SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended JUNE 30, 1997 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-15235
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MITEK SYSTEMS, INC.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 87-0418827
- ----------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10070 CARROLL CANYON ROAD, SAN DIEGO, CALIFORNIA 92131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (619) 635-5900
--------------------------
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 .
---- -----
There were 10,773,087 shares outstanding of the registrant's Common
Stock as of July 25, 1997.
PART I: FINANCIAL INFORMATION
MITEK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, September 30,
1997 1996
-------- -------------
ASSETS
CURRENT ASSETS:
Cash $2,215,788 $ 210,413
Accounts receivable-net 2,375,029 2,258,541
Inventories 597,984 278,206
Prepaid expenses 127,236 240,364
----------- ----------
Total current assets 5,316,037 2,987,524
----------- ----------
PROPERTY AND EQUIPMENT-at cost 1,155,264 1,049,678
Less accumulated depreciation
and amortization 929,460 902,790
----------- ----------
Property and equipment-net 225,804 146,888
----------- ----------
OTHER ASSETS:
Goodwill 1,256,729 106,963
Prepaid license & other assets 991,694 521,067
----------- ----------
Total other assets 2,248,423 628,030
----------- ----------
TOTAL $7,790,264 $3,762,442
----------- ----------
----------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term liabilities $ 7,052 9,190
Accounts payable 590,768 472,755
Accrued payroll and related taxes 189,825 302,037
Other accrued liabilities 223,814 319,973
----------- ----------
Total current liabilities 1,011,459 1,103,955
----------- ----------
LONG-TERM LIABILITIES 1,237 6,147
----------- ----------
COMMITMENTS (NOTE E)
STOCKHOLDERS' EQUITY:
Preferred stock - $.001 par value;
1,000,000 shares authorized;
no shares issued and outstanding
Common stock - $.001 par value;
20,000,000 shares authorized;
10,773,087 and 7,782,971 issued and
outstanding, respectively 10,773 7,783
Additional paid-in capital 8,644,396 3,503,634
Accumulated deficit (1,877,601) (859,077)
----------- ----------
Total stockholders' equity 6,777,568 2,652,340
----------- ----------
TOTAL $7,790,264 $3,762,442
----------- ----------
----------- ----------
See notes to consolidated financial statements
MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED NINE MONTHS ENDED
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
NET SALES $ 700,853 $2,116,524 $3,677,032 $5,865,806
COST OF GOODS SOLD 412,240 730,498 1,294,460 2,206,927
---------- ---------- ---------- ----------
GROSS MARGIN 288,613 1,386,026 2,382,572 3,658,879
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Selling and marketing 590,947 346,632 1,526,037 933,216
General and administrative 357,457 272,634 1,032,662 885,822
Research and development 407,128 334,820 1,031,659 922,064
Interest (income) expense (26,792) 7,662 (76,093) 89,369
---------- ---------- ---------- ----------
Total costs and expenses 1,328,740 961,748 3,514,265 2,830,471
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE
INCOME TAXES (1,040,127) 424,278 (1,131,693) 828,408
INCOME TAX EXPENSE
(BENEFIT) (104,012) 22,676 (113,169) 82,841
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (936,115) $ 401,602 $(1,018,524) $ 745,567
---------- ---------- ---------- ----------
NET INCOME (LOSS)
PER SHARE:
Common and Common
equivalent shares $ (.09) $ .05 $ (.10) $ .09
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
WEIGHTED AVERAGE
COMMON AND COMMON
EQUIVALENT SHARES 10,465,138 8,210,498 9,921,129 8,038,020
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
See notes to consolidated financial statements.
MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended June 30,
1997 1996
---- ----
OPERATING ACTIVITIES:
Net income (loss) $(1,018,524) $ 745,567
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 415,638 320,096
Changes in operating assets and liabilities:
Increase in accounts receivable (116,488) (442,422)
Increase in inventory and prepaid
expense (956,835) (101,915)
Decrease in accounts payable and
accrued expenses (90,563) (166,060)
----------- -----------
Net cash provided by (used in) operating activities (1,766,772) 355,266
----------- -----------
INVESTING ACTIVITIES:
Purchases of property and equipment (173,181) (69,691)
Acquisition of TSI - net (205,867) 0
----------- -----------
Net cash used in investing activities (379,048) (69,691)
----------- -----------
FINANCING ACTIVITIES:
Proceeds from borrowings 150,000 1,796,816
Repayment of notes payable and long-term
liabilities (156,843) (2,191,760)
Proceeds from note receivable 0 158,335
Net proceeds from exercise of stock options,
warrants and secondary offering 4,158,038 64,776
----------- -----------
Net cash provided by financing activities 4,151,195 (171,833)
----------- -----------
NET INCREASE IN CASH 2,005,375 113,742
CASH AT BEGINNING OF PERIOD 210,413 103,895
----------- -----------
CASH AT END OF PERIOD $2,215,788 $ 217,637
----------- -----------
----------- -----------
Supplemental disclosure of non-cash investing activities:
Assets provided by acquisition $1,191,581
Liabilities assumed through acquisition 0
Stock issued in acquisition (985,714)
-----------
Net cash paid in asset acquisition of TSI $ 205,867
-----------
-----------
See notes to consolidated financial statements
MITEK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
A. Basis of Presentation
The accompanying unaudited consolidated financial statements 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-X and that will normally be made in the Company's
Annual Report on Form 10-K. 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 and nine months ended June 30, 1997 and 1996 are
not necessarily indicative of results which may be reported for any other
interim period or for the year as a whole.
B. Inventories
Inventories are summarized as follows:
JUNE 30, 1997 SEPTEMBER 30, 1996
------------- ------------------
Raw materials $397,026 $ 55,366
Work in process 0 0
Finished goods 200,958 222,840
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Total $597,984 $278,206
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Inventories are recorded at the lower of cost (on the first-in,
first-out basis) or market.
C. Net Income (Loss) Per Share
Net income (loss) per share amounts are computed based on the weighted
average shares outstanding during the periods which include any delutive
stock options and warrants.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share". This statement specifies the computation, presentation, and
disclosure requirements for earnings per share for entities with publicly
held common stock. SFAS No. 128 is not in effect for the Company in the
third quarter of 1997, but will be in effect for financial statements issued
for periods ending after December 15, 1997, including interim periods. The
Company does not expect the adoption of SFAS No. 128 to have a material
effect on its net income (loss) per share.
D. Sale of Common Stock
In the first quarter of fiscal year 1997, the Company undertook a
secondary public stock offering in which a total of 2,250,000 shares of
common stock were sold at $2.25 per share, providing the Company with net
proceeds of $4,089,316.
MITEK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
Continued
E. Acquisition
In June, 1997, the Company acquired the assets of Technology Solutions,
Inc. ("TSI"), with terms of $240,000 cash and 685,714 shares of unregistered
common stock valued at $985,714. The Company is in the process of assessing
the values of these assets acquired. The transaction resulted in goodwill of
$1,191,581 which will be amortized over a five year period.
F. Commitments
In April, 1997, the Company entered into a exclusive worldwide license
agreement for $650,000 cash, and entered into a cross investment commitment
of $1,000,000 in Company common stock, with Parascript, LLC of Boulder,
Colorado.
The Company's offices and manufacturing facilities are leased under
non-cancellable operating leases. The primary facilities lease expires on
April 30, 1998, at which time the lease is renewable at then current market
rates.
Year ending September 30:
1997 $ 97,965
1998 58,457
1999 2,153
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Total $158,575
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G. Subsequent Events
Effective July 1, 1997, the Company extendeded its facilities lease to
expire June 30, 2002 in conjunction with the addition of space at its current
location. The lease obligation totals $1,016,871 over the term of the
agreement.
Effective August 1, 1997, the Company relocated its Virginia office and
entered into a lease agreement to expire July 31, 2002. The lease obligation
totals $234,496 over the term of the agreement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Comparison of Three Months and Nine Months Ended June 30, 1997 and 1996
NET SALES. Net sales for the three month period ended June 30, 1997
were $701,000, compared to $2,117,000 for the same period in 1996, a decrease
of $1,416,000 or 66.9%. The decrease was attributed to delay in orders from
OEM's and integrators. Net sales for the nine month period ended June 30,
1997, were $3,677,000 compared to $5,866,000 for the same period in the prior
year, a decrease of $2,189,000, or 37.3%.
GROSS MARGIN. Gross margin for the three month period ended June 30,
1997 were $289,000, compared to $1,386,000 for the same period in 1996, a
decrease of $1,097,000 or 79.2%. As a percentage of net sales, gross margin
decreased to 41.2% for the three month period ended June 30, 1997 compared to
65.5% for the same period in 1996. Gross margin for the nine month period
ended June 30, 1997 were $2,383,000 compared to $3,659,000 for the same
period in 1996, a decrease of $1,276,00 or 34.9%. As a percentage of net
sales, gross margin increased to 64.8% for the nine month period ended June
30, 1997 compared to 62.4% for the nine month period ended June 30, 1996.
The changes in both periods were primarily due to product mix combined with
reduced revenues.
RESEARCH AND DEVELOPMENT. Research and development expenses for the
three month period ended June 30, 1997 were $407,000 compared to $335,000 for
the same period ended in 1996, an increase of $72,000 or 21.5%. As a
percentage of net sales, research and development expenses increased to 58%
for the three month period ended June 30, 1997 compared to 15.8% for the same
period in 1996. Research and development expenses for the nine month period
eended June 30, 1997 were $1,032,000 compared to $922,000 for the same period
in 1996, an increase of $110,000 or 11.9%. As a percentage of net sales,
research and development expenses increased to 28.1% for the nine month
period ended June 30, 1997 compared to 15.7% for the nine month period ended
June 30, 1996. The increases were primarily due to new product development
and reduced man hours on revenue generating contracts.
SELLING AND MARKETING. Selling and marketing expenses for the three
month period ended June 30, 1997 were $591,000 compared to $347,000 for the
same period ended in 1996, an increase of $244,000 or 70.3%. As a percentage
of net sales, selling and marketing expenses increased to 84.3% for the
three month period ended June 30, 1997 compared to 16.4% for the same period
in 1996. Selling and marketing expenses for the nine month period ended June
30, 1997 were $1,526,000 compared to $933,000 for the same period in 1996, an
increase of $593,000, or 63.6%. As a percentage of net sales, selling and
marketing expenses increased to 41.5% for the nine month period ended June
30, 1997 compared to 15.9% for the nine month period ended June 30, 1996.
The increases were primarily due to advertising, promotion, staff additions,
outside consulting costs, and decline in revenues.
GENERAL AND ADMINISTRATIVE. General and administrate expenses for the
three month period ended June 30, 1997 were $357,000 compared to $273,000 for
the same period in 1996, an increase of $84,000 or 30.8%. As a percentage of
net sales, general and administrative expenses increased to 51% for the three
month period ended June 30, 1997 compared to 12.9% for the same period in
1996. General and administrative expenses for the nine month period ended
June 30, 1997 were $1,033,000 compared to $886,000 for the same period in
1996, an increase of $147,000, or 16.6%. As a percentage of net sales,
general and administrative expenses increased to 28.1% for the nine month
period ended June 30, 1997 compared to 15.1% for the nine month period ended
June 30, 1996. The increase was primarily due to senior staff
reclassification, directors & officers insurance, legal fees.
INTEREST (INCOME) EXPENSE. Interest (income) for the three month period
ended June 30, 1997 were ($27,000) compared to interest expense of $8,000 for
the same period in 1996, a decrease in interest expense of $35,000 or 438%.
Interest income for the nine month period ended June 30, 1997 were ($76,000)
compared to interest expense of $89,000 for the same period in 1996, a
decrease of $165,000, or 186%. The decrease in interest expense is due to no
bank
borrowings as a result of cash received from the secondary public offering
which in turn generated interest income.
INCOME TAX EXPENSE (BENEFIT): The provision for income tax benefit or
expense for federal and state income taxes is based on the estimated
effective tax rates applied to year to date loss or income before income tax
and projected utilization of tax credits from prior periods.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1997, stockholders' equity was $6,778,000, an increase of
$4,125,000 from September 30, 1996. The Company's working capital and
current ratio was $4,305,000 and 5.26 to 1 at June 30, 1997 compared to
$1,884,000 and 2.71 to 1 at September 30, 1996, respectively.
At June 30, 1997, the total liabilities to equity ratio was 0.15 to 1
compared to .419 to 1 at September 30, 1996. As of June 30, 1997, the
Company's total liabilities were $97,000 less than September 30, 1996.
Components of working capital with significant changes during the nine months
ended June 30 1997 were: Cash, Inventory and Accounts Payable. Compared to
September 30, 1996, the components changed as follows:
Cash - Increased $2,005,000 primarily because of proceeds received from
financing activities.
Inventory - Increased $320,000 primarily because of materials
procurement in anticipation of orders which did not materialize.
Accounts Payable - Increased by $118,000 because of inventory
procurements in the last month of the quarter.
In March, 1996 the Company obtained line of credit financing with a bank in
the amount of $400,000, with interest rate charges of 2.5% over prime lending
rates. This financing arrangement was renewed on February 3, 1997 and expires
February 3, 1998. As of March 31, 1997, there was no outstanding balance on
the line of credit.
The Company believes it will have sufficient cash flow generated from
financing activities, operations and existing credit facilities to meet its
operational needs in the coming year.
PART II - OTHER INFORMATION
Item 4. The annual meeting of stockholders was held on February 11, 1997.
Brought to vote were the election of Directors for the ensuing year.
With 91.20% of shares represented at the meeting, all Directors from
the prior year were re-elected. They are: John M. Thornton, Chairman,
John F. Kessler, Daniel E. Steimle, James B. DeBello, Gerald I.
Farmer and Sally B. Thornton.
Also voted on and approved by shareholders was the Corporation's 1996
Stock Option Plan, and the appointment of Deloitte & Touche LLP as the
Corporation's 1997 auditors.
Item 6. Exhibits and Reports on Form 8-K
a. The exhibits are on Form 8-K: None
b. Reports on Form S-8: 1996 Stock Option Plan dated 3/20/97
c. Reports on Form 8-K: Acquisition of Assets, TSI, dated 6/12/97
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MITEK SYSTEMS, INC.
(Registrant)
Date: August 12, 1997 ---------------------------------
John Kessler, President and
Chief Executive Officer
Date: August 12, 1997 ---------------------------------
John M. Thornton
Chairman
5
3-MOS
SEP-30-1997
MAR-31-1997
JUN-30-1997
2,215,788
0
2,375,029
0
597,984
5,316,037
1,155,264
929,460
7,790,264
1,011,459
1,237
0
0
10,773
0
7,790,264
700,853
700,853
412,240
1,355,532
0
0
(26,792)
(1,040,127)
(104,012)
(936,115)
0
0
0
(936,115)
(.09)
(.09)
