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

FORM 8-K/A
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 23, 2018
 

Mitek Systems, Inc.
(Exact name of Registrant as Specified in Its Charter)
 
 

Delaware
001-35231
87-0418827
(State or Other Jurisdiction
of Incorporation)
(Commission File Number)
(IRS Employer
Identification No.)
 
 
 
600 B Street, Suite 100
San Diego, California
 
92101
(Address of Principal Executive Offices)
 
(Zip Code)

Registrant’s Telephone Number, Including Area Code: (619) 269-6800

Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instructions A.2. below):
☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐




Explanatory Note.
This amended current report on Form 8-K (this “Amendment”) is being filed by Mitek Systems, Inc. (the “Company”) for the purposes of amending Item 9.01 Financial Statements and Exhibits of that certain current report on Form 8-K originally filed by the Company with the U.S. Securities and Exchange Commission (“SEC”) on May 23, 2018 (the “Original Form 8-K”) in connection with the completion of the Company’s acquisition of A2iA Group II, S.A.S. (“A2iA”). This Amendment is being filed to present certain financial statements of A2iA and its consolidated subsidiaries and certain unaudited pro forma financial information of the Company relating to the effects of the acquisition of A2iA required by Items 9.01(a) and (b) of Form 8-K, which were not previously filed with the Original Form 8-K as permitted by the rules of the SEC. Accordingly this Amendment should be read in conjunction with the Original Form 8-K.

Item 9.01. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
The audited consolidated balance sheets of A2iA as of December 31, 2017 and 2016, the audited consolidated statements of operations, changes in consolidated equity attributable to owners of the company, cash flows, and notes related thereto for the years ended December 31, 2017 and 2016, are filed as Exhibit 99.1 to this current report on Form 8-K/A and are incorporated by reference into this Item 9.01(a).
(b) Pro Forma Financial Information.
The following unaudited pro forma financial information is being filed as Exhibit 99.2 and is incorporated by reference into this Item 9.01(b):
•
Unaudited pro forma combined balance sheet of the Company as of March 31, 2018;
•
Unaudited pro forma combined statement of operations of the Company for the six months ended March 31, 2018;
•
Unaudited pro forma combined statement of operations of the Company for the year ended September 30, 2017; and
•
Notes to unaudited pro forma combined financial statements.
(d) Exhibits.
Exhibit Number
 
Description
23.1
 
Consent of Independent Registered Public Accounting Firm, Groupe Conseil Union.
99.1
 
The audited consolidated balance sheets of A2iA as of December 31, 2017 and 2016, the audited consolidated statements of operations, changes in consolidated equity attributable to owners of the company, cash flows, and notes relate thereto for the years ended December 31, 2017 and 2016.
99.2
 
Unaudited pro forma combined financial statements of Mitek Systems, Inc. and A2iA Group II, S.A.S. as of and for the six months ended March 31, 2018 and for the year ended September 30, 2017.





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 hereunto duly authorized.

 
 
Mitek Systems, Inc.
 
 
 
 
August 3, 2018
 
By:
/s/ Jeffrey C. Davison
 
 
 
Jeffrey C. Davison
 
 
 
Chief Financial Officer




Exhibit Index
 
Exhibit Number
 
Description
23.1
 
99.1
 
99.2
 



Exhibit
Exhibit 23.1






CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We hereby consent to the incorporation by reference in Registration Statements Nos. 333-194151, 333-223858, 333-80567, 333-58032, 333-106843, 333-133765, 333-172810, 333-172811, 333-178527, 333-179942, 333-210127, and 333-219991 on Form S-8 and Registration Statement Nos. 333-177965 and 333-215182 on Form S-3 of Mitek Systems, Inc. of our report dated July 24th, 2018, relating to the consolidated financial statements of A2iA Group II and Subsidiaries, which appears in this Form 8-K/A.
 



In Paris on August 3rd, 2018
The independent auditor
AUDIT ET CONSEIL UNION
/s/ Jean-Marc FLEURY
Jean-Marc FLEURY


Exhibit
Exhibit 99.1








A2IA GROUP II AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017











Index to Consolidated Financial Statements



Page 2


Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders
A2IA Group II, SAS

We have audited the accompanying consolidated financial statements of A2iA Group II, SAS (a French company), which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of operations, reconciliation of consolidated net loss, changes in consolidated equity attributable to owners, and cash flows for the years then ended, and the related notes to the financial statements. We also have audited the reconciliation tables from French GAAP to US GAAP for the years then ended as disclosed in the note 3.26 to the consolidated financial statements of A2IA Group II SAS.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in France; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements and these reconciliation tables based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinions

•
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of A2iA Group II SAS as of December 31, 2017 and 2016, and the consolidated results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in France.

We did not audit the financial statements of A2IA Corp., a wholly-owned subsidiary, which statements reflect total assets constituting $3.277.432 and $2.788.098, respectively, of consolidated total assets as of December 31, 2017 and December 31, 2016 and total revenues of $6.523.586 and $6.901.974, respectively, of consolidated total revenues for the years ended December 31, 2017 and 2016. Those statements were audited by other auditors - Marks Paneth LLP- whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for A2IA Corp., is based solely on this report.

•
In our opinion, the reconciliation tables from French GAAP to US GAAP present fairly in all material respects, the significant adjustments between the two accounting standards for A2IA Group II SAS consolidated financial statements, as of December 31, 2017 and 2016.


Page 3


In Paris on July 24, 2018
The independent auditor
AUDIT ET CONSEIL UNION
/s/ Jean-Marc FLEURY
Jean-Marc FLEURY

Page 4


CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND 2016

ASSETS


NET ASSETS (IN €)
 
12/31/2017
 
12/31/2016
 
 
 
 
 
 
NON-CURRENT ASSETS
 
 
 
 
 
Goodwill
3.1
 
€
9,548,869

 
€
10,653,219

Intangible assets
3.1
 
55,324

 
82,207

Property, plant and equipment
3.1
 
275,013

 
306,752

Financial assets
3.1
 
151,910

 
161,170

Investments in equity associates
3.1
 
—

 
—

TOTAL NON-CURRENT ASSETS
 
 
10,031,116


11,203,348

CURRENT ASSETS
 
 
 
 
 
Trade receivables and related accounts
3.2
 
4,176,204

 
3,802,835

Other receivables, prepayments and accrued income
3.3
 
1,164,180

 
1,263,747

Cash at bank and cash equivalents
 
 
5,707,106

 
5,562,093

TOTAL CURRENT ASSETS
 
 
11,047,490


10,628,675

 
 
 
 
 
 
TOTAL ASSETS
 
 
€
21,078,606


€
21,832,023


Page 5


CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2017 AND 2016

EQUITY AND LIABILITIES


EQUITY & LIABILITIES (IN €)
 
12/31/2017
 
12/31/2016
 
 
 
 
 
 
EQUITY (attributable to owners of the Company)
 
 
 
 
 
 
 
 
 
 
 
Share capital
3.4
 
€
9,937,620

 
€
9,937,620

Additional paid-in capital
3.4
 
—

 
—

Consolidated reserves
3.4
 
2,753,798

 
2,724,148

Net income (loss) for the year
3.4
 
(64,375
)
 
248,202

 
 
 
 
 
 
EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY
 
 
12,627,043


12,909,970

 
 
 
 
 
 
EQUITY (attributable to minority interests)
 
 
 
 
 
Reserves attributable to minority interests
 
 
—

 
—

Net income (loss) attributable to minority interests
 
 
—

 
—

EQUITY ATTRIBUTABLE TO MINORITY INTERESTS
 
 
—


—

 
 
 
 
 
 
EQUITY EQUIVALENTS
3.5
 
262,218

 
288,332

 
 
 
 
 
 
PROVISIONS
3.6
 
1,026,552

 
780,506

 
 
 
 
 
 
LIABILITIES
 
 
 
 
 
 
 
 
 
 
 
Bond issues
3.7
 
551,401

 
551,401

Bank borrowings
3.7
 
2,505,152

 
3,290,152

Other borrowings
3.7
 
491,045

 
469,085

Trade payables and related accounts
3.8
 
257,717

 
238,957

Other liabilities, accruals and deferred income
3.9
 
3,357,478

 
3,303,620

 
 
 
 
 
 
TOTAL LIABILITIES
 
 
7,162,793


7,853,215

 
 
 
 
 
 
TOTAL EQUITY AND LIABILITIES
 
 
€
21,078,606


€
21,832,023


Page 6


CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

INCOME STATEMENT (IN €)
 
 
Year Ended
12/31/2017
 
Year ended 12/31/2016
 
 
 
 
 
 
REVENUE
3.11
 
€
12,857,201

 
€
12,594,550

 
 
 
 
 
 
Other operating income
3.12
 
49,993

 
55,374

OPERATING INCOME
 
 
12,907,194


12,649,924

 
 
 
 
 
 
Cost of sales
3.13
 
40,070

 
49,715

Other external charges
3.14
 
2,860,565

 
2,634,668

Employee costs
3.15
 
7,672,278

 
7,341,555

Other operating expenses
 
 
23,025

 
2,589

Taxes and duties other than income tax
 
 
246,079

 
177,403

Depreciation, amortization and provisions
3.16
 
400,516

 
342,292

OPERATING EXPENSES
 
 
11,242,533


10,548,222

 
 
 
 
 
 
NET OPERATING INCOME
 
 
1,664,661


2,101,702

 
 
 
 
 
 
Financial expenses, net
3.17
 
(303,103
)
 
(231,286
)
 
 
 
 
 
 
NET INCOME FROM ORDINARY ACTIVITIES OF CONSOLIDATED COMPANIES
 
 
1,361,558


1,870,416

 
 
 
 
 
 
Exceptional income and expenses, net
3.18
 
(235
)
 
60

Income tax
3.19
 
(321,348
)
 
(517,924
)
 
 
 
 
 
 
NET INCOME OF CONSOLIDATED COMPANIES
 
 
€
1,039,975


€
1,352,552

 
 
 
 
 
 
Share of net income of equity associates
 
 
—

 
—

Amortization of goodwill
3.1
 
(1,104,350
)
 
(1,104,350
)
 
 
 
 
 
 
CONSOLIDATED NET INCOME (LOSS)
 
 
€
(64,375
)

€
248,202

 
 
 
 
 
 
Minority interests
 
 
—

 
—

 
 
 
 
 
 
NET INCOME (LOSS) ATTRIBUTABLE TO OWNERS OF THE COMPANY
 
 
€
(64,375
)

€
248,202

 
 
 
 
 
 
Basic net income (loss) per share
3.21
 
€
(0.01
)
 
€
0.03

Diluted net income (loss) per share
3.21
 
€
(0.01
)
 
€
0.03


Page 7


CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
 
 
12/31/2017
 
12/31/2016
 
 
 
 
 
OPERATING ACTIVITIES
 
 
 
 
 
 
 
 
 
CONSOLIDATED NET INCOME (LOSS)
 
€
(64,375
)
 
€
248,202

 
 
 
 
 
Share of non-recurring interests in the net income (loss) of consolidated companies
 
—

 
—

Share of net income (loss) of equity associates
 
—

 
—

Dividends received from equity associates
 
—

 
—

Elim. of non-cash and non-operating items
 
—

 
—

Income drift + dilution gains (losses)
 
—

 
—

Charges to depreciation, amortization and provisions
 
1,572,566

 
1,505,242

Reversals of depreciation, amortization and provisions
 
—

 
—

Calculated income and expenses on stock options and equivalent
 
—

 
—

Capital gains (losses) on disposals
 
—

 
(92
)
Deferred tax
 
(29,436
)
 
(45,332
)
Grants released to net income
 
—

 
—

 
 
 
 
 
WORKING CAPITAL REQUIREMENTS
 
1,478,755


1,708,020

 
 
 
 
 
Change in finance costs (excl. borrowings)
 
(392,151
)
 
546,622

 
 
 
 
 
Net change in operating items
 
 
 
 
Change in inventory
 
—

 
—

Transfers of deferred charges
 
—

 
—

Change in operating receivables
 
(380,302
)
 
1,068,705

Change in operating payables
 
(11,849
)
 
(522,083
)
 
 
 
 
 
Net change in non-operating items
 
198,494

 
(18,731
)
Change in non-operating receivables
 
112,560

 
(239,421
)
Change in non-operating payables
 
25,262

 
42,046

Prepayments and deferred income
 
60,672

 
178,644

Foreign exchange gains (losses)
 
—

 
—

 
 
 
 
 
CHANGE IN WORKING CAPITAL REQUIREMENTS
 
(193,657
)

527,891

 
 
 
 
 
NET CASH FROM OPERATING ACTIVITIES
 
1,285,098


2,235,911

 
 
 
 
 
INVESTING ACTIVITIES
 
 
 
 
 
 
 
 
 
Purchases of intangible assets
 
(32,220
)
 
(74,361
)
Purchases of property, plant and equipment
 
(118,134
)
 
(125,435
)
Proceeds from sales of intangible assets and PP&E
 
—

 
1,850

Investment grants received
 
—

 
—

Purchases of financial assets
 
(933
)
 
(3,733
)
Purchases of treasury shares
 
(74,700
)
 
—

Proceeds from sales of financial assets
 
3,000

 
4,823

Net cash/ acquisitions and disposals of subsidiaries
 
—

 
—

 
 
 
 
 
NET CASH USED IN INVESTING ACTIVITIES
 
(222,987
)

(196,856
)

Page 8


FINANCING ACTIVITIES
 
 
 
 
 
 
 
 
 
Proceeds from issuance of shares or contributions
 
—

 
—

Amounts received on the exercise of stock options
 
—

 
—

Dividends paid to parent company shareholders
 
(28,975
)
 
(30,241
)
Dividend paid to minority interests
 
—

 
—

Change in equity equivalents
 
(26,114
)
 
—

Proceeds from new borrowings
 
21,960

 
33,273

Principal payments on borrowings
 
(785,000
)
 
(1,424,848
)
Change in loan interest costs
 
—

 
—

 
 
 
 
 
NET CASH USED IN FINANCING ACTIVITIES
 
(818,129
)

(1,421,816
)
 
 
 
 
 
INCREASE IN NET CASH
 
243,982

 
617,239

 
 
 
 
 
Effect of exchange rate fluctuations
 
(98,969
)
 
29,587

 
 
 
 
 
NET CASH AT THE BEGINNING OF THE YEAR
 
5,562,093

 
4,915,267

 
 
 
 
 
Reclassification of net cash
 
—

 
—

 
 
 
 
 
NET CASH AT THE END OF THE YEAR
 
€
5,707,106


€
5,562,093


Page 9






RECONCILIATION OF COMPANY AND CONSOLIDATED NET INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016


IN €
 
A2IA
GROUP II
 
A2IA
 
A2IA CORP
 
A2IA LLC
 
TOTAL
 
 
 
 
 
 
 
 
 
 
 
COMPANY NET INCOME (LOSS) TRANSLATED INTO EUROS
 
€
1,819,997

 
€
1,166,294

 
€
565,148

 
€
549

 
€
3,551,988

 
 
 
 
 
 
 
 
 
 
 
Dividend distribution
 
(2,096,510
)
 
(351,403
)
 
—

 
—

 
(2,447,913
)
Tax-driven provisions
 
346

 
8,464

 
—

 
—

 
8,810

Unrealized foreign exchange losses
 
—

 
(6,088
)
 
—

 
—

 
(6,088
)
Retirement benefit provisions
 
—

 
(96,258
)
 
—

 
—

 
(96,258
)
Amortization of goodwill
 
(881,535
)
 
(222,815
)
 
—

 
—

 
(1,104,350
)
Deferred tax
 
(115
)
 
29,551

 
—

 
—

 
29,436

 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED NET INCOME (LOSS)
 
€
(1,157,817
)

€
527,745


€
565,148


€
549


€
(64,375
)
 
 
 
 
 
 
 
 
 
 
 
Minority interests
 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
CONSOLIDATED NET INCOME (LOSS) ATTRIBUTABLE TO OWNERS OF THE COMPANY
 
€
(1,157,817
)

€
527,745


€
565,148


€
549


€
(64,375
)

Page 10


CONSOLIDATED STATEMENTS OF CHANGES IN
CONSOLIDATED EQUITY ATTRIBUTABLE TO OWNERS OF
THE COMPANY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

IN €
 
Share Capital
 
Consolidated reserves
 
Net income (loss) for the year
 
Total equity attrib. to owners of the Company
 
 
Reserves
 
Change in conso. scope
 
Treasury shares
 
Translation reserves
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AS OF 01/01/2016
 
9,937,620

 
€
(33,478
)
 
€
(898
)
 
€
0

 
€
223,382

 
€
189,006

 
€
2,530,772

 
€
12,657,398

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appropriation of prior year net income
 
—

 
2,500,529

 
—

 
—

 
—

 
2,500,529

 
(2,530,772
)
 
(30,243
)
Consolidated net income for the year
 
—

 
—

 
—

 
—

 
—

 
—

 
248,202

 
248,202

Change in forex translation gains, net
 
—

 
—

 
—

 
—

 
34,613

 
34,613

 
—

 
34,613

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AS OF 12/31/2016
 
9,937,620

 
€
2,467,051

 
€
(898
)
 
€
0

 
€
257,995

 
€
2,724,148

 
€
248,202

 
€
12,909,970

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appropriation of prior year net income
 
—

 
219,227

 
—

 
—

 
—

 
219,227

 
(248,202
)
 
(28,975
)
Consolidated net loss for the year
 
—

 
—

 
—

 
—

 
—

 
—

 
(64,375
)
 
(64,375
)
Treasury shares
 
—

 
—

 
—

 
(74,700
)
 
—

 
(74,700
)
 
—

 
(74,700
)
Change in forex translation losses, net
 
—

 
—

 
—

 
—

 
(114,877
)
 
(114,877
)
 
—

 
(114,877
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AS OF 12/31/2017
 
9,937,620


€
2,686,278


€
(898
)

€
(74,700
)

€
143,118


€
2,753,798


€
(64,375
)
 
€
12,627,043


Page 11


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1 – INFORMATION ON THE SCOPE OF CONSOLIDATION

1.1    CONSOLIDATED COMPANY ORGANIZATION CHART

https://cdn.kscope.io/4830fe8420da8694b35a600ae93c164b-consolidatedcompanyorgchart.jpg

1.2    SCOPE OF CONSOLIDATION

Company
 
Fiscal year 12/31/2017
 
Fiscal year 12/31/2016
 
Consolidation method
% control
% interest
 
Consolidation method
% control
% interest
 
 
 
 
 
 
 
 
 
A2IA GROUP II
 
Parent company
-
-
 
Parent company
-
-
A2IA
 
FC
100.00%
100.00%
 
FC
100.00%
100.00%
A2IA CORP
 
FC
100.00%
100.00%
 
FC
100.00%
100.00%
A2IA LLC
 
FC
100.00%
100.00%
 
FC
100.00%
100.00%
 
 
 
 
 
 
 
 
 


1.3    ADDITIONAL INFORMATION ON CONSOLIDATED COMPANIES

A2IA GROUP II (France)

- Legal form: French Simplified joint stock company (Société par Actions Simplifiée)
- Registered office: 37/39, rue de la Bienfaisance – 75008 PARIS
- Company registration no. (SIREN): 807 617 378

A2IA (France)

- Legal form: French Simplified joint stock company (Société par Actions Simplifiée)
- Registered office: 37/39, rue de la Bienfaisance – 75008 PARIS
- Company registration no. (SIREN): 382 789 154

A2IA CORP. (United States)

- Registered office: 24 West 40th Street – 10018 NEW YORK, NY

Page 12



A2IA LLC (Russia)

- Registered office: 34 Ligne 9ia V.O. Bâtiment A – 199004 SAINT PETERSBOURG


1.4    GROUP BUSINESSES
Company
 
Main activity
 
 
 
A2IA GROUP II
 
Company administration
A2IA
 
Software publishing
A2IA CORP
 
Software publishing
A2IA LLC
 
Software publishing
 
 
 


1.5    MAJOR EVENTS OF THE YEAR

A tax audit was performed of the subsidiary A2IA covering the period January 1, 2014 to December 31, 2015 and the research tax credit return for fiscal year 2013.

The audit was completed on March 28, 2017 with the filing of a supplementary amended return for fiscal years 2013, 2014 and 2015. Additional tax of €68,998 was paid.


1.6    POST-BALANCE SHEET EVENTS

On May 23, 2018, Mitek Systems, a global leader in mobile capture and digital identity verification software solutions announced that it entered into a sale and purchase agreement of all the outstanding shares of the Group, as defined below, hereinafter to as the “Acquisition.”

Page 13



2 – ACCOUNTING POLICIES AND VALUATION METHODS

2.1    INTRODUCTION

A2IA Group II (the “Parent Company” and together with the subsidiaries included in the scope of consolidation detailed in Note 1.4, the “Group”) prepares consolidated financial statements under accounting principles generally accepted in France (“French GAAP”) for the purposes of calculating covenants (the “Consolidated Financial Statements”). In addition, in conjunction with the Acquisition, the Consolidated Financial Statements also includes in Note 3.26 a net income and equity reconciliation between French GAAP and accounting principles generally accepted in the United States (“US GAAP”) in accordance with the rules and regulations of the US Securities and Exchange Commission.


2.2    CONSOLIDATION RULES

The consolidated financial statements have been prepared in accordance with French GAAP and the provisions of Comité de la Réglementation Comptable or CRC Regulation no. 99-02 issued by the French Accounting Regulation Committee (Autorité des Normes Comptables or “ANC”) on April 29, 1999 (Order of June 22, 1999).

Restatements and eliminations required by consolidation rules are not performed where their impact on the consolidated financial position, assets and net income is not material.

2.2.1    Consolidation methods

A2IA GROUP II directly or indirectly exercises exclusive control over all its subsidiaries through direct or indirect holding of voting rights. These companies are therefore fully consolidated.

2.2.2    Consolidation criteria

In principle, a company enters the consolidation scope when the group acquires controls of this company, irrespective of the legal terms and conditions under which control is achieved.

2.2.3    Year end

The consolidating company draws up its annual accounts to December 31, as do all other companies included in the scope of consolidation.

2.2.4    Internal transactions

Reciprocal transactions between consolidated group companies are eliminated.

Where appropriate, internal gains or losses on asset transfers between group companies are also eliminated.

2.3    ACCOUNTING POLICIES AND VALUATION METHODS

2.3.1    Change in accounting method

There were no changes in method during the period.

2.3.2    Goodwill

Where control is obtained through acquisition, the difference between the acquisition cost of securities and the share in net assets acquired and liabilities assumed, valued at fair value at the acquisition date, is recorded in “Goodwill” in balance sheet assets.

ANC Regulation no. 2015-07 of November 23, 2015 prospectively amended goodwill amortization and impairment rules for fiscal years beginning on or after January 1, 2016.

Page 14



The regulation classifies goodwill in two categories:

–
Goodwill with a limited useful life, amortized over the period of use;

–
Goodwill with an unlimited useful life, not amortized and assessed for impairment annually. A provision for impairment is recorded, where appropriate, if a loss in value is identified.

The regulation offers companies the option of continuing to account for existing goodwill balances as of January 1, 2016 in accordance with the initial amortization schedule or performing a new assessment of the limited nature of their useful life and potentially amending their amortization going forward.

A2IA GROUP II elected to continue the initial amortization schedules and not to perform a new assessment of the useful life of goodwill balances.

Goodwill is amortized, case-by-case, on a straight-line basis over periods not exceeding 20 years.

Impairment tests are performed annually to validate the consistency of the net carrying amount of goodwill and an additional impairment is recorded where appropriate.

2.3.3    Intangible assets

Concessions, patents, licenses and trademarks

“Concessions, patents, licenses and trademarks” mainly consist of purchased software, amortized on a straight-line basis over the period of use.

Research and development expenditure

The company does not capitalize research and development expenditure in accordance with the alternative method.

2.3.4    Property, plant and equipment

Property, plant and equipment are recorded in the balance sheet at acquisition cost and depreciated on a straight-line basis over their estimated useful life.

Long-term lease agreements are not restated as they do not meet capitalization criteria.

2.3.5    Financial assets

Financial assets consist of deposits and guarantees recorded at historical cost.

2.3.6    Receivables and payables

Receivables and payables are recorded at nominal value.

A provision for impairment is recorded in respect of receivables where their estimated recoverable amount is less than their net carrying amount.

2.3.7    Provisions for contingencies and losses

Provisions for contingencies and losses are recorded to cover risks that are precise in nature, considered probable as a result of past events and can be reliably estimated.

2.3.8    Revenue recognition

Revenue from the sale of software is recognized in the income statement on the transfer of ownership.

2.3.9    Borrowing costs


Page 15


The Group applies the preferred method set out in CRC Regulation no. 99-02 regarding the deferral of loan issue costs over the loan term.

2.3.10    Treasury shares

The Parent Company holds a portfolio of its own shares recorded in financial assets. These shares are eliminated in financial assets through a reduction in equity attributable to owners of the Company.

2.3.11    Deferred tax

Deferred tax is recognized in the consolidated income statement and balance sheet in respect of tax losses carried forward, timing differences between taxable net income and accounting net income, consolidation restatements and the elimination of the impact of transactions recorded solely to apply tax legislation.

Deferred tax is calculated using the liability method and the impact of any changes in tax rates on deferred tax balances recorded previously is recognized in net income in the year in which these changes enter into effect.

A deferred tax asset is only recognized in respect of tax losses carried forward if their utilization is considered highly probable.

2.3.12    Tax consolidation

The subsidiary, A2IA GROUP II, is the head of the tax group formed with its own subsidiary, A2IA.

The income tax expense is recognized for each tax group member as in the absence of tax consolidation. The tax saving is recognized in the A2IA GROUP II accounts.

2.3.13    Retirement benefit commitments

The group adopts the preferred method set out in CRC Regulation no.99-02 on the recognition of retirement benefit commitments, for French companies.

Commitments are assessed for all individuals holding a permanent employment contract and employed at the date of the consolidated financial statements.

They are measured using the projected unit credit method, assuming departure at the employee’s initiative and are recorded in provisions for losses.

The following assumptions are adopted:

Application of the SYNTEC Bureaux d’études collective bargaining agreement and the following assumptions:

Assumption
Management
Retirement age
67 years old
Discount rate
1.45%
Social security contribution rate
46.50%
Turnover
Low
Mortality table
INSEE 2014
 
 

No such commitments exist for foreign subsidiaries.

2.3.14    Exceptional items

Exceptional items are income and expense items relating to events or transactions clearly separate from the company’s activities and that are not intended to occur frequently or regularly.


Page 16


2.3.15    CICE employment tax credit

The Crédit d’Impôt Compétitivité Emploi or CICE employment tax credit is recognized as a reduction in social security contributions in “Employee costs.”

It is used to improve research and development, notably by investing in computer hardware and employee training.

Page 17


3 – NOTES TO THE BALANCE SHEET AND INCOME STATEMENT
3.1    INTANGIBLE ASSETS, PROPERTY, PLANT AND EQUIPMENT AND FINANCIAL ASSETS

3.1.1    Gross non-current assets

In €
 
12/31/2016
 
Increase
 
Decrease
 
Other movements
 
Forex translation
 
12/31/2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
 
 
 
 
 
 
 
 
 
 
 
A2IA GROUP goodwill
 
€
3,925,411

 
€
—

 
€
—

 
€
—

 
€
—

 
€
3,925,411

A2IA DEVELOPPEMENT goodwill
 
9,764,359

 
—

 
—

 
—

 
—

 
9,764,359

A2IA goodwill
 
4,456,304

 
—

 
—

 
—

 
—

 
4,456,304

Total goodwill
 
€
18,146,074


€
0


€
0


€
0


€
0


€
18,146,074

 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
Concessions, patents
 
572,180

 
32,220

 
—

 
—

 
(17,888
)
 
586,512

Total intangible assets
 
572,180


32,220


0


0


(17,888
)

586,512

 
 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment
 
 
 
 
 
 
 
 
 
 
 
 
Buildings
 
275,360

 
—

 
—

 
—

 
(15,921
)
 
259,439

Other PP&E
 
953,652

 
117,796

 
—

 
—

 
(43,529
)
 
1,027,919

Total property, plant and equipment
 
1,229,012


117,796


0


0


(59,450
)

1,287,358

 
 
 
 
 
 
 
 
 
 
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
 
 
 
Other financial assets
 
161,170

 
933

 
3,000

 
—

 
(7,193
)
 
151,910

Total financial assets
 
161,170


933


3,000


0


(7,193
)

151,910

 
 
 
 
 
 
 
 
 
 
 
 
 
Investments in equity associates
 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL NON-CURRENT ASSETS
 
€
20,108,436


€
150,949


€
3,000


€
0


€
(84,531
)

€
20,171,854



A2IA GROUP goodwill:

The A2IA GROUP initial difference on consolidation of €3,925,411 (gross) was calculated based on A2IA GROUP’s consolidated net assets at the date of acquisition of the securities, i.e. November 14, 2014.

On June 15, 2015, the entire assets of A2IA GROUP were transferred to A2IA GROUP II.

In the absence of identifiable valuation differences, the initial difference on consolidation was allocated in full to goodwill and is amortized over 10 years.

A2IA DEVELOPPEMENT goodwill:

On May 13, 2008, A2IA GROUP acquired 99.08% of the shares of A2IA DEVELOPPEMENT, the A2IA and A2IA CORP holding company. It then bought-out the remaining minority interests in 2010 and 2012.

On December 6, 2012, the entire assets of A2IA DEVELOPPEMENT were transferred to A2IA GROUP.


Page 18


The A2IA DEVELOPPEMENT initial difference on consolidation of €9,692,158 (gross) was calculated based on A2IA DEVELOPPEMENT’s consolidated net assets at the date of acquisition of the securities, i.e. May 13, 2008.

In the absence of identifiable valuation differences, the initial difference on consolidation was allocated in full to goodwill and is amortized over 20 years.

The buyout of minority interests in 2010 and 2012 generated additional goodwill of €72,201, increasing gross goodwill to €9,764,359. This additional goodwill is amortized over the residual amortization period of the initial goodwill.

A2IA goodwill:

On January 25, 2006, A2IA DEVELOPPEMENT acquired A2IA.

The A2IA initial difference on consolidation of €4,456,304 (gross) was calculated based on A2IA’s consolidated net assets as of December 31, 2005.

In the absence of identifiable valuation differences, the initial difference on consolidation was allocated in full to goodwill and is amortized over 20 years.

Impairment tests:

Impairment tests at the year-end did not call into question the net carrying amount of goodwill. No additional impairment was therefore recorded.



Page 19


3.1.2    Depreciation, amortization and provisions

In €
 
12/31/2016
 
Increase
 
Decrease
 
Other movements
 
Forex translation
 
12/31/2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
 
 
 
 
 
 
 
 
 
 
 
A2IA GROUP goodwill
 
€
835,628

 
€
392,541

 
€
—

 
€
—

 
€
—

 
€
1,228,169

A2IA DEVELOPPEMENT goodwill
 
4,206,261

 
488,994

 
—

 
—

 
—

 
4,695,255

A2IA goodwill
 
2,450,966

 
222,815

 
—

 
—

 
—

 
2,673,781

Total goodwill
 
7,492,855


1,104,350


—


—


—


8,597,205

 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
Concessions, patents
 
489,973

 
57,510

 
—

 
—

 
(16,295
)
 
531,188

Total intangible assets
 
489,973


57,510


—


—


(16,295
)

531,188

 
 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment
 
 
 
 
 
 
 
 
 
 
 
 
Buildings
 
149,116

 
16,894

 
—

 
—

 
(13,117
)
 
152,893

Other PP&E
 
773,144

 
124,356

 
—

 
—

 
(38,048
)
 
859,452

Total property, plant and equipment
 
922,260


141,250


—


—


(51,165
)

1,012,345

 
 
 
 
 
 
 
 
 
 
 
 
 
Financial assets
 
 
 
 
 
 
 
 
 
 
 
 
Other financial assets
 
—

 
—

 
—

 
—

 
—

 
—

Total financial assets
 
—


—


—


—


—


—

 
 
 
 
 
 
 
 
 
 
 
 
 
Investments in equity associates
 
—

 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL DEPRECIATION, AMORTIZATION AND PROVISIONS
 
€
8,905,088


€
1,303,110


€
—


€
—


€
(67,460
)

€
10,140,738



3.2    TRADE RECEIVABLES

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Trade receivables
 
€
3,861,000

 
€
3,513,185

Doubtful receivables
 
—

 
—

Sales invoice accruals
 
315,204

 
289,650

TOTAL TRADE RECEIVABLES, GROSS
 
4,176,204


3,802,835

 
 
 
 
 
Provision for impairment
 
—

 
—

TOTAL TRADE RECEIVABLES, NET
 
€
4,176,204


€
3,802,835





Page 20


3.3    OTHER RECEIVABLES, PREPAYMENTS AND ACCRUED INCOME

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Advances and payments on account
 
€
—

 
€
—

Employee-related receivables
 
849

 
5,811

Tax receivables
 
591,760

 
689,562

Sundry debtors
 
4,471

 
7,334

Deferred tax assets
 
261,849

 
232,413

Deferred charges
 
78,924

 
100,833

Prepayments
 
226,327

 
227,794

TOTAL RECEIVABLES, PREPAYMENTS AND ACCRUED INCOME, GROSS
 
1,164,180

 
1,263,747

 
 
 
 
 
Provision for impairment of other receivables
 
—

 
—

TOTAL RECEIVABLES, PREPAYMENTS AND ACCRUED INCOME, NET
 
€
1,164,180


€
1,263,747



Deferred charges:

Deferred charges primarily consist of implementation costs relating to the joint financing granted by the banks, CIC EST and SOCIETE GENERALE.

These costs are amortized over the period from November 14, 2014 to June 30, 2021.
In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Deferred charges, gross
 
€
147,000

 
€
147,000

Accumulated amortization
 
(68,076
)
 
(46,167
)
Deferred charges, net
 
€
78,924

 
€
100,833



3.4    EQUITY

3.4.1    Share capital

The share capital comprises 9,937,620 fully paid-up shares with a par value of one euro each.

3.4.2    Contribution to equity (attributable to owners of the Company)

The contribution of consolidated companies to equity (attributable to owners of the Company) breaks down as follows as of December 31, 2017:

 
 
Share capital
 
Consolidated reserves
 
Consolidated net income
 
Total
In €
 
 
Reserves
 
Treasury shares
 
Translation reserves
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
A2IA GROUP II
 
€
9,937,620

 
€
8,480,573

 
€
(74,700
)
 
€
—

 
€
8,405,873

 
€
(1,157,817
)
 
€
17,185,676

A2IA
 
—

 
(5,980,761
)
 
—

 
—

 
(5,980,761
)
 
527,745

 
(5,453,016
)
A2IA CORP
 
—

 
194,380

 
—

 
143,939

 
338,319

 
565,148

 
903,467

A2IA LLC
 
—

 
(8,812
)
 
—

 
(821
)
 
(9,633
)
 
549

 
(9,084
)
TOTAL EQUITY ATTRIB. TO OWNERS OF THE COMPANY
 
€
9,937,620


€
2,685,380


€
(74,700
)

€
143,118


€
2,753,798


€
(64,375
)

€
12,627,043


Page 21




3.5    EQUITY EQUIVALENTS

Equity equivalents consist of innovation assistance granted to A2IA.

 
 
Grant date
 
Max. amount of assistance granted
 
Cumulative assistance paid
 
Cumulative assistance repaid or transferred to income
 
As of 12/31/2017
 
As of 12/31/2016
In €
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BPIFRANCE agreement
 
01/18/2011
 
€
450,002

 
€
249,962

 
€
—

 
€
249,962

 
€
249,962

ANR 10 CORD 013 agreement
 
11/29/2010
 
40,855

 
32,682

 
20,426

 
12,256

 
32,682

ANR 12 CORP 0010 agreement
 
02/22/2013
 
18,959

 
5,688

 
5,688

 
—

 
5,688

TOTAL
 
 
 
€
509,816


€
288,332


€
26,114


€
262,218


€
288,332


The assistance granted by BPIFRANCE is repayable in full in accordance with a 5-year fixed schedule commencing when revenue generated by the developed product reaches €1,000,000. If no repayments have been made within 10 years of the last assistance payment, the assistance will definitively vest to A2IA.

The subsidies granted by the Agence Nationale de la Recherche (“ANR”) definitively vest to A2IA (not repayable) on completion of the financed projects. These subsidies were partially released to income in the amount of €26,114 during the year.

3.6    PROVISIONS

In €
 
12/31/2016
 
Increase
 
Decrease
 
Other movements
 
Forex translation
 
12/31/2017
 
 
Provisions used
 
Provisions not used
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Retirement benefit commitments
 
€
665,506

 
€
96,258

 
€
—

 
€
—

 
€
—

 
€
—

 
€
761,764

Convertible bond non-conversion premium
 
115,000

 
67,700

 
—

 
—

 
—

 
—

 
182,700

Maintenance provision
 
—

 
82,088

 
—

 
—

 
—

 
—

 
82,088

TOTAL PROVISIONS
 
€
780,506


€
246,046


€
—


€
—


€
—


€
—


€
1,026,552



Retirement benefit commitments:

Given the sensitivity of calculations, particularly with respect to discount rates, it is noted that the gross commitment would be €765,623 with a discount rate identical to that applied as of December 31, 2016, i.e. 1.42%.

Convertible bond non-conversion premium:

A2IA GROUP II recorded a provision to cover the risk of non-conversion of the bond issue performed on November 14, 2014 (see Note 3.7).

Maintenance provision:

The subsidiary A2IA recorded a provision to cover potential maintenance costs in coming years in connection with a specific contract.


Page 22


3.7    BORROWINGS

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Bond issues
 
 
 
 
Bond issue of 11/14/2014
 
€
550,000

 
€
550,000

Accrued interest
 
1,401

 
1,401

Total bond issues
 
551,401


551,401

 
 
 
 
 
Bank borrowings
 
 
 
 
CIC EST / SOCIETE GENERALE loan
 
2,505,152

 
3,290,152

Total bank borrowings
 
2,505,152


3,290,152

 
 
 
 
 
Other borrowings
 
 
 
 
BPIFRANCE FINANCEMENT loan
 
400,000

 
400,000

COFACE assistance
 
84,878

 
62,918

Guarantee deposits received
 
6,167

 
6,167

Total other borrowings
 
491,045


469,085

 
 
 
 
 
TOTAL BORROWINGS
 
€
3,547,598


€
4,310,638



Bond issues:

A2IA GROUP II performed a €550,000 convertible bond issue on November 14, 2014.

The terms and conditions of this issue are as follows:

-    nominal value of €1;
-    interest calculated at a rate of 3% and payable annually on November 30;
-    redemption at par on November 30, 2022.

The bond issue is convertible at a rate of one share for one bond and is accompanied by a non-conversion premium bringing the gross actuarial rate of return on non-converted bonds to 12% per annum.

Early redemption at the request of bond holders is possible on the occurrence of certain events and notably if the senior debt becomes payable in full (see below).

Bank borrowings:

On November 14, 2014, A2IA GROUP II secured a €5,500,000 loan with a banking pool comprising CIC EST and SOCIETE GENERALE (50% each), to finance the acquisition of A2IA GROUP shares.

This loan is repayable in seven annual payments on June 30 of each year commencing June 30, 2015 and terminating June 30, 2021.

Interest is equal to 3 month EURIBOR plus a margin revised annually on June 30 (and for the first time on June 30, 2017) based on the consolidated financial statements for the previous fiscal year. The initial margin applied until the first review is 2.60%.

The loan is accompanied by a commitment to comply with financial ratios. Non-compliance may lead to the loan being called in whole or in part.


Page 23


Other borrowings:

On September 9, 2015, A2IA secured an interest-free “Avance Innovation” loan of €400,000 from BPIFRANCE FINANCEMENT to finance the development of a new project.

This loan is repayable in 20 quarterly installments commencing March 31, 2018 and terminating December 31, 2022.

3.8    TRADE PAYABLES AND RELATED ACCOUNTS

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Trade payables
 
€
93,008

 
€
72,538

Purchase invoice accruals
 
164,710

 
166,419

 
 
 
 
 
TOTAL TRADE PAYABLES AND RELATED ACCOUNTS
 
€
257,718


€
238,957



3.9    OTHER LIABILITIES, ACCRUALS AND DEFERRED INCOME

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Advances and payments on account received on orders
 
€
28,127

 
€
56,963

Employee-related liabilities
 
1,019,666

 
1,097,491

Tax liabilities
 
381,885

 
292,007

Other liabilities
 
11,498

 
62

Deferred income
 
1,916,302

 
1,857,097

 
 
 
 
 
TOTAL OTHER LIABILITIES, ACCRUALS AND DEFERRED INCOME
 
€
3,357,478


€
3,303,620



3.10    DEBT MATURITY ANALYSIS

3.10.1    Receivables

In €
 
Gross
 
Maturing in
1 year or less
 
Maturing in more than
1 year
 
 
 
 
 
 
 
Other financial assets
 
€
151,910

 
€
—

 
€
151,910

Trade receivables and related accounts
 
4,176,204

 
4,176,204

 
—

Employee-related receivables
 
849

 
849

 
—

Tax receivables
 
591,760

 
591,760

 
—

Deferred tax assets
 
261,849

 
261,849

 
—

Sundry debtors
 
4,471

 
4,471

 
—

Deferred charges
 
78,924

 
21,910

 
57,014

Prepaid expenses
 
226,327

 
226,327

 
—

 
 
 
 
 
 
 
TOTAL RECEIVABLES
 
€
5,492,294


€
5,283,370


€
208,924




Page 24


3.10.2    Liabilities

In €
 
Gross
 
Maturing in less than
1 year
 
Maturing in 1 to 5 years
 
Maturing in more than
5 years
 
 
 
 
 
 
 
 
 
Convertible bond issues
 
€
551,401

 
€
1,401

 
€
—

 
€
550,000

Bank borrowings
 
2,505,152

 
785,000

 
1,720,152

 
—

Other borrowings
 
491,045

 
80,000

 
411,045

 
—

Trade payables and related accounts
 
257,717

 
257,717

 
—

 
—

Advances and payments on account received on orders
 
28,127

 
28,127

 
—

 
—

Employee-related liabilities
 
1,019,666

 
1,019,666

 
—

 
—

Tax liabilities
 
381,885

 
381,885

 
—

 
—

Other liabilities
 
11,498

 
11,498

 
—

 
—

Deferred income
 
1,916,302

 
1,916,302

 
—

 
—

 
 
 
 
 
 
 
 
 
TOTAL LIABILITIES
 
€
7,162,793


€
4,481,596


€
2,131,197


€
550,000



3.11    REVENUE

3.11.1    Breakdown of revenue by nature

In €
 
12/31/2017
 
12/31/2016
 
France
World
Total
 
France
World
Total
 
 
 
 
 
 
 
 
 
Sales of bought-in goods
 
€
1,704,528

€
8,393,576

€
10,098,104

 
€
2,186,988

€
7,865,955

€
10,052,943

Sales of products
 
—

—

—

 
—

—

—

Sales of services
 
995,351

1,763,746

2,759,097

 
765,940

1,775,667

2,541,607

 
 
 
 
 
 
 
 
 
TOTAL REVENUE
 
€
2,699,879

€
10,157,322

€
12,857,201

 
€
2,952,928

€
9,641,622

€
12,594,550



3.11.2    Contribution of consolidated companies to revenue

In €
 
12/31/2017
 
12/31/2016
 
France
Rest of the world
Total
 
France
Rest of the world
Total
 
 
 
 
 
 
 
 
 
A2IA
 
€
2,699,879

€
4,370,641

€
7,070,520

 
€
2,952,928

€
3,405,275

€
6,358,203

A2IA CORP
 
—

5,786,681

5,786,681

 
—

6,236,347

6,236,347

 
 
 
 
 
 
 
 
 
TOTAL REVENUE
 
€
2,699,879

€
10,157,322

€
12,857,201

 
€
2,952,928

€
9,641,622

€
12,594,550




Page 25


3.12    OTHER OPERATING INCOME

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Operating grants
 
€
49,382

 
€
54,911

Expense reclassifications
 
467

 
361

Other operating income
 
144

 
102

 
 
 
 
 
TOTAL OTHER OPERATING INCOME
 
€
49,993


€
55,374



3.13    COST OF SALES

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Purchases of raw materials
 
€
20,924

 
€
20,899

Change in inventory of raw materials
 
—

 
—

Cost of sales - raw materials
 
20,924


20,899

 
 
 
 
 
Purchases of bought-in goods
 
19,146

 
28,816

Change in inventory of bought-in goods
 
—

 
—

Cost of sales - bought-in goods
 
19,146


28,816

 
 
 
 
 
TOTAL COST OF SALES
 
€
40,070


€
49,715



3.14    OTHER EXTERNAL CHARGES

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Sub-contracting
 
€
124,998

 
€
96,921

Equipment and supplies not for stock
 
42,713

 
54,496

Real estate and moveable property lease costs
 
681,428

 
644,438

Maintenance and repair
 
44,550

 
56,855

Insurance
 
199,238

 
184,256

External personnel
 
58,923

 
84,485

Intermediary remuneration and professional fees
 
885,119

 
792,870

Public relations
 
253,509

 
201,815

Transport
 
6,528

 
8,650

Travel and entertainment
 
397,367

 
347,759

Post and telecommunication expenses
 
115,326

 
108,971

Banking services
 
24,684

 
26,157

Other
 
26,182

 
26,995

 
 
 
 
 
TOTAL OTHER EXTERNAL CHARGES
 
€
2,860,565


€
2,634,668




Page 26


3.15    EMPLOYEE COSTS AND NUMBERS

3.15.1    Employee costs

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Employee wages and salaries
 
€
5,773,885

 
€
5,591,395

Social security contributions
 
1,898,393

 
1,750,160

Statutory employee profit-sharing
 
—

 
—

 
 
 
 
 
TOTAL EMPLOYEE COSTS
 
€
7,672,278


€
7,341,555



3.15.2    Employee numbers

 
 
12/31/2017
 
12/31/2016
 
 
 
 
 
A2IA
 
56

 
54

A2IA CORP
 
16

 
16

A2IA LLC
 
15

 
15

 
 
 
 
 
TOTAL EMPLOYEES
 
87


85



3.16    DEPRECIATION, AMORTIZATION AND PROVISIONS

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Amortization of intangible assets
 
€
57,863

 
€
56,473

Depreciation of property, plant and equipment
 
142,397

 
133,697

Amortization of deferred charges
 
21,910

 
21,965

Charges to provisions for trade receivables
 
—

 
—

Charges to provisions for contingencies and losses
 
178,346

 
130,157

 
 
 
 
 
TOTAL DEPRECIATION, AMORTIZATION AND PROVISIONS
 
€
400,516


€
342,292



3.17    FINANCIAL INCOME AND EXPENSES

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Foreign exchange gains
 
€
6,034

 
€
37,440

Other financial income
 
15,278

 
21,436

FINANCIAL INCOME
 
21,312


58,876

 
 
 
 
 
Interest and financial expenses
 
92,962

 
128,042

Foreign exchange losses
 
153,614

 
93,122

Other financial charges
 
10,139

 
10,398

Charges to provisions for contingencies and losses
 
67,700

 
58,600

FINANCIAL EXPENSES
 
324,415


290,162

 
 
 
 
 
NET FINANCIAL EXPENSE
 
€
(303,103
)

€
(231,286
)



Page 27


3.18    EXCEPTIONAL ITEMS

In €
 
12/31/2017
 
12/31/2016
 
 
 
 
 
Proceeds from the disposal of intangible assets and PP&E
 
€
—

 
€
1,850

EXCEPTIONAL INCOME
 
—


1,850

 
 
 
 
 
Exceptional expenses on management transactions
 
235

 
32

NCA of intangible asset and PP&E disposals
 
—

 
1,758

EXCEPTIONAL EXPENSES
 
235


1,790

 
 
 
 
 
NET EXCEPTIONAL ITEMS
 
€
(235
)

€
60



3.19    INCOME TAX EXPENSE

In €
 
12/31/2017
 
12/31/2016
 
Tax payable
Deferred tax
Total
 
Tax payable
Deferred tax
Total
 
 
 
 
 
 
 
 
 
A2IA GROUP II
 
€
(100,085
)
€
115

€
(99,970
)
 
€
(82,710
)
€
116

€
(82,594
)
A2IA
 
183,762

(29,551
)
154,211

 
191,404

(45,448
)
145,956

A2IA CORP
 
265,079

—

265,079

 
453,389

—

453,389

A2IA LLC
 
2,028

—

2,028

 
1,173

—

1,173

 
 
 
 
 
 
 
 
 
TOTAL INCOME TAX EXPENSE
 
€
350,784

€
(29,436
)
€
321,348

 
€
563,256

€
(45,332
)
€
517,924



Page 28


3.20    PROOF OF TAX

In €
 
 
A2IA
GROUP II
 
A2IA
 
A2IA CORP
 
A2IA LLC
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net income for the year
A
 
€
(1,157,817
)
 
€
527,745

 
€
565,148

 
€
549

 
€
(64,375
)
 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense in the company accounts
 
(100,085
)
 
183,762

 
265,079

 
2,028

 
350,784

Deferred tax
 
 
115

 
(29,551
)
 
—

 
—

 
(29,436
)
Income tax recognized
B
 
(99,970
)

154,211


265,079


2,028

 
321,348

 
 
 
 
 
 
 
 
 
 
 


Net income (loss) before tax
C = A +B
 
(1,257,787
)

681,956


830,227


2,577

 
256,973

 
 
 
 
 
 
 
 
 
 
 


Permanent differences
D
 
977,515

 
189,494

 
(6,571
)
 
7,562

 
1,168,000

Excess interest on convertible bonds
 
 
7,315

 
—

 
—

 
—

 
7,315

Provision for non-conversion of convertible bonds
 
67,700

 
—

 
—

 
—

 
67,700

Share of costs and expenses on dividends
 
 
20,965

 
17,570

 
—

 
—

 
38,535

CICE tax credit
 
 
—

 
(50,891
)
 
—

 
—

 
(50,891
)
New York City tax / New York State tax
 
 
—

 
—

 
(21,112
)
 
—

 
(21,112
)
Tax depreciation books
 
 
—

 
—

 
7,386

 
—

 
7,386

50% meals & entertainment
 
 
—

 
—

 
7,206

 
—

 
7,206

Goodwill amortization
 
 
881,535

 
222,815

 
—

 
—

 
1,104,350

Other
 
 
—

 
—

 
(51
)
 
7,562

 
7,511

 
 
 
 
 
 
 
 
 
 
 
—

Items taxed at reduced rates
E
 
—

 
—

 
—

 
—

 
—

Provisions for securities
 
 
—

 
—

 
—

 
—

 
—

Net capital gains on disposals of non-current assets
 
 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 


Net income before tax liable to the standard tax rate
F = C + D - E
 
(280,272
)

871,450


823,656


10,139

 
1,424,973

 
 
 
 
 
 
 
 
 
 
 


Tax rate
G
 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 


Theoretical tax expense at the standard tax rate
H = F x G
 
(93,424
)
 
290,483

 
280,043

 
2,028

 
479,130

 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense at reduced rates
I
 
—

 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
 
Total theoretical tax expense
J = H + I
 
(93,424
)

290,483


280,043


2,028

 
479,130

 
 
 
 
 
 
 
 
 
 
 
 
Adjustments
K
 
(6,546
)
 
(136,272
)
 
(14,964
)
 
—

 
(157,782
)
 
 
 
 
 
 
 
 
 
 
 
 
Research tax credit / Innovation tax credit
 
 
—

 
(181,326
)
 
—

 
—

 
(181,326
)
Family tax credit
 
 
(6,545
)
 
(23,948
)
 
—

 
—

 
(30,493
)
New York city tax / New York State tax
 
 
—

 
—

 
21,112

 
—

 
21,112

Revised tax assessment
 
 
—

 
68,998

 
—

 
—

 
68,998

Deferred tax in company accounts
 
 
—

 
—

 
(10,590
)
 
—

 
(10,590
)
Adjustments to prior year tax liabilities
 
 
—

 
—

 
(25,481
)
 
—

 
(25,481
)
Differences in rates and other
 
 
(1
)
 
4

 
(5
)
 
—

 
(2
)
 
 
 
 
 
 
 
 
 
 
 
 
Restated theoretical tax expense
L = J + K
 
€
(99,970
)

€
154,211


€
265,079


€
2,028

 
€
321,348

 
 
 
 
 
 
 
 
 
 
 
 
Difference
B - L
 
—

 
—

 
—

 
—

 
—


Page 29




3.21    CALCULATION OF NET INCOME (LOSS) PER SHARE

Net income (loss) per share is calculated by dividing net income for the year (attributable to owners of the Company) by the weighted average number of shares outstanding during the period, determined on a time apportioned basis.

Diluted net income is calculated by increasing the weighted average number of shares outstanding by the weighted average number of rights to shares attached to convertible bonds issues (see Note 3.7) and restating net income for the post-tax financial expense associated with these borrowings.

Calculation of earnings per share
 
Fiscal year 12/31/2017
 
Fiscal year 12/31/2016
 
 
 
 
 
Weighted average number of shares
 
9,937,620

 
9,937,620

Weighted average number of rights to shares on convertible bonds
 
550,000

 
550,000

TOTAL WEIGHTED AVERAGE NUMBER OF SHARES
 
10,487,620

 
10,487,620

 
 
 
 
 
NET INCOME (ATTRIBUTABLE TO OWNERS OF THE COMPANY)
 
€
(64,375
)
 
€
248,202

 
 
 
 
 
 DILUTED NET INCOME (LOSS)
 
€
(50,937
)
 
€
260,998

 
 
 
 
 
NET INCOME (LOSS) PER SHARE
 
€
(0.01
)
 
€
0.03

DILUTED NET INCOME (LOSS) PER SHARE 
 
€
(0.01
)
 
€
0.03


3.22    MANAGEMENT COMPENSATION

Compensation paid to members of management bodies is not disclosed as it would result in the disclosure of individual compensation.

3.23    STATUTORY AUDIT FEES

Statutory audit fees expensed in 2017 total €47,283.

3.25    OFF-BALANCE SHEET COMMITMENTS

3.25.1    Commitments given

Financing commitments

A2IA GROUP II granted a pledge over its A2IA GROUP shares in favor of CIC EST and SOCIETE GENERALE in guarantee of the €5,500,000 loan granted by these banks to finance the acquisition of the A2IA GROUP shares.

This pledge was transferred to the A2IA shares by a deed dated June 15, 2015 following the comprehensive transfer of the assets of A2IA GROUP to A2IA GROUP II.

This loan was accompanied by a number of reporting commitments, commitments requiring or prohibiting actions and a commitment to comply with financial ratios.

3.25.2    Commitments received

None.


3.26    RECONCILIATION FROM FRENCH GAAP TO US GAAP

The Company’s accounting policies comply with generally accepted accounting principles in France (“French GAAP”) (see note 2.3). Elements of the Company’s accounting policies which differ significantly from generally accepted accounting principles in the United States (“US GAAP”) are described below:

Page 30



3.26.1 Revenue recognition

In the consolidated financial statements prepared under French GAAP, revenue from the maintenance can be recognized at the time of the sale of the software. Under US GAAP, the revenue allocated to the maintenance services should be recognized ratably over the period as the services are performed.

The impact is €210 thousand and €87 thousand on the net income for the years ended December 31, 2017 and 2016, respectively.


3.26.2 Accounting for goodwill

In the consolidated financial statements prepared under French GAAP, goodwill are amortized on a straight-line basis over their estimated useful lives, which generally does not exceed 20 years. Under US GAAP, goodwill are not amortized, but are tested for impairment annually and whenever there is an indication of impairment.

The impact is €1,104 thousand on net income for the periods presented, resulting from the derecognition of the amortization of goodwill in the consolidated income statement under French GAAP.

3.26.3 Deferred taxes

As a result of the French GAAP to US GAAP differences identified above that have affected the carrying amount of certain assets and liabilities, the deferred taxes asset and liability balances under US GAAP have been adjusted, resulting in negative impacts of €85 thousand and €29 thousand for the years ended December 31, 2017 and 2016, respectively.


Page 31


Reconciliation of the Unaudited Financial Information from French GAAP to US GAAP
Net income
(amounts are presented in thousands of euros)
Period ended
December 31,
 
2017
 
2016
As reported under French GAAP
€
(64
)
 
€
248

Total adjustments of which:
971

 
1,047

 
 
 
 
Revenue recognition
(209)

 
(86)

Goodwill
1,104

 
1,104

Income tax expense
76

 
29

 
 
 
 
As reported under US GAAP
€
907


€
1,295


Shareholders’ equity
(amounts are presented in thousands of euros)
As of
December 31,
 
2017
 
2016
As reported under French GAAP
€
12,627

 
€
12,910

Total adjustments of which:
8,246

 
7,433

 
 
 
 
Goodwill
8,597

 
7,493

Revenue recognition
(351)

 
(59)

 
 
 
 
As reported under US GAAP
€
20,873


€
20,344


Total assets
(amounts are presented in thousands of euros)
As of
December 31,
 
2017
 
2016
As reported under French GAAP
€
21,079

 
€
21,832

Total adjustments of which:
8,150

 
7,254

 
 
 
 
Goodwill
8,597

 
7,493

Accounts receivable
(447)

 
(239)

 
 
 
 
As reported under US GAAP
€
29,229


€
29,086





    

Page 32

Exhibit


Exhibit 99.2

Unaudited Pro Forma Combined Financial Statements
A2iA Group II, S.A.S. Acquisition (the “Acquisition”)
On May 23, 2018 (the “Closing Date”), Mitek Systems, Inc. (“Mitek” or the “Company”) acquired all of the issued and outstanding shares of A2iA Group II, S.A.S. (“A2iA”), a simplified joint stock company formed under the laws of France, pursuant to a Share Purchase Agreement (the “Purchase Agreement”), by and among the Company, each of the holders of outstanding shares of A2iA (each, a “Seller” and collectively, the “Sellers”) and Andera Partners, S.C.A., as representative of the Sellers. Upon completion of the Acquisition, A2iA became a direct wholly owned subsidiary of the Company.
As consideration for the Acquisition, Mitek (i) made a cash payment of $26.8 million, net of cash acquired; (ii) issued 2,514,588 shares, or $21.9 million, of the Company’s common stock, par value $0.001 per share (“Common Stock”); and (iii) incurred liabilities of $0.2 million. The Company used available cash and investments as well as issued Common Stock in order to fund the Acquisition.
Pro Forma Financial Information
The unaudited pro forma combined balance sheet as of March 31, 2018 is presented as if the Acquisition occurred on March 31, 2018. The unaudited pro forma combined statements of operations for the year ended September 30, 2017 and the six months ended March 31, 2018 are presented as if the Acquisition occurred on October 1, 2016, the first day of Mitek’s mos recently completed fiscal year.
The unaudited pro forma combined financial statements were prepared using and should be read in conjunction with: (i) Mitek’s historical unaudited consolidated financial statements as of and for the six months ended March 31, 2018; and (ii) Mitek’s historical audited consolidated financial statements as of and for the year ended September 30, 2017, included in Mitek’s Annual Report on Form 10-K.
The unaudited pro forma financial statements were prepared using the acquisition method of accounting. Under the acquisition method of accounting, the purchase price is allocated to the A2iA tangible and intangible assets acquired and liabilities assumed based on their respective estimated fair market values with any excess purchase price allocated to goodwill. As of the date of this filing, Mitek has not finalized the detailed valuation study necessary to arrive at the required final estimates of the fair value of A2iA’s assets acquired and liabilities assumed and the related allocations of purchase price, nor has it identified all adjustments necessary to conform A2iA’s accounting policies to Mitek’s accounting policies. As a result of the foregoing, the adjustments to the unaudited pro forma financial statements (the “pro forma adjustments”) are preliminary and are subject to change as additional information becomes available and as additional analysis is performed. The preliminary pro forma adjustments have been made solely for the purpose of preparing the unaudited pro forma financial statements presented below. Management estimated the fair value of A2iA’s assets and liabilities based on discussions with A2iA’s management and due diligence and publicly available transaction data for the industry. Any increases or decreases in the fair value of assets acquired and liabilities assumed upon completion of the final valuations will result in adjustments to the unaudited pro forma financial statements. The final purchase price allocation may be materially different than that reflected in the pro forma purchase price allocation presented herein.
Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. The historical consolidated financial statements have been adjusted in the unaudited pro forma financial statements to give effect to pro forma events that are: (i) directly attributable to the Acquisition; (ii) factually supportable; and (iii) with respect to the unaudited pro forma statements of operations, expected to have a continuing impact on the combined results of Mitek and A2iA following the Acquisition.
The unaudited pro forma combined financial statements are provided for illustrative purposes only and are not intended to represent or be indicative of the combined results of operations or financial position of Mitek that would have been recorded had the acquisition of A2iA been completed as of the dates presented, and should not be taken as representative of future results of operations or financial position of the combined company. The unaudited pro forma combined financial statements also do not reflect the impacts of any potential operational efficiencies, cost savings or economies of scale that the Company may achieve with respect to the combined operations of Mitek and A2iA and do not include all costs that are expected to be directly attributed to the Acquisition, such as, but not limited to, costs necessary to integrate the operations of A2iA with Mitek. Additionally, the unaudited pro forma combined financial statements do not include any non-recurring charges or credits directly attributable to the Acquisition.



MITEK SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of March 31, 2018
(amounts in thousands)

 
Mitek
 
A2iA
 
Pro Forma Adjustments
 
Notes
 
Mitek Combined
ASSETS
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
25,238

 
$
8,775

 
$
(26,011
)
 
 A, C, D
 
$
8,002

Short-term investments
19,146

 
—

 
(9,769
)
 
 D
 
9,377

Accounts receivable, net
7,797

 
6,575

 
273

 
 B
 
14,645

Other current assets
3,359

 
1,609

 
—

 
 
 
4,968

Total current assets
55,540


16,959


(35,507
)



36,992

Long-term investments
939

 
222

 
(1,161
)
 
 D
 
—

Property and equipment, net
2,278

 
329

 
—

 
 
 
2,607

Intangible assets, net
7,947

 
56

 
28,554

 
 B
 
36,557

Goodwill
10,298

 
22,356

 
350

 
 B
 
33,004

Deferred income tax assets
14,903

 
—

 
—

 
 
 
14,903

Other non-current assets
430

 
—

 
956

 
 B
 
1,386

Total assets
$
92,335


$
39,922


$
(6,808
)



$
125,449

LIABILITIES AND STOCKHOLDERS’ EQUITY
 
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
 
 
Accounts payable
$
2,304

 
$
205

 
$
186

 
 A
 
$
2,695

Accrued payroll and related taxes
3,411

 
1,907

 
—

 
 
 
5,318

Deferred revenue, current portion
3,953

 
6,039

 
(5,812
)
 
 B
 
4,180

Other current liabilities
4,659

 
37

 
—

 
 
 
4,696

Total current liabilities
14,327


8,188


(5,626
)



16,889

Deferred revenue, non-current portion
609

 
—

 
—

 
 
 
609

Deferred income tax liabilities
1,673

 
—

 
7,491

 
 B
 
9,164

Other non-current liabilities
2,005

 
4,191

 
(3,007
)
 
 C
 
3,189

Total liabilities
18,614


12,379


(1,142
)



29,851

Stockholders’ equity:
 
 
 
 
 
 
 
 
 
Preferred stock, $0.001 par value
—

 
—

 
—

 
 
 
—

Common stock, $0.001 par value
35

 
12,244

 
(12,242
)
 
 A, B
 
37

Additional paid-in capital
89,109

 
—

 
21,875

 
 A
 
110,984

Accumulated other comprehensive income
668

 
—

 
—

 
 
 
668

Retained earnings (accumulated deficit)
(16,091
)
 
15,299

 
(15,299
)
 
 B
 
(16,091
)
Total stockholders’ equity
73,721


27,543


(5,666
)



95,598

Total liabilities and stockholders’ equity
$
92,335


$
39,922


$
(6,808
)



$
125,449


See accompanying notes to unaudited pro forma combined financial statements.

2


MITEK SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 2018
(amounts in thousands except per share data)

 
Mitek
 
A2iA
 
Pro Forma Adjustments
 
Notes
 
Mitek Combined
Revenue
 
 
 
 
 
 
 
 
 
Software and hardware
$
15,979

 
$
6,920

 
$
—

 
 
 
$
22,899

SaaS, maintenance, and consulting
10,434

 
2,917

 
(170
)
 
 i
 
13,181

Total revenue
26,413


9,837


(170
)



36,080

Operating costs and expenses
 
 
 
 
 
 
 
 
 
Cost of revenue - software and hardware
1,204

 
18

 
—

 
 
 
1,222

Cost of revenue - SaaS, maintenance, and consulting
2,130

 
147

 
—

 
 
 
2,277

Selling and marketing
10,123

 
938

 
—

 
 
 
11,061

Research and development
6,781

 
4,672

 
—

 
 
 
11,453

General and administrative
7,290

 
1,447

 
—

 
 
 
8,737

Acquisition-related costs and expenses
2,462

 
32

 
2,458

 
 ii
 
4,952

Total operating costs and expenses
29,990


7,254


2,458




39,702

Operating income (loss)
(3,577
)
 
2,583

 
(2,628
)
 
 
 
(3,622
)
Other income (expense), net
394

 
(101
)
 
—

 
 
 
293

Income (loss) before income taxes
(3,183
)

2,482


(2,628
)



(3,329
)
Income tax provision
(3,713
)
 
(459
)
 
855

 
i, ii
 
(3,317
)
Net income (loss)
$
(6,896
)

$
2,023


$
(1,773
)



$
(6,646
)
Net income (loss) per share—basic
$
(0.20
)
 
 
 
 
 
 
 
$
(0.18
)
Net income (loss) per share—diluted
$
(0.20
)
 
 
 
 
 
 
 
$
(0.18
)
Shares used in calculating net income (loss) per share—basic
34,587

 
 
 
2,515

 
 iii
 
37,102

Shares used in calculating net income (loss) per share—diluted
34,587

 
 
 
2,515

 
 iii
 
37,102


See accompanying notes to unaudited pro forma combined financial statements.

3


MITEK SYSTEMS, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the Year Ended September 30, 2017
(amounts in thousands except per share data)

 
Mitek
 
A2iA
 
Pro Forma Adjustments
 
Notes
 
Mitek Combined
Revenue
 
 
 
 
 
 
 
 
 
Software and hardware
$
29,647

 
$
7,843

 
$
—

 
 
 
$
37,490

SaaS, maintenance, and consulting
15,743

 
6,306

 
(2,254
)
 
 i
 
19,795

Total revenue
45,390


14,149


(2,254
)



57,285

Operating costs and expenses
 
 
 
 
 
 
 
 
 
Cost of revenue - software and hardware
1,112

 
31

 
—

 
 
 
1,143

Cost of revenue - SaaS, maintenance, and consulting
2,929

 
294

 
—

 
 
 
3,223

Selling and marketing
14,484

 
1,525

 
—

 
 
 
16,009

Research and development
10,430

 
7,817

 
—

 
 
 
18,247

General and administrative
11,310

 
2,425

 
—

 
 
 
13,735

Acquisition-related costs and expenses
2,356

 
65

 
4,913

 
 ii
 
7,334

Total operating costs and expenses
42,621


12,157


4,913




59,691

Operating income (loss)
2,769

 
1,992

 
(7,167
)
 
 
 
(2,406
)
Other income (expense), net
402

 
(171
)
 
—

 
 
 
231

Income (loss) before income taxes
3,171


1,821


(7,167
)



(2,175
)
Income tax benefit (provision)
10,921

 
(551
)
 
2,476

 
i, ii
 
12,846

Net income
$
14,092


$
1,270


$
(4,691
)



$
10,671

Net income per share—basic
$
0.43

 
 
 
 
 
 
 
$
0.30

Net income per share—diluted
$
0.40

 
 
 
 
 
 
 
$
0.28

Shares used in calculating net income per share—basic
33,083

 
 
 
2,515

 
 iii
 
35,598

Shares used in calculating net income per share—diluted
35,537

 
 
 
2,515

 
 iii
 
38,052


See accompanying notes to unaudited pro forma combined financial statements.

4


MITEK SYSTEMS, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(Unaudited)

1. BASIS OF PRO FORMA PRESENTATION
The unaudited pro forma combined financial statements are based upon the historical financial statements of the Company and A2iA after giving effect to the Acquisition. The Acquisition is accounted for as a business combination pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”). In accordance with ASC 805, the Company recognizes separately from goodwill, the identifiable assets acquired and the liabilities assumed, generally at the acquisition date fair value as defined by ASC Topic 820, Fair Value Measurements and Disclosures. Goodwill as of the acquisition date is measured as the excess of consideration transferred, which is also measured at fair value, and the net of the acquisition date fair value of the identifiable assets acquired and the liabilities assumed.
The unaudited pro forma combined balance sheet as of March 31, 2018 is presented as if the Acquisition occurred on March 31, 2018. The unaudited pro forma combined statements of operations for the year ended September 30, 2017 and the six months ended March 31, 2018 are presented as if the Acquisition occurred on October 1, 2016, the first day of Mitek’s most recently completed fiscal year.
Assumptions and estimates underlying the pro forma adjustments are described in the accompanying notes. The historical consolidated financial statements have been adjusted in the unaudited pro forma financial statements to give effect to pro forma events that are: (i) directly attributable to the Acquisition; (ii) factually supportable; and (iii) with respect to the unaudited pro forma statements of operations, expected to have a continuing impact on the combined results of Mitek and A2iA following the Acquisition.
The pro forma adjustments represent management’s estimates based on information available as of the date of this filing and are subject to change as additional information becomes available and additional analysis is performed. The unaudited pro forma financial statements do not reflect the impact of possible revenue or earnings enhancements, cost savings from operating efficiencies or synergies, or asset dispositions. Also, the unaudited pro forma financial statements do not reflect transaction or other costs following the Acquisition that are not expected to have a continuing impact. Additionally, the unaudited pro forma combined statements of operations exclude any non-recurring charges or credits directly attributable to the Acquisition.
Pro Forma Financial Information
The unaudited pro forma combined financial statements give pro forma effect to the Acquisition as follows:
•Total purchase price of $48.8 million;
•The following consideration was paid for the Acquisition:
◦$26.8 million of cash paid, net of cash acquired,
◦$21.9 million, or 2,514,588 shares, of Common Stock, and
◦$0.2 million of liabilities incurred
Significant assumptions and estimates were made in determining the preliminary allocation of the purchase price in the unaudited pro forma combined financial statements. These preliminary estimates and assumptions are subject to change during the measurement period as the Company finalizes the fair valuations of the net tangible assets, intangible assets, tax-related assets and liabilities, and the resultant goodwill. In particular, the final valuations of identifiable intangible and net tangible assets may change significantly from the Company's preliminary estimates. These changes could result in material variances between its future financial results and the amounts presented in the unaudited pro forma combined financial statements, including variances in fair values recorded, as well as expenses and cash flows associated with them.
The Company continues to review, in detail, A2iA accounting policies. As a result of the review, it may identify differences in accounting policies between the two companies, that when conformed, could have a material impact on the financial results of the combined company. Based on information available at the time of the filing of this current report on Form 8-K/A, the Company is not aware of any differences in accounting policies that would have a material impact on the financial results of the combined company other than those reflected in the unaudited pro forma combined financial statements described in Note 3.
The unaudited pro forma combined financial statements should be read in conjunction with the historical consolidated financial statements of the Company and accompanying notes contained in the Company’s Annual Report on Form 10-K and Quarterly Report on Form 10-Q for its fiscal year ended September 30, 2017 and six months ended March 31, 2018, respectively.

5



2. PRELIMINARY PURCHASE PRICE ALLOCATION
Purchase Price
As consideration for the Acquisition, Mitek (i) made a cash payment of $26.8 million, net of cash acquired; (ii) issued 2,514,588 shares, or $21.9 million, of the Company’s Common Stock; and (iii) incurred liabilities of $0.2 million. The Company used available cash and investments as well as issued Common Stock in order to fund the Acquisition.
Purchase Price Allocation
For the purpose of the unaudited pro forma combined financial statements, the purchase price of A2iA has been allocated to A2iA tangible and identifiable intangible assets acquired and liabilities assumed, based on their estimated fair values. For certain assets and liabilities, the book values as of the balance sheet date have been determined to reflect fair values. The excess of the purchase price over the net tangible and identifiable intangible assets will be recorded as goodwill. The preliminary allocation of the purchase price was based upon a preliminary valuation undertaken by the Company and the Company's estimates and assumptions are subject to change during the measurement period as the Company finalizes the fair valuations of the net tangible assets, intangible assets, tax-related assets and liabilities, deferred revenue, and the resultant goodwill. In particular, the valuations of identifiable intangible and net tangible assets may change significantly from preliminary estimates. These changes, including those resulting from conforming A2iA’s accounting policies to those of Mitek, could differ materially from the pro forma adjustments presented herein and could result in material variances between the Company's future financial results and the amounts presented in the unaudited pro forma combined financial statements, including variances in fair values recorded, as well as expenses and cash flows associated with them. The Company expects to continue to obtain information to assist it in determining the fair value of the net assets acquired at the Acquisition date and during the measurement period.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the Acquisition (amounts shown in thousands):
Current assets
$
4,637

Property, plant, and equipment
307

Intangible assets
28,610

Goodwill
24,383

Other non-current assets
1,136

Current liabilities
(2,747
)
Deferred income tax liabilities
(7,491
)
Other non-current liabilities
(19
)
Net assets acquired
$
48,816


3. PRO FORMA ADJUSTMENTS
Combined Balance Sheet
The unaudited pro forma combined balance sheet reflects the following adjustments:
A.
To record the payment of Acquisition consideration as disclosed in Note 2.
B.
To record the preliminary purchase price allocation disclosed in Note 2.
C.
In connection with the Acquisition, A2iA repaid existing debt; reflects the repayment of outstanding debt with existing cash held by A2iA.
D.
To record the sale of investments to fund the Acquisition.
Combined Statements of Operations
The unaudited proforma combined statements of operations for the six months ended March 31, 2018 and the year ended September 30, 2018 reflect the following adjustments:
i.
To record the effect of the preliminary fair value adjustment to deferred revenues acquired. The fair value represents an amount equivalent to the estimated cost to perform the services related to open contracts based on deferred revenue balances of A2iA as of October 1, 2016. The calculation of fair value is preliminary and subject

6


to change. After the Acquisition, this adjustment will have a continuing impact and will reduce revenue related to the assumed performance obligations as the software maintenance services are provided over the next 18 months.
ii.
Reflects the adjustment of historical intangible assets acquired by the Company to their estimated fair values. As part of the preliminary valuation analysis, the Company identified intangible assets, including completed technologies, customer relationships, and trade names. The fair value of identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of all of the expected future cash flows. Since all information required to perform a detailed valuation analysis of A2iA intangible assets could not be obtained as of the date of this filing, for purposes of these unaudited pro forma combined financial statements, the Company used certain assumptions based on publicly available transaction data for the industry.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as a result of the Acquisition (amounts shown in thousands):
 
 
 
 
 
Amortization Expense
 
Estimated Fair Value
 
Estimated Useful Life
 
Six Months Ended
March 31, 2018
 
Year Ended
September 30, 2017
Completed technologies
$
13,015

 
7 years
 
$
930

 
$
1,859

Customer relationships
15,360

 
5 years
 
1,536

 
3,072

Trade names
235

 
5 years
 
24

 
47

Total
$
28,610

 
 
 
$
2,490

 
$
4,978

Historical amortization expense
 
 
 
 
32

 
65

Pro forma adjustments to amortization expense
 
$
2,458

 
$
4,913

iii.
To record the issuance of 2,514,588 shares of Common Stock as disclosed in Note 2. Represents the weighted average number of shares of Common Stock that would have been included in the calculation of basic and diluted net income (loss) per share if the Acquisition occurred on October 1, 2016.

7