UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q

      (Mark one)
             [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                    For the Quarter ended September 30, 2005

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   For the transition period from ________ to ________

                         Commission File Number: 0-24077

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

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


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


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


      Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES   |X|   NO   ||

      Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): YES  |X|  NO   ||

      Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act:  YES   ||  NO   |X|

      Number of shares outstanding of the issuer's common stock as of November
3, 2005

               Class                             Number of Shares Outstanding

Common Stock, par value $0.0001 per share                18,725,382

<PAGE>

                         MOBIUS MANAGEMENT SYSTEMS, INC.


                                      INDEX


PART I.      FINANCIAL INFORMATION


      Item 1.  Financial Statements

               Consolidated Balance Sheets
                June 30, 2005 and September 30, 2005

               Consolidated Statements of Operations
                Three months ended September 30, 2004 and 2005

               Consolidated Statement of Stockholders' Equity
                Three months ended September 30, 2005

               Consolidated Statements of Cash Flows
                Three months ended September 30, 2004 and 2005

               Notes to Unaudited Consolidated Financial Statements

      Item 2.  Management's Discussion and Analysis of Financial
                Condition and Results of Operations

      Item 3.  Quantitative and Qualitative Disclosures About Market Risk

      Item 4.  Controls and Procedures

PART II.     OTHER INFORMATION

      Item 1.  Legal Proceedings

      Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

      Item 3.  Defaults Upon Senior Securities

      Item 4.  Submission of Matters to a Vote of Security Holders

      Item 5.  Other Information

      Item 6.  Exhibits


                                       2
<PAGE>

SIGNATURES

CERTIFICATIONS













                                       3

<PAGE>

PART I. - FINANCIAL INFORMATION

Item 1. - Financial Statements

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


                                                        June 30,   September 30,
                                                          2005         2005
                                                       ----------  -------------
ASSETS
Current assets:
  Cash and cash equivalents                               $33,726      $33,839
  Accounts receivable, net of allowances of $595 and
    $810, respectively                                     10,519       10,712
  Software license installments, current portion           12,926       12,579
  Other current assets                                      2,310        2,749
                                                          -------      -------
        Total current assets                               59,481       59,879
                                                          -------      -------

Software license installments, non-current portion,
     net of allowance for doubtful accounts of $161
     for both periods                                      17,991       17,305
Property and equipment, net                                 3,663        3,954
Deferred income taxes                                       5,217        4,970
Other assets                                                3,963        3,801
                                                          -------      -------
        Total assets                                      $90,315      $89,909
                                                          =======      =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable and accrued expenses                   $14,363      $13,500
  Deferred revenue                                         23,344       23,623
  Deferred income taxes                                     5,229        5,071
                                                          -------      -------
        Total current liabilities                          42,936       42,194

Deferred revenue                                            3,091        2,704
Other non-current liabilities                                 721          721
                                                          -------      -------
        Total liabilities                                  46,748       45,619
                                                          -------      -------

Stockholders' equity:
  Common stock, $.0001 par value; authorized
    40,000,000 shares; issued 23,884,999 and
    23,946,533 shares, respectively; outstanding
    18,530,776 and 18,592,310 shares, respectively              2            2
  Additional paid-in capital                               55,753       56,192
  Retained earnings                                         3,573        3,888
  Accumulated other comprehensive income                      221          190
  Treasury stock, at cost, 5,354,223 shares               (15,982)     (15,982)
                                                          --------      -------

        Total stockholders' equity                         43,567       44,290
                                                          --------      -------

Total liabilities and stockholders' equity                $90,315      $89,909
                                                          =======      ========

     See accompanying notes to unaudited consolidated financial statements.

                                       4

<PAGE>

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

                                                Three Months Ended
                                                   September 30,
                                                  2004      2005
                                                -------    -------

Revenues:
  Software license                              $ 6,204    $ 8,995
  Maintenance                                    10,003     10,679
  Professional service and other                    921      1,747
                                                -------    -------
    Total revenues                               17,128     21,421
                                                -------    -------

Cost of revenues:
  Software license                                  216        285
  Maintenance                                     2,079      1,865
  Professional service and other                    840      1,386
                                                -------    -------
    Total cost of revenues                        3,135      3,536
                                                -------    -------

Gross profit                                     13,993     17,885
                                                -------    -------

Operating expenses:
  Sales and marketing                             8,128      9,210
  Research and development                        5,646      5,521
  General and administrative                      2,712      3,257
                                                -------    -------
    Total operating expenses                     16,486     17,988
                                                -------    -------

Loss from operations                             (2,493)      (103)

Interest income, net                                527        594
Other income                                         34          1
                                                -------    -------

Income (loss) before income taxes                (1,932)       492


Provision for (benefit from) income taxes          (659)       177
                                                -------    -------

Net income (loss)                              $ (1,273)    $  315
                                               =========    ======

Basic earnings (loss) per share                  $(0.07)     $0.02
Basic weighted average shares outstanding        18,300     18,555
Diluted earnings (loss) per share                $(0.07)     $0.02
Diluted weighted average shares outstanding      18,300     19,660


     See accompanying notes to unaudited consolidated financial statements.


                                       5
<PAGE>

                         MOBIUS MANAGEMENT SYSTEMS, INC.
     CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
                      THREE MONTHS ENDED SEPTEMBER 30, 2005
                            (Unaudited, in thousands)

<TABLE>
<CAPTION>

                                                                                   Accumulated
                                            Common Stock    Additional                Other      Treasury Stock        Total
                                            ------------     Paid-in    Retained  Comprehensive -----------------   Stockholders'
                                          Shares    Amount   Capital    Earnings     Income     Shares     Amount      Equity
                                          ------    ------   -------    --------  ------------- ------     ------      ------

<S>                                       <C>        <C>     <C>         <C>         <C>         <C>      <C>         <C>
Balance at June 30, 2005                  18,531     $ 2     $55,753     $3,573      $221        5,354    $(15,982)   $43,567
Net income                                     -       -           -        315         -            -           -        315
Change in other comprehensive
   income, net of tax                          -       -           -          -       (31)           -           -        (31)
                                                                                                                       -------
      Comprehensive income                                                                                                284

Stock options exercised, including
     tax benefit                              61       -         212          -         -            -           -        212
Stock-based compensation expense               -       -         227          -         -            -           -        227
                                          ------     ---     -------     ------      ----        -----    --------    --------
Balance at September 30, 2005             18,592     $ 2     $56,192     $3,888      $190        5,354    $(15,982)   $44,290
                                       ========================================================================================
</TABLE>


     See accompanying notes to unaudited consolidated financial statements.


                                       6
<PAGE>

                         MOBIUS MANAGEMENT SYSTEMS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                            (Unaudited, in thousands)

                                                           Three Months Ended
                                                               September 30,
                                                             2004         2005
                                                           --------    ---------
Cash provided by (used in) operating activities:
Net income (loss)                                          $(1,273)        $315
                                                           --------        ----
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
  Deferred income taxes                                       (821)         140
  Depreciation and amortization                                546          498
  Stock-based compensation expense                               -          227
Change in operating assets and liabilities:
  Accounts receivable, net                                   5,108         (193)
  Software license installments                               (653)       1,033
  Other assets                                                 (90)        (434)
  Accounts payable and accrued expenses                     (3,934)        (914)
  Deferred revenue                                            (250)        (108)
                                                           --------        ----
  Total adjustments                                            (94)         249
                                                           --------        ----
Net cash provided by (used in) operating activities         (1,367)         564

Cash used in investing activities:
  Capital expenditures                                        (233)        (637)
                                                           --------        ----
Net cash used in investing activities                         (233)        (637)
                                                           --------        ----

Cash provided by financing activities:
  Cash received from exercise of stock options                 121          161
  Net tax benefit attributable to stock options                  -           51
                                                           --------        ----
Net cash provided by financing activities                      121          212
                                                           --------        ----

Effect of exchange rate changes on cash and cash
equivalents                                                    148          (26)
                                                           --------        ----

Net change in cash and cash equivalents                     (1,331)         113
Cash and cash equivalents at beginning of period            33,592       33,726
                                                           --------      ------
Cash and cash equivalents at end of period                 $32,261      $33,839
                                                           ========     ========

Supplemental disclosure of cash flow information:
Cash paid during the period for:
  Interest paid                                            $     1      $     2
  Income taxes, net of refunds                             $   100      $    91

     See accompanying notes to unaudited consolidated financial statements.


                                       7

<PAGE>

                         MOBIUS MANAGEMENT SYSTEMS, INC.

              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

(1)  Basis of Presentation

      The accompanying consolidated financial statements at June 30, 2005 and
September 30, 2005 and for the three month periods ended September 30, 2004 and
2005 have been prepared in accordance with the requirements of the Securities
and Exchange Commission (SEC) for interim reporting. Under those rules, certain
footnotes or other financial information that is normally required by generally
accepted accounting principles (GAAP) may be condensed or omitted.

      GAAP requires the Company's management to make estimates and assumptions
in preparing the interim financial statements. The Company has used its best
efforts in establishing good faith estimates and assumptions. Actual results may
differ.

      Mobius Management Systems, Inc. ("Mobius" or the "Company") is responsible
for the financial statements included in this Form 10-Q. These financial
statements include all normal and recurring adjustments that are necessary for
the fair presentation of the Company's financial position, results of
operations, stockholders' equity and cash flows. These statements should be read
in conjunction with the consolidated financial statements and notes in Mobius's
latest Form 10-K.

      As more fully explained in the accompanying Note 6, Stock-Based
Compensation, beginning July 1, 2005, Mobius adopted Statement of Financial
Accounting Standards (SFAS) No. 123(R), "Share-Based Payment." SFAS No. 123(R)
requires expensing the fair value of stock-based compensation over the requisite
service period.

      Certain comparative prior year amounts in the Consolidated Financial
Statements have been reclassified to conform to the current year presentation.

(2)  Earnings Per Share

      Earnings per share data is presented in accordance with Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share." SFAS No.
128 stipulates that the calculation of earnings per share (EPS) be shown for all
historical periods as Basic EPS and Diluted EPS. Basic EPS is computed by
dividing net income (loss) by the weighted average number of common shares
outstanding during the period. The computation of Diluted EPS is similar to the
computation of Basic EPS except that it gives effect to all potentially dilutive
instruments that were outstanding during the period.


                                       8
<PAGE>

      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>
                                     Three Months Ended September 30,
                                     --------------------------------
                                   2004                           2005
                      -----------------------------  ------------------------------
                         Net                        Per                               Per
                        Income        Shares       Share     Net Loss    Shares      Share
                      (Numerator   (Denominator    Amount   (Numerator)(Denominator) Amount
                      ----------   ------------    ------   ---------- ------------- ------
Basic EPS:
<S>                    <C>            <C>         <C>           <C>        <C>        <C>
Net income (loss)      $(1,273)                                $315
                       ========                                ====
Weighted average
 shares outstanding                   18,300                              18,555
Basic earnings
 (loss) per share                                $(0.07)                             $0.02
                                                 =======                             =====
Diluted EPS:
Net income (loss)      $(1,273)                                $315
                       ========                                ====
Dilutive effect of
 stock options                             -                              1,105
                                      ------                             ------
Weighted average
 shares outstanding                   18,300                             19,660
                                      ======                             ======
Diluted earnings
 (loss) per share                                $(0.07)                             $0.02
                                                 =======                             =====
</TABLE>

     All outstanding stock options for the three months ended September 30,
2004 and certain outstanding stock options for the three months ended September
30, 2005, representing an aggregate of 2,459,426 and 1,689,095 shares of common
stock, respectively, were excluded from the calculation of diluted earnings
(loss) per share because the effect would be antidilutive. Stock options were
the only dilutive instruments outstanding for the three months ended September
30, 2004 and 2005.

(3)  Software License Installments Receivable

      In the ordinary course of business, the Company offers extended payment
terms to some of its customers. For software license contracts of 15 years, the
related financing period is generally 5 years. For software installment
contracts of 3 to 5 years, the payments are generally spread over the related
term. Software license installments are discounted at a market rate of interest.
The discount is amortized over the term of the financing to interest income
using the interest method. The Company entered into an arrangement during its
fiscal first quarter of 2005 providing it with the option of selling certain
installments receivable to General Electric Capital Corporation. This
arrangement gives the Company enhanced flexibility in offering financing
alternatives to our customers and to manage our cash flow. During the fiscal
first quarter of 2006, the Company sold approximately $325,000 of installments
receivable under this arrangement, bringing total sales to date under this
arrangement to $3.0 million.

(4)  Property and Equipment

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

                                               Useful    June 30, September 30,
                                                Life       2005       2005
                                                ----       ----       ----

    Computer equipment                        2-5 years   $8,711     $9,046
    Furniture, fixtures and office equipment   5 years     1,438      1,528
    Leasehold improvements                    5-15 years   3,917      4,033
                                                          -------    -------
                                                          14,066     14,607
    Less accumulated depreciation and amortization       (10,403)   (10,653)
                                                          -------   -------
    Property and equipment, net                           $3,663    $ 3,954
                                                          =======   ========

      Depreciation and amortization expense on property and equipment was
$390,000 and $342,000 for the three months ended September 30, 2004 and 2005,
respectively.

                                       9
<PAGE>

(5)  Accounts Payable and Accrued Expenses

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

                                                   June 30,      September 30,
                                                    2005            2005
                                                    ----            ----

      Accounts payable                            $ 2,903         $ 2,665
      Compensation and related benefits             6,030           5,678
      Royalties payable                               974           1,037
      Other                                         4,456           4,120
                                                  -------         -------

                                                  $14,363        $ 13,500
                                                  =======        ========

(6)  Stock-Based Compensation

      At September 30, 2005, Mobius has three stock-based employee compensation
plans, which are described below.

1996 Stock Incentive Plan

      In November 1996, Mobius adopted the 1996 Stock Incentive Plan (Stock
Plan), pursuant to which Mobius' Board of Directors may grant stock options to
officers, employees, directors and consultants. The Stock Plan authorizes grants
of options to purchase up to 5,964,366 shares of authorized but unissued common
stock. Stock options are generally granted with an exercise price equal to the
stock's fair market value at the date of grant, as determined by Mobius' Board
of Directors. Stock options generally expire ten years from the grant date.
Generally, 20% of the options granted vest on the first anniversary of the grant
date and 5% of the remaining options vest every three months thereafter until
the options fully vest on the five-year anniversary of the grant date. As of
September 30, 2005, there were 840,679 shares available for grant under the
Stock Plan.

      On June 14, 2005, Mobius' Board of Directors approved a plan to accelerate
the vesting of all unvested employee stock options under the Stock Plan, other
than those options awarded to officers of the Company. The Board took this
action with the belief that it is in the best interest of stockholders, as it
will reduce the Company's reported compensation expense associated with those
stock options in future periods. As a result of this acceleration, during the
fiscal fourth quarter of 2005, the Company recorded pre-tax compensation expense
of $250,000, which represents the intrinsic value measured at the acceleration
date for the estimated number of options that, absent the acceleration, would
have expired unexercised.

      The Company presently expects that future grants under the Stock Plan may
be curtailed, and is currently looking at other compensation alternatives.

Non-Employee Directors' 1998 Stock Option Plan

      In February 1998, Mobius' Board of Directors and stockholders approved and
adopted the Non-Employee Directors' 1998 Stock Option Plan (Directors' Plan).
The purpose of the Directors' Plan is to provide an incentive to Mobius'
non-employee directors to serve on the Board of Directors and to maintain and
enhance Mobius' long-term performance. The Directors' Plan provides for the
issuance of a total of 500,000 authorized and unissued shares of common stock,
treasury shares and/or shares acquired by Mobius for purposes of the Directors'
Plan. As of September 30, 2005, there were 170,000 shares available for grant
under 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, provided that such director has
served as a director for

                                       10
<PAGE>

at least nine months prior to the date of the annual meeting and continues to
serve as a director after the meeting. 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

      In February 1998, the Board of Directors and stockholders of the Company
approved and adopted the 1998 Employee Stock Purchase Plan (ESPP). The purpose
of the ESPP is to provide eligible employees who wish to acquire common stock of
the Company the opportunity to purchase shares from the Company with accumulated
payroll deductions. The ESPP is intended to constitute an "employee stock
purchase plan" under section 423 of the Internal Revenue Code. The ESPP provides
for the issuance of an aggregate of up to 1,650,000 shares. No shares were
issued under the ESPP during the quarters ended September 30, 2005 and 2004. As
of September 30, 2005, 109,687 shares are reserved for issuance and there were
804,878 remaining shares available to purchase under this plan.

                                ****************

      Prior to July 1, 2005, Mobius accounted for these plans under the
recognition and measurement provisions of APB Opinion No. 25, "Accounting for
Stock Issued to Employees" (APB No. 25), and related Interpretations, as
permitted by SFAS No. 123, "Accounting for Stock-Based Compensation." No
stock-based employee compensation cost was recognized in the Consolidated
Statements of Operations for the quarter ended September 30, 2004, as the ESPP
was considered non-compensatory pursuant to APB 25 and all options granted under
the Stock Plan and the Directors' Plan had an exercise price equal to the market
value of the underlying common stock on the date of grant. Effective July 1,
2005, Mobius adopted the fair value recognition provisions of SFAS No. 123(R),
"Share-Based Payment," using the modified-prospective-transition method, and as
a result, prior periods have not been restated.

      Under the modified-prospective-transition method, the Company is required
to recognize stock-based employee compensation cost for: (a) all share-based
awards granted prior to, but not yet vested as of July 1, 2005, based on the
grant date fair value estimated in accordance with the original provisions of
SFAS No. 123, and (b) all share-based awards granted subsequent to June 30,
2005, based on the grant-date fair value estimated in accordance with the
provisions of SFAS No. 123(R). No options were granted under the Stock Plan,
Directors' Plan and ESPP during the quarter ended September 30, 2005.

      As a result of adopting SFAS No. 123(R) on July 1, 2005, Mobius' income
before income taxes and net income for the quarter ended September 30, 2005,
were $227,000 and $197,000 lower, respectively, than if we had continued to
account for share-based compensation under APB No. 25. Basic and diluted
earnings per share for the first quarter ended September 30, 2005 would have
been $0.03 and $0.03 respectively, if we had not adopted SFAS No. 123(R),
compared to reported basic and diluted earnings per share of $0.02 and $0.02,
respectively.

      Prior to the adoption of SFAS No. 123(R), the Company presented all tax
benefits of deductions resulting from the exercise of stock options as operating
cash flows in the Consolidated Statements of Cash Flows. SFAS No. 123(R)
requires that the Company classifies the cash flows resulting from the tax
benefits of tax deductions in excess of the compensation cost recognized for
those options (excess tax benefits) as financing cash flows. The $51,000 excess
tax benefit classified as a financing cash inflow would have been classified as
an operating cash inflow if we had not adopted SFAS No. 123(R).

      The following table illustrates the effect on net loss and loss per share
during the fiscal first quarter of 2005 if the Company had applied the fair
value

                                       11
<PAGE>

recognition provisions of SFAS No. 123 to options granted under Mobius' Stock
Plan and ESPP. For purposes of this pro forma disclosure, the value of the
options is estimated using a Black Scholes option-pricing formula and amortized
to expense over the options' vesting periods.

                                                             Three Months
                                                                Ended
                                                               September
                                                               30, 2004
                                                              -----------

Net loss, as reported                                          $(1,273)
Less:   Total stock-based employee
compensation expense determined under fair
value based method for all awards, net of tax                     (677)
                                                            ---------------
Pro forma net loss                                             $(1,950)
                                                            ===============

Basic net loss per share- as reported                          $ (0.07)
Basic net loss per share- pro forma                            $ (0.11)
Diluted net loss per share-as reported                         $ (0.07)
Diluted net loss per share- pro forma                          $ (0.11)

      For purposes of the pro forma stock-based compensation disclosed above and
for computing stock-based compensation under SFAS No. 123(R) effective July 1,
2005, the Company used the Black Scholes option pricing model for all options
granted. For the Stock Plan, the per share weighted average fair value of stock
options granted during the quarter ended September 30, 2004, was $3.75 on the
date of grant. No stock options under the Stock Plan were granted during the
quarter ended September 30, 2005. Stock option grants during the quarter ended
September 30, 2004, assumed volatility of 98%, expected dividend yield of 0.0%
and an expected life of 4.3 years. The assumed risk free interest rate on the
date of stock option grants was 3.8% in the quarter ended September 30, 2004.

      No options were granted under the Directors' Plan during the quarters
ended September 30, 2005 and 2004.

      The fair value of an employee stock purchase grant under the ESPP is
estimated as the sum of 15% of the grant date market price of Mobius common
stock and 85% of the fair value of a stock option, as determined using the Black
Scholes option pricing model. Employee stock purchase grants under the ESPP are
made on the first day of the plan-year, which runs from November 1 through
October 31. Accordingly, there were no employee stock purchase grants during the
quarters ended September 30, 2005 and 2004.

      Our estimates of expected volatility and expected option life are based on
historical data. The risk free interest rate coincides with the U.S. treasury
rate at date of grant with a maturity equal to the expected life of the option.

      A summary of option activity under the Stock Plan and the Directors' Plan
as of September 30, 2005, and changes during the quarter then ended is presented
below (aggregate intrinsic value in thousands of dollars):

                                                           Weighted
                                                Weighted    Average
                                                Average    Remaining   Aggregate
                                                Exercise   Contractual Intrinsic
Options                                 Shares    Price      Term        Value
-------                                 ------    -----      ----        -----
Outstanding at June 30, 2005          3,900,648    $5.07
Granted                                      --       --
Exercised                               (61,534)   $2.60
Forfeited                                (5,525)  $10.21
Expired                                      --       --
                                      ----------
Outstanding at September 30, 2005     3,833,589     $5.10      4.57      $5,385
                                      ==========================================
Vested and exercisable at
  September 30, 2005                  3,462,089     $4.90      4.18      $5,237
                                      ==========================================

                                       12
<PAGE>

      The intrinsic value of options exercised during the quarters ended
September 30, 2004 and 2005 was approximately $284,000 and $183,000,
respectively. Cash received from option exercises under all share-based payment
arrangements for the quarters ended September 30, 2004 and 2005 was $121,000 and
$160,000, respectively. The actual tax benefit realized for the tax deductions
from option exercise of the share-based payment arrangements totaled $51,000 for
the quarter ended September 30, 2005. There was no tax benefit realized for the
quarter ended September 30, 2004. When assessing whether a tax benefit relating
to share-based compensation has been realized, the Company follows the tax law
ordering method, under which share-based compensation deductions are assumed to
be utilized before net operating losses generated by operations.

      As of September 30, 2005, there was approximately $1.0 million of
unrecognized compensation expense related to nonvested share-based awards under
the Stock Plan. This amount is expected to be recognized over a weighted-average
period of approximately 1.87 years. For awards granted prior to July 1, 2005,
compensation cost is amortized over the vesting period using the tranche method
proscribed in FIN 28. Compensation cost for awards granted after the adoption
date of SFAS No. 123(R) is amortized on a straight line basis over the vesting
period. The total fair value of shares vested during the quarters ended
September 30, 2004 and 2005, was approximately $245,000 and $94,000,
respectively. Unamortized compensation expense of approximately $31,000 at
September 30, 2005, relating to the ESPP will be recognized by the end of the
plan year, October 31, 2005.

      Mobius has a policy of issuing previously authorized shares to satisfy
share option exercises and expects to continue that practice for the foreseeable
future.

(7)  Comprehensive Income (Loss)

      SFAS No. 130, "Reporting Comprehensive Income" requires the disclosure of
comprehensive income, which includes net income and foreign currency translation
adjustments. Comprehensive income (loss) for the three months ended September
30, 2004 and 2005 is as follows (in thousands):

                                                Three Months Ended
                                                  September 30,
                                                  ------------
                                               2004          2005
                                               ----          ----

Net income (loss)                            $(1,273)       $315
Unrealized translation gain                      147         (31)
                                            --------------------------
Comprehensive income (loss)                  $(1,126)       $284
                                            ==========================

(8)  Commitments and Contingencies

      In compliance with the lease of the Company's corporate headquarters in
Rye, NY, the landlord holds a letter of credit issued by a bank totaling
$275,000, secured by a certificate of deposit.

                                       13
<PAGE>

(9)  Goodwill and Other Intangible Assets

      Intangible assets as of June 30, 2005 and September 30, 2005 were as
follows (in thousands):

                             June 30, 2005                September 30, 2005
                      -----------------------------  ---------------------------
                                Accumulated                    Accumulated
                        Gross   Amortization  Net      Gross   Amortization  Net
                       -------  ------------ -----     ------  ------------ ----
Completed technology   $ 1,780    $1,003     $ 777     $1,780    $1,136     $644

Customer relationships     277       107       170        277       130      147
                       -------    ------     -----     ------    ------     ----

Total                  $ 2,057    $1,110     $ 947     $2,057    $1,266     $791
                       =======    ======     =====     ======    ======     ====

      Aggregate amortization expense for intangible assets for the quarters
ended September 30, 2004 and 2005 was $156,000 for both periods. Amortization
expense for the remainder of the fiscal year ended June 30, 2006, and for the
fiscal year ended June 30, 2007, for acquisitions completed through September
30, 2005, is estimated to be $470,000, and $321,000, respectively.

      Changes in the carrying amount of goodwill for the quarter ended September
30, 2005 were as follows (in thousands):

                                                                       Total
                                                                       -----

Balance as of June 30, 2005                                            $2,733
  Effect of exchange rate changes                                          (2)
                                                                    ---------
Balance as of September 30, 2005                                       $2,731
                                                                    =========





                                       14
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
            OF OPERATIONS

      In this section, we give readers a more detailed assessment of our
operating results and changes in financial position. This section should be read
in conjunction with our Consolidated Financial Statements and Notes. Please note
that references in this section to "last year's quarter" and "this quarter"
refer to our fiscal quarters ended September 30, 2004 and 2005, respectively.
Our quarterly revenues and operating results have varied substantially from
quarter to quarter in the past, and are likely to continue to do so in the
future.

      Statements contained in this quarterly report, other than historical
financial results, may be forward-looking within the meaning of the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve
risks and uncertainties. They are not historical facts or guarantees of future
performance or events. They are based on current expectations, estimates,
beliefs, assumptions, goals and objectives, and are subject to uncertainties
that are difficult to predict. In particular, any statements contained herein
regarding expectations with respect to future sales and profitability, as well
as product development and/or introductions, are subject to known and unknown
risks, uncertainties and contingencies, many of which are beyond our control,
which may cause actual results, performance or achievements to differ materially
from those projected or implied in such forward-looking statements. Important
factors that might affect actual results, performance or achievements are
described in detail from time to time in our filings with the Securities and
Exchange Commission, including without limitation, as set forth under the
heading "Factors Affecting Future Performance" below. Forward-looking statements
included in this quarterly report are based on information known to us as of the
date of this quarterly report and we accept no obligation (and expressly
disclaim any obligations) to update these forward-looking statements and we do
not intend to do so.

Overview

      We are a leading provider of integrated solutions for total content
management (TCM). For over two decades, we have delivered innovative software
that captures, stores, manages and delivers business- and operations-critical
documents, reports, images and transactions in multiple formats from multiple
sources. Our solutions have achieved industry-wide recognition for their breadth
of functionality, breadth of supported information formats and the ability to
meet high-volume, high-performance requirements in distributed environments that
range from the desktop to the mainframe.

      Our ViewDirect(R) TCM is a comprehensive suite of solutions that meet a
broad and diverse range of enterprise requirements for managing and delivering
content. ViewDirect TCM supports both the "human-created" content -- generated
by users of desktop applications -- and the "application-created" content --
generated by production systems -- that is needed to fuel next-generation
Web-based applications. ViewDirect TCM includes facilities for integrated access
to disparate content repositories, as well as products that support
content-intensive applications including:

o     content integration;
o     records management;
o     e-mail management;
o     Web site, digital asset and document management;
o     business process management;
o     high-volume imaging;
o     enterprise report distribution;
o     check image archive;
o     e-presentment; and
o     an audit and balancing facility that monitors the accuracy and consistency
      of enterprise data.

                                       15
<PAGE>

Critical Accounting Policies and Estimates

      The following discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with GAAP. The preparation of financial
statements in accordance with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances. These estimates are evaluated on an on-going basis. Actual
results could differ from those estimates.

      Management believes that its significant judgments and estimates used in
the preparation of our consolidated financial statements are influenced by the
following critical accounting policies:

Revenue Recognition

      We recognize license and maintenance revenue in accordance with the
provisions of Statement of Position ("SOP") 97-2, "Software Revenue
Recognition," as amended by SOP 98-9, "Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions." We generate license
revenues from licensing the rights to use our software products to our
customers. We also generate maintenance revenues from renewable support and
software enhancements and professional service revenues from performing
consulting activities for license customers. Software license contracts
generally have terms of three, five or 15 years.

      Revenues from software license agreements are recognized upon delivery of
the software if evidence of an arrangement exists, pricing is fixed and
determinable, and collectibility is probable. If an acceptance period is
required, revenues are recognized upon the earlier of customer acceptance or the
expiration of the acceptance period. We allocate revenue on software
arrangements involving multiple elements to each element based on
vendor-specific objective evidence of the fair value allocable to each element.
The vast majority of the Company's software license revenue contracts provide
for optional maintenance in the first year, billed separately from the software
license arrangement. Maintenance revenue is generally recognized ratably over
the term of the support, typically 12 months. The unearned portion of
maintenance revenue is classified as deferred revenue.

      We offer installment contracts to our customers, which provide for
periodic payments generally over three to five years. Under such contracts,
software license revenue reflects the present value of future payments under
non-cancelable license arrangements. The discount is recognized as interest
income over the term of the arrangement. We have an established business
practice of offering installment contracts to customers and have a history of
successfully enforcing original payment terms on these contracts without making
concessions. In addition, the payment obligations are unrelated to product
implementation or any other post-transaction activity. Therefore, revenues from
installment contracts are generally recognized in the same manner as those
requiring current payment. We entered into an arrangement during our fiscal
first quarter of 2005 that provides us with the option of selling installments
receivable to General Electric Capital Corporation. This arrangement gives us
enhanced flexibility in offering financing alternatives to our customers and in
managing our cash flows.

      Professional service revenue is generally recognized using the percentage
of completion method of accounting. In accordance with this method, revenue from
professional service contracts is recognized based on the percentage of costs
incurred to date to the total estimated costs of the project. The financial
reporting for these contracts depends on estimates, which are regularly assessed
and subject to revision as the contract progresses to completion. When the
current estimate of total contract costs indicates that a contract will result
in a loss, a provision for the full loss is recognized. Professional service
revenue associated

                                       16
<PAGE>

with new products is generally deferred until completion of the project and
acceptance by the customer.

Software Development Costs

      Statement of Financial Accounting Standards (SFAS) No. 86, "Accounting for
the Costs of Computer Software to be Sold, Leased or Otherwise Marketed,"
requires that certain software development costs be capitalized 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.

      We determine technological feasibility based on the working model method.
The period between establishment of a working model and the general availability
of our software has historically been short. Accordingly, software development
costs qualifying for capitalization have been insignificant. As a result, we
have expensed all software development costs.

Income Taxes

      We account for income taxes under SFAS No. 109, "Accounting for Income
Taxes." SFAS No. 109 requires the use of the asset and liability method of
accounting for income taxes. Under this method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets are
recognized for deductible temporary differences, net operating loss
carryforwards, and tax credit carryforwards. A valuation allowance is
established if it is more likely than not that a deferred tax asset will not be
realized. Beginning July 1, 2005, we recognize the tax benefits associated with
the exercise of stock options when realized. Accordingly, deferred tax assets
are not recognized for net operating loss carryforwards resulting from stock
option exercises occurring from July 1, 2005 onward.

Stock-Based Compensation

      Prior to July 1, 2005, we accounted for employee stock options and
employee stock purchase grants under the intrinsic value method of Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related interpretations (APB No. 25). During that period, we applied the
disclosure requirements of SFAS No. 148, "Accounting for Stock-Based
Compensation Transition and Disclosure, an amendment of FASB Statement No. 123."

      Beginning July 1, 2005, we account for share-based compensation in
accordance with SFAS No. 123(R), "Share-Based Payment (revised 2004), (SFAS
123R)," which replaces SFAS No. 123, "Accounting for Stock-Based Compensation,"
and supersedes APB Opinion No. 25. Under SFAS 123(R), we recognize the grant
date fair value of share-based compensation awards over the requisite service
period. For additional information regarding the adoption of SFAS 123(R), see
the section entitled "Stock-Based Compensation" below and Note 6 to the
accompanying Consolidated Financial Statements.


                                       17
<PAGE>

Results of Operations

      The following table sets forth certain items from our Consolidated
Statements of Operations as a percentage of total revenues for the fiscal
periods indicated:

                                               Three Months Ended
                                                   September 30,
                                                2004        2005
                                                ----        ----

Revenues:
  Software license                              36.2%       42.0%
  Maintenance                                   58.4        49.8
  Professional service and other                 5.4         8.2
                                               -----       -----
    Total revenues                             100.0       100.0
                                               -----       -----

Cost of revenues:
  Software license                               1.3         1.3
  Maintenance                                   12.1         8.7
  Professional service and other                 4.9         6.5
                                               -----       -----
    Total costs of revenues                     18.3        16.5
                                               -----       -----

Gross profit                                    81.7        83.5
                                               -----       -----

Operating expenses:
  Sales and marketing                           47.4        43.0
  Research and development                      33.0        25.8
  General and administrative                    15.8        15.2
                                               -----       -----
    Total operating expenses                    96.2        84.0
                                               -----       -----

Loss from operations                           (14.5)       (0.5)

Interest income, net                             3.1         2.8
Other income (expense)                           0.2           -
                                               -----       -----
Income (loss) before income taxes              (11.2)        2.3

Provision for (benefit from) income taxes       (3.8)        0.8
                                               -----       -----

Net income (loss)                               (7.4)%       1.5%
                                               =====       ======

                                       18
<PAGE>

Executive Overview

      Total revenues in the fiscal first quarter of 2006 of $21.4 million were
25.1% higher than revenues of $17.1 million in the same period last year. The
increase in revenues was primarily due to increased license revenue resulting
from improved sales execution, as well as increased professional service
activity. Operating loss in the fiscal first quarter of 2006 was $103,000, or
(0.5)% of revenues, as compared with a loss of $2.5 million, or (14.5)% of
revenues, in the same period last year. Net income for the fiscal first quarter
of 2006 was $315,000, or $0.02 per diluted share, as compared with a net loss of
$1.3 million, or ($0.07) per share, in the same period last year. Our earnings
in the fiscal first quarter of 2006 were reduced by a pre-tax expense of
$227,000, or $0.01 per share, related to stock-based compensation recorded
pursuant to SFAS No. 123(R). For additional information regarding the adoption
of SFAS No. 123(R), see the section entitled "Stock-Based Compensation" below
and Note 6 to the accompanying Consolidated Financial Statements.

      Our total revenues for the fiscal first quarter of 2006 are 25% higher
than the prior year and our license revenue increased 45% over last year's
quarter. In addition, this is our second consecutive profitable quarter. As we
previously disclosed, we took steps in the second half of fiscal 2005 to improve
our execution, particularly in the areas of sales and marketing. While the
impact of these moves, which included changes in key management positions, will
still take some time to be fully realized, we believe that, based on our fiscal
first quarter performance, we are making significant progress.

      We believe we are well positioned to meet the growing demand for content
management solutions as companies intensify their search for ways to integrate
content across various applications and to comply with government regulations
such as Sarbanes-Oxley. In addition to improving our execution efforts, we
intend to enhance our market position through the planned introduction of new
products during the third quarter of our fiscal year.

      We believe that the content management markets in which we operate will
experience growth in the near term and that our newer products will provide
additional opportunities for growth. We believe that our products can help our
customers solve their challenges meeting regulatory compliance requirements,
reducing the cost and increasing the efficiency of paper-based processes and
gaining control of intellectual assets in the form of unstructured content to
increase productivity. However, we believe market factors are driving customers
to cautiously spend on enterprise software, which can result in unpredictability
in the timing of orders. Additionally, the sales cycle is long and involves
complexity as customers consider a number of factors before committing to
purchase enterprise software. Factors considered by customers include product
benefits (including its ability to meet various regulatory compliance
requirements), cost, time of implementation, return on investment, the ability
to operate with existing and future computer systems, the ability to accommodate
increased transaction volume and product reliability. There are no assurances
that the growth in the overall content management market or the success of our
newer products, such as WorkflowDirect(TM), ViewDirect E-mail Management,
ViewDirect Contenuity, ViewDirect(R) Total Content Integrator and
ViewDirect-ABS, will develop as anticipated or that the changes we made to
improve our sales execution, building order pipeline and new product integration
will be successful.

      Three Months Ended September 30, 2004 Compared to Three Months Ended
September 30, 2005

Revenues:

o  Total revenues increased 25.1% from $17.1 million in last year's quarter to
   $21.4 million this quarter. Software license revenues, maintenance revenues
   and professional services revenues during the fiscal first quarter of 2006
   all showed improvements from the same period last year. Domestic revenues
   increased 2.5% from

                                       19
<PAGE>

   $14.2 million in last year's quarter to $14.6 million this quarter.
   International revenues increased 136.8% from $2.9 million in last year's
   quarter to $6.8 million this quarter, primarily due to three large contracts
   that closed during the fiscal first quarter of 2006. The following provides a
   discussion of the changes in software license revenues, maintenance revenues
   and professional service and other revenues for the quarter ended September
   30, 2005, as compared with the quarter ended September 30, 2004.

         o  Software license revenues increased 45.0% from $6.2 million in last
            year's quarter to $9.0 million this quarter. The increase in
            software license revenues reflects improvements in sales
            effectiveness and related higher pipeline levels and was largely
            generated in our international operations, which closed three large
            contracts during the current fiscal quarter.

            As we previously disclosed, during fiscal 2005, we began to make
            changes to our business that we believe will address execution
            shortfalls and improve our performance, including, but not limited
            to, personnel transfers, separating the management of sales and
            marketing functions to drive more focus in each area, and
            reallocating resources in the development organization to speed the
            integration of our newer products with existing products, while
            maintaining our high quality standards. Specifically, during the
            fiscal third quarter of 2005, our Vice President of Product
            Engineering began to focus on future product architecture, and we
            created two new positions, Vice President of Product Development and
            Vice President of Customer Satisfaction and Quality Assurance, both
            reporting directly to our President and Chief Executive Officer.
            Also in the fiscal third quarter, we announced the appointment of a
            new Senior Vice President of Marketing. In the fiscal fourth
            quarter, we announced the appointment of a new Senior Vice President
            of Worldwide Sales. While the impact of these moves will still take
            some time to be fully realized, we believe that, based on our fiscal
            first quarter performance, we are making significant progress.

            Software license revenues from Solution Packs represented
            approximately 50% and 40% of total software license revenues during
            the fiscal first quarter of 2005 and 2006, respectively. Solution
            Packs are combinations of certain server and client products
            designed to address specific customer applications and requirements
            with, generally, license terms of five years.

            We had approximately $1.0 million of software license contracts
            signed by customers at September 30, 2005 that did not meet all of
            the requirements for revenue recognition in the fiscal first quarter
            of 2006. We anticipate that we will record these contracts as
            revenue in the fiscal second quarter of 2006. We had no contracts
            signed by customers at September 30, 2004 that did not meet all of
            the requirements for revenue recognition in the fiscal first quarter
            of 2005.

         o  Maintenance revenues increased 6.8% from $10.0 million in last
            year's quarter to $10.7 million this quarter. The increase in
            maintenance revenues was primarily due to an increase in new
            licensed software covered by maintenance agreements and increased
            maintenance fees on renewals, which were partially offset by
            non-renewal of existing maintenance contracts and lower maintenance
            rates on Solution Packs.

            Non-renewals are the result of a number of factors, including the
            consolidation of our customer base, the consolidation of customer
            data centers, the scaling back of obsolete customer operating
            systems and the migration of our customers to Solution Packs. Annual
            maintenance for new 15 year enterprise licenses for server and
            client products is generally based on 15% of the contract value.
            Annual maintenance for Solution


                                       20
<PAGE>

            Packs, which comprised a significant portion of license revenues in
            the fiscal first quarter of 2005 and 2006, is generally based on 10%
            of contract value. Solution Packs are combinations of certain server
            and client products designed to address specific customer
            requirements, which generally have five year license terms.

         o  Professional service and other revenues increased 89.7% from
            $921,000 in last year's quarter to $1.7 million this quarter,
            reflecting work on two large contracts during the current fiscal
            quarter. Our professional services group offers installation and
            conversion services and, to a lesser extent, business consulting and
            training to our customers. The Mobius suite of products are
            generally not difficult to install and do not require significant
            installation services. As such, while this line of our business
            provides a valuable service to our customers, revenues from
            professional services are not a significant percentage of overall
            revenue. Other revenues for both periods were not significant.

Cost of Revenues:

o  Cost of software license revenues consists primarily of the cost of royalties
   and sublicense fees. The cost of software license revenues increased 31.9%
   from $216,000 in last year's quarter to $285,000 this quarter, representing
   3.5% and 3.2%, respectively, of software license revenues in those quarters.
   The cost of software license revenues is a variable expense related to
   software license revenues that are subject to third-party royalties and
   sub-license fees. The increase in such costs was primarily due to the sale of
   more third-party software in the current quarter. However, the software
   license revenue recorded in the fiscal first quarter of 2006 reflected a
   lower mix of third-party software and, as such, overall software license
   margins were higher than last year's quarter.

o  Cost of maintenance revenues consists primarily of personnel costs related to
   our Customer Support group, and to a lesser extent, royalties on third-party
   products. The cost of maintenance revenues decreased 10.3% from $2.1 million
   in last year's quarter to $1.9 million this quarter, representing 20.8% and
   17.5%, respectively, of maintenance revenues in those quarters. The decrease
   in cost of maintenance revenues is primarily due to decreased utilization of
   Professional Services personnel in Customer Support projects and resulting
   lower allocation of these costs to cost of maintenance revenues.

o  Cost of professional service and other revenues consists primarily of
   personnel costs associated with providing professional services. The cost of
   professional service and other revenues increased 65.0% from $840,000 in last
   year's quarter to $1.4 million this quarter. These costs as a percentage of
   professional service and other revenues decreased from 91.2% in last year's
   quarter to 79.3% in this quarter. This was primarily due to the leverage of
   fixed costs over higher revenues. Partially offsetting this improvement was a
   decrease in the allocation of Professional Services personnel costs to other
   departments and an increase in third-party subcontractor costs.

                                       21
<PAGE>

Operating Expenses:

o  Sales and marketing expenses consist primarily of the cost of personnel
   associated with the selling and marketing of our products, including
   salaries, incentive compensation costs, travel and entertainment costs and
   bad debt expense. Sales and marketing costs also include the cost of branch
   sales offices, marketing, promotional materials and advertising. These
   expenses increased 13.3% from $8.1 million in last year's quarter to $9.2
   million this quarter, representing 47.4% and 43.0%, respectively, of total
   revenues in those quarters. The increase in sales and marketing expenses was
   due to higher incentive compensation costs as a result of higher software
   license and professional services revenues; an increase in tradeshow and
   advertising costs; and an increase in compensation expense on stock options
   relating to SFAS No. 123(R). These increases were partially offset by lower
   travel expenses. We intend to continue to invest in our sales and marketing
   capabilities to drive future revenues.

o  Research and development expenses consist primarily of personnel costs
   attributable to the development of new software products and the enhancement
   of existing products. We employ developers in Rye, NY; Orlando, FL; and
   Ottawa, Canada, and utilize subcontractors in India and the Ukraine. Research
   and development expenses decreased 2.2% from $5.6 million in last year's
   quarter to $5.5 million this quarter, representing 33.0% and 25.8%,
   respectively, of total revenues in those quarters. The slight decrease in
   research and development expenses was primarily due to lower subcontractor
   fees relating to a decrease in third-party development work on certain
   products, partially offset by an increase in personnel costs, primarily as a
   result of salary increases.

o  General and administrative expenses consist primarily of personnel costs
   related to management, accounting, human resources, information technology
   services, administration and associated overhead costs, as well as fees for
   professional services, primarily legal and accounting. General and
   administrative expenses increased 20.1% from $2.7 million in last year's
   quarter to $3.3 million in this quarter, representing 15.8% and 15.2%,
   respectively, of total revenues in those quarters. The increase in general
   and administrative expenses was due to an increase in personnel costs,
   primarily as a result of salary increases in the current quarter and the
   reversal of an incentive compensation accrual in last year's quarter; an
   increase in professional fees, primarily as a result of increased
   accounting-related fees related to Sarbanes-Oxley compliance work and other
   projects; and an increase in compensation expense on stock options relating
   to SFAS No. 123(R).

Interest income and other income (expense):

      Interest income, net of interest expense, was $527,000 in last year's
quarter and $594,000 in this quarter. The increase in interest income is
primarily attributable to higher interest rates on invested cash balances. Other
income (expense), comprised of foreign currency transactions, was a gain of
$34,000 in last year's quarter and $1,000 this quarter.

Provision for (benefit from) income taxes:

      The tax benefit from income taxes was $659,000 (effective tax benefit rate
of 34.1%) in last year's quarter and a tax provision for income taxes of
$177,000 (effective tax provision rate of 36.0%) in this quarter.

Liquidity and Capital Resources

Executive Overview

      Since our inception, we have funded our operations principally through
cash flows from operating activities and, to a lesser extent, equity or bank
financings. As of September 30, 2005, we had cash and cash equivalents of $33.8
million, a slight increase from the $33.7 million held at June 30, 2005. The
slight increase


                                       22
<PAGE>

was primarily due to cash income (net income adjusted for depreciation and
amortization, deferred income taxes and other non-cash charges) and a reduction
in software license installments receivable, offset by a reduction in accounts
payable and accrued expenses, as well as capital expenditures. As of September
30, 2005 and June 30, 2005, the Company had no bank debt outstanding.

      We believe that our existing cash balances and cash flows expected from
future operations will be sufficient to meet our capital requirements for at
least 12 months. As discussed in the section entitled, "Software License
Installments Receivable" below, we have entered into a number of license
contracts having extended payment terms. We continue to monitor the level of
sales that include extended payment terms to manage the use of cash associated
with these sales. We entered into an arrangement during our fiscal first quarter
of 2005 that provides us with the option of selling certain installments
receivable to General Electric Capital Corporation ("GECC"). This arrangement
gives us enhanced flexibility in offering financing alternatives to our
customers and in managing our cash flows. During the fiscal first quarter of
2006, we sold approximately $325,000 of installments receivable under this
arrangement, bringing total sales to date under this arrangement to $3.0
million. If the level of software license revenues financed by installments
receivable increases and we are unable to assign a substantial percentage of
such receivables to GECC or other vendor financing firms, our cash position is
likely to be adversely affected.

                                      *****

      Net cash used in operating activities was $1.4 million during the fiscal
first quarter of 2005 and net cash provided by operating activities was $564,000
during the fiscal first quarter of 2006. Our primary uses of cash during the
first three months of fiscal 2005 were from a decrease in accounts payable and
accrued expenses, primarily due to the payment of year-end commissions, salaries
and bonuses, and a net loss of $1.3 million. These uses were partially offset by
a reduction in accounts receivable balances, primarily due to collections and
decreased software license revenues. Our primary sources of cash during the
first three months of fiscal 2006 were from cash income (net income adjusted for
depreciation and amortization, deferred income taxes and other non-cash charges)
and a reduction in software license installments receivable, offset by a
reduction in accounts payable and accrued expenses, as well as capital
expenditures. Software license installments, which decreased 3.3% from $30.9
million at June 30, 2005 to $29.9 million at September 30, 2005, represent
payments due from customers for license fees that are paid over the term of the
installment agreement. The decrease was primarily due to collections, the sale
of approximately $325,000 of installments receivable to GECC and a higher
percentage of one-time-fee licenses in the fiscal first quarter of 2006 rather
than financed deals. For additional information, see the section entitled
"Software License Installments Receivable" below.

      Net cash used in investing activities was $233,000 and $637,000 in the
first three months of fiscal 2005 and 2006, respectively. Net cash used in
investing activities during both periods represented the purchase of computer
equipment, furniture and fixtures and leasehold improvements.

      Net cash provided by financing activities was $121,000 and $212,000 in the
first three months of fiscal 2005 and 2006, respectively. Net cash provided by
financing activities for the fiscal first quarter of 2005 was due to the
exercise of stock options by employees. Net cash provided by financing
activities for the fiscal first quarter of 2006 was due to the exercise of stock
options by employees of $161,000 and the net tax benefit attributable to stock
options of $51,000.

      Our material obligations and commitments to make future payments under
contracts consist of our operating leases for our office facilities. These
leases expire on various dates through fiscal 2011 and provide for additional
payments relating to utility costs. As of September 30, 2005, the future minimum
lease payments for these operating leases are as follows (in thousands):

                                       23
<PAGE>

                                                                 Operating
                                                                  Leases
                                                                  ------
Year Ended:
-----------

September 30, 2006                                                $ 2,765
September 30, 2007                                                  2,422
September 30, 2008                                                  2,297
September 30, 2009                                                  1,889
September 30, 2010                                                  1,362
                                                                  -------
Total minimum lease payments                                      $10,735
                                                                  =======

      In addition to the commitments shown above, we have commitments at
September 30, 2005 for future purchases of goods and services of approximately
$610,000.

      In compliance with the lease of our corporate headquarters in Rye, NY, the
landlord holds a letter of credit issued by a bank totaling $275,000, secured by
a certificate of deposit.

Accounts Receivable Reserves

      Accounts receivable reserves are provided for potential problem accounts
and for the potential that some customers decide to cancel or reduce the number
of products covered by maintenance arrangements upon their anniversary but do
not always notify us in sufficient time to prevent some portion of the annual
maintenance billings from being recognized. We specifically identify problem
accounts based on the age of the receivable and through discussions with the
customer and our sales representatives. Based on the specific account
information and the historical relationship of actual losses to revenues and
receivable balances, we exercise our judgment as to what portion of the accounts
receivable balance requires a reserve. As of June 30, 2005 and September 30,
2005, approximately 74% and 79%, respectively, of the total accounts receivable
reserve balances were related to specific accounts. To the extent that an
account for which a specific reserve was provided is subsequently collected, we
reduce the reserves in the period of collection. Accounts receivable reserves
were $595,000 and $810,000 at June 30, 2005 and September 30, 2005,
respectively.

Software License Installments Receivable

      As of September 30, 2005, software license installments amounted to $29.9
million, a decrease of 3.3% compared with the June 30, 2005 balance of $30.9
million. This decrease was primarily due to collections, the sale of
approximately $325,000 of installments receivable to GECC and a higher
percentage of one-time-fee licenses in the fiscal first quarter of 2006 rather
than financed deals. We entered into an arrangement during our fiscal first
quarter of 2005 that provides us with the option of selling certain installments
receivable to GECC, which gives us enhanced flexibility in offering financing
alternatives to our customers and in managing our cash flows. To date, we have
sold approximately $3.0 million of installments receivable to GECC. We offer
extended payment terms to our customers that meet specified standards of
creditworthiness, which we believe enhances our competitive position. Software
license installments are discounted at a market rate of interest at the date the
software license contract revenue is recognized. The discount is amortized to
interest income using the interest method over the term of the financing.
Software license installments receivable will fluctuate with the amount of
license revenue sold on an installment basis.

      As of September 30, 2005, one customer had a balance equal to 14.0% of
total software license installments. No other customer had a balance in excess
of 3.4% of total software license installments. As of September 30, 2005, total
software license installments receivable have an average age of approximately
one and one-half years.

                                       24
<PAGE>


      We determine the reserve for software license installments based upon
customer-specific information, including a credit review of the customer,
historical write-off experience, our ability to enforce original payment terms
and current economic conditions.

Deferred Revenues

      Deferred revenues consist primarily of the unearned portion of maintenance
revenues and license contracts. Current and non-current deferred revenues
totaled $26.4 million at June 30, 2005 and $26.3 million at September 30, 2005.
Deferred revenues can fluctuate due to the timing of annual maintenance
billings, increases or decreases in current license revenues and increases or
decreases in license contracts that include more than one year of maintenance.
As of September 30, 2005, current deferred revenues totaled $23.6 million and
non-current deferred revenues totaled $2.7 million. It is anticipated that
current deferred revenues of $23.6 million will be recognized as revenues within
the next twelve months.

Stock-Based Compensation

      We have three stock-based compensation plans: the 1996 Stock Incentive
Plan (Stock Plan), the Non-Employee Directors' 1998 Stock Option Plan
(Directors' Plan) and the 1998 Employee Stock Purchase Plan (ESPP). Key terms of
these plans are summarized in Note 6 to the accompanying Consolidated Financial
Statements.

      Prior to July 1, 2005, we accounted for these stock-based compensation
plans under the recognition and measurement provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" (APB 25), and related
Interpretations, as permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation." No stock-based employee compensation cost was recognized in the
Consolidated Statements of Operations for the quarter ended September 30, 2004,
as the ESPP was considered non-compensatory pursuant to APB 25 and all options
granted under the Stock Plan and the Directors' Plan had an exercise price equal
to the market value of the underlying common stock on the date of grant.

      On June 14, 2005, our Board of Directors approved a plan to accelerate the
vesting of all unvested employee stock options issued under the Stock Plan,
other than those options awarded to officers. Our Board took this action with
the belief that it is in the best interest of stockholders, as it will reduce
our reported compensation expense associated with those stock options in future
periods. As a result of this acceleration, during the fiscal fourth quarter of
2005, we recorded pre-tax compensation expense of $250,000, which represents the
intrinsic value measured at the acceleration date for the estimated number of
options that, absent the acceleration, would have expired unexercised.

      We presently expect that future grants under the Stock Plan will be
curtailed, and we are currently looking at other compensation alternatives.

      Effective July 1, 2005, we adopted the fair value recognition provisions
of SFAS No. 123(R), "Share-Based Payment," using the
modified-prospective-transition method. Under the
modified-prospective-transition method, prior period financial statements are
not restated. As a result of adopting SFAS No. 123(R), our income before income
taxes and net income for the quarter ended September 30, 2005, was $227,000 and
$197,000 lower, respectively, than if we had continued to account for
share-based compensation under Opinion 25. Basic and diluted earnings per share
for the quarter ended September 30, 2005 would have been $0.03 and $0.03
respectively, if we had not adopted SFAS No. 123(R), as compared with reported
basic and diluted earnings per share of $0.02 and $0.02, respectively.


                                       25
<PAGE>

      The following table illustrates the effect on loss before income taxes,
net loss and loss per share if we had applied the fair value recognition
provisions of SFAS No. 123(R) to options granted under our Stock Plan and ESPP
during the fiscal first quarter of 2005. For purposes of this pro forma
disclosure, the value of the options is estimated using a Black Scholes
options-pricing formula and amortized to expense over the options' vesting
periods.

                                                             Three Months
                                                                Ended
                                                              September
                                                               30, 2004
                                                               --------

Loss before income taxes- as reported                          $(1,932)
Loss before income taxes- pro forma                            $(2,709)
Net loss- as reported                                          $(1,273)
Net loss- pro forma                                            $(1,950)
Basic net loss per share- as reported                          $ (0.07)
Basic net loss per share- pro forma                            $ (0.11)
Diluted net loss per share- as reported                        $ (0.07)
Diluted net loss per share- pro forma                          $ (0.11)

      It is expected that the unrecognized stock-based compensation expense of
$1.0 million at September 30, 2005, will be recognized against income over the
next 1.87 years.




                                       26
<PAGE>

                      FACTORS AFFECTING FUTURE PERFORMANCE

We operate in a rapidly changing economic and technological environment that
involves numerous risks and uncertainties. Prospective and existing investors
are strongly urged to carefully consider the various cautionary statements and
risks set forth in this quarterly report and our other public filings. The
following section describes the material risks and uncertainties that we believe
may adversely affect our business, operating results or financial condition.
Many of these risks and uncertainties are beyond our control and are driven by
factors that we cannot predict.

Our operating results are subject to significant fluctuations and uncertainties,
our business has experienced significant seasonality, and it is difficult for us
to predict future revenues.

      Our quarterly revenues and operating results have varied significantly in
the past and are likely to vary substantially from quarter to quarter in the
future. Quarterly revenues and operating results are expected to fluctuate as a
result of a variety of factors, including mix of products, lengthy product sales
cycles, general domestic and international economic conditions, demand for our
products, changes in the level of operating expenses, introductions of new
products and product enhancements by us or our competitors and competitive
conditions in the industry.

      Currently, we believe that external market factors are driving customers
to cautiously spend on enterprise software which can result in unpredictability
in the timing of orders. This condition may continue to impact future quarterly
operating results and have an adverse effect on Mobius.

      The timing, size and nature of individual license transactions are
important factors in our quarterly operating results. Many of our license
transactions involve large dollar commitments by customers, and the sales cycles
for these transactions are often lengthy and unpredictable. There can be no
assurance that we will be successful in closing large license transactions
within the fiscal period in which they are budgeted, if at all.

      Historically, our business has experienced significant seasonality, with
revenues typically peaking in the fourth fiscal quarter (ending June 30) and to
a lesser extent in the second fiscal quarter (ending December 31). Fluctuations
have historically been caused by customer purchasing patterns and our sales
force incentive programs, which recognize and reward sales personnel on the
basis of achievement of annual and other periodic performance quotas, as well as
by the factors described above. Changes in buying patterns, product mix and
sales force incentive programs, as well as other factors discussed below, may
alter these historical seasonality patterns.

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

Our products have a long and unpredictable sales cycle, which could result in
significant fluctuations in license revenue being recognized from quarter to
quarter.

      The period between initial contact with a prospective customer or existing
customer and the licensing of our software applications can range from six to
more than twelve months. Our sales cycle involves complexity as customers
consider a number of factors before committing to purchase our products. Factors
considered by customers when evaluating our products include product benefits,
cost and time of implementation, return on investment, ability to operate with
existing and future computer systems and the ability to accommodate increased
transaction volume and product reliability. Customer evaluation, purchasing and
budgeting processes vary significantly from company to company. As a result, we
spend a significant amount of

                                       27
<PAGE>

time and resources informing prospective customers about our software products,
which may not result in a completed transaction. Even if our software products
have been chosen by the customer, completion of the sales transaction is subject
to a number of factors, which makes our quarterly revenues difficult to
forecast. Particularly in the current economic environment of reduced
information technology spending, it can take several months, or even quarters,
for sales transactions to close.

      It appears that, generally, our sales cycles have lengthened due to
increased organizational review by sales prospects and protracted contract
negotiations, regardless of transaction size. A continued lengthening in sales
cycles and our inability to predict these trends could result in lower than
expected future revenues, which could have a material adverse effect on our
business and operating results.

If we are unable to keep pace with technological changes in our industry, our
products may become obsolete or fail to achieve market acceptance.

      The market for our software products is characterized by a high degree of
technological change, frequent new product introductions, evolving industry
standards and changes in customer demands. The introduction of competitive
products embodying new technologies and the emergence of new industry standards
could render our existing products obsolete and unmarketable. Our future success
will depend in part on our ability to enhance existing products, develop and
introduce new products to meet diverse and evolving customer requirements, and
keep pace with technological developments and emerging industry standards such
as Web-based functionality, new operating systems, hardware platforms, user
interfaces and storage media. The development of new products or enhanced
versions of existing products and services entails significant technical risks.
There can be no assurance that we will be successful in developing and marketing
product enhancements or that new products will respond to technological change
or evolving industry standards, or that we will not experience difficulties that
could delay or prevent the successful development, introduction, implementation
and marketing of these products and enhancements, or that any new products and
product enhancements we may introduce will achieve market acceptance.

We offer extended payment terms to some of our customers, which could impact our
cash flow.

      We offer extended payment terms to some of our customers. For software
license contracts with extended payment terms, the related financing period is
generally three to five years. As of September 30, 2005, software license
installments receivable totaled $29.9 million, as compared with the June 30,
2005 balance of $30.9 million. We entered into an arrangement during our fiscal
first quarter of 2005 that provides us with the option of selling installments
receivable to General Electric Capital Corporation ("GECC"). During the fiscal
first quarter of 2006, the Company sold approximately $325,000 of installments
receivable under this arrangement, bringing total sales to date under this
arrangement to $3.0 million. If the level of software license revenues financed
by installments receivable increases and we are unable to assign a substantial
percentage of such receivables to GECC or other vendor financing firms, our cash
position is likely to be adversely affected. We continue to monitor the level of
sales that include extended payment terms to manage the use of cash associated
with these sales.

      We believe that these installment contracts are enforceable, that the
underlying companies provided financing have strong credit profiles, that we
have a history of successfully enforcing original payment terms and that
ultimate collection is probable. There can be no assurances, however, that
customers will not default under such financing arrangements. A significant
default could have a material adverse effect on our business, operating results
and financial condition.

                                       28
<PAGE>

We rely significantly on one suite of products for our revenues.

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

We face intense competition in our business, and we may be unable to compete
successfully against our current and future competitors.

      The market for our products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. We believe that the most important
competitive factors in the market for content management software are breadth of
functionality, scalability, breadth of supported operating systems and content
formats, vendor viability, ease of use, product reputation, quality,
performance, price, sales and marketing effort and customer service. We
currently encounter direct competition from a number of public and private
companies including IBM Corp., FileNet Corporation, EMC Corporation and BMC
Software, Inc., as well as a number of smaller competitors in niche markets.

      Some of our competitors are substantially larger than we are, have
significantly greater financial, technical and marketing resources, and have a
larger installed base of customers. Some of these competitors also have
extensive direct and indirect channels of distribution. As a result, they may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products than we are able to. In addition, current
and potential competitors have established or may establish cooperative
relationships among themselves with prospective customers. Due to the relatively
low barriers to entry in the software market, additional competition from other
established and emerging companies is likely as the market for content
management software continues to develop and expand. Accordingly, it is possible
that new competitors or alliances among competitors may emerge and rapidly
acquire significant market share. Some of our competitors may also combine with,
or be acquired by other parties, providing them with additional resources with
which to compete.

      Increased competition may result in price reductions, reduced gross
margins and loss of market share, any of which would have a material adverse
effect on our business, operating results and financial condition. There can be
no assurance that we will be able to compete successfully against current or
future competitors or that competitive pressures will not have a material
adverse effect on our business, operating results and financial condition.

We may be unable to maintain or expand our international operations.

      We believe that our revenues and future operating results will depend in
part on our ability to increase sales in international markets. There can be no
assurance that we will be able to maintain or increase international market
demand for our products or attract and retain qualified personnel who will be
able to successfully market our products internationally. The majority of our
current international revenues are derived from the direct sales force of our
wholly-owned subsidiaries. These subsidiaries also derive revenue in certain
geographic areas through third-party agents. Our international sales are subject
to the general risks inherent in doing business internationally, including:

o     unexpected changes in regulatory requirements;
o     tariffs and other trade barriers;
o     costs and difficulties of localizing products for international countries;
o     lack of acceptance of localized products in international countries;
o     longer accounts receivable payment cycles;

                                       29
<PAGE>

o     difficulties in managing international operations;
o     fluctuations in currency exchange rates;
o     potentially adverse tax consequences;
o     restrictions on the repatriation of earnings;
o     the burdens of complying with a wide variety of international laws; and
o     economic instability.

Any or all of the foregoing factors may have a material adverse effect on our
future international revenues, and consequently, on our business, operating
results and financial condition.

      An increase in the value of the U.S. dollar relative to foreign currencies
could make our products more expensive, and, therefore, potentially less
competitive in those markets. To the extent that the U.S. dollar strengthens
against foreign currencies in international markets in which we maintain
operations, our net assets that are denominated in such foreign currencies will
be devalued, resulting in a foreign currency translation loss.

We may be unable to successfully expand or develop relationships with strategic
partners which could adversely affect our future revenue growth.

      To date, sales through indirect sales channels have not been significant
although we continue to invest resources to develop these channels. Our revenue
growth in the future may be adversely affected if we do not expand existing
relationships and establish additional relationships with strategic partners.

We may be unable to generate sufficient revenues from our professional services
business for it to remain profitable.

      There is no assurance that we will continue to generate significant
revenues in the professional services marketplace, or that the direct and
indirect costs associated with operating the professional services business will
not be greater than revenues generated therefrom.

We may be unable to successfully protect our confidential and proprietary
technology, and we may be required to defend our products against infringement
claims.

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

      Our products are generally provided to customers in object code format
only. However, we enter into arrangements with some of our customers that
provide for the release of our source code to the customer upon the occurrence
of certain events, such as our bankruptcy or insolvency or certain material
breaches by us of the license agreement between us and our customer. In the
event of any release of the source code pursuant to these arrangements, the
customer's license is generally limited to use of the source code to maintain,
support and configure our software products. Notwithstanding this protection,
the delivery of source code to customers may increase the likelihood of
misappropriation or other misuse by third parties of our intellectual property.

      We are not aware that any of our products infringe on the proprietary
rights of any third party. From time to time, however, a third party may claim
infringement by us with respect to current or future products. Defense of any
such claims, with or

                                       30
<PAGE>

without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or require us to enter into royalty or licensing
agreements for the right to use any such third party's proprietary rights. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to us or at all, which could have a material adverse effect on our
business, operating results and financial condition.

If we are unable to license the technology that we need from third parties, our
sales may be negatively impacted and our products may become obsolete.

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

Our products may contain defects, and we may be required to pay damages for
product liability claims.

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

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

We may be unable to effectively manage our future growth, if any.

      Our ability to effectively manage our future growth, if any, will require
us to continue to improve our operational, financial and management controls,
accounting and reporting systems, and other internal processes. There can be no
assurance that we will be able to make such improvements in an efficient or
timely manner or that any such improvements will be sufficient to manage our
growth, if any. In addition, management has stated that part of our growth
strategy is to make acquisitions of other businesses or certain assets of other
businesses. There are no assurances that

                                       31
<PAGE>

we will be able to identify attractive acquisition candidates, consummate
acquisition transactions or effectively integrate an acquired business into our
operations. If we are unable to manage growth organically or by acquisition
effectively, our business, operating results or financial condition would be
materially adversely affected.

If we lose key personnel or subcontractors, then we may be unable to
successfully develop our business or our research and development efforts.

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

      We utilize development subcontractors in India and the Ukraine. The loss
of services of these subcontractors could have a material adverse effect on our
research and development.

Customer concerns about the security of transactions conducted over the Internet
may hinder our product sales.

      A significant barrier to electronic commerce and communications is the
secure transmission of private information over public networks. Our products
rely on encryption and authentication technology, some of which we have
developed and some of which may be licensed from third parties, to provide the
required security and authentication to ensure the privacy of Internet
transactions. Advances in computer capabilities, new discoveries in the field of
cryptography or other events or developments may result in a compromise or
breach of the algorithms our products use to protect customer transaction data.
Any breaches in security could cause a significant decrease in the use of our
products, which could undermine future product sales.

Revised accounting pronouncements related to share-based payments will reduce
our reported earnings and could adversely affect our ability to attract and
retain key personnel by reducing the share-based payments we are able to
provide.

      As more fully discussed in Note 6, Stock-Based Compensation, to the
accompanying Consolidated Financial Statements, effective July 1, 2005, we
adopted the fair value recognition provisions of SFAS No. 123(R), "Share-Based
Payment," using the modified-prospective-transition method. As a result of
adopting SFAS No. 123(R), our income before income taxes and net income for the
quarter ended September 30, 2005, were $227,000 and $197,000 lower,
respectively, than if we had continued to account for share-based compensation
under APB No. 25. We presently expect that future grants under our 1996 Stock
Incentive Plan may be curtailed, and we are currently looking at other
compensation alternatives. The issuance of new employee stock options, if any,
would increase the negative impact of SFAS No. 123(R).

      In addition, the Nasdaq listing requirements requiring stockholder
approval for all stock option plans could make it more difficult for us to adopt
plans to grant options to employees in the future. To the extent that it becomes
more difficult or costly to grant options and/or other stock-based compensation
to employees, we may incur increased cash compensation costs or find it
difficult to attract, retain and motivate employees, either of which could
materially affect our business.

                                       32
<PAGE>

We have incurred increased costs in response to recently enacted or proposed
regulations.

      Recently enacted or proposed changes in the laws and regulations affecting
public companies, including but not limited to the Sarbanes-Oxley Act of 2002
("SOX"), have caused us to incur increased costs as we evaluate and respond to
the resulting requirements. During fiscal 2005, the Company's direct cost to
comply with SOX requirements was approximately $875,000. It is anticipated that
the ongoing direct cost to comply with the SOX requirements will continue to be
substantial.






                                       33
<PAGE>


Item 3. - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

      Mobius's investment portfolio is comprised primarily of money market
accounts and is subject to interest rate sensitivity. The primary objective of
Mobius's investment activities is to preserve principal, while at the same time
maximizing interest income. As of September 30, 2005, Mobius held no marketable
securities.

      The Company may be subject to foreign exchange gains or losses on
transactions denominated in other than the functional currency of Mobius or our
subsidiaries. Net gains and losses resulting from foreign exchange transactions
are included in the determination of net income or loss. Mobius does not use
derivative financial investments to hedge potential foreign exchange losses.

Item 4. - CONTROLS AND PROCEDURES

      Evaluation of Disclosure Controls and Procedures. Under the supervision
and with the participation of our management, including our Chief Executive
Officer and our Chief Financial Officer, we have evaluated the effectiveness of
the design and operation of our disclosure controls and procedures (as defined
in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the
"Exchange Act")). Based on that evaluation, our Chief Executive Officer and our
Chief Financial Officer have concluded that our disclosure controls and
procedures were effective as of September 30, 2005 to ensure that information
required to be disclosed by us in reports that we file or submit under the
Exchange Act was recorded, processed, summarized and reported within the time
periods specified in Securities and Exchange Commission rules and forms.

      Changes in Internal Control Over Financial Reporting. There were no
changes in our internal control over financial reporting during our fiscal
quarter ended September 30, 2005 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.



                                       34
<PAGE>


PART II. - OTHER INFORMATION

Item 1. - Legal Proceedings

      From time to time, Mobius is involved in litigation relating to claims
arising from its operations in the normal course of business. Mobius is not a
party to any legal proceedings, the adverse outcome of which, individually or in
the aggregate, would have a material adverse effect on its business, operating
results or financial condition.

Item 2. - Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

(c) Not applicable.

Item 3. - Defaults Upon Senior Securities

None.

Item 4. - Submission of Matters to a Vote of Security Holders

None.

Item 5. - Other Information

None.

Item 6. - Exhibits

            Exhibit No.     Description
            -----------     -----------

            3.1(1)          Form of Second Amended and Restated Certificate of
                            Incorporation of the Registrant.
            3.2(1)          Form of Restated By-Laws of the Registrant.
            4.1(1)          Specimen certificate representing the Common Stock.
            31.1            CEO Certification pursuant to Section 302 of the
                            Sarbanes-Oxley Act of 2002.
            31.2            CFO Certification pursuant to Section 302 of the
                            Sarbanes-Oxley Act of 2002.
            32.1            CEO Certification pursuant to Section 906 of the
                            Sarbanes-Oxley Act of 2002.
            32.2            CFO Certification pursuant to Section 906 of the
                            Sarbanes-Oxley Act of 2002.

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




                                       35
<PAGE>


                                   SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

Date:  November 9, 2005

                                          MOBIUS MANAGEMENT SYSTEMS, INC.

                                          By: /s/ Raymond F. Kunzmann
                                              -------------------------------
                                                  Raymond F. Kunzmann
                                                  Chief Financial Officer
                                                  (Principal Financial and
                                                   Accounting Officer)




                                       36