5,306           -        (28)       1,727      (131)    $5,226
                                     -     -          -       2,383           -          -            -        -       2,383
Net Income
Unrealized translation gain          -     -          -           -           -         47            -        -          47
Retirement of treasury stock    (1,727)   (1)       (77)        (53)          -          -       (1,727)      131          -
Shares repurchased in
connection with issuance
of preferred stock              (4,091)    -          -           -           -          -        4,091   (12,000)   (12,000)
                              ------------------------------------------------------------------------------------------------
Balance at June 30, 1997        10,909     1          -       7,636           -         19        4,091   (12,000)    (4,344)
Net Income                           -     -          -       4,563           -          -            -         -      4,563
Unrealized translation gain          -     -          -           -           -        (16)           -         -        (16)
Issuance of common stock         2,500     -     33,034           -           -          -            -         -     33,034
Conversion of preferred                                                                                        
stock                            4,091     1     11,999           -           -          -            -         -     12,000
Conversion of Class A
common stock                        80     -        100           -           -          -            -         -        100
Exercise of stock options          115     -        143           -           -          -            -         -        143
Deferred compensation                -     -      2,718           -     (2,718)          -            -         -          -
Amortization of stock
    compensation                     -     -          -           -        642           -            -         -        642
                              ------------------------------------------------------------------------------------------------
Balance at June 30, 1998        17,695  $  2    $47,994     $12,199    $(2,076)        $ 3        4,091  $(12,000)   $46,122
                              ================================================================================================



     See accompanying notes to consolidated financial statements.

</TABLE>
<PAGE>





                
                         MOBIUS MANAGEMENT SYSTEMS, INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)


                                                       Years Ended June 30,  
                                                    1996      1997      1998


Cash flows provided by operating activities:
  Net income                                     $ 2,617    $ 2,383   $ 4,563
Adjustments to reconcile net
  income to net cash provided
  by operating  activities:
   Deferred income taxes                             700      1,857     2,207
   Depreciation and amortization                     381        406       760
   Stock compensation expense                         --         --       642
   Accretion of Preferred Stock                       --         --       102
   Loss on disposal of fixed assets                   --         --        78
   Change in operating assets
     and liabilities:
     Accounts receivable, net                        (56)      (465)   (2,940)
     Software license installments                (3,673)    (7,497)   (8,530)
     Other assets                                    (21)      (235)   (1,236)
     Accounts payable and accrued expenses         1,059      2,112     2,878
     Other liabilities                              (179)       (94)      835
     Deferred maintenance revenue                  1,837      4,002     5,869
                                                  ------     ------    ------
         Total adjustments                            48         86       665
                                                  ------     ------    ------
         Net cash provided by operating
           activities                              2,665      2,469     5,228
                                                  ------     ------    ------
Cash flows used in investing activities:
   Capital expenditures                             (628)    (1,039)   (1,780)
                                                  ------     ------    ------
Cash flows (used) provided
  by financing activities:
   Cash received from sale of preferred
     stock, net of issuance costs                     --     11,898        --
   Cash received from sale of common stock            --         --    33,713
   Payments relating to sale of common stock          --         --      (679)
   Cash received from exercise of stock options       --         --       143
   Cash payment for repurchase of common stock        --    (12,000)       --
   Payments on capital lease obligations             (55)      (150)      (59)
   Payments on notes payable                        (269)        --        --
                                                  ------     ------    ------
         Net cash (used) provided by financing
           activities                               (324)      (252)   33,118
                                                  ------     ------    ------
Effect of exchange rate changes on
   cash and cash equivalents                          23         47       (16)
                                                  ------     ------    ------
Net change in cash and cash equivalents            1,736      1,225    36,550
Cash and cash equivalents at beginning
   of period                                       2,711      4,447     5,672
                                                 -------    -------   -------
Cash and cash equivalents at end of period       $ 4,447    $ 5,672   $42,222
                                                 =======    =======   =======
Supplemental disclosure of cash flow
   information:
   Cash paid during the period for:
     Interest                                    $    41    $    22   $    14
     Income taxes                                  1,779      1,544     2,419
   Capital lease obligations incurred                219         --        --

     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 optimize the storage, retrieval and presentation of large volumes of
transactional information.

         The  Company was  incorporated  in the State of New York in 1981 and in
1997 the Company was reincorporated in the State of Delaware. In March 1993, the
Company   established  its  first   wholly-owned   subsidiary,   Mobius  UK  and
subsequently expanded its direct sales force to France,  Germany, Italy, Sweden,
Switzerland and Australia.

(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

         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.  Such  license  revenue  and
maintenance  and service  revenue are recognized in accordance with Statement of
Position 91-1, "Software Revenue Recognition."

         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.

        Revenue on maintenance  contracts is recognized on a straight-line basis
over the term of the maintenance  contract,  generally twelve months, except for
maintenance on term license  contracts,  which extends to the contract term. The
unearned  portion of maintenance  revenue is classified as deferred  maintenance
revenue.

        When the software license  contract  includes  maintenance,  the Company
unbundles  maintenance  revenue from the initial  license fee and  recognizes it
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.

  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.


<PAGE>



                         MOBIUS MANAGEMENT SYSTEMS, INC.

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)


         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
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, 1997 and
1998,  cash  equivalents  were comprised of overnight  deposits and money market
investments with financial institutions.

  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,  accounts receivable,  software license installments,
accounts payable,  accrued expenses and deferred maintenance amounts approximate
their carrying value.

  Earnings Per Share

         Effective  December  1997, the Company  adopted  Statement of Financial
Accounting  Standards  (SFAS)  No.  128,  "Earnings  Per  Share".  SFAS No.  128
stipulates  that the  calculation  of earnings  per share (EPS) be shown for all
historical  periods  as Basic EPS and  Diluted  EPS.  Basic EPS is  computed  by
dividing income available to common  shareholders by the weighted average number
of common shares  outstanding  during the period. The computation of Diluted EPS
is similar to the  computation  of Basic EPS except that it gives  effect to all
potentially  dilutive  instruments that were outstanding during the period. Such
dilutive   instruments  include  stock  options,  the  conversion  of  Series  A
Convertible Preferred Stock, and the conversion of the Class A Non-Voting Common
Stock.

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

<TABLE>
<CAPTION>

                                                                   Years Ended June 30,
                                                  1997                                             1998
                               ------------- ---------------- ------------     -------------- --------------- -----------
                                Net Income       Shares        Per Share        Net Income        Shares      Per Share
                               (Numerator)    (Denominator)     Amount         (Numerator)    (Denominator)     Amount
<S>                               <C>            <C>             <C>              <C>             <C>           <C>
Basic EPS:
Net income                        $2,383                                          $4,563
                                  ======                                          ======  
Weighted average shares
 outstanding                                     14,318                                           12,156
Basic EPS                                                        $0.17                                          $0.38
                                                                 =====                                          =====
Diluted EPS:
Net income                        $2,383                                          $4,563
                                  ======                                          ======
Dilutive     effect     of
convertible securities                              682                                            3,428
Dilutive effect of
 stock options                                      882                                            1,154
                                                 ------                                           ------  
Diluted EPS                                      15,882          $0.15                            16,738        $0.27
                                                 ======          =====                            ======        =====
</TABLE>

         There were no reconciling  items impacting the numerator or denominator
for the basic and diluted earnings per share calculation for fiscal 1996.

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.


<PAGE>



  Recent Accounting Pronouncements

         In  October  1997,  the  AICPA  issued  SOP  97-2,   "Software  Revenue
Recognition",  which  supersedes SOP 91-1. SOP 97-2 generally  requires  revenue
earned on software arrangements involving multiple elements,  such as additional
software  products,  upgrades  or  enhancements,  rights to  exchange  or return
software,   postcontract  customer  support,  or  services,  including  elements
deliverable  only  on a  when-and-if-available  basis,  to be  allocated  to the
various elements of such sale based on  "vendor-specific  objective  evidence of
fair  values"  allocable to each such  element.  If  sufficient  vendor-specific
objective  evidence of fair market values does not exist,  revenue from the sale
could be deferred until such sufficient  evidence exists,  or until all elements
have satisfied the requirements for revenue recognition.

         On March  31,  1998,  the  AICPA  issued  SOP  98-4,  "Deferral  of the
Effective Date of a Provision of SOP 97-2,  Software Revenue  Recognition".  SOP
98-4 defers for one year the  application of what is considered  vendor-specific
objective  evidence  of the fair  value of the  various  elements  in a multiple
element  arrangement.  All other  provisions  of SOP 97-2 remain in effect.  The
Company will adopt SOP 97-2 for  software  transactions  entered into  beginning
July 1, 1998. The Company believes such adoption will not have a material effect
on its fiscal 1999 operations.

         In June 1997, the Financial  Accounting Standards Board issued SFAS No.
130, "Reporting  Comprehensive  Income" and No. 131, "Disclosures about Segments
of an Enterprise and Related  Information".  SFAS No. 130 will require companies
to report comprehensive income and SFAS No. 131 will require companies to report
segment  information as it is used internally to evaluate  segment  performance.
These statements merely provide for additional disclosure  requirements and will
be adopted by Mobius starting in fiscal 1999.

         In February 1998, the Financial  Accounting Standards Board issued SFAS
No.  132,  "Employers'  Disclosures  about  Pensions  and Other Post  Retirement
Benefits." SFAS No. 132  standardizes  the disclosure  requirements for pensions
and other postretirement  benefits. This statement is effective for fiscal years
beginning after December 15, 1997.

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

 (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, 1997 and 1998 the
effective weighted average discount rate used for software license  installments
was 7.59% and 7.61%, respectively.  The discount is amortized to interest income
using the interest method over the term of the license contract.

         The present  values of  software  license  installments  to be received
after June 30, 1998 are as follows (in thousands):
                                                  
         Year Ended:

         June 30, 1999                                $ 9,081
         June 30, 2000                                  7,172
         June 30, 2001                                  5,521
         June 30, 2002                                  3,089
         June 30, 2003                                    331
                                                      -------
         Total minimum payments to be received         25,194
         Less unearned interest income                 (3,411)
         Less allowance for doubtful accounts            (767)
                                                      -------
         Present value of software 
          license installments, net                    21,016
         Less current portion, net                     (7,330)
                                                      -------
         Non-current portion, net                     $13,686
                                                      =======

(4)  Property and Equipment

         Property and equipment consists of the following (in thousands):
                                                              
                                                                June 30,
                                                            1997        1998
                                                          -------     -------

         Furniture, fixtures and office equipment         $   700     $   508
         Computer equipment                                 2,985       4,410
         Leasehold improvements                               315         544
                                                          -------     -------
                                                            4,000       5,462
         Less accumulated depreciation and amortization    (2,010)     (2,530)
                                                          -------     -------
         Property and equipment, net                      $ 1,990     $ 2,932
                                                          =======     =======

         Depreciation  and  amortization  expense  on  property  and  equipment,
including  capital  leases,  was $381,000,  $406,000 and $760,000 for the twelve
months ended June 30, 1996, 1997 and 1998,  respectively.  The net book value of
equipment  under capital  leases  included in property and equipment at June 30,
1997 and 1998 was $175,000 and $140,000, respectively.

(5)  Accounts Payable and Accrued Expenses

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

                                                         June 30,
                                                      1997       1998
                                                    ------      ------

         Accounts payable                           $1,002      $  801
         Compensation and related benefits           4,196       4,872
         Royalty payable                               680       1,318
         Other                                         715       2,480
                                                    ------      ------
                                                    $6,593      $9,471
                                                    ======      ======

(6)  Income Taxes

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



                                         Years Ended June 30,
                                    1996          1997         1998


         Domestic income           $6,072      $ 7,923       $13,261
         Foreign losses              (798)      (2,192)       (3,096)
                                   ------      -------       -------
                                   $5,274      $ 5,731       $10,165
                                   ======      =======       =======

         The  components  of the  provision for income taxes for the years ended
June 30, 1996, 1997 and 1998 are as follows (in thousands):
<TABLE>
<CAPTION>

                                                    Year Ended June 30,
                         1996                              1997                               1998
            Current    Deferred   Total      Current     Deferred     Total     Current     Deferred    Total
            -------------------------------------------------------------------------------------------------
<S>         <C>          <C>      <C>        <C>          <C>        <C>        <C>          <C>
Federal     $1,577       $573     $2,150     $1,200       $1,521     $2,721     $2,704       $1,807    $4,511
State          336        127        463        276          336        612        542          400       942
Foreign         44         --         44         15           --         15         47           --        47
            -------------------------------------------------------------------------------------------------
            $1,957       $700     $2,657     $1,491       $1,857     $3,348     $3,293       $2,207    $5,500
            =================================================================================================
</TABLE>

     The following table reconciles the Federal statutory  corporate rate of 34%
to the  effective  income tax rate for the years ended June 30,  1996,  1997 and
1998:

                                             Years Ended June 30,
                                    1996           1997            1998
                                   ------------------------------------

Federal statutory corporate rate     34%            34%             34%
State income taxes, net of
  Federal benefit                     6              6               6
Losses of foreign subsidiaries        6             14              11
Research credit                       -             (1)              -
Other                                 4              5               3
                                     --             --              --
                                     50%            58%             54%
                                     ==             ==              ==

         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,
                                                       1997          1998
                                                   -----------------------
Deferred tax assets:
   Accounts receivable, principally due
      to allowance for doubtful accounts           $    216       $   401
   Foreign net operating loss carryforwards           1,677         3,067
                                                   --------       -------
                                                      1,893         3,468
Valuation allowance                                  (1,677)       (3,067)
                                                   --------       -------
   Net deferred tax assets                              216           401
Deferred tax liabilities:
   Software license installments                      3,111         5,376
   Depreciation                                          76           203
                                                   --------       -------
   Net deferred tax liability                       $ 2,971       $ 5,178
                                                   ========       =======


         The valuation allowance increased by $328,000,  $969,000 and $1,390,000
for the years ended June 30, 1996, 1997 and 1998 primarily due to uncertainty of
realization of net operating  losses incurred by certain  foreign  subsidiaries.
The Company will reduce the valuation  allowance when it is concluded that it is
more likely than not that these deferred tax assets will not be realized.

     The  expiration  of net  operating  loss  carryforwards  varies by  foreign
jurisdiction;   some  begin  to  expire  in  fiscal   2000  and  others   extend
indefinitely.

<PAGE>



(7)  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 8) 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, 1998.

         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.  As a result of the IPO,
the  Company's  outstanding  Series A  Convertible  Preferred  Stock and Class A
Non-Voting  Common Stock were converted into an aggregate of 4,171,000 shares of
common stock.

  Class A Non-Voting Common Stock

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

  Stock Split

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

(8)  Preferred Stock

         The Company has authorized 200,000 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 ("Convertible Preferred Stock") for $12,000,130.

         Such Convertible Preferred Stock was converted into 4,091,000 shares of
the Company's common stock upon completion of the IPO.


<PAGE>



(9)  Stock Option and Employee Stock Plans

  1996 Stock Incentive Plan

         In November  1996,  the  Company  adopted a stock  incentive  plan (the
"Plan")  pursuant  to which the  Company's  Board of  Directors  may grant stock
options to officers,  employees,  directors and consultants. The Plan authorizes
grants of options to purchase up to 3,480,000  shares of authorized but unissued
common  stock.  Stock  options are 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 Directors' Plan. The purpose of the Directors'
Plan is to provide an incentive to the Company's non-employee directors to serve
on the Board of Directors  and to maintain and enhance the  Company's  long-term
performance. The Directors' Plan provides for the issuance of a total of 250,000
authorized and unissued  shares of common stock,  treasury  shares and/or shares
acquired by the Company for purposes of the Directors' Plan.

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

  1998 Employee Stock Purchase Plan ("ESPP")

         In  February  1998,  the Board of  Directors  and  stockholders  of the
Company  approved  and adopted  the ESPP.  The purpose of the ESPP is to provide
eligible  employees  who  wish  to  acquire  common  stock  of the  Company  the
opportunity  to  purchase  shares  from the  Company  with  accumulated  payroll
deductions. The ESPP is intended to constitute an "employee stock purchase plan"
under  section 423 of the  Internal  Revenue  Code.  The ESPP  provides  for the
issuance of an aggregate  of up to 300,000  authorized  and  unissued  shares of
common stock,  treasury  shares  and/or  shares  acquired by the Company for the
purposes of the ESPP. As of June 30, 1998, no shares have been issued under this
plan.

Stock option activity  during the periods  indicated was as follows:
                             
                                                   Weighted
                                                    Average
                               Number of            Exercise
                                 Shares               Price
                               ---------            --------

Balance at June 30, 1996              --                 --
   Granted                     2,045,500              $1.25
   Exercised                          --                 --
   Forfeited                          --                 --
   Expired                            --                 --
                               ---------
Balance at June 30, 1997       2,045,500               1.25
   Granted                     1,248,500               8.88
   Exercised                    (194,500)              1.25
   Forfeited                    (702,000)              1.43
   Expired                            --                 --
                               ---------
Balance at June 30, 1998       2,397,500              $5.17
                               =========

         At June 30, 1997 and 1998,  the range of  exercise  price was $1.25 and
$1.25- $11.00,  respectively.  At June 30, 1997 and 1998,  the weighted  average
remaining  contractual  life of  outstanding  options  was 8.92 and 8.87  years,
respectively.

     At June 30,  1998,  the number of options  exercisable  was 399,650 and the
weighted average exercise price of the exercisable options was $3.41. There were
no options exercisable at June 30, 1997.

     At June 30, 1998,  there were 918,000 shares  available for grant under the
1996 Stock Incentive Plan and 220,000 shares  available for grant under the 1998
Non-Employee Directors' Stock Option Plan.

         The  Company  applies  APB  Opinion  No. 25 in  measuring  compensation
expense for options issued under the Plan. In January,  February and March 1998,
the Company  granted  350,000,  340,000 and 43,000 stock options,  respectively,
under the 1996 Stock  Incentive  Plan at  exercise  prices of $9.86,  $11.00 and
$11.00 per share,  respectively.  In February  1998,  the Company  issued 30,000
stock options under the 1998 Non-Employee Directors' Stock Option Plan at $11.00
per share. The Company  subsequently  determined that these options were granted
at exercise prices below the fair market value of $14.00 per share. As a result,
and  assuming  that all such options vest in  accordance  with their terms,  the
Company expects to incur total compensation expense of approximately $2,718,000,
which will be amortized over the respective option holders' service periods. For
the year ended June 30,  1998,  the Company  recorded  $642,000 as  compensation
expense. Additional compensation expense is expected to be $1,055,000, $558,000,
$288,000,  $130,000 and $45,000 for the years ended June 30, 1999,  2000,  2001,
2002 and 2003, respectively.

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

                                                          Year Ended
                                                           June 30,
                                                   1997               1998
                                                 ------             ------
Net income and earnings per share 
as would be reported under SFAS No. 123:
  Net income                                     $2,317             $4,209
  Basic earnings per share                       $ 0.16              $0.35
  Diluted earnings per share                     $ 0.15              $0.25

         The per share  weighted  average  fair value of stock  options  granted
during the year ended June 30,  1997 and 1998 was $0.80 and $5.93 on the date of
grant using the modified Black Scholes option pricing model,  respectively.  All
the grants  assumed  no  volatility,  expected  dividend  yield of 0.0%,  and an
expected  life of 7 years.  The assumed risk free  interest  rate on the date of
grants were 6.5% in fiscal 1997 and ranged between 5.7% and 6.8% in fiscal 1998.

(10)  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, 1996, 1997 and 1998.

         In  February  1998,  the Board of  Directors  and  stockholders  of the
Company have approved and adopted the Mobius Management Systems,  Inc. Executive
Incentive Plan (the "Incentive Plan"). The Incentive Plan is administered by the
Compensation  Committee of the Board.  Participation  in the  Incentive  Plan is
limited to those  executives  and key  employees  who,  in the  judgment  of the
Compensation  Committee,  are in a position to have a significant  impact on the
performance of the Company.

         Awards  under the  Incentive  Plan are based  upon the  extent to which
performance  goals  established by the  Compensation  Committee for a designated
performance  period are  satisfied.  Performance  goals are  related to criteria
which include net earnings,  operating  income,  earnings per share,  cash flow,
absolute and/or relative return on equity or assets,  pre-tax  profits,  earning
growth,  revenue growth,  comparison to peer  companies,  any combination of the
foregoing or any other criteria as the Compensation Committee deems appropriate.
The Compensation  Committee may provide that the bonuses payable to participants
will vary based upon different  levels of  achievement of the applicable  goals.
The Incentive Plan also provides for grants of discretionary bonuses. As of June
30, 1998, there were no awards made under the Incentive Plan.


<PAGE>



(11)  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 of its computer
and office  equipment  under  capital  leases  expiring on various dates through
fiscal 2000.

         The  following  is a schedule  of future  minimum  lease  payments  for
capital and operating leases as of June 30, 1998 (in thousands):
                                           
                                            Capital         Operating
                                            Leases           Leases
Year Ended:

June 30, 1999                               $ 65             $ 1,773
June 30, 2000                                 37               1,648
June 30, 2001                                 --               1,612
June 30, 2002                                 --               1,285
June 30, 2003                                 --               1,181
Thereafter                                    --               5,281
                                            ----             -------
Total minimum lease payments                 102             $12,780
                                                             =======
Less interest component                       (7)
                                            ----
Present value of minimum lease payments       95
Less current portion                         (59)
                                            ----
Non-current portion                         $ 36
                                            ====


     Rental  expense  for  all  operating  leases  was  approximately  $873,000,
$1,046,000  and  $1,521,000  for the years ended June 30,  1996,  1997 and 1998,
respectively.


<PAGE>



(12)  Geographic Area Information and Foreign Operations
                                                                     
                                    United
                                    States    Foreign(a) Eliminations  Total
                                   ------------------------------------------

Year Ended June 30, 1996:                              
Revenue:
   From unaffiliated customers(b)  $27,617      3,341          --     $30,958
   Between geographic areas(c)         899         --        (899)         --
                                   -------     ------        -----    -------
Total Revenue                      $28,516      3,341        (899)    $30,958
                                   =======     ======        =====    =======

Net income                         $ 3,029       (412)         --     $ 2,617
Identifiable assets                $18,975      2,889      (3,418)    $18,446

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

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

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

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

(a)      The Company operates  wholly-owned  subsidiaries in the United Kingdom,
         Italy, Germany,  France,  Sweden,  Switzerland and Australia.  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.

(13)  Commitments and Contingencies

  Revolving Line of Credit

         The Company has available as of June 30, 1998 with Silicon  Valley Bank
a revolving line of credit of $5,000,000 for working capital  purposes,  bearing
interest at the prime rate.  At June 30,  1998 there were no  borrowings  on the
line and the  agreement  expires  on  October  20,  1998.  The line of credit is
secured by certain assets of the Company.

         The agreement  contains  certain  financial  restrictions and covenants
which, among other things,  includes provisions for maintaining a minimum amount
of cash, net worth and profitability.

  Letter of Credit

     At June 30, 1998, the Company has a letter of credit for $500,000 under the
above line of credit with Silicon  Valley Bank in  connection  with the lease on
its corporate office.

<PAGE>





(a)(2)  Financial Statement Schedules

          Schedule II--Valuation and Qualifying Accounts and Reserves:


                                                                    SCHEDULE II
                         MOBIUS MANAGEMENT SYSTEMS, INC.

                        Valuation and Qualifying Accounts
                                 (In thousands)

<TABLE>

               
                                                        Additions
                                      Balance at  Charged to  Charges                   Balance
                                      beginning   costs and  to other                   at end
Description                           of period   expenses   accounts   Deductions     of period
<S>                                      <C>        <C>        <C>        <C>             <C>    
Year ended June 30, 1996: 
Deductions from asset account:
  Allowance for doubtful accounts         80         575        --        (232)           423
Year ended June 30, 1997:
Deductions from asset account:
  Allowance for doubtful accounts        423         817        --        (519)           721
Year ended June 30, 1998:
Deductions from asset account:
  Allowance for doubtful accounts        721       1,199        --        (541)         1,379
</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*   --    Stock Purchase  Agreement  dated as of May 12,  1997 by and among 
              the Registrant and the other parties listed on the signature pages
              thereto.
10.10*  --    Stockholders'  Agreement  dated as of May 12,  1997 by and among
              the  Registrant  and the other parties  listed on the signature 
              pages thereto.
10.11*  --    Registration  Rights  Agreement  dated May 12,  1997 by and among
              the Registrant  and the other parties  listed on the signature  
              pages thereto.
10.12*  --    Employment Agreement between the Registrant and Mitchell Gross, 
              dated February 26, 1998.
10.13*  --    Employment Agreement between the Registrant and Joseph Albracht, 
              dated February 26, 1998.
10.14*  --    Severance Agreement dated as of September 30, 1997 between the 
              Registrant and Joseph Tinnerello.
10.15*  --    Option Agreement dated as of September 30, 1997 between the 
              Registrant and Joseph Tinnerello.
10.16*  --    Letter Agreement, dated as of December 28, 1997 between the 
              Registrant and Joseph Tinnerello.
10.17*  --    Stockholder Agreement, dated as of December 30, 1997 between the 
              Registrant and Joseph Tinnerello.
10.18*  --    Loan and Security Agreement dated as of October 21, 1997 between 
              Silicon Valley Bank and the Registrant.
10.19*  --    Software  Assets  Purchase  Agreement  dated as of  December 10, 
              1990 among the  Registrant, Compucept of Nevada and Software 
              Assist Corporation.
10.20*  --    OEM Agreement between the Registrant and CDP Communications, Inc.
              dated as of October 15, 1993.
10.21*  --    Source Code License and Amendment to OEM Agreement between the 
              Registrant and CDP Communications Inc. dated as of August 12,1997.
10.22*  --    Amendment#1 to License and Amendment to OEM Agreement between the 
              Registrant and CDP Communications, Inc. dated November 21, 1997.


<PAGE>




Exhibit No.     Description

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

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



<PAGE>




                                   SIGNATURES


     Pursuant to the  requirements  of Section 13 or 15(d) of the Securities Act
of 1934,  the  registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.


                               MOBIUS MANAGEMENT SYSTEMS, INC.


                               By:   /s/ Mitchell Gross
                                   Mitchell Gross
                                   Chairman of the Board, Chief
                                   Executive Officer and President
                                   (Principal Executive Officer and
                                    Director)

                               Date:    September 23, 1998




     Pursuant to the  requirements  of Section 13 or 15(d) of the Securities Act
of 1934,  this  report has been  signed  below by the  following  persons in the
capacities and on the dates indicated.




       Signatures        Title(s)                                 Date


                                                            
  /s/ Mitchell Gross     Chairman of the Board, Chief       September 23, 1998
     Mitchell Gross      Executive Officer, President
                         (Principal Executive Officer
                         and Director)


 /s/ Joseph J. Albracht  Executive Vice President, Chief    September 23, 1998
   Joseph J. Albracht    Operating Officer, Secretary
                         and Director



  /s/ E. Kevin Dahill    Vice President, Finance, Chief     September 23, 1998
     E. Kevin Dahill     Financial Officer and Treasurer
                         (Principal Financial
                         and Accounting Officer)


  /s/ Peter J. Barris    Director                           September 23, 1998
     Peter J. Barris



/s/ Edward F. Glassmeyer Director                           September 23, 1998
  Edward F. Glassmeyer



/s/ Kenneth P. Kopelman  Director                           September 23, 1998
   Kenneth P. Kopelman




<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*    --    Stock Purchase  Agreement  dated as of May 12, 1997 by and among
               the  Registrant  and the other parties listed on the signature  
               pages thereto.
10.10*   --    Stockholders'  Agreement  dated as of May 12,  1997 by and among
               the  Registrant  and the other parties  listed on the signature  
               pages thereto.
10.11*   --    Registration  Rights  Agreement  dated May 12, 1997 by and among
               the Registrant  and the other parties  listed on the signature  
               pages thereto.
10.12*   --    Employment Agreement between the Registrant and Mitchell Gross,
               dated February 26, 1998.
10.13*   --    Employment Agreement between the Registrant and Joseph Albracht,
               dated February 26, 1998.
10.14*   --    Severance Agreement dated as of September 30, 1997 between the 
               Registrant and Joseph Tinnerello.
10.15*   --    Option Agreement dated as of September 30, 1997 between the 
               Registrant and Joseph Tinnerello.
10.16*   --    Letter Agreement, dated as of December 28, 1997 between the 
               Registrant and Joseph Tinnerello.
10.17*   --    Stockholder Agreement, dated as of December 30, 1997 between the 
               Registrant and Joseph Tinnerello.
10.18*   --    Loan and Security Agreement dated as of October 21, 1997 between 
               Silicon Valley Bank and the Registrant.
10.19*   --    Software  Assets  Purchase  Agreement  dated as of  December 10,
               1990 among the  Registrant,  Compucept of Nevada and Software  
               Assist Corporation.
10.20*   --    OEM Agreement between the Registrant and CDP Communications, Inc
               dated as of October 15, 1993.
10.21*   --    Source Code License and Amendment to OEM Agreement between the 
               Registrant and CDP Communications Inc.dated as of August 12,1997.
10.22*   --    Amendment#1 to License and Amendment to OEM Agreement between
               the Registrant and CDP Communications, Inc.dated 
               November 21,1997.


<PAGE>




Exhibit No.     Description

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

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



<PAGE>