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EX-31.2 - EX-31.2 - MITEK SYSTEMS INCmitk-ex312_201503318.htm
EX-31.1 - EX-31.1 - MITEK SYSTEMS INCmitk-ex311_201503317.htm

 

 

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 March 31, 2015

£

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 001-35231

 

MITEK SYSTEMS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

87-0418827

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

 

 

 

8911 Balboa Avenue

San Diego, California

 

92123

(Address of Principal Executive Offices)

 

(Zip Code)

(858) 309-1700

(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 has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    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. (Check one):

 

Large Accelerated Filer

 

¨

 

 

 

Accelerated Filer

 

x

 

 

 

 

 

 

 

 

 

 

Non-Accelerated Filer

 

¨

 

(Do not check if a smaller reporting company)

 

Smaller Reporting Company

 

¨

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 30,729,289 shares of the registrant’s common stock outstanding as of April 30, 2015.

 

 

 

 

 

 


MITEK SYSTEMS, INC.

FORM 10-Q

For The Quarterly Period Ended March 31, 2015

INDEX

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements

 

1

 

 

 

 

 

 

 

Balance Sheets at March 31, 2015 (Unaudited) and September 30, 2014

 

1

 

 

 

 

 

 

 

Statements of Operations and Other Comprehensive Income (Loss ) (Unaudited) for the Three and Six Months Ended March 31, 2015 and March 31, 2014

 

2

 

 

 

 

 

 

 

Statements of Cash Flows (Unaudited) for the Six Months Ended March 31, 2015 and March 31, 2014

 

3

 

 

 

 

 

 

 

Notes to Financial Statements (Unaudited)

 

4

 

 

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

14

 

 

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

21

 

 

 

 

 

Item 4.

 

Controls and Procedures

 

21

 

 

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

23

 

 

 

 

 

Item 1A.

 

Risk Factors

 

23

 

 

 

 

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

23

 

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

23

 

 

 

 

 

Item 4.

 

Mine Safety Disclosures

 

23

 

 

 

 

 

Item 5.

 

Other Information

 

23

 

 

 

 

 

Item 6.

 

Exhibits

 

24

 

 

 

 

 

Signatures

 

25

 

 

 

 


 

PART I

FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

MITEK SYSTEMS, INC.

BALANCE SHEETS

 

 

 

March 31,

2015

(Unaudited)

 

 

September 30,

2014

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,740,117

 

 

$

7,766,590

 

Short-term investments

 

 

19,965,390

 

 

 

16,269,170

 

Accounts receivable, net

 

 

2,982,753

 

 

 

2,955,350

 

Other current assets

 

 

1,035,717

 

 

 

704,409

 

Total current assets

 

 

29,723,977

 

 

 

27,695,519

 

Long-term investments

 

 

2,517,612

 

 

 

2,072,018

 

Property and equipment, net

 

 

1,101,405

 

 

 

1,293,270

 

Other non-current assets

 

 

42,049

 

 

 

42,049

 

Total assets

 

$

33,385,043

 

 

$

31,102,856

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,300,077

 

 

$

1,792,267

 

Accrued payroll and related taxes

 

 

1,195,766

 

 

 

1,434,913

 

Deferred revenue, current portion

 

 

3,635,351

 

 

 

2,826,670

 

Other current liabilities

 

 

175,244

 

 

 

157,649

 

Total current liabilities

 

 

6,306,438

 

 

 

6,211,499

 

Deferred revenue, non-current portion

 

 

235,125

 

 

 

311,225

 

Other non-current liabilities

 

 

558,541

 

 

 

638,099

 

Total liabilities

 

 

7,100,104

 

 

 

7,160,823

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and

   outstanding

 

 

 

 

 

 

Common stock, $0.001 par value, 60,000,000 shares authorized, 30,729,289 and

   30,521,080 issued and outstanding, respectively

 

 

30,729

 

 

 

30,521

 

Additional paid-in capital

 

 

61,641,010

 

 

 

59,946,288

 

Accumulated other comprehensive gain (loss)

 

 

(13,664

)

 

 

(7,810

)

Accumulated deficit

 

 

(35,373,136

)

 

 

(36,026,966

)

Total stockholders’ equity

 

 

26,284,939

 

 

 

23,942,033

 

Total liabilities and stockholders’ equity

 

$

33,385,043

 

 

$

31,102,856

 

The accompanying notes form an integral part of these financial statements.

 

 

1


 

MITEK SYSTEMS, INC.

STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

Six Months Ended

March 31,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

$

3,993,013

 

 

$

3,122,114

 

 

$

7,739,530

 

 

$

6,291,978

 

Maintenance and professional services

 

 

1,679,313

 

 

 

1,362,024

 

 

 

3,322,119

 

 

 

2,654,684

 

Total revenue

 

 

5,672,326

 

 

 

4,484,138

 

 

 

11,061,649

 

 

 

8,946,662

 

Operating costs and expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of revenue-software

 

 

225,245

 

 

 

172,568

 

 

 

439,155

 

 

 

493,667

 

Cost of revenue-maintenance and professional services

 

 

332,408

 

 

 

276,646

 

 

 

615,900

 

 

 

526,244

 

Selling and marketing

 

 

1,428,643

 

 

 

1,947,573

 

 

 

2,866,709

 

 

 

3,797,475

 

Research and development

 

 

1,387,828

 

 

 

1,630,628

 

 

 

2,542,971

 

 

 

3,156,202

 

General and administrative

 

 

1,811,708

 

 

 

2,668,246

 

 

 

3,976,546

 

 

 

4,665,445

 

Total operating costs and expenses

 

 

5,185,832

 

 

 

6,695,661

 

 

 

10,441,281

 

 

 

12,639,033

 

Operating income (loss)

 

 

486,494

 

 

 

(2,211,523

)

 

 

620,368

 

 

 

(3,692,371

)

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest and other expense

 

 

(1,120

)

 

 

(1,576

)

 

 

(2,170

)

 

 

(3,277

)

Interest and other income

 

 

22,276

 

 

 

21,252

 

 

 

38,529

 

 

 

36,462

 

Total other income (expense), net

 

 

21,156

 

 

 

19,676

 

 

 

36,359

 

 

 

33,185

 

Income (loss) before income taxes

 

 

507,650

 

 

 

(2,191,847

)

 

 

656,727

 

 

 

(3,659,186

)

Provision for income taxes

 

 

-

 

 

 

(1,170

)

 

 

(2,897

)

 

 

(2,131

)

Net income (loss)

 

$

507,650

 

 

$

(2,193,017

)

 

$

653,830

 

 

$

(3,661,317

)

Net income (loss) per share – basic

 

$

0.02

 

 

$

(0.07

)

 

$

0.02

 

 

$

(0.12

)

Net income (loss) per share – diluted

 

$

0.02

 

 

$

(0.07

)

 

$

0.02

 

 

$

(0.12

)

Shares used in calculating net income (loss) per share – basic

 

 

30,697,391

 

 

 

30,453,455

 

 

 

30,657,308

 

 

 

30,427,646

 

Shares used in calculating net income (loss) per share – diluted

 

 

31,321,259

 

 

 

30,453,455

 

 

 

31,241,374

 

 

 

30,427,646

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

 

507,650

 

 

 

(2,193,017

)

 

 

653,830

 

 

 

(3,661,317

)

Unrealized gain (loss) on investments

 

 

(3,667

)

 

 

6,686

 

 

 

(5,854

)

 

 

5,845

 

Other comprehensive income (loss)

 

 

503,983

 

 

 

(2,186,331

)

 

 

647,976

 

 

 

(3,655,472

)

The accompanying notes form an integral part of these financial statements.

 

 

2


 

MITEK SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended

March 31,

 

 

 

2015

 

 

2014

 

Operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

653,830

 

 

$

(3,661,317

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

1,685,181

 

 

 

1,745,121

 

Depreciation and amortization

 

 

214,794

 

 

 

236,518

 

Accretion and amortization on debt securities

 

 

243,333

 

 

 

195,937

 

Provision for bad debt

 

 

9,900

 

 

 

(4,500

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(37,303

)

 

 

(1,616,192

)

Other assets

 

 

(189,495

)

 

 

46,134

 

Accounts payable

 

 

(492,190

)

 

 

(191,270

)

Accrued payroll and related taxes

 

 

(239,147

)

 

 

(7,668

)

Deferred revenue

 

 

732,581

 

 

 

790,488

 

Other liabilities

 

 

(51,690

)

 

 

(64,716

)

Net cash provided by (used in) operating activities

 

 

2,529,794

 

 

 

(2,531,465

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(17,968,902

)

 

 

(17,651,627

)

Sales and maturities of investments

 

 

13,436,088

 

 

 

4,873,624

 

Purchases of property and equipment

 

 

(22,928

)

 

 

(114,091

)

Net cash used in investing activities

 

 

(4,555,742

)

 

 

(12,892,094

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

9,748

 

 

 

58,834

 

Principal payments on capital lease obligations

 

 

(10,273

)

 

 

(9,208

)

Net cash (used in) provided by financing activities

 

 

(525

)

 

 

49,626

 

Net decrease in cash and cash equivalents

 

 

(2,026,473

)

 

 

(15,373,933

)

Cash and cash equivalents at beginning of period

 

 

7,766,590

 

 

 

23,294,456

 

Cash and cash equivalents at end of period

 

$

5,740,117

 

 

$

7,920,523

 

Supplemental disclosures of cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

2,230

 

 

$

3,295

 

Cash paid for income taxes

 

$

2,897

 

 

$

2,131

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Unrealized holding (loss) gain on available-for-sale investments

 

$

(5,854

)

 

$

5,845

 

Cashless settlement of restricted stock units

 

$

204

 

 

$

15

 

Cashless exercise of stock options

 

$

4

 

 

$

3

 

The accompanying notes form an integral part of these financial statements 

 

 

3


 

MITEK SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Mitek Systems, Inc. (the “Company”) is engaged in the development, sale and service of its proprietary software solutions related to mobile capture and identity authentication.

The Company applies its patented technology in image capture, correction and intelligent data extraction in the mobile financial and business services markets. The Company’s technology allows users to remotely deposit checks, pay bills, transfer credit card balances, open accounts and get insurance quotes by taking pictures of various documents with their camera-equipped smartphones and tablets instead of using the device keyboard. The Company’s products use advanced algorithms to correct image distortion, extract relevant data, route images to their desired location and process transactions through users’ financial institutions. As of March 31, 2015, the Company has been granted 21 patents and has an additional 21 patent applications pending.

The Company’s products enable deposits, confirm identity and accelerate payments for mobile transactions.

Deposit

The Company’s Mobile Deposit® and Commercial Mobile Deposit Capture products are software that allows consumers and businesses to remotely deposit checks using their camera-equipped smartphone or tablet. As of March 31, 2015, 3,705 financial institutions have signed agreements to deploy Mobile Deposit® and 3,181 of these financial institutions have deployed Mobile Deposit® to their consumers, including all of the top ten, and  nearly all  of the top 50, U.S. retail banks, as ranked by SNL Financial for the fourth quarter of calendar year 2014. Commercial Mobile Deposit Capture utilizes the same technology as Mobile Deposit®, but has additional capabilities specifically designed to meet the needs of business users such as invoice capture.

Identity

The Company’s identity offerings feature Mobile Photo Account Openingwhich allows a consumer to take a photo of his or her driver’s license or other identity document to pre-fill mobile application forms on a mobile device. The Company’s identity offerings are currently in early deployment with large banks and insurance companies where they help consumers to open new financial accounts or get competitive rate quotes. Mobile Photo Account Opening can be used by bank personnel (both in-branch or at a community event) as well as by consumers on their mobile device (both native app or mobile web).

Payment

The Company’s mobile photo payment solutions enable mobile bill payment for financial institutions and organizations that bill consumers directly.

Mobile Photo Bill Pay® is for financial institutions and Mobile Photo Payments is for organizations that bill consumers directly. Both allow a consumer to take a photo of a bill to extract data which is then used to pre-fill the fields required to accomplish certain tasks such as making a mobile payment, adding a new payee or paying monthly bills on a smartphone or tablet.

Mobile Photo Balance Transfer allows a consumer to take a photo of a credit card statement to extract data which is then used to pre-fill the fields of a credit card balance transfer application. The consumer is then presented with a competitive credit card offer and can transfer the existing credit card balance to the new credit card. The Company’s mobile photo payment software solutions are available for iOS and Android operating systems.

Developer Program

In February 2014, the Company launched Mitek Developers. The program extends use of the Company’s mobile capture SDK and Mobile Imaging Platform to developers interested in creating new mobile applications that use camera-equipped smartphones and tablets to capture data from documents.

4


 

Distribution Model

The Company delivers its mobile capture software solutions on-premise as well as in the cloud and markets and sells these solutions through channel partners or directly to enterprise customers. The Company’s mobile capture software solutions are often embedded in mobile banking or enterprise applications developed by banks, insurance companies or their partners, and marketed under their own proprietary brands.

Basis of Presentation

The accompanying unaudited financial statements of the Company as of March 31, 2015 have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, they do not include all information and footnote disclosures required by accounting principles generally accepted in the U.S. (“GAAP”). The Company believes the footnotes and other disclosures made in the financial statements are adequate for a fair presentation of the results of the interim periods presented. The financial statements include all adjustments (solely of a normal recurring nature) which are, in the opinion of management, necessary to make the information presented not misleading. You should read these financial statements and the accompanying notes in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 5, 2014 (the “Form 10-K”).

Results for the three and six months ended March 31, 2015 are not necessarily indicative of results for any other interim period or for a full year.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications do not impact the reported net loss for such periods and do not have a material impact on the presentation of the overall financial statements.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, management reviews its estimates based upon currently available information. Actual future results could differ materially from those estimates. These estimates include, but are not limited to, assessing the collectability of accounts receivable, estimation of the value of stock-based compensation awards and income taxes.

 Net Income (Loss) Per Share

The Company calculates net income (loss) per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share. Basic and diluted net income (loss) per share are based on the weighted-average number of common shares outstanding during the period, without giving effect to potentially dilutive securities. In a period with a net loss position, potentially dilutive securities, such as options, warrants and restricted stock units (“RSUs”), are not included in the calculation of diluted net loss because to do so would be antidilutive, and the number of shares used to calculate basic and diluted net loss is the same.

For the three and six months ended March 31, 2015 and 2014, the following potentially dilutive common shares were excluded from the calculation of net income (loss) per share, as they would have been antidilutive:

 

 

 

Three Months Ended

March 31,

 

 

Six Months Ended

March 31,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Stock options

 

 

2,507,643

 

 

 

2,708,063

 

 

 

2,218,425

 

 

 

2,708,063

 

Restricted stock units

 

 

399,780

 

 

 

1,155,472

 

 

 

435,461

 

 

 

1,155,472

 

Warrants

 

 

-

 

 

 

6,667

 

 

 

-

 

 

 

6,667

 

Total potentially dilutive common shares outstanding

 

 

2,907,423

 

 

 

3,870,202

 

 

 

2,653,886

 

 

 

3,870,202

 

5


 

The calculation of basic and diluted net income (loss) per share is as follows:

 

 

 

Three Months Ended

March 31,

 

 

Six Months Ended

March 31,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net income (loss)

 

$

507,650

 

 

$

(2,193,017

)

 

$

653,830

 

 

$

(3,661,317

)

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

30,697,391

 

 

 

30,453,455

 

 

 

30,657,308

 

 

 

30,427,646

 

Diluted

 

 

31,321,259

 

 

 

30,453,455

 

 

 

31,241,374

 

 

 

30,427,646

 

Net income (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

0.02

 

 

 

(0.07

)

 

 

0.02

 

 

 

(0.12

)

Diluted

 

 

0.02

 

 

 

(0.07

)

 

 

0.02

 

 

 

(0.12

)

Revenue Recognition

Revenue from sales of software licenses sold through direct and indirect channels is recognized upon shipment of the related product, if the requirements of FASB ASC Topic 985-605, Software Revenue Recognition (“ASC 985-605”) are met, including evidence of an arrangement, delivery, fixed or determinable fee, collectability and vendor specific objective evidence (“VSOE”) of the fair value of the undelivered element. If the requirements of ASC 985-605 are not met at the date of shipment, revenue is not recognized until such elements are known or resolved. Revenue from customer support services, or maintenance revenue, includes post-contract support and the rights to unspecified upgrades and enhancements. VSOE of fair value for customer support services is determined by reference to the price the customer pays for such element when sold separately; that is, the renewal rate offered to customers. Revenue derived from professional services primarily includes consulting, implementation, and training. Revenue from fixed fee service engagements is recognized after the services are performed using the completed performance method. Revenue from time and materials service engagements is generally recognized as the services are performed.

In those instances when objective and reliable evidence of fair value exists for the undelivered items but not for the delivered items, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of arrangement consideration allocated to the delivered items equals the total arrangement consideration less the aggregate fair value of the undelivered items. Revenue from post-contract customer support is recognized ratably over the term of the contract. Certain customers have agreements that provide for usage fees above fixed minimums. Fixed minimum transaction fees are recognized as revenue ratably over the term of the arrangement. Usage fees above fixed minimums are recognized as revenue when such amounts are reasonably estimable and billable. Revenue from professional services is recognized when such services are delivered. When a software sales arrangement requires professional services related to significant production, modification or customization of software, or when a customer considers professional services essential to the functionality of the software product, revenue is recognized based on predetermined milestone objectives required to complete the project, as those milestone objectives are deemed to be substantive in relation to the work performed. Any expected losses on contracts in progress are recorded in the period in which the losses become probable and reasonably estimable.

Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable, net, is as follows:

 

 

 

March 31,

2015

 

 

September 30,

2014

 

Accounts receivable

 

$

2,998,753

 

 

$

2,961,450

 

Less: Allowance for doubtful accounts

 

 

(16,000

)

 

 

(6,100

)

Accounts receivable, net

 

$

2,982,753

 

 

$

2,955,350

 

Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the contractual payment terms. Allowances for doubtful accounts are established based on various factors, including credit profiles of the Company’s customers, contractual terms and conditions, historical payments, and current economic trends. The Company reviews its allowances by assessing individual accounts receivable over a specific aging and amount. Accounts receivable are written off on a case-by-case basis, net of any amounts that may be collected.

6


 

Capitalized Software Development Costs

Costs incurred for the development of software that will be sold, leased or otherwise marketed are capitalized when technological feasibility has been established. Software development costs consist primarily of compensation of development personnel and related overhead incurred to develop new products and upgrade and enhance the Company’s current products, as well as fees paid to outside consultants. Capitalization of software development costs ceases and amortization of capitalized software development costs commences when the products are available for general release. For the three and six months ended March 31, 2015 and 2014, no software development costs were capitalized because the time period and costs incurred between technological feasibility and general release for all software product releases were not material.

Fair Value of Equity Instruments

The fair value of equity instruments involves significant estimates based on underlying assumptions made by management. The fair value for purchase rights under the Company’s equity plans is measured at the grant date using a Black-Scholes valuation model, which involves estimates of stock volatility, expected life of the instruments and other assumptions, and using the closing price of the Company’s common stock on the grant date for RSUs. The fair value of stock-based awards is recognized as an expense over the respective terms of the awards.

Deferred Income Taxes

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax basis of such assets and liabilities. The Company maintains a valuation allowance against its deferred tax assets due to the uncertainty regarding the future realization of such assets, which is based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. Until such time as the Company can demonstrate that it will no longer incur losses, or if the Company is unable to generate sufficient future taxable income, it could be required to maintain the valuation allowance against its deferred tax assets.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and unrealized gains and losses on available-for-sale securities. Included on the balance sheet at March 31, 2015 is an accumulated other comprehensive loss of $13,664, compared to an accumulated other comprehensive loss of $7,810 at September 30, 2014, related to the Company’s available-for-sale securities.

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition – Revenue from Contracts with Customers (“ASC 606”) which amends the guidance in former ASC 605, Revenue Recognition.  This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2018.  The FASB has issued for public comment a proposed Accounting Standards Update, Revenue from Contracts with Customers (Topic 606):  Deferral of the Effective Date that would defer the effective date of its new revenue recognition standard by one year. The Company is currently evaluating the impact of the provisions of ASC 606.

 

 

2. INVESTMENTS

The following table summarizes investments by type of security as of March 31, 2015:

 

 

 

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Market

Value

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities, short-term

 

$

19,979,906

 

 

$

998

 

 

$

(15,514

)

 

$

19,965,390

 

Corporate debt securities, long-term

 

 

2,516,760

 

 

 

852

 

 

 

 

 

 

2,517,612

 

Total

 

$

22,496,666

 

 

$

1,850

 

 

$

(15,514

)

 

$

22,483,002

 

7


 

The following table summarizes investments by type of security as of September 30, 2014:

 

 

 

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Market

Value

 

Available-for-sale securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate debt securities, short-term

 

$

16,273,996

 

 

$

1,472

 

 

$

(6,298

)

 

$

16,269,170

 

Corporate debt securities, long-term

 

 

2,075,002

 

 

 

 

 

 

(2,984

)

 

 

2,072,018

 

Total

 

$

18,348,998

 

 

$

1,472

 

 

$

(9,282

)

 

$

18,341,188

 

The cost of securities sold is based on the specific identification method. Amortization of premiums, accretion of discounts, interest, dividend income and realized gains and losses are included in investment income.

The Company determines the appropriate designation of investments at the time of purchase and reevaluates such designation as of each balance sheet date. All of the Company’s investments are designated as available-for-sale debt securities. As of March 31, 2015 and September 30, 2014, the Company’s short-term investments have maturity dates of less than one year from the balance sheet date and the Company’s long-term investments have maturity dates of greater than one year from the balance sheet date.

Available-for-sale marketable securities are carried at fair value as determined by quoted market prices for identical or similar assets, with unrealized gains and losses, net of tax, and reported as a separate component of stockholders’ equity. Management reviews the fair value of the portfolio at least monthly, and evaluates individual securities with fair value below amortized cost at the balance sheet date. For debt securities, in order to determine whether impairment is other than temporary, management must conclude whether the Company intends to sell the impaired security and whether it is more likely than not that the Company will be required to sell the security before recovering its amortized cost basis. If management intends to sell an impaired debt security or it is more likely than not that the Company will be required to sell the security prior to recovering its amortized cost basis, an other-than-temporary impairment is deemed to have occurred. The amount of an other-than-temporary impairment on debt securities related to a credit loss, or securities that management intends to sell before recovery, is recognized in earnings. The amount of an other-than-temporary impairment on debt securities related to other factors is recorded consistent with changes in the fair value of all other available-for-sale securities as a component of stockholders’ equity in other comprehensive income. No other-than-temporary impairment charges were recognized in the three and six months ended March 31, 2015 and 2014.

Fair Value Measurements and Disclosures

FASB ASC Topic 820, Fair Value Measurements (“ASC 820”) defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on the following three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last unobservable:

·

Level 1—Quoted prices in active markets for identical assets or liabilities;

·

Level 2—Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

·

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

8


 

Based on the fair value hierarchy, all of the Company’s investments are classified as Level 2, as represented in the following table:

 

 

 

March 31, 2015

 

 

September 30, 2014

 

Short-term investments:

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

 

 

 

 

 

 

Financial

 

$

12,203,241

 

 

$

9,334,140

 

Industrial

 

 

5,853,130

 

 

 

3,980,772

 

Utility

 

 

1,909,019

 

 

 

756,215

 

Commercial paper

 

 

 

 

 

 

 

 

Financial

 

 

 

 

 

2,198,043

 

Total short-term investments

 

$

19,965,390

 

 

$

16,269,170

 

Long-term investments:

 

 

 

 

 

 

 

 

Corporate debt securities

 

 

 

 

 

 

 

 

Agency

 

$

999,740

 

 

$

 

Financial

 

 

766,410

 

 

 

1,564,505

 

Industrial

 

 

751,462

 

 

 

 

Utility

 

 

 

 

 

507,513

 

Total long-term investments

 

$

2,517,612

 

 

$

2,072,018

 

 

 

3. STOCKHOLDERS’ EQUITY

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense related to stock options and RSUs, which was allocated as follows:

 

 

 

Three Months Ended

March 31,

 

 

Six Months Ended

March 31,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Sales and marketing

 

$

191,962

 

 

$

234,167

 

 

$

367,080

 

 

$

435,690

 

Research and development

 

 

159,563

 

 

 

192,939

 

 

 

296,970

 

 

 

377,827

 

General and administrative

 

 

519,595

 

 

 

488,944

 

 

 

1,021,131

 

 

 

931,604

 

Stock-based compensation expense included in operating

   expenses

 

$

871,120

 

 

$

916,050

 

 

$

1,685,181

 

 

$

1,745,121

 

No stock options were granted to employees during the six months ended March 31, 2014. The fair value calculations for stock-based compensation awards to employees for the six months ended March 31, 2015 were based on the following assumptions:

 

 

 

Six Months Ended

March 31, 2015

 

Risk-free interest rate

 

1.29 – 1.66%

 

Expected life (years)

 

 

5.25

 

Expected volatility

 

 

98%

 

Expected dividends

 

None

 

The expected life of options granted is derived using assumed exercise rates based on historical exercise patterns and vesting terms, and represents the period of time that options granted are expected to be outstanding. Expected stock price volatility is based upon implied volatility and other factors, including historical volatility. After assessing all available information on either historical volatility, implied volatility, or both, the Company concluded that a combination of both historical and implied volatility provides the best estimate of expected volatility.

As of March 31, 2015, the Company had $6,270,849 of unrecognized compensation expense related to outstanding stock options and RSUs expected to be recognized over a weighted-average period of approximately 2.8 years.

9


 

2012 Incentive Plan

In January 2012, the Company’s board of directors adopted the Mitek Systems, Inc. 2012 Incentive Plan (the “2012 Plan”), upon the recommendation of the compensation committee of the Company’s board of directors. On February 19, 2014, the Company’s stockholders approved an amendment to the 2012 Plan that increased the total number of shares of the Company’s common stock reserved for issuance thereunder from 2,000,000 shares to 4,000,000 shares plus that number of shares of the Company’s common stock that would otherwise return to the available pool of unissued shares reserved for awards under its 1999 Stock Option Plan, 2000 Stock Option Plan, 2002 Stock Option Plan, 2006 Stock Option Plan and 2010 Stock Option Plan (collectively, the “Prior Plans”).  As of March 31, 2015, (i) stock options to purchase 2,232,477 shares of the Company’s common stock and 541,091 RSUs were outstanding under the 2012 Plan, and 1,292,117 shares of the Company’s common stock were reserved for future grants under the 2012 Plan and (ii) stock options to purchase an aggregate of 1,478,244 shares of the Company’s common stock were outstanding under the Prior Plans.

Director Restricted Stock Unit Plan

In January 2011, the Company’s board of directors adopted the Mitek Systems, Inc. Director Restricted Stock Unit Plan, as amended and restated (the “Director Plan”), reserving up to 1,000,000 shares of the Company’s common stock  for the issuance of RSUs that may be granted to both employee and non-employee members of the Company’s board of directors. As of March 31, 2015, (i) 384,998 RSUs were outstanding under the Director Plan and (ii) 510,171 shares of the Company’s common stock were reserved for future grants under the Director Plan.

Stock Options

The following table summarizes stock option activity under the Company’s equity plans during the six months ended March 31, 2015:

 

 

 

Number of

Shares

 

 

Weighted-

Average

Exercise Price

 

 

Weighted-Average

Remaining

Contractual Term

(in Years)

 

Outstanding, September 30, 2014

 

 

2,334,326

 

 

$

4.11

 

 

 

5.46

 

Granted

 

 

1,565,500

 

 

$

2.74

 

 

 

 

 

Exercised

 

 

(4,166

)

 

$

2.34

 

 

 

 

 

Cancelled

 

 

(184,939

)

 

$

4.66

 

 

 

 

 

Outstanding, March 31, 2015

 

 

3,710,721

 

 

$

3.51

 

 

 

7.08

 

The Company recognized $568,751 and $1,042,842 in stock-based compensation expense related to outstanding stock options in the three and six months ended March 31, 2015, respectively. The Company recognized $554,994 and $1,119,316 in stock-based compensation expense related to outstanding stock options in the three and six months ended March 31, 2014, respectively. As of March 31, 2015, the Company had $3,730,874 of unrecognized compensation expense related to outstanding stock options expected to be recognized over a weighted-average period of approximately 2.8 years. As of March 31, 2014, the Company had $4,170,399 of unrecognized compensation expense related to outstanding stock options expected to be recognized over a weighted average period of approximately 2.3 years.

Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the weighted-average exercise price, multiplied by the number of options outstanding and exercisable. The total intrinsic value of options exercised during the six months ended March 31, 2015 and 2014 was $4,083 and $468,462, respectively. The per-share weighted average fair value of options granted during the six months ended March 31, 2015 was $2.04. No stock options were granted to employees during the six months ended March 31, 2014. As of March 31, 2015, there were 3,710,721 options outstanding with a weighted-average remaining contractual term, weighted-average exercise price and aggregate intrinsic value of 7.1 years, $3.51 and $2,725,294 respectively. As of March 31, 2014, there were 2,708,063 options outstanding with a weighted average remaining contractual term, weighted average exercise price and aggregate intrinsic value of 6.8 years, $4.19 and $3,176,655, respectively.

10


 

Restricted Stock Units

The following table summarizes RSU activity under the Company’s equity plans during the six months ended March 31, 2015:

 

 

 

Number of

Shares

 

 

Weighted-Average

Fair Market Value

Per Share

 

Outstanding, September 30, 2014

 

 

1,101,303

 

 

$

4.71

 

Granted

 

 

104,000

 

 

$

2.29

 

Settled

 

 

(204,041

)

 

$

2.91

 

Cancelled

 

 

(75,171

)

 

$

4.30

 

Outstanding, March 31, 2015

 

 

926,091

 

 

$

4.32

 

The cost of RSUs is determined using the fair value of the Company’s common stock on the award date, and the compensation expense is recognized ratably over the vesting period. The Company recognized $302,369 and $642,339 in stock-based compensation expense related to outstanding RSUs in the three and six months ended March 31, 2015, respectively. The Company recognized $361,056 and $625,805 in stock-based compensation expense related to outstanding RSUs in the three and six months ended March 31, 2014, respectively. As of March 31, 2015, the Company had $2,539,975 of unrecognized compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of approximately 2.7 years. As of March 31, 2014, the Company had $4,228,020 of unrecognized compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of approximately 3.3 years.

 

 

4. INCOME TAXES

The Company’s deferred tax assets are primarily comprised of federal and state net operating loss carryforwards. Such federal and state net operating loss carryforwards begin to expire in the fiscal years ending September 30, 2018 and September 30, 2015, respectively.  The Company carries a deferred tax valuation allowance equal to 100% of the net deferred tax assets. In recording this allowance, management has considered a number of factors, particularly the Company’s recent history of sustained operating losses. Management has concluded that a valuation allowance is required for 100% of the net deferred tax assets as it is more likely than not that the deferred tax assets will not be realized.

There can be no assurance that the Company will ever realize the benefit of any or all of the federal and state net operating loss carryforwards or the credit carryforwards, either due to ongoing operating losses or due to ownership changes, which may limit the usefulness of the net operating loss carryforwards. Due to the 100% valuation allowance on the net 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 March 31, 2015 or March 31, 2014, and has not recognized interest and/or penalties in the statements of operations for the three and six months ended March 31, 2015 or March 31, 2014.

 

 

5. COMMITMENTS AND CONTINGENCIES

Legal Matters

Rothschild Mobile Imaging Innovations, Inc.

On May 16, 2014, Rothschild Mobile Imaging Innovations, Inc. (“RMII”) filed a complaint against the Company in the U.S. District Court for the District of Delaware alleging that certain of the Company’s mobile imaging products infringe four RMII-owned patents related to mobile imaging technology. On June 1, 2014, RMII amended its complaint to add JPMorgan Chase & Co. and JPMorgan Chase Bank, N.A. (together, “Chase”), one of the Company’s customers, as a defendant in the lawsuit (as amended, the “Initial Lawsuit”). On September 8, 2014, RMII filed three additional complaints (the “Subsequent Lawsuits” and together with the Initial Lawsuit, the “RMII Lawsuits”) against the Company in the U.S. District Court for the District of Delaware. The Subsequent Lawsuits contain allegations substantially similar to the Initial Lawsuit regarding infringement by the Company’s mobile imaging products of the four RMII-owned patents related to mobile imaging technology, but name as co-defendants Citibank, N.A., Citigroup Inc., Wells Fargo & Company, Wells Fargo Bank, N.A., Bank of America Corporation and Bank of America, N.A., respectively (together with Chase, the “Bank Defendants”), each of whom offers the Company’s mobile imaging technology as part of its mobile banking applications. The trial has been scheduled for April 3, 2017.

11


 

The Company has filed motions to dismiss RMII’s willful infringement claims against the Company in the Initial Lawsuit and motions to dismiss claims against the Company in the Subsequent Lawsuits. On November 10, 2014, the Company filed a motion to sever and stay the claims against Chase in the Initial Lawsuit pending resolution of RMII’s claims against the Company and to transfer the claims against the Company to the Southern District of California. On November 19, 2014, the Company filed joinders to the motion to stay with respect to the Subsequent Lawsuits. All motions are still pending before the Court.

Based on the Company’s current understanding of the claims, the Company has agreed to accept the demands for indemnity and defense tendered by each of the Bank Defendants in connection with their respective RMII Lawsuits. The Company is currently controlling the defense of such claims and has taken actions to defend the RMII Lawsuits, as more fully described above. The Company believes that RMII’s claims are without merit and intends to vigorously defend against those claims. The Company does not believe that the results of the RMII Lawsuits will have a material adverse effect on its financial condition or results of operations.

Other Legal Matters

In addition to the foregoing, the Company is subject to various claims and legal proceedings arising in the ordinary course of its business. The Company accrues for such liabilities when it is both (i) probable that a loss has occurred and (ii) the amount of the loss can be reasonably estimated in accordance with ASC 450, Contingencies. While any legal proceeding has an element of uncertainty, the Company believes that the disposition of such matters, in the aggregate, will not have a material effect on the Company’s financial condition or results of operations.

Facility Lease

The Company’s principal executive offices, as well as its research and development facility, are located in approximately 22,523 square feet of office space in San Diego, California. The term of the lease for the Company’s offices continues through June 30, 2019. The annual base rent under the lease is approximately $471,000 per year and is subject to annual increases of approximately 3% per year. In connection with the lease, the Company received tenant improvement allowances totaling $675,690. These lease incentives are being amortized as a reduction of rent expense over the term of the lease. As of March 31, 2015, the unamortized balance of the lease incentives was $445,845, of which $104,905 has been included in other current liabilities and $340,940 has been included in other non-current liabilities. Under the terms of the lease, the Company issued a standby letter of credit to the landlord that allows for one or more draws of up to $210,000 over the term of the lease. The Company believes its existing properties are in good condition and are sufficient and suitable for the conduct of its business.  

 

 

6. REVENUE AND VENDOR CONCENTRATIONS

Revenue Concentration

For the three months ended March 31, 2015, the Company derived revenue of $2,287,599 from two customers, with such customers accounting for 29% and 11%, respectively, of the Company’s total revenue.  For the three months ended March 31, 2014, the Company derived revenue of $1,644,145 from one customer accounting for 37% of the Company’s total revenue. For the six months ended March 31, 2015, the Company derived revenue of $4,385,305 from two customers, with such customers accounting for 29% and 11%, respectively, of the Company’s total revenue.  For the six months ended March 31, 2014, the Company derived revenue of $4,055,587 from two customers, with such customers accounting for 35% and 11%, respectively, of the Company’s total revenue. The corresponding accounts receivable balances of customers from which revenues were in excess of 10% of total revenue were $2,043,769 and $1,471,245, respectively, at March 31, 2015 and 2014.

The Company’s revenue is derived primarily from the sale by the Company to channel partners, including systems integrators and resellers, and end-users of licenses to sell products covered by the Company’s patented technologies. These contractual arrangements do not obligate the Company’s channel partners to order, purchase or distribute any fixed or minimum quantities of the Company’s products. In most cases, the channel partners purchase the license from the Company after they receive an order from an end-user. The channel partners receive orders from various individual end-users; therefore, the sale of a license to a channel partner may represent sales to multiple end-users. End-users can purchase the Company’s products through more than one channel partner.

Revenues can fluctuate based on the timing of license renewals by channel partners. When a channel partner purchases or renews a license, the Company receives a license fee in consideration for the grant of a license to sell the Company’s products and there are no future payment obligations related to such agreement; therefore, the license fee the Company receives with respect to a particular license renewal in one period does not have a correlation with revenue in future periods. During the last several quarters, sales of licenses to one or more channel partners have comprised a significant part of the Company’s revenue. This is attributable to the timing of renewals or purchases of licenses and does not represent a dependence on any single channel partner. The Company believes that it is not dependent upon any single channel partner, even those from which revenues were in excess of 10% of the Company’s total revenue in a specific reporting period, and that the loss or termination of the Company’s relationship with any such

12


 

channel partner would not have a material adverse effect on the Company’s future operations because either we or another channel partner could sell our products to the end-user that had purchased from the channel partner we lost.

International sales accounted for approximately 4% and 3% of the Company’s total revenue for the three and six months ended March 31, 2015, respectively. International sales accounted for approximately 6% and 7% of the Company’s total revenue for the three and six months ended March 31, 2014, respectively. The Company sells its products in U.S. currency only.

Vendor Concentration

The Company purchases its integrated software components from multiple third-party software providers at competitive prices. For the three and six months ended March 31, 2015 and 2014, the Company did not make purchases from any one vendor comprising 10% or more of the Company’s total purchases. The Company has entered into contractual relationships with some of its vendors; however, the Company does not believe it is substantially dependent upon nor exposed to any significant concentration risk related to purchases from any of its vendors, given the availability of alternative sources for its necessary integrated software components.

 

 

13


 

ITEM  2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Quarterly Report on Form 10-Q (this “Form 10-Q”), contains “forward-looking statements” that involve risks and uncertainties, as well as assumptions that, if they never materialize or they prove incorrect, could cause our results to differ materially and adversely from those expressed or implied by such forward-looking statements. The forward-looking statements are contained principally in Part I, Item 2—“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 1A—“Risk Factors,” but appear throughout this Form 10-Q. Forward-looking statements may include, but are not limited to, statements relating to our outlook or expectations for earnings, revenues, expenses, asset quality, volatility of our common stock, financial condition or other future financial or business performance, strategies, expectations, or business prospects, or the impact of legal, regulatory or supervisory matters on our business, results of operations or financial condition.

Forward-looking statements can be identified by the use of words such as “estimate,” “plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,” “seek,” “target” or similar expressions. Forward-looking statements reflect our judgment based on currently available information and involve a number of risks and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in Part II, Item 1A- “Risk Factors” in this Form 10-Q and in our other filings with the U.S. Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year ended September 30, 2014, filed with the SEC on December 5, 2014 (the “Form 10-K”). Additionally, there may be other factors that could preclude us from realizing the predictions made in the forward-looking statements. 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 our financial position or results of operations. All forward-looking statements included in this Form 10-Q speak only as of the date of this Form 10-Q and you are cautioned not to place undue reliance on any such forward-looking statements. 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 Form 10-Q or to reflect the occurrence of unanticipated events.

In this Form 10-Q, unless the context indicates otherwise, the terms “Mitek,” “the Company,” “we,” “us” and “our” refer to Mitek Systems, Inc., a Delaware corporation.

Overview

Mitek Systems, Inc. is engaged in the development, sale and service of its proprietary software solutions related to mobile capture and identity authentication.

We apply our patented technology in image capture, correction and intelligent data extraction in the mobile financial and business applications markets. Our technology allows users to remotely deposit checks, pay bills, transfer credit card balances, open accounts and get insurance quotes by taking pictures of various documents with their camera-equipped smartphones and tablets instead of using the device keyboard. Our products use advanced algorithms to correct image distortion, extract relevant data, route images to their desired location and process transactions through users’ financial institutions. As of March 31, 2015, we have been granted 21 patents and have an additional 21 patent applications pending.

Our products enable deposits, confirm identity and accelerate payments for mobile transactions.

Deposit

Our Mobile Deposit® and Commercial Mobile Deposit Capture products allow consumers and businesses to remotely deposit checks using their camera-equipped smartphone or tablet. As of March 31, 2015, 3,705 financial institutions have signed agreements to deploy Mobile Deposit® and 3,181 of these financial institutions have deployed Mobile Deposit® to their customers, including all of the top ten, and  nearly all of the top 50, U.S. retail banks, as ranked by SNL Financial for the fourth quarter of calendar year 2014. Commercial Mobile Deposit Capture utilizes the same technology as Mobile Deposit®, but has additional capabilities specifically designed to meet the needs of business users such as invoice capture.

Identity

Our identity offerings feature Mobile Photo Account Opening which allows a consumer to take a photo of his or her driver’s license or other identity document to pre-fill mobile application forms on a mobile device. Our identity offerings are currently in early deployment with large banks and insurance companies where they help consumers to open new financial accounts or get competitive rate quotes. Mobile Photo Account Opening can be used by bank personnel (both in-branch or at a community event) as well as by consumers on their mobile device (both native app or mobile web).

14


 

Payment

Our mobile photo payment solutions enable mobile bill payment for financial institutions and organizations that bill consumers directly.

Mobile Photo Bill Pay® is for financial institutions and Mobile Photo Payments® is for organizations that bill consumers directly. Both allow a consumer to take a photo of a bill to extract data which is then used to pre-fill the fields required to accomplish certain tasks such as making a mobile payment, adding a new payee or paying monthly bills on a smartphone or tablet.

Mobile Photo Balance Transfer allows a consumer to take a photo of a credit card statement to extract data which is then used to pre-fill the fields of a credit card balance transfer application. The consumer is then presented with a competitive credit card offer and can transfer the existing credit card balance to the new credit card. Our mobile photo payments software solutions are available for iOS and Android operating systems.

Developer Program

In February, 2014, we launched Mitek Developers. The program extends use of our mobile capture SDK and Mobile Imaging Platform to developers interested in creating new mobile applications that use camera-equipped smartphones and tablets to capture data from documents.

Distribution Model

We deliver mobile capture software solutions on-premise as well as in the cloud and market and sell our solutions through channel partners or directly to enterprise customers. Our mobile capture software solutions are often embedded in mobile banking or enterprise applications developed by banks, insurance companies or their partners, and marketed under their own proprietary brands.

Market Opportunities, Challenges and Risks

The increase in the acceptance of mobile banking by financial institutions and their customers has helped drive our recent growth in revenue. In the past year, we experienced a significant increase in the number of financial institutions that have integrated and launched our mobile applications, particularly our Mobile Deposit® product, as part of their offering of mobile banking choices for their customers. We believe that financial institutions see our patented solutions as a way to provide an enhanced customer experience and reduce the cost of sales and service.

To sustain our growth in 2015 and beyond, we believe we must continue to offer capture technology for mobile applications that address a growing market for mobile banking and other vertical markets. Factors adversely affecting the pricing of or demand for our mobile applications, such as competition from other products or technologies, any decline in the demand for mobile applications, or negative publicity or obsolescence of the software environments in which our products operate, could result in lower revenues or gross margins. Further, because substantially all of our revenues are from a single type of technology, our product concentration may make us especially vulnerable to market demand and competition from other technologies, which could reduce our revenues.

The implementation cycles for our software and services by our channel partners and customers can be lengthy, often a minimum of three to six months and sometimes longer for larger customers, and require significant investments. For example, as of March 31, 2015, we executed agreements indirectly through channel partners or directly with customers covering 3,705 Mobile Deposit® customers, 3,181 of whom have completed implementation and launched Mobile Deposit® to their customers. If implementation of our products by our channel partners and customers is delayed or otherwise not completed, our business, financial condition and results of operations may be adversely affected.

We derive revenue predominately from the sale of licenses to use the products covered by our patented technologies, such as our Mobile Deposit® product, and to a lesser extent by providing maintenance and professional services for the products we offer. The revenue we derive from the sale of such licenses is primarily derived from the sale to our channel partners of licenses to sell the applications we offer. Revenues related to most of our licenses for mobile products are required to be recognized up front upon satisfaction of all applicable revenue recognition criteria. The recognition of future revenues from these licenses is dependent upon a number of factors, including, but not limited to, the term of our license agreements, the timing of implementation of our products by our channel partners and customers and the timing of any re-orders of additional licenses and/or license renewals by our channel partners and customers.

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During each of the last few quarters, sales of licenses to one or more channel partners have comprised a significant part of our revenue each quarter. This is attributable to the timing of renewals or purchases of licenses and does not represent a dependence on any channel partner. If we were to lose a channel partner relationship, we do not believe such a loss would adversely affect our operations because either we or another channel partner could sell our products to the end-users that purchased products from the channel partner we lost. However, in that case, we or another channel partner must establish a relationship with the end-users, which could take time to develop, if it develops at all.

We have a growing number of competitors in the mobile capture industry, many of which have greater financial, technical, marketing and other resources. However, we believe our patented capture and analytics technology, our growing portfolio of products for the financial services industry and our market leadership gives us a distinct competitive advantage. To remain competitive, we must continue to offer products that are attractive to the consumer as well as being secure, accurate and convenient. To help us remain competitive, we intend to continue to strengthen our portfolio of products through research and development as well as partnering with other technology providers.

Results of Operations

Comparison of the Three Months Ended March 31, 2015 and 2014

The following table summarizes certain aspects of our results of operations for the three months ended March 31, 2015 and 2014 (in thousands, except percentages):

 

 

 

March 31,

2015

 

 

March 31,

2014

 

 

Change $

 

 

Change %

 

Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

$

3,993

 

 

$

3,122

 

 

$

871

 

 

 

28

%

Maintenance and professional services

 

 

1,679

 

 

 

1,362

 

 

 

317

 

 

 

23

%

Total revenue

 

$

5,672

 

 

$

4,484

 

 

$

1,188

 

 

 

26

%

Cost of revenue

 

$

558

 

 

$

449

 

 

$

109

 

 

 

24

%

% of revenue

 

 

10

%

 

 

10

%

 

 

 

 

 

 

 

 

Selling and marketing

 

$

1,429

 

 

$

1,948

 

 

$

(519

)

 

 

-27

%

% of revenue

 

 

25

%

 

 

43

%

 

 

 

 

 

 

 

 

Research and development

 

$

1,388

 

 

$

1,631

 

 

$

(243

)

 

 

-15

%

% of revenue

 

 

24

%

 

 

36

%

 

 

 

 

 

 

 

 

General and administrative

 

$

1,812

 

 

$

2,668

 

 

$

(856

)

 

 

-32

%

% of revenue

 

 

32

%

 

 

60

%

 

 

 

 

 

 

 

 

Other income (expense), net

 

$

21

 

 

$

20

 

 

$

1

 

 

 

5

%

% of revenue

 

 

0

%

 

 

0

%

 

 

 

 

 

 

 

 

Revenue

Total revenue increased $1,188,188, or 26%, to $5,672,326 in the three months ended March 31, 2015 compared to $4,484,138 in the three months ended March 31, 2014. The increase was primarily due to an increase in sales of software licenses of $870,899, or 28%, to $3,993,013 in the three months ended March 31, 2015 compared to $3,122,114 in the three months ended March 31, 2014. The increase in software license revenue primarily relates to increases in sales of our Mobile Deposit® product in the three months ended March 31, 2015 compared to the three months ended March 31, 2014. Maintenance and professional services revenue increased $317,289, or 23%, to $1,679,313 in the three months ended March 31, 2015 compared to $1,362,024 in the three months ended March 31, 2014 primarily due to the sale of additional software license arrangements, which typically include recurring maintenance contracts.

Cost of Revenue

Cost of revenue includes the costs of royalties for third party products embedded in our products and personnel costs related to software support and billable professional services engagements. Cost of revenue increased $108,439, or 24%, to $557,653 in the three months ended March 31, 2015 compared to $449,214 in the three months ended March 31, 2014. The increase in cost of revenue is primarily due to the increase in revenue. As a percentage of revenue, cost of revenue remained consistent at 10% in the three months ended March 31, 2015 and 2014.

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Selling and Marketing Expenses

Selling and marketing expenses include payroll, employee benefits and other headcount-related costs associated with sales and marketing personnel, non-billable time for professional services personnel and advertising, promotions, trade shows, seminars and other programs. Selling and marketing expenses decreased $518,930, or 27%, to $1,428,643 in the three months ended March 31, 2015 compared to $1,947,573 in the three months ended March 31, 2014. The decrease is primarily due to lower personnel-related costs, including commission expense related to our focus on channel sales during late fiscal 2014. As a percentage of revenue, selling and marketing expenses decreased to 25% in the three months ended March 31, 2015 compared to 43% in the three months ended March 31, 2014, also primarily due to lower personnel-related costs.

Research and Development Expenses

Research and development expenses include payroll, employee benefits, consultant expenses and other headcount-related costs associated with software engineering and mobile capture science. These costs are incurred to develop new software products and to maintain and enhance existing products.

Research and development expenses decreased $242,800, or 15%, to $1,387,828 in the three months ended March 31, 2015 compared to $1,630,628 in the three months ended March 31, 2014. The decrease is primarily due to lower personnel-related costs, including stock-based compensation expense related to focusing our development efforts during late fiscal 2014. As a percentage of revenue, research and development expenses decreased to 24% in the three months ended March 31, 2015 compared to 36% in the three months ended March 31, 2014, also primarily due to lower personnel-related costs.

General and Administrative Expenses

General and administrative expenses include payroll, employee benefits, and other headcount-related costs associated with finance, administration and information technology, as well as legal, accounting and other administrative fees. General and administrative expenses decreased $856,538, or 32%, to $1,811,708 in the three months ended March 31, 2015 compared to $2,668,246 in the three months ended March 31, 2014. The decrease is primarily due to lower litigation expenses. As a percentage of revenue, general and administrative expenses decreased to 32% in the three months ended March 31, 2015 compared to 60% in the three months ended March 31, 2014, primarily due to lower litigation expenses.

Other Income (Expense), Net

Other income (expense), net increased $1,480, or 8%, to $21,156 for the three months ended March 31, 2015 compared to $19,676 for the three months ended March 31, 2014, primarily due to an increase in returns on our investment portfolio.

Comparison of the Six Months Ended March 31, 2015 and 2014

The following table summarizes certain aspects of our results of operations for the six months ended March 31, 2015 and 2014 (in thousands, except percentages):

 

 

 

March 31,

2015

 

 

March 31,

2014

 

 

Change $