UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-Q
x QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the quarterly period ended December 31, 2008
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 0-15235
MITEK
SYSTEMS, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
(State
of Incorporation)
|
|
87-0418827
(I.R.S.
Employer Identification No.)
|
|
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8911
Balboa Ave., Suite B
San Diego,
California
(Address
of principal executive offices)
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92123
(Zip
Code)
|
Registrant's
telephone number: (858)
503-7810
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 a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
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Large
Accelerated Filer ¨
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Accelerated
Filer ¨
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Non-Accelerated
Filer ¨
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Smaller
Reporting Company x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No
x
There
were 16,751,137 shares outstanding of the registrant's common stock as of
February 13, 2009.
MITEK
SYSTEMS, INC.
FORM
10-Q
For
the quarterly period ended December 31, 2008
|
Special
Note About Forward–Looking Statements
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(ii)
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Part
I - Financial Information
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ITEM
1.
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Financial
Statements
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1
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ITEM
2.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations
|
11
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ITEM
3.
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Quantitative
and Qualitative Disclosures About Market Risk
|
15
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ITEM
4.
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Controls
and Procedures
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15
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Part
II - Other Information
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ITEM
1.
|
Legal
Proceedings
|
16
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ITEM
1A.
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Risk
Factors.
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16
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ITEM
2
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Unregistered
Sales of Equity Securites and Use of Proceeds
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17
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ITEM
3
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Defaults
Upon Senior Securities
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17
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ITEM
4
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Submission
of Matters to a Vote of Security Holders
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17
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ITEM
5
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Other
Information
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17
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ITEM
6.
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Exhibits
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17
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Signatures
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18
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Special
Note About Forward-Looking Statements
We make
forward-looking statements in this report, particularly in Item 2. "Management's
Discussion and Analysis of Financial Condition and Results of Operations", and
in the documents that are incorporated by reference into this report, if
any. These forward-looking statements relate to Mitek's outlook or
expectations for earnings, revenues, expenses, asset quality or other future
financial or business performance, strategies or expectations, or the impact of
legal, regulatory or supervisory matters on Mitek's business, results of
operations or financial condition. Specifically, forward looking statements used
in this report may include statements relating to future business prospects,
revenue, income and financial condition of Mitek.
Forward-looking
statements can be identified by the use of words such as "estimate," "may,"
"plan," "project," "forecast," "intend," "expect," "anticipate," "believe,"
"seek," "target" or similar expressions. These statements reflect
Mitek's judgment based on currently available information and involve a number
of risks and uncertainties that could cause actual results to differ materially
from those in the forward-looking statements.
In
addition to those factors discussed under the heading "Risk Factors" in Part II,
Item 1A of this report, and in Mitek's other public filings with the Security
and Exchange Commission, important factors could cause actual results to differ
materially from our expectations. These factors include, but are not
limited to:
|
|
·
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adverse
economic conditions;
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|
|
·
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general
decreases in demand for Mitek products and
services;
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·
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intense
competition (including entry of new competitors), including among
competitors with substantially greater resources than
Mitek;
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·
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loss
of key customers or contracts;
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·
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increased
or adverse federal, state and local government
regulation;
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·
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lower
revenues and net income than
forecast;
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·
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inability
to raise prices;
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·
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the
risk of litigation and administrative
proceedings;
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·
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higher
than anticipated labor costs;
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·
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the
possible fluctuation and volatility of operating results and financial
condition;
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·
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adverse
publicity and news coverage;
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·
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inability
to carry out marketing and sales
plans;
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·
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loss
of key employees and executives;
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|
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·
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changes
in interest rates; and
|
You are
cautioned not to place undue reliance on any forward-looking statements, which
speak only as of the date hereof, or in the case of a document incorporated by
reference, as of the date of that document. Except as required by
law, we undertake no obligation to publicly update or release any revisions to
these forward-looking statements to reflect any events or circumstances after
the date of this report or to reflect the occurrence of unanticipated
events.
The above
list is not intended to be exhaustive and there may be other factors that would
preclude us from realizing the predictions made in the forward-looking
statement. We operate in a continually changing business environment
and new factors emerge from time to time. We cannot predict such
factors or assess the impact, if any, of such factors on their respective
financial positions or results of operations.
In this
report, unless the context indicates otherwise, the terms "Mitek," "Company,"
"we," "us," and "our" refer to Mitek Systems, Inc., a Delaware
corporation.
PART I - FINANCIAL
INFORMATION
|
ITEM
1.
|
FINANCIAL
STATEMENTS
|
MITEK
SYSTEMS, INC
BALANCE
SHEETS
|
|
|
December 31,
|
|
|
September 30,
|
|
| |
|
2008
|
|
|
2008
|
|
| |
|
(Unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
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CURRENT
ASSETS:
|
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$ |
868,698 |
|
|
$ |
1,300,281 |
|
|
Accounts
receivable including related party of $4,980 and $203,466, respectively,
net of allowance of $43,648 and $47,877, respectively
|
|
|
646,316 |
|
|
|
912,831 |
|
|
Inventory,
prepaid expenses and other current assets
|
|
|
43,468 |
|
|
|
100,000 |
|
|
Total
current assets
|
|
|
1,558,482 |
|
|
|
2,313,112 |
|
|
|
|
|
|
|
|
|
|
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|
PROPERTY
AND EQUIPMENT-net
|
|
|
90,422 |
|
|
|
91,066 |
|
|
SOFTWARE
DEVELOPMENT COSTS
|
|
|
411,473 |
|
|
|
347,738 |
|
|
OTHER
ASSETS
|
|
|
29,465 |
|
|
|
29,465 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$ |
2,089,842 |
|
|
$ |
2,781,381 |
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|
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|
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LIABILITIES
AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
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|
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CURRENT
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$ |
548,327 |
|
|
$ |
403,925 |
|
|
Accrued
payroll and related taxes
|
|
|
290,265 |
|
|
|
289,300 |
|
|
Deferred
revenue
|
|
|
446,611 |
|
|
|
676,085 |
|
|
Other
accrued liabilities
|
|
|
53,378 |
|
|
|
24,712 |
|
|
Total
current liabilities
|
|
|
1,338,581 |
|
|
|
1,394,022 |
|
|
|
|
|
|
|
|
|
|
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|
Deferred
rent, long-term portion
|
|
|
56,541 |
|
|
|
55,745 |
|
|
TOTAL
LIABILITIES
|
|
|
1,395,122 |
|
|
|
1,449,767 |
|
|
|
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STOCKHOLDERS'
EQUITY:
|
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|
|
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|
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Preferred
stock, $0.001 par value, 1,000,000 shares authorized, none issued and
outstanding
|
|
|
- |
|
|
|
- |
|
|
Common
stock, $.001 par value; 40,000,000 shares authorized, 16,751,137 issued
and outstanding
|
|
|
16,751 |
|
|
|
16,751 |
|
|
Additional
paid-in capital
|
|
|
14,836,105 |
|
|
|
14,804,884 |
|
|
Accumulated
deficit
|
|
|
(14,158,136 |
) |
|
|
(13,490,021 |
) |
|
Total
stockholders' equity
|
|
|
694,720 |
|
|
|
1,331,614 |
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
$ |
2,089,842 |
|
|
$ |
2,781,381 |
|
The
accompanying notes form an integral part of these financial
statements.
MITEK
SYSTEMS, INC
STATEMENTS
OF OPERATIONS
(Unaudited)
|
|
|
For the three months ended
|
|
| |
|
December 31,
|
|
| |
|
2008
|
|
|
2007
|
|
|
|
|
|
|
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SALES
|
|
|
|
|
|
|
|
Software
including sales to a related party of $0 and $227,112 for the three months
ended December 31, 2008 and 2007, respectively
|
|
$ |
496,658 |
|
|
$ |
785,261 |
|
|
|
|
|
|
|
|
|
|
|
|
Professional
services including sales to a related party of $15,779 and $9,569 for the
three months ended December 31, 2008 and 2007,
respectively
|
|
|
514,790 |
|
|
|
478,338 |
|
|
|
|
|
1,011,448 |
|
|
|
1,263,599 |
|
|
|
|
|
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|
|
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|
|
COSTS
AND EXPENSES:
|
|
|
|
|
|
|
|
|
|
Cost
of sales-software
|
|
|
137,848 |
|
|
|
133,087 |
|
|
Cost
of sales-professional services, education and other
|
|
|
57,730 |
|
|
|
41,777 |
|
|
Operations
|
|
|
23,324 |
|
|
|
24,399 |
|
|
Selling
and marketing
|
|
|
361,041 |
|
|
|
345,506 |
|
|
Research
and development
|
|
|
572,492 |
|
|
|
530,887 |
|
|
General
and administrative
|
|
|
529,875 |
|
|
|
472,463 |
|
|
Total
costs and expenses
|
|
|
1,682,310 |
|
|
|
1,548,119 |
|
|
|
|
|
|
|
|
|
|
|
|
OPERATING
LOSS
|
|
|
(670,862 |
) |
|
|
(284,520 |
) |
|
|
|
|
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
|
|
|
|
|
Interest
and other expense
|
|
|
(280 |
) |
|
|
- |
|
|
Interest
income
|
|
|
3,027 |
|
|
|
2,920 |
|
|
Total
other income - net
|
|
|
2,747 |
|
|
|
2,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS
BEFORE INCOME TAXES
|
|
|
(668,115 |
) |
|
|
(281,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
PROVISION
FOR INCOME TAXES
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS
|
|
$ |
(668,115 |
) |
|
$ |
(281,600 |
) |
|
|
|
|
|
|
|
|
|
|
|
NET
LOSS PER SHARE - BASIC AND DILUTED
|
|
$ |
(0.04 |
) |
|
$ |
(0.02 |
) |
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND
DILUTED
|
|
|
16,751,137 |
|
|
|
16,751,137 |
|
The
accompanying notes form an integral part of these financial
statements.
MITEK
SYSTEMS, INC
STATEMENTS
OF CASH FLOWS
(Unaudited)
|
|
|
For the three months ended
|
|
| |
|
December 31,
|
|
| |
|
2008
|
|
|
2007
|
|
|
OPERATING
ACTIVITIES
|
|
|
|
|
|
|
|
Net
loss
|
|
$ |
(668,115 |
) |
|
$ |
(281,600 |
) |
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
9,694 |
|
|
|
10,348 |
|
|
Provision
for bad debts
|
|
|
6,771 |
|
|
|
- |
|
|
Stock-based
compensation expense
|
|
|
31,221 |
|
|
|
70,300 |
|
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
259,744 |
|
|
|
(337,484 |
) |
|
Inventory,
prepaid expenses, and other current assets
|
|
|
56,532 |
|
|
|
33,134 |
|
|
Accounts
payable
|
|
|
144,402 |
|
|
|
75,795 |
|
|
Accrued
payroll and related taxes
|
|
|
965 |
|
|
|
42,873 |
|
|
Deferred
revenue
|
|
|
(229,474 |
) |
|
|
(208,823 |
) |
|
Other
accrued liabilities
|
|
|
28,666 |
|
|
|
12,031 |
|
|
Deferred
rent
|
|
|
796 |
|
|
|
3,981 |
|
|
Net
cash used in operating activities
|
|
|
(358,798 |
) |
|
|
(579,445 |
) |
|
|
|
|
|
|
|
|
|
|
|
INVESTING
ACTIVITIES
|
|
|
|
|
|
|
|
|
|
Purchases
of property and equipment
|
|
|
(9,050 |
) |
|
|
(18,146 |
) |
|
Investment
in software development costs
|
|
|
(63,735 |
) |
|
|
- |
|
|
Net
cash used in investing activities
|
|
|
(72,785 |
) |
|
|
(18,146 |
) |
|
|
|
|
|
|
|
|
|
|
|
FINANCING
ACTIVITIES
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(431,583 |
) |
|
|
(597,591 |
) |
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
1,300,281 |
|
|
|
2,096,282 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$ |
868,698 |
|
|
$ |
1,498,691 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL
DISCLOSURE OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
Cash
paid for interest
|
|
$ |
280 |
|
|
$ |
- |
|
The
accompanying notes form an integral part of these financial
statements.
MITEK
SYSTEMS, INC.
NOTES
TO FINANCIAL STATEMENTS
(Unaudited)
1. Basis
of Presentation
The accompanying unaudited balance sheet as of
December 31, 2008, which has been derived
from audited financial statements as of September 30, 2008, and the
unaudited interim financial statements of Mitek Systems, Inc. (the
“Company”) have been prepared in accordance with the instructions to Form 10-Q
and, therefore, do not include all information and footnote disclosures that are
otherwise required by Regulation S-K and that will normally be made in the
Company's Annual Report on Form 10-K. Refer to the Company’s
financial statements on Form 10-K for the year ended September 30, 2008 for
additional information. The financial statements do, however, reflect
all adjustments (solely of a normal recurring nature) which are, in the opinion
of management, necessary for a fair statement of the results of the interim
periods presented.
Results for the three months ended
December 31, 2008 are not necessarily indicative of results which may be
reported for any other interim period or for the year as a whole.
Going
Concern
The
Company incurred net losses of approximately $668,000 and $282,000 for the three
months ended December 31, 2008 and 2007, respectively, and has an accumulated
deficit of approximately $14.2 million as of December 31, 2008. Cash
used for operations decreased from approximately $579,000 in first quarter of
fiscal 2008 to approximately $359,000 in the same period of fiscal
2009. Cash used in investing activities during the three months ended
December 31, 2008 was approximately $73,000, compared to approximately $18,000
in the three months ended December 31, 2007. The Company’s cash
balance was approximately $869,000 as of December 31, 2008.
Based on
its current operating plan, the Company’s existing working capital may not be
sufficient to meet the cash requirements to fund its planned operating expenses,
capital expenditures, and working capital requirements through September 30,
2009 without additional sources of cash and/or the deferral, reduction or
elimination of significant planned expenditures. The Company is
taking expense reduction measures to conserve cash and has retained an
investment banking firm to explore strategic alternatives. In
addition, the Company may need to raise significant additional funds to continue
its operations. In the absence of positive cash flows from
operations, the Company may be dependent on its ability to secure additional
funding through the issuance of debt or equity instruments. If
adequate funds are not available, the Company may be forced to significantly
curtail its operations or to obtain funds through entering into additional
collaborative agreements or other arrangements that may be on unfavorable terms,
if available at all.
These
factors raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying financial statements have been
prepared assuming that the Company will continue as a going
concern. This basis of accounting contemplates the recovery of the
Company’s assets and the satisfaction of liabilities in the normal course of
business. In addition, these financial statements do not include any
adjustments to the specific amounts and classifications of assets and
liabilities, which might be necessary should the Company be unable to continue
as a going concern.
On
January 9, 2009, the Company implemented a plan to decrease its operating
expenses by reducing its workforce in light of the economic contraction of the
financial services market into which the Company primarily sells its
products. The staff reduction included general and administrative,
sales and marketing and technical staff. The Company has diligently maintained
key resources to adequately pursue new sales opportunities and support its
operations. The Company's management does not believe that such reductions will
impair the Company’s ability to develop its ImageNet Mobile Deposit application
and other mobile capture products, or to provide technical support to its
current and prospective customers.
2. Accounting
for Stock-Based Compensation
Effective
October 1, 2006, the Company adopted the fair value recognition provisions
of Statement of Financial Accounting Standards ("SFAS") No. 123(R),
Share-Based Payment ("SFAS No. 123(R)"), using the modified prospective
transition method. Under that transition method, compensation expense
that the Company recognized beginning on that date
includes: (a) compensation expense for all share-based awards
granted prior to, but not yet vested as of October 1, 2006, based on the
grant date fair value estimated in accordance with the original provisions of
SFAS No. 123, and (b) compensation expense for all share-based awards
granted on or after October 1, 2006, based on the grant date fair value
estimated in accordance with the provisions of SFAS
No. 123(R). Results for prior periods will not be
restated.
SFAS
No. 123(R) requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ from
those estimates. The estimated average forfeiture rates at December
31, 2008 of approximately 19% for grants to all employees were based on
historical forfeiture experience. The estimated expected remaining
contractual life of stock option grants at December 31, 2008 was 1.7 years on
grants to directors and 7.1 years on grants to employees.
SFAS
No. 123(R) requires the cash flows resulting from the tax benefits
resulting from tax deductions in excess of the compensation cost recognized for
those options to be classified as financing cash flows. Due to the
Company's valuation allowance from losses in the previous years, there was no
such tax benefits during the three month period ended December 31,
2008. Prior to the adoption of SFAS No. 123(R) those benefits
would have been reported as operating cash flows had the Company received any
tax benefits related to stock option exercises.
The fair
value of stock-based awards to employees and directors is calculated using the
Black-Scholes option pricing model. The Black-Scholes model requires
subjective assumptions, including future stock price volatility and expected
time to exercise, which greatly affect the calculated values. The
expected term of options granted is derived from historical data on employee
exercises and post-vesting employment termination behavior. The
risk-free rate selected to value any particular grant is based on the U.S
Treasury rate that corresponds to the expected life of the grant effective as of
the date of the grant. The expected volatility is based on the
historical volatility of the Company's stock price. These factors
could change in the future, affecting the determination of stock-based
compensation expense in future periods.
The value
of stock-based compensation is based on the single option valuation approach
under SFAS No. 123(R). It is assumed no dividends will be
declared. The estimated fair value of stock-based compensation awards
to employees is amortized using the straight-line method over the vesting period
of the options.
The fair
value calculations for stock-based compensation awards to employees for the
three month period ended December 31, 2008 and 2007 were based on the following
assumptions:
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
2.29 |
% |
|
|
3.50% - 3.67 |
% |
|
Expected
life (years)
|
|
|
6.0 |
|
|
|
5.3 |
|
|
Expected
volatility
|
|
|
166 |
% |
|
|
94 |
% |
|
Expected
dividends
|
|
None
|
|
|
None
|
|
The following table summarizes
stock-based compensation expense related to stock options under SFAS
No. 123(R) for the three month period ended December 31, 2008 and 2007
which was allocated as follows:
|
|
|
Three Months Ended
|
|
| |
|
December 31,
|
|
| |
|
2008
|
|
|
2007
|
|
|
Research
and development
|
|
$ |
8,741 |
|
|
$ |
12,225 |
|
|
Sales
and marketing
|
|
|
6,221 |
|
|
|
9,342 |
|
|
General
and administrative
|
|
|
16,259 |
|
|
|
48,733 |
|
|
Stock-based
compensation expense related to employee stock options included in
operating expenses
|
|
$ |
31,221 |
|
|
$ |
70,300 |
|
The following table summarizes vested
and unvested options, fair value per share weighted average remaining term and
aggregate intrinsic value at December 31, 2008:
|
|
|
Number of Shares
|
|
|
Weighted Average
Grant Date Fair
Value Per Share
|
|
|
Weighted Average
Remaining
Contractual Life (in
Years)
|
|
|
Aggregate Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested
|
|
|
2,704,261 |
|
|
|
0.46 |
|
|
|
5.81 |
|
|
$ |
- |
|
|
Unvested
|
|
|
966,883 |
|
|
|
0.26 |
|
|
|
9.18 |
|
|
|
- |
|
|
Total
|
|
|
3,671,144 |
|
|
|
0.41 |
|
|
|
6.70 |
|
|
$ |
- |
|
As of
December 31, 2008, the Company had $149,937 of unrecognized compensation expense
expected to be recognized over a weighted average period of approximately 0.98
years.
A summary
of option activity under the Company’s stock equity plans during the three
months ended December 31, 2008 is as follows:
|
|
|
Number of
Shares
|
|
|
Weighted Average
Exercise Price Per
Share
|
|
|
Weighted Average
Remaining
Contractual Term
(in Years)
|
|
|
Outstanding,
September 30, 2008
|
|
|
3,740,158 |
|
|
$ |
0.71 |
|
|
|
6.52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Board
of Directors
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Executive
Officers
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Employees
|
|
|
125,000 |
|
|
$ |
0.07 |
|
|
|
9.92 |
|
|
Forfeited
|
|
|
(194,014 |
) |
|
$ |
0.84 |
|
|
|
0.60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
December 31, 2008
|
|
|
3,671,144 |
|
|
$ |
0.70 |
|
|
|
6.70 |
|
The
following table summarizes significant ranges of outstanding and exercisable
options as of December 31, 2008:
|
Range of
Exercise Prices
|
|
Number of
Options
Outstanding
|
|
|
Weighted
Average
Remaining
Contractual Life
(in Years)
|
|
|
Weighted
Average
Exercise Price
|
|
|
Number of
Exercisable
Options
|
|
|
Weighted
Average
Exercise Price
of Exercisable
Options
|
|
|
Number of
Unvested
Options
|
|
|
$
0.07 - $ 0.69
|
|
|
2,051,216 |
|
|
|
7.63 |
|
|
$ |
0.37 |
|
|
|
1,096,166 |
|
|
$ |
0.42 |
|
|
|
955,050 |
|
|
$
0.70 - $ 0.92
|
|
|
707,657 |
|
|
|
5.72 |
|
|
$ |
0.78 |
|
|
|
695,824 |
|
|
$ |
0.78 |
|
|
|
11,833 |
|
|
$
1.06 - $ 1.68
|
|
|
847,500 |
|
|
|
5.57 |
|
|
$ |
1.12 |
|
|
|
847,500 |
|
|
$ |
1.12 |
|
|
|
- |
|
|
$
2.13 - $ 2.68
|
|
|
49,000 |
|
|
|
3.18 |
|
|
$ |
2.29 |
|
|
|
49,000 |
|
|
$ |
2.29 |
|
|
|
- |
|
|
$
3.25 - $12.37
|
|
|
15,771 |
|
|
|
1.22 |
|
|
$ |
6.63 |
|
|
|
15,771 |
|
|
$ |
6.63 |
|
|
|
- |
|
|
|
|
|
3,671,144 |
|
|
|
6.70 |
|
|
$ |
0.68 |
|
|
|
2,704,261 |
|
|
$ |
0.80 |
|
|
|
966,883 |
|
|
The
per-share weighted average fair value of options granted during the three
months ended December 31, 2008 was
$0.07.
|
Stock
Option Plans
The
Company currently has five stock option plans that allow the Company to grant
options to purchase common stock to the Company's directors, executive officers
and key individuals who make, or are expected to make, significant contributions
to the Company. Under the terms of each of the Company's stock option
plans, the exercise price of options granted to persons owning more than 10% of
the total combined voting power of the Company's stock is not to be less than
110% of the fair market value of the Company's common stock as determined on the
date of the grant of the options.
The 1996
Stock Option Plan (the “1996 Plan”) provides for the purchase of up to 2,000,000
shares of the Company's common stock through incentive and non-qualified
options. All options are granted with an exercise price equal to the
fair market value of the Company's common stock at the grant date and for a term
of not more than ten years. Options granted to individuals owning in
excess of 10% of the Company's outstanding common stock must have a term of not
more than five years. The 1996 Plan terminated on October 30,
2006; however options granted under the plan that were outstanding at such date
remain in effect until such options are exercised or expire. As of
December 31, 2008, no options to purchase shares of the Company's common stock
granted under the 1996 Plan were outstanding.
Under the
terms of the 1999 Stock Option Plan (the “1999 Plan”), the 2000 Stock Option
Plan (the “2000 Plan”), the 2002 Stock Option Plan (the “2002 Plan”) and the
2006 Stock Option Plan (the “2006 Plan), each of which provides for the grant of
incentive and non-qualified options: incentive stock options are granted with an
exercise price equal to the fair market value of the Company's common stock at
the grant date and for a term of not more than ten years; non-qualified stock
options may be granted with an exercise price of not less than 85% of fair
market value of the Company's common stock at the grant date and for a term of
not more than five years; and to date, the Company has elected to grant
non-qualified stock options under these plans with a three year
term.
The 1999
Plan provides for the purchase of up to 1,000,000 shares of the Company's common
stock. As of December 31, 2008, options to purchase 881,771 shares of
the Company's common stock were outstanding and options to purchase up to 11,358
shares of the Company's common stock were available for grant under the 1999
Plan.
The 2000
Plan provides for the purchase of up to 1,000,000 shares of the Company's common
stock. As of December 31, 2008, options to purchase 796,657 shares of
the Company's common stock were outstanding and options to purchase up to 41,459
shares of the Company's common stock were available for grant under the 2000
Plan.
The 2002
Plan provides for the purchase of up to 1,000,000 shares of the Company's common
stock. As of December 31, 2008, options to purchase 667,716 shares of
the Company's common stock were outstanding and options to purchase up to
299,229 shares of the Company's common stock were available for grant under the
2002 Plan.
The 2006
Plan provides for the purchase of up to 1,000,000 shares of the Company's common
stock. As of December 31, 2008, options to purchase 925,000 shares of
the Company's common stock were outstanding and options to purchase up to 75,000
shares of the Company's common stock were available for grant under the 2006
Plan.
On
January 27, 2009, the Board of Directors of the Company approved the 2009 Stock
Option Plan (the “2009 Plan”), which will provide for the purchase of up to
2,000,000 shares of the Company’s common stock. The Company has
submitted the 2009 Plan to the stockholders of the Company for their approval at
the next Annual Meeting of Stockholders to be held February 25,
2009. Upon proper approval of the 2009 Plan by the stockholders of
the Company, such plan shall be deemed effective as of the date of approval by
the Board of Directors.
3. Income
Taxes
On
October 1, 2007, the Company adopted the provisions of the Financial Accounting
Standards Board ("FASB") Interpretation No. 48, Accounting for Uncertainty
in Income Taxes—an interpretation of FASB Statement No. 109
("FIN 48"). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in a company's financial statements and prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. Further, FIN 48 gives guidance regarding the
recognition of a tax position based on a "more likely than not" recognition
threshold; that is, evaluating whether the position is more likely than not of
being sustained upon examination by the appropriate taxing authorities, based on
the technical merits of the position. The adoption of FIN 48 did not
impact the Company's financial condition, results or operations or cash
flows.
At
September 30, 2008, the Company had net deferred tax assets of approximately
$6.72 million. The deferred tax assets are primarily comprised of
federal and state net operating loss carryforwards (approximately 83% of the net
deferred tax assets at October 1, 2008). Such carryforwards expire
between 2008 and 2023. Under the Tax Reform Act of 1986, the amount
of and the benefit from net operating losses that can be carried forward may be
limited in certain circumstances. The Company carries a deferred tax
valuation allowance equal to 100% of total net deferred assets. In
recording this allowance, management has considered a number of factors, but
chiefly, the Company's recent history of sustained operating
losses. Management has concluded that a valuation allowance is
required for 100% of the total deferred tax assets as it is more likely than not
that the deferred tax assets will not be realized.
The
Company has not determined the amount of the annual limitation on operating loss
carryforwards that can be utilized in a taxable year. Any operating
loss carryforwards that will expire prior to utilization as a result of such
limitations will be removed from deferred tax assets with a corresponding
reduction of the valuation allowance. Based on the 100% valuation
allowance on the deferred tax assets, the Company does not anticipate that
future changes in the Company's unrecognized tax benefits will impact its
effective tax rate.
The
Company's policy is to classify interest and penalties related to income tax
matters as income tax expense. The Company had no accrual for
interest or penalties as of September 30, 2008 or December 31, 2008, and has not
recognized interest and/or penalties in the statement of operations the three
month period ended December 31, 2008.
4. Commitments
and Contingencies
The
Company leases office space under a non-cancelable operating lease. The lease
costs are expensed on a straight-line basis over the lease term. In
September 2005, the Company signed a lease with an initial term of seven
years for a property located at 8911 Balboa Avenue, San Diego,
California. The lease was effective and binding on the parties as of
September 19, 2005; however, the term of the lease began on
December 9, 2005, which was the date on which certain improvements were
substantially complete. The Company may terminate the lease after the
48th calendar month following the commencement date; however, termination
requires certain penalties to be paid equal to two months of base rent and all
unamortized improvements and commissions. As of the date of this
report, the Company does not have any intent to terminate this
lease.
5. Related
Party Transactions
John H.
Harland Company ("JHH Co.") made investments in the Company in February and
May 2005. JHH Co. acquired a total of 2,142,856 shares of
unregistered common stock for an aggregate purchase price of $1,500,000 or $0.70
per share. As part of the acquisition of shares, JHH Co. received
warrants to purchase 321,428 additional shares of common stock at $0.70 per
share. This transaction resulted in JHH Co. and its subsidiary,
Harland Financial Solutions (collectively "John Harland"), being considered
related parties of the Company due to the amount of the Company's common stock
beneficially owned by John Harland. John Harland is not involved in
the management decisions of the Company and does not participate in any board
meetings, unless invited.
In the
three months ended December 31, 2008, the Company realized revenue from John
Harland of approximately $16,000 for software maintenance, compared to revenue
of approximately $227,000 for software licenses and $10,000 for related software
maintenance in the three months ended December 31, 2007. There
was an outstanding accounts receivable balance of approximately $5,000 due from
John Harland at December 31, 2008, compared to a balance of approximately
$222,000 at December 31, 2007.
6. Product
Revenues and Sales Concentrations
Product
Revenues
During
the three months ended December 31, 2008 and 2007, the Company’s revenues were
derived primarily from its Character Recognition Product line.
Below is
a summary of the revenues by product lines (dollar amounts in
thousands):
|
|
|
Three Months Ended
December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
|
Revenue
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
Recognition
toolkits
|
|
$ |
496 |
|
|
$ |
785 |
|
|
Professional
services, maintenance and other
|
|
|
515 |
|
|
|
479 |
|
|
Total
revenue
|
|
$ |
1,011 |
|
|
$ |
1,264 |
|
Sales
Concentration
The
Company sells its products primarily to original equipment manufacturers, system
integrators and resellers who ultimately sell to depository
institutions. For the three months ended December 31, 2008 and 2007,
the Company had the following sales concentrations:
|
|
|
Three Months Ended
December 31,
|
|
|
|
|
2008
|
|
|
2007
|
|
Customers
to which sales were in excess of 10% of total
sales:
|
|
|
|
|
|
|
|
Number
of customers
|
|
|
3 |
|
|
|
2 |
|
|
Aggregate
percentage of sales
|
|
|
45.7 |
% |
|
|
39.0 |
% |
Sales to
customers in excess of 10% of total sales were approximately $462,000 and
$488,000 for the three months ended December 31, 2008 and 2007. The
balance of accounts receivable from customers with sales in excess of 10% of
total sales was approximately $317,000 as of December 31, 2008, compared to
$433,000 as of December 31, 2007.
|
7.
|
Capitalized
Software Development Costs
|
The
Company is currently developing Mobile Capture software, a software solution
that captures and reads data from mobile devices using proprietary
technology. The Company has completed all of the planning, designing,
coding, and testing activities necessary to establish technological feasibility
of the product and has determined that the product can be produced to meet its
design specifications including functions, features, and technical performance
requirements.
Costs of
internally developed software are expensed until the technological feasibility
of the software product has been established. Thereafter, software
development costs, to the extent that management expects such costs to be
recoverable against future revenues, are capitalized until the product's general
availability to customers in accordance with SFAS No. 86, Accounting for
the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed ("SFAS
No. 86"). Capitalized software development costs are amortized
based upon the higher of (i.) the ratio of current revenue to total
projected revenue or (ii.) the straight-lined charges, over the product's
estimated economic life beginning at the date of general availability of the
product to customers.
The
Company evaluates its capitalized software development costs at each balance
sheet date to determine if the unamortized balance related to any given product
exceeds the estimated net realizable value of that product. Any such
excess is written off through accelerated amortization in the quarter it is
identified. Determining net realizable value, as defined by SFAS
No. 86, requires making estimates and judgments in quantifying the
appropriate amount to write off, if any. Actual amounts realized from
the software products could differ from those estimates. Also, any
future changes to the Company's product portfolio could result in significant
increases to its cost of license revenue as a result of the write-off of
capitalized software development costs. Capitalized software
development costs during the three months ended December 31, 2008 were
approximately $64,000. No software development costs were capitalized
during the three months ended December 31, 2007. The Company
completed its first production general release of ImageNet Mobile DepositTM on
October 31, 2008, and entered into an agreement with a major financial
institution on November 4, 2008 to conduct a performance evaluation of the
product. In accordance with SFAS No. 86, the Company ceased
capitalizing software development costs related to this product on the date that
it completed its first production general release. No amortization of
software development costs has been recorded, because sales of the related
software products have not commenced.
|
8.
|
Recently
Issued Accounting
Pronouncements
|
Effective October 1, 2008, the Company
adopted SFAS No. 157, Fair Value Measurements (“SFAS No. 157”). In
February 2008, the FASB issued FASB Staff Position No. SFAS 157-2, Effective
Date of FASB Statement No. 157, which provides a one year deferral of the
effective date of SFAS No. 157 for non-financial assets and non-financial
liabilities, except those that are recognized or disclosed in the financial
statements at fair value at least annually. As a result, the Company
only partially adopted SFAS No. 157 as it relates to its financial assets and
liabilities until the Company is required to apply this pronouncement to its
non-financial assets and liabilities beginning with fiscal year
2010. The adoption of SFAS No. 157 did not have a material impact on
the Company’s results of operations or financial condition
In February 2007, the FASB issued SFAS
No. 159, The Fair Value Option for Financial Assets and Financial
Liabilities—Including an Amendment of FASB Statement No. 115 (“SFAS No. 159”).
This standard permits an entity to choose to measure many financial instruments
and certain other items at fair value. Most of the provisions in SFAS
No. 159 are elective; however, the amendment to SFAS No. 115, Accounting for
Certain Investments in Debt and Equity Securities, applies to all entities with
available-for-sale and trading securities. The fair value option
established by SFAS No. 159 permits all entities to choose to measure eligible
items at fair value at specified election dates. Under SFAS No. 159,
the Company would report unrealized gains and losses on items for which the fair
value option has been elected in earnings at each subsequent reporting
date. The fair value option: (a) may be applied instrument by
instrument, with a few exceptions, such as investments otherwise accounted for
by the equity method; (b) is irrevocable (unless a new election date occurs);
and (c) is applied only to entire instruments and not to portions of
instruments. This statement became effective for the Company October
1, 2008; however, the Company did not elect the fair value option for any of its
financial assets or financial liabilities.
9. Subsequent
Events
Workforce
Reduction
On
January 9, 2009, the Company implemented a plan to decrease its operating
expenses by reducing its workforce in light of the economic contraction of the
financial services market into which the Company primarily sells its
products. The staff reduction included general and administrative,
sales and marketing and technical staff. The Company has diligently maintained
key resources to adequately pursue new sales opportunities and support its
operations. The Company's management does not believe that such reductions will
impair the Company’s ability to develop its ImageNet Mobile Deposit application
and other mobile capture products, or to provide technical support to its
current and prospective customers.
Departure
and Appointment of Certain Officers
On
January 13, 2009, Tesfaye Hailemichael, Chief Financial Officer, Vice President,
Treasurer and Secretary of the Company, tendered his resignation from all
offices with the Company to pursue other interests, effective January 14,
2009. Mr. Hailemichael's resignation was not the result of any
disagreement with the policies or practices of the Company or related to any
accounting or financial disputes. The Board of Directors of the
Company appointed James B. DeBello, the Company's President and Chief Executive
Officer, as Chief Financial Officer and Secretary of the Company to replace Mr.
Hailemichael, effective January 14, 2009. Mr. DeBello also continues
his current responsibilities as President and Chief Executive
Officer.
|
ITEM
2.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Special
Note Regarding Forward-Looking Statements
In
addition to historical information, this management’s discussion and analysis of
financial condition and results of operation contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. As contained herein, the words "expects," "anticipates,"
"believes," "intends," "will," and similar types of expressions identify
forward-looking statements, which are based on information that is currently
available to us, speak only as of the date hereof, and are subject to certain
risks and uncertainties. You should not place undue reliance on our
forward-looking statements because the matters they describe are subject to
known and unknown risks, uncertainties and other unpredictable factors, many of
which are beyond our control. Also, new risks and uncertainties arise from time
to time, and it is impossible for us to predict these matters or how they may
affect us. We do not undertake and specifically decline any
obligation to update any forward-looking statements or to publicly announce the
results of any revisions to any statements to reflect new information or future
events or developments.
To the
extent that this management’s discussion and analysis of financial condition and
results of operation contains forward-looking statements regarding the financial
condition, operating results, business prospects or any other aspect of the
Company, please be advised that our actual financial condition, operating
results and business performance may differ materially from that projected or
estimated by us in forward-looking statements. We have attempted to
identify certain of the factors that we currently believe may cause actual
future experiences and results to differ from our current
expectations. Please see "Note About Forward–Looking Statements" at
the beginning of this report. Please consider our forward-looking
statements in light of those risks as you read this report.
Outlook
Our
primary strategy for fiscal 2009 is to expand our business focus to include a
software product that captures and reads data from mobile devices using our
proprietary technology. We refer to this software product as Mobile
Capture. Mobile Capture technology converts a camera-equipped mobile
phone into a mobile scanner that has the ability to read and extract data from
any digital photo or video image. We will, however, also continue to
grow the identified markets for our other products and enhance the functionality
and marketability of our image based recognition and forgery detection
technologies. In particular, we plan to expand the installed base of our
Recognition Toolkits and leverage existing technology by devising
recognition-based applications to detect potential fraud and loss at financial
institutions. We also seek to expand the installed base of our
Check Forgery detection solutions by entering into reselling
relationships with key resellers who we believe are better able to penetrate the
market and provide us entrée into a larger base of community banks.
Application
of Critical Accounting Policies
Our
financial statements and accompanying notes are prepared in accordance with
accounting principles generally accepted in the United States of
America. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. These estimates by management are
affected by management’s application of accounting policies, are subjective and
may differ from actual results. Critical accounting policies for
Mitek include revenue recognition, allowance for doubtful accounts receivable,
fair value of equity instruments and accounting for income taxes.
Revenue
Recognition
We enter
into contractual arrangements with integrators, resellers and end users that may
include licensing of our software products, product support and maintenance
services, consulting services, resale of third-party hardware, or various
combinations thereof, including the sale of such products or services
separately. Our accounting policies regarding the recognition of
revenue for these contractual arrangements are fully described in the notes to
our financial statements filed with our annual report on Form 10-K for the year
ended September 30, 2008.
We
consider many factors when applying generally accepted accounting principles to
revenue recognition. These factors include, but are not limited to:
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The
actual contractual terms, such as payment terms, delivery dates, and
pricing of the various product and service elements of a
contract;
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Time
period over which services are to be
performed;
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Creditworthiness
of the customer;
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The
complexity of customizations to our software required by service
contracts;
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The
sales channel through which the sale is made (direct, VAR, distributor,
etc.);
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Discounts
given for each element of a contract;
and
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Any
commitments made as to installation or implementation “go live”
dates.
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Each of
the relevant factors is analyzed to determine its impact, individually and
collectively with other factors, on the revenue to be recognized for any
particular contract with a customer. Management is required to make
judgments regarding the significance of each factor in applying the revenue
recognition standards. Any misjudgment or error by management in its
evaluation of the factors and the application of the standards, especially with
respect to complex or new types of transactions, could have a material adverse
affect on our future revenues and operating results.
Accounts
Receivable
We
constantly monitor collections from our customers and maintain a provision for
estimated credit losses that is based on historical experience and on specific
customer collection issues. While such credit losses have
historically been within our expectations and the provisions established, we
cannot guarantee that we will continue to experience the same credit loss rates
that we have in the past. Since our revenue recognition policy
requires customers to be deemed creditworthy, our accounts receivable are based
on customers whose payment is reasonably assured. Our accounts
receivable are derived from sales to a wide variety of customers. We
do not believe a change in liquidity of any one customer or our inability to
collect from any one customer would have a material adverse impact on our
financial position.
Fair
Value of Equity Instruments
The
valuation of certain items, including valuation of warrants, beneficial
conversion feature related to convertible debt and compensation expense related
to stock options granted, involve significant estimates with underlying
assumptions judgmentally determined. The valuation of warrants and
stock options are based upon a Black Scholes valuation model, which involve
estimates of stock volatility, expected life of the instruments and other
assumptions.
Deferred
Income Taxes
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. We maintain a valuation
allowance against the deferred tax asset due to uncertainty regarding the future
realization based on historical taxable income, projected future taxable income,
and the expected timing of the reversals of existing temporary
differences. Until such time as we can demonstrate that we will no
longer incur losses or if we are unable to generate sufficient future taxable
income we could be required to maintain the valuation allowance against our
deferred tax assets.
Capitalized
Software Development Costs
Research
and development costs are charged to expense as incurred. However,
the costs incurred for the development of computer software that will be sold,
leased, or otherwise marketed are capitalized when technological feasibility has
been established. These capitalized costs are subject to an ongoing
assessment of recoverability based on anticipated future revenues and changes in
hardware and software technologies. Costs that are capitalized
include direct labor and related overhead.
Amortization
of capitalized software development costs begins when product sales
commence. Amortization is provided on a product-by-product basis on
either the straight-line method over periods not exceeding two years or the
sales ratio method. Unamortized capitalized software development
costs determined to be in excess of net realizable value of the product are
expensed immediately.
Analysis
of Financial Condition and Results of Operations
Three
Months Ended December 31, 2008 and 2007
Net
Sales
Net sales
were approximately $1,011,000 and approximately $1,264,000 for three months
ended December 31, 2008 and 2007, respectively, a decrease of approximately
$253,000, or 20%. The decrease in revenue is due primarily to reduced
sales of our core products. We recorded approximately $227,000 in
revenue during the first quarter of fiscal 2008 for software licenses we sold to
John H. Harland Company. There was no software license revenue in the
first quarter of fiscal 2008. John H. Harland Company and its
subsidiary, Harland Financial Solutions, is a related party which is discussed
in Note 5 to our financial statements included in this report.
Cost
of Sales
Cost of
sales for the three months ended December 31, 2008 was approximately $196,000
compared to approximately $175,000 for the three months ended December 31, 2007,
an increase of approximately $21,000 or 12%. Stated as a percentage
of net sales, cost of sales were approximately 19% for the first fiscal quarter
of 2009 compared to approximately 14% for the first quarter of fiscal
2008. The increase is primarily due to an increase in license fees
paid to third-party software providers of integrated software
products.
Operations
Expenses
Operations
expenses for the three months ended December 31, 2008 and 2007 included payroll,
employee benefits, and other personnel-related costs associated with purchasing,
shipping and receiving. Operations expenses were approximately
$23,000 and $24,000 for the first fiscal quarter of 2009 and 2008, respectively,
a decrease of approximately $1,000 or 4%. Stated as a percentage of
net sales, operations expenses were 2% in both the three months ended December
31, 2008 and 2007.
Selling
and Marketing Expenses
Selling
and marketing expenses include payroll, employee benefits, and other
headcount-related costs associated with sales and marketing personnel and
advertising, promotions, trade shows, seminars, and other
programs. Selling and marketing expenses were approximately $361,000
and $346,000 for the three months ended December 31, 2008 and 2007,
respectively. Stated as a percentage of net sales, selling and
marketing expenses for the three months ended December 31, 2008 and 2007 were
approximately 36% and 27%, respectively. The $15,000 increase in the
current three-month period primarily relates to increased personnel costs,
including salaries, taxes, vacation and other benefits, outside services and
promotions and advertising costs.
Research
and Development Expenses
Research
and development expenses include payroll, employee benefits, consultant expenses
and other headcount-related costs associated with product
development. These costs are incurred to maintain and enhance
existing products. We retain what we believe to be sufficient staff
to sustain our existing product lines, including development of new, more
feature-rich versions of our existing product, as we determine the marketplace
demands. We also employ research personnel, whose efforts are
instrumental in ensuring product paths from current technologies to anticipated
future generations of products within our area of business.
Research
and development expenses for the three months ended December 31, 2008 were
approximately $572,000, compared to approximately $531,000 for the three months
ended December 31, 2007, an increase of approximately $41,000 or
8%. Stated as a percentage of net sales, research and development
expenses were 57% and 42% in the three months ended December 31, 2008 and 2007,
respectively. The increase in the current period is primarily due to
increased personnel costs, including salaries, taxes, vacation and other
benefits, due to increased headcount, partially offset by software development
costs of approximately $64,000 related to our Mobile Capture software
application that were capitalized in the first quarter of 2009 in accordance
with Statement of Financial Accounting Standards No. 86, Accounting for the
Costs of Computer Software to Be Sold, Leased, or Otherwise
Marketed.
General
and Administrative Expenses
General
and administrative expenses include payroll, employee benefits, and other
personnel-related costs associated with the finance, facilities, and legal,
accounting and other administrative fees. General and administrative
expenses were approximately $530,000 in the three months ended December 31, 2008
compared to approximately $472,000 in the three months ended December 31, 2007,
an increase of approximately $58,000 or 12%. The increase in the
current period primarily relates to increased legal and accounting fees and
other outside services, partially offset by decreased stock-based compensation
expense due to the lower average share price in the three months ended December
31, 2008. Stated as a percentage of net sales, general and
administrative expenses were 52% and 37% for the three months ended December 31,
2008 and 2007, respectively.
Interest
and Other Income – Net
Interest
and other income (net) was approximately $3,000 in both the three months ended
December 31, 2008 and 2007. Higher interest rates in the current
period compensated for the lower average cash balance during the three months
ended December 31, 2008, as compared to the cash balances during the first three
months of fiscal 2007.
Liquidity
and Capital Resources
On
December 31, 2008, we had approximately $869,000 in cash and cash equivalents
compared to approximately $1,300,000 on September 30, 2008, a decrease of
approximately $431,000 or 33%. The balance of accounts receivable at
December 31, 2008 was approximately $646,000, a decrease of approximately
$267,000 from the September 30, 2008 balance of approximately
$913,000. The decrease in accounts receivable was primarily due to
the timing of customer billings and the receipt of payments.
Deferred
revenue, which consists of maintenance and support service fees that are
deferred and recognized as income over the contract period on a straight-line
basis, was approximately $447,000 and $676,000 at December 31, 2008 and
September 30, 2008, respectively, a decrease of approximately $229,000 or
34%. We believe that as the installed base of our products grows and
as customers purchase additional complementary products, the maintenance and
support service fees that are deferred, as well those recognized as income over
the contract term, will increase.
We
financed our cash needs during the three months ended December 31, 2008 and for
the same period ended December 31, 2007 primarily from collections of accounts
receivable and existing cash and cash equivalents.
Net cash
used in operating activities during the three months ended December 31, 2008 was
approximately $359,000. The primary uses of cash from operating
activities included the net loss of approximately $668,000, a decrease in
deferred revenue of approximately $229,000, a decrease in the balance accounts
receivable of approximately $259,000, net of the provision for bad debt and an
increase in the accounts payable balance of approximately
$144,000. Net cash used in operating activities also included
non-cash stock-based compensation of approximately
$31,000, depreciation and amortization of fixed assets of
approximately $10,000 and an increase in the provision for bad debts of
approximately $7,000.
Net cash
used in investing activities during the three months ended December 31, 2008 was
approximately $73,000, compared to approximately $18,000 during the three months
ended December 31, 2007. The increase in cash used in investing
activities in the current period is primarily due to an increase of
approximately $64,000 in software development costs related to our Mobile
Capture software application, partially offset by reduced purchases of property
and equipment. We do not have any significant capital expenditures
planned for the foreseeable future.
Our
working capital and current ratio were approximately $219,000 and 1.16,
respectively, at December 31, 2008, compared to approximately $919,000 and 1.66,
respectively, at September 30, 2008. On December 31, 2008, the
total liability to equity ratio was 2.01 to 1 compared to 1.09 to 1 on
September 30, 2008. We have experienced a significant decline in
working capital over the last fiscal year. We do not currently have
any credit facilities in place, or any arrangement that we can draw upon for
additional capital.
We
evaluate our cash requirements on a quarterly basis. Historically, we
have managed our cash requirements principally from cash generated from
operations and financing transactions, and we may need to raise additional
capital to fund continuing operations in the future. If our financing
efforts are not successful, we will need to explore alternatives to continue
operations, which may include a merger, asset sale, joint venture, loans or
further expense reductions. Based on our current operating plan, our
existing working capital may not be sufficient to fund our planned operating
expenses, capital expenditures, and working capital requirements through
September 30, 2009 without additional sources of cash and/or the deferral,
reduction or elimination of significant planned expenditures
After the
quarter ended, on January 9, 2009, we implemented a plan to decrease our
operating expenses by reducing our workforce in light of the economic
contraction of the financial services market into which we primarily sells our
products. The staff reduction included general and administrative, sales
and marketing and technical staff. We have diligently maintained key
resources to adequately pursue new sales opportunities and support our
operations. Our management does not believe that such reductions will impair our
ability to develop our ImageNet Mobile Deposit application and other mobile
capture products, or to provide technical support to our current and prospective
customers.
While we
believe our strategy to reduce our operating expenses will allow us to support
our operations in the short term, if our cost cutting efforts are not
successful, we may not be able to continue as a going concern.
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ITEM
3.
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QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
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Disclosure
not required as a result of the Company's status as a smaller reporting
company.
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ITEM
4.
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CONTROLS
AND PROCEDURES
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Disclosure
Controls and Procedures
As of the
end of the period covered by this report, under the supervision and with the
participation of our management, including the Chief Executive Officer and Chief
Financial Officer, we have evaluated the effectiveness of the design and
operation of our disclosure controls and procedures pursuant to Exchange Act
Rules 13a-15 as of the end of the period covered by this
report. Based on that evaluation, the Chief Executive Officer and
Chief Financial Officer have concluded that as of December 31, 2008, our
disclosure controls and procedures were designed and functioning effectively to
provide reasonable assurance that the information required to be disclosed by us
in reports filed under the Exchange Act is (i) recorded, processed, summarized
and reported within the time periods specified in the SEC's rules and forms and
(ii) accumulated and communicated to management including our Chief Executive
Officer and Chief Financial Officer, as appropriate to allow timely decisions
regarding disclosure.
Changes
in Internal Controls over Financial Reporting
On
January 13, 2009, Tesfaye Hailemichael, our Chief Financial Officer, Vice
President, Treasurer and Secretary, tendered his resignation to pursue other
interests, effective January 14, 2009 and our Board of Directors appointed James
B. DeBello, our President and Chief Executive Officer, as Chief Financial
Officer and Secretary. Mr. DeBello also continues his current
responsibilities as President and Chief Executive Officer.
Other
than the aforementioned change, there have not been any changes in our internal
controls over financial reporting (as such term is defined in Rules 13a-15(f)
and 15d - 15(f) under the Exchange Act) during the quarter ended December 31,
2008 that have materially affected, or are reasonably likely to materially
affect, our internal controls over financial reporting.
PART
II – OTHER INFORMATION
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ITEM
1.
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LEGAL
PROCEEDINGS
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We are
not aware of any legal proceedings or claims that we believe may have,
individually or in the aggregate, a material adverse effect on our business,
financial condition, operating results, cash flow or liquidity.
In
addition to the other information set forth in this report, you should carefully
consider the factors discussed in “Part I. Item 1—Description of
Business—Risk Factors” in our Annual Report on Form 10-K for the fiscal
year ended September 30, 2008. These risks and uncertainties have the
potential to materially affect our business, financial condition, results of
operations, cash flows, projected results and future prospects. As of
the date of this report, other than the risk factors set forth below, we do not
believe that there have been any material changes to the risk factors previously
disclosed in our Annual Report on Form 10-K for the fiscal year ended
September 30, 2008.
We
have a history of losses and we may not achieve profitability in the
future.
Our
operations resulted in a net loss of approximately $668,000 and $282,000 for the
three months ended December 31, 2008 and 2007, respectively. In
addition, as a public company, we incur significant legal, accounting, and other
expenses related to being a public company. As a result of these
expenditures, we will have to generate and sustain increased revenue to achieve
and maintain future profitability. We may not achieve sufficient
revenue to achieve or maintain profitability. We have incurred and may continue
to incur significant losses in the future for a number of reasons, including due
to the other risks described in this report, and we may encounter unforeseen
expenses, difficulties, complications, delays, and other unknown
factors. Accordingly, we may not be able to achieve or maintain
profitability and we may continue to incur significant losses for the
foreseeable future.
We
depend upon our key personnel.
Our
future success depends in large part on the continued service of our key
technical and management personnel. We do not have employment
contracts with or "key person" life insurance policies on, any of our employees,
including Mr. John M. Thornton, our Chairman and Mr. James B. DeBello,
our President, Chief Executive Officer and Chief Financial
Officer. Loss of services of key employees could have a material
adverse effect on our operations and financial condition. We are also
dependent on our ability to identify, hire, train, retain and motivate high
quality personnel, especially highly skilled engineers involved in the ongoing
developments required to refine our technologies and to introduce future
applications. The high technology industry is characterized by a high
level of employee mobility and aggressive recruiting of skilled
personnel.
We cannot
assure you that we will be successful in attracting, assimilating and retaining
additional qualified personnel in the future. If we were to lose the
services of one or more of our key personnel, or if we failed to attract and
retain additional qualified personnel, it could materially and adversely affect
our customer relationships, competitive position and revenues.
A few of our stockholders have
significant control over our voting stock which may make it difficult to
complete some corporate transactions without their support and may prevent a
change in control.
As of
December 31, 2008, John M. Thornton, who is our Chairman of the Board and his
spouse, Sally B. Thornton, who is also a member of our board of directors,
beneficially owned 2,804,959 shares of common stock or approximately 17% of our
outstanding common stock. Our directors and executive officers as a
whole, beneficially own approximately 2,464,284 shares of common stock, or 25%
of our common stock. John H. Harland Company ("John Harland")
beneficially owns 2,142,856 shares of common stock or approximately 14%, which
includes 321,428 shares of common stock issuable upon exercise of warrants held
by John Harland. Laurus Funds may acquire up to 1,060,000 shares of
our common stock upon exercise of its warrant or approximately 6% of our common
stock.
The
above-described significant stockholders may have considerable influence over
the outcome of all matters submitted to our stockholders for approval, including
the election of directors. In addition, this ownership could
discourage the acquisition of our common stock by potential investors and could
have an anti-takeover effect, possibly depressing the trading price of our
common stock.
Our
common stock price has been volatile. You may not be able to sell
your shares of our common stock for an amount equal to or greater than the price
at which you acquire your shares of common stock.
The
market price of our common stock has been, and is likely to continue to be,
highly volatile. Future announcements concerning us or our
competitors, quarterly variations in operating results, announcements of
technological innovations, the introduction of new products or changes in our
product pricing policies or those of our competitors, claims of infringement of
proprietary rights or other litigation, changes in earnings estimates by
analysts or other factors could cause the market price of our common stock to
fluctuate substantially. In addition, the stock market has from time
to time experienced significant price and volume fluctuations that have
particularly affected the market prices for the common stocks of technology
companies and that have often been unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely
affect the market price of our common stock. During the fiscal year
ended September 30, 2008, the closing price of our common stock ranged from
$0.16 to $0.55. During the first three months of fiscal 2009, our
common stock price ranged from $0.06 to $0.34.
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ITEM
2.
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UNREGISTERED
SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.
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None.
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ITEM
3.
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DEFAULTS
UPON SENIOR SECURITIES.
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None.
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ITEM
4.
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SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
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None.
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ITEM
5.
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OTHER
INFORMATION.
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None.
See the
exhibit index immediately following signature page to this report.
SIGNATURES
In
accordance with 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.
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February
17, 2009
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MITEK
SYSTEMS, INC.
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By:
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/s/ James B. De Bello
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James
B. DeBello
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President,
Chief Executive Officer, and
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Chief
Financial Officer
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EXHIBIT
INDEX
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31.1
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Certification
of Periodic Report by the Chief Executive Officer Pursuant to Rules
13a-14(a) of the Securities Exchange Act of 1934
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31.2
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Certification
of Periodic Report by the Chief Financial Officer Pursuant to Rules
13a-14(a) of the Securities Exchange Act of 1934
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32.1
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Certification
of Periodic Report by the Chief Executive Officer Pursuant to Section 906
of the Sarbanes Oxley Act of 2002
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32.2
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Certification
of Periodic Report by the Chief Financial Officer Pursuant to Section 906
of the Sarbanes Oxley Act of 2002
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