As filed with the Securities and Exchange Commission on February 8, 2005
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Registration No. 333-119505
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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MITEK SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 3577 87-0418827
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(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
Incorporation or Organization) Classification Code Number)
Mitek Systems, Inc.
14145 Danielson Street
Suite B
Poway, CA 92064
(858) 513-4600
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(Address, including zip code, and telephone number, including area code, of
registrant's principal executive office and principal place of business)
Mr. James B. DeBello
Chief Executive Officer and
President
Mitek Systems, Inc.
14145 Danielson Street
Suite B
Poway, CA 92064
(858) 513-4600
------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
with a copy to:
P. Blake Allen, Esq.
Duane Morris LLP
101 West Broadway, Suite 900
San Diego, CA 92101
(619) 744-2200
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable following the effectiveness of this Registration
Statement.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [X]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check
the following box: [ ]
CALCULATION OF REGISTRATION FEE
AMOUNT OF
TITLE OF EACH CLASS OF SHARES TO BE PROPOSED MAXIMUM OFFERING PROPOSED MAXIMUM AGGREGATE AMOUNT OF REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED (1) PRICE PER SHARE (2) OFFERING PRICE (2) FEE (3)
- --------------------------- --------------- ------------------------- -------------------------- ----------------------
Common Stock 5,300,000 $.70 $3,853,200 $453.52
- ----------
(1) Represents the estimated maximum number of shares that the selling
shareholder may be entitled upon conversion of the $3,000,000 convertible
note issued by us to the selling shareholder on June 11, 2004. Amount also
includes 1,060,000 shares issuable upon the exercise of warrants granted
to the selling shareholder in connection with the convertible note. The
term note has an initial conversion price of $.70 per share, subject to
adjustment to the extent the price at which we issue shares of our common
stock is less than the then current conversion price of the convertible
note. Pursuant to Rule 416 of the Securities Act of 1933, this
registration statement also includes additional shares of common stock
issuable upon stock splits, stock dividends or similar transactions.
(2) Estimated pursuant to Rule 457 for the purpose of calculating the
registration fee.
(3) Previously paid.
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The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
The information in this prospectus is not complete and may be changed. The
selling security holders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the
offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED FEBRUARY 8, 2005
PROSPECTUS
MITEK SYSTEMS, INC.
5,300,000 shares of common stock
This prospectus relates to the resale of up to 5,300,000 shares of our
common stock, up to 4,240,000 of which are issuable upon the conversion of a
Secured Convertible Term Note dated June 11, 2004, and 1,060,000 of which are
issuable upon the exercise of related warrants.
The selling shareholders may sell all or a portion of their shares through
public or private transactions at prevailing market prices or at privately
negotiated prices.
We will not receive any part of the proceeds from sales of these shares by
the selling shareholders. However, to the extent the selling shareholders
exercise warrants for cash, we will receive proceeds from such exercise.
Our common stock is traded on the OTC Bulletin Board under the symbol
"MITK.OB" The last reported sale price of our common stock on February 4, 2005
on the OTC Bulletin Board was $.40 per share.
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INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 3 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this prospectus is February ___, 2005.
TABLE OF CONTENTS
PAGE
WHERE YOU CAN FIND MORE INFORMATION............................................1
INCORPORATION OF DOCUMENTS BY REFERENCE........................................1
PROSPECTUS SUMMARY.............................................................2
RISK FACTORS...................................................................3
USE OF PROCEEDS................................................................3
DESCRIPTION OF SECURITIES......................................................3
PLAN OF DISTRIBUTION...........................................................4
SELLING SHAREHOLDER............................................................6
DIVIDEND POLICY................................................................7
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS...............................17
COMPANY OVERVIEW..............................................................18
DISCLOSURE OF COMMISSION POSITION ON INDEMNIFICATION FOR
SECURITIES ACT LIABILITIES.................................................27
LEGAL MATTERS.................................................................28
EXPERTS.......................................................................28
INFORMATION WITH RESPECT TO THE REGISTRANT....................................28
ABOUT THIS PROSPECTUS.........................................................28
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT DIFFERS FROM
WHAT IS CONTAINED IN THIS PROSPECTUS. IF ANYONE MAKES A STATEMENT TO YOU THAT
DIFFERS FROM WHAT IS CONTAINED IN THIS PROSPECTUS, YOU SHOULD NOT RELY ON IT. WE
ARE NOT MAKING AN OFFER TO SELL, NOR ARE WE SEEKING AN OFFER TO BUY, THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. YOU SHOULD NOT
ASSUME THAT THE INFORMATION PROVIDED IN THIS PROSPECTUS IS ACCURATE AS OF ANY
DATE OTHER THAN THE DATE ON THE FRONT OF THIS PROSPECTUS.
---------------------------
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements and other
information with the SEC. You may read and copy any report, statement or other
information that we file with the SEC at the SEC Public Reference Room at 450
Fifth Street, N.W., Washington, D.C 20549. You may obtain further information on
the operation of the Public Reference room by calling the SEC at 1-800-SEC-0330.
These SEC filings are also available to the public at the SEC's Internet site at
http://www.sec.gov, as well as our Internet site at http://www.miteksys.com.
This prospectus is part of a registration statement that we filed with the
SEC. This prospectus and any accompanying prospectus supplement do not contain
all of the information included in the registration statement. We have omitted
certain parts of the registration statement in accordance with the rules and
regulations of the SEC. To obtain all of the information that we filed with the
SEC in connection herewith, we refer you to the registration statement,
including its exhibits and schedules.
Statements contained in this prospectus and any accompanying prospectus
supplement about the provisions or contents of any contract, agreement or any
other document referred to are not necessarily complete. For each of these
contracts, agreements or documents filed as an exhibit to the registration
statement, we refer you to the actual exhibit for a more complete description of
the matters involved. You should assume that the information contained in this
prospectus and any accompanying prospectus supplement is accurate only as of the
date appearing on the front of the prospectus or prospectus supplement,
respectively.
As a company listed on the OTC Bulletin Board, we are not required to
deliver an annual report to our shareholders. However, we intend to provide an
annual report to our shareholders containing audited financial statements in
connection with the annual meeting of shareholders that we intend to hold
following the completion of our fiscal year ended September 30, 2004.
INCORPORATION OF DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
them. This means that we can disclose information to you by referring you to
those documents. The documents that have been incorporated by reference are an
important part of the prospectus, and you should review that information in
order to understand the nature of any investment by you in the common stock.
Information contained in this prospectus automatically updates and supersedes
previously filed information. We are incorporating by reference the documents
listed below and all of our filings under the Securities Exchange Act of 1934,
as amended, after the date of filing the initial registration statement and
prior to the effectiveness of the registration statement.
o our Annual Report on Form 10-K for the fiscal year ended September 30,
2004; and
o our Current Reports on Form 8-K filed with the SEC on January 14, 2005 and
January 18, 2005.
1
If you would like a copy of any of these documents at no cost, please
write or call us at:
Mitek Systems, Inc.
14145 Danielson Street, Suite B
Poway, California 92064
Telephone: (858) 513-4600
You should only rely upon the information included in or incorporated by
reference into this prospectus or in any prospectus supplement that is delivered
to you. We have not authorized anyone to provide you with additional or
different information. You should not assume that the information included in or
incorporated by reference into this prospectus or any prospectus supplement is
accurate as of any date later than the date on the front of the prospectus or
prospectus supplement.
We have not authorized any person to provide you with information
different from that contained or incorporated by reference in this prospectus.
The selling shareholder are offering to sell, and seeking offers to buy, shares
of our common stock only in jurisdictions where offers and sales are permitted.
The information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of any
sale of common stock.
PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all of the information that you should
consider before investing in the common stock. You should read carefully the
entire prospectus, including "Risk Factors" and the financial statements and
notes thereto, before making an investment decision. Unless the context
otherwise requires, references herein to "Mitek," "we," "us," or "our," mean
Mitek Systems, Inc.
MITEK SYSTEMS, INC.
Mitek was incorporated under the laws of the State of Delaware in
1986. We are primarily engaged in the development and sale of software products
with particular focus on intelligent character recognition and forms processing
technology, products and services for the document imaging markets. We develop,
market and support what we believe to be the most accurate Automated Document
Recognition ("ADR") products commercially available for the recognition of hand
printed characters. Our unique proprietary technology recognizes hand printed
and machine generated characters with a level of accuracy that renders our ADR
products a viable alternative to manual data entry in certain applications. The
Mitek solution allows customers that process large volumes of hand printed and
machine generated documents to do so more quickly, with greater accuracy and at
reduced costs.
2
Our principal executive offices are located at 14145 Danielson Street,
Suite B, Poway, California and our telephone number is (858) 513-4600. We
maintain a web site at www.miteksys.com. Information contained on our web site
does not constitute part of this prospectus.
THE OFFERING
This prospectus covers the public sale of up to an aggregate of 5,300,000
shares of our common stock to be sold by the selling shareholder identified in
this prospectus. These shares consist of shares that are issuable upon
conversion of currently outstanding notes and shares that are issuable upon the
exercise of warrants. The selling shareholder acquired the notes and warrants in
private placement transactions. We will not receive any proceeds from the sale
of shares by the selling shareholder. However, to the extent the selling
shareholder exercises warrants for cash, we will receive proceeds of up to a
maximum of $885,200 from such exercise.
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the following risk factors in addition to other
information in this prospectus before purchasing our common stock. If any of
these or other risks actually occurs, our business may be adversely affected,
the trading price of our common stock may decline and you may lose all or part
of your investment.
RISKS ASSOCIATED WITH OUR BUSINESS
BECAUSE MOST OF OUR REVENUES ARE FROM A SINGLE TYPE OF TECHNOLOGY, OUR PRODUCT
CONCENTRATION MAY MAKE US ESPECIALLY VULNERABLE TO MARKET DEMAND AND COMPETITION
FROM OTHER TECHNOLOGIES, WHICH COULD REDUCE OUR SALES AND REVENUES AND CAUSE US
TO BE UNABLE TO CONTINUE OUR BUSINESS.
We currently derive substantially all of our product revenues from
licenses and sales of hardware and software products incorporating our character
recognition technology. As a result, factors adversely affecting the pricing of
or demand for our products and services, such as competition from other products
or technologies, any decline in the demand for automated entry of hand printed
characters, negative publicity or obsolescence of the hardware or software
environments in which our products operate could result in lower sales or gross
margins and would have a material adverse effect on our business, operating
results and financial condition.
COMPETITION IN OUR MARKET MAY RESULT IN PRICING PRESSURES, REDUCED MARGINS OR
THE INABILITY OF OUR PRODUCTS AND SERVICES TO ACHIEVE MARKET ACCEPTANCE.
We compete against numerous other companies which address the character
recognition market, many of which have greater financial, technical, marketing
and other resources. Other companies could choose to enter our marketplace. We
may be unable to compete successfully against our current and potential
competitors, which may result in price reductions, reduced margins and the
inability to achieve market acceptance for our products. Moreover, from time to
time, our competitors or we may announce new products or technologies that have
the potential to replace our existing product offerings. There can be no
assurance that the announcement of new product offerings will not cause
potential customers to defer purchases of our existing products, which could
adversely affect our business, operating results and financial condition.
3
WE MUST CONTINUE EXTENSIVE RESEARCH AND DEVELOPMENT IN ORDER TO REMAIN
COMPETITIVE. IF OUR PRODUCTS FAIL TO GAIN MARKET ACCEPTANCE, OUR BUSINESS,
OPERATING RESULTS AND FINANCIAL CONDITION WOULD BE MATERIALLY ADVERSELY AFFECTED
BY THE LOWER SALES.
Our ability to compete effectively with our character recognition product
line will depend upon our ability to meet changing market conditions and develop
enhancements to our products on a timely basis in order to maintain our
competitive advantage. Rapidly advancing technology and rapidly changing user
preferences characterize the markets for products incorporating character
recognition technology. Our continued growth will ultimately depend upon our
ability to develop additional technologies and attract strategic alliances for
related or separate product lines. There can be no assurance that we will be
successful in developing and marketing product enhancements and additional
technologies, that we will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of these
products, or that our new products and product enhancements will adequately meet
the requirements of the marketplace, will be of acceptable quality, or will
achieve market acceptance.
If our new products fail to gain market acceptance, our business,
operating results and financial condition would be materially adversely affected
by the lower sales. If we are unable, for technological or other reasons, to
develop and introduce products in a timely manner in response to changing market
conditions or customer requirements, our business, operating results and
financial condition may be materially and adversely affected by lower sales.
OUR QUARTERLY RESULTS HAVE FLUCTUATED GREATLY IN THE PAST AND WILL LIKELY
CONTINUE TO DO SO, WHICH MAY CAUSE SUBSTANTIAL FLUCTUATIONS IN OUR COMMON STOCK
PRICE.
Our quarterly operating results have in the past and may in the future
vary significantly depending on factors including the timing of customer
projects and purchase orders, new product announcements and releases by us and
other companies, gain or loss of significant customers, price discounting of our
products, the timing of expenditures, customer product delivery requirements,
availability and cost of components or labor and economic conditions generally
and in the information technology market specifically. Any unfavorable change in
these or other factors could have a material adverse effect on our operating
results for a particular quarter, which may cause downward pressure on our
common stock price. We expect quarterly fluctuations to continue for the
foreseeable future.
WE RECENTLY CLOSED ON $3.0 MILLION IN SENIOR SECURED CONVERTIBLE DEBT FINANCING.
OUR ABILITY TO MAKE REQUIRED PAYMENTS OF PRINCIPAL AND INTEREST ON THE DEBT
DEPENDS PRIMARILY ON CASH FLOW FROM OPERATIONS, WHICH MAY NOT BE SUFFICIENT TO
SERVICE THE DEBT.
We recently closed on a $3.0 million debt financing with Laurus Master
Funds Ltd., and issued a three year term note, with monthly payments of interest
only commencing July 1, 2004, and monthly principal payments commencing December
1, 2004. See "COMPANY OVERVIEW - Laurus Debt Investment" below. Based on current
interest rates, our monthly cash payments of principal and interest beginning
December 1, 2004 would be approximately $90,909.09. Our actual required cash
payments on the note will vary depending on interest rates and whether amounts
under the note are converted into our common stock.
4
Our ability to make scheduled monthly payments under the note primarily
depends on our future performance and working capital, including our ability to
increase revenues and cash flows. To a certain extent our ability to increase
revenues and control costs are subject to a number of economic, financial,
competitive, regulatory and other factors beyond our control. Based upon the
current level of operations and our business development efforts, we believe
that we should have adequate available cash and cash flows from operations to
meet our anticipated future requirements for working capital, capital
expenditures, and scheduled payments of principal and interest on our debt
through September 30, 2005.
However, if our cash flow is insufficient to enable us to service our
debt, we may be forced to find alternative sources of financing, or to take
further drastic measures, including significantly reducing operations, seeking
to sell Mitek, or pursuing a liquidation. Any future alternative sources of debt
or equity financing may not be available to us when needed or in amounts
required, and we currently do not have available to us a bank line of credit or
other general borrowing facility. Alternatively, we may be forced to attempt to
negotiate with our debt holders on our payment terms, which may not be
successful or may be on terms onerous to us.
WE GRANTED A BLANKET SECURITY INTEREST IN ALL OF OUR ASSETS TO THE HOLDERS OF
OUR SECURED DEBT. IF WE ARE UNABLE TO MAKE OUR REQUIRED MONTHLY PAYMENTS ON THE
DEBT, OR ANY OTHER EVENT OF DEFAULT OCCURS, IT COULD HAVE A MATERIAL ADVERSE
EFFECT ON OUR BUSINESS AND OPERATIONS, AND THE DEBT HOLDERS MAY FORECLOSE ON OUR
ASSETS.
As part of our recent debt financing with Laurus Master Fund, Ltd., we
granted to Laurus, a blanket security interest in all of our assets. See
"COMPANY OVERVIEW - Laurus Debt Investment" below. In the event we default in
payment on the debt, or any other event of default occurs under the investment
documents, 130% of the outstanding principal amount of the note and accrued
interest will accelerate and be due and payable in full. Events of default
include the following:
o a failure to pay interest or principal payments under the note
within three days of when due;
o a breach by us of any material covenant or term or condition of the
note or in any of the investment agreements, if not cured within 15
days of such breach;
o a breach by us of any material representation or warranty made in
the note or in any of the investment agreements;
o if we make an assignment for the benefit of our creditors, or a
receiver or trustee is appointed for us, or any form of bankruptcy
or insolvency proceeding is instituted by us, or any involuntary
proceeding is instituted against us;
o the filing of any money judgment or similar final process against us
for more than $50,000, which remains unvacated, unbonded or unstayed
for a period of 30 days;
5
o if our common stock is suspended for 5 consecutive days or for 5
days during any 10 consecutive days from a principal market or
pursuant to an SEC stop order; and
o a failure by us to timely deliver shares of common stock when due
upon conversions of the note.
The cash required to pay such accelerated amounts on the note following an
event of default would most likely come out of our working capital. As we rely
on our working capital for our day to day operations, such a default could have
a material adverse effect on our business, operating results, or financial
condition to such extent that we are forced to restructure, file for bankruptcy,
sell assets or cease operations. In addition, upon an event of default, the
holders of the secured debt could foreclose on our assets or exercise any other
remedies available to them. If our assets were foreclosed upon, we were forced
to file for bankruptcy or cease operations, stockholders may not receive any
proceeds from disposition of our assets and may lose their entire investment in
our stock.
WE HAVE NOT COMPLIED WITH OUR SECURITIES REGISTRATION OBLIGATIONS IN CONNECTION
WITH OUR ISSUANCE OF SENIOR SECURED DEBT AND WE FACE SUBSTANTIAL AND CONTINUING
PENALTIES IF WE DO NOT TIMELY REGISTER AND MAINTAIN REGISTRATION OF COMMON STOCK
ISSUABLE TO THE HOLDERS OF OUR SECURED DEBT UPON CONVERSION OF SUCH DEBT INTO
COMMON STOCK. PAYMENT OF THESE PENALTIES COULD HAVE A MATERIAL ADVERSE EFFECT ON
OUR BUSINESS AND OPERATIONS AND IF WE ARE UNABLE TO MAKE PAYMENTS, AS AND IF
REQUIRED, THE DEBT HOLDERS MAY FORECLOSE ON OUR ASSETS.
As part of our recent debt financing with Laurus Master Fund, Ltd., we entered
into a registration rights agreement with Laurus, under which we were obligated
to register the common stock into which the debt is convertible. Under the
registration rights agreement, as amended, the registration was required to be
effective by December 31, 2004. We are obligated to pay the holder of our debt
liquidated damages of two percent, or $60,000 as of December 31, 2004 and for
each subsequent thirty day period which elapses without registration becoming
effective. Payment of these penalties could have a material adverse effect upon
our results of operations and financial condition.
WE HAVE THE RIGHT AT ANY TIME TO PREPAY OUR SECURED DEBT OBLIGATION ONLY UPON
PAYMENT OF 120% OF THE THEN CURRENT PRINCIPAL BALANCE, PLUS ALL OTHER AMOUNTS
OWING UNDER THE NOTE. AS SUCH, ANY PREPAYMENT WOULD REQUIRE A SIGNIFICANT AMOUNT
OF CASH AND MAY LIMIT OUR ABILITY TO PREPAY, EVEN IF WE WANTED TO.
We have the right at any time to prepay our secured debt obligation only
upon payment of 120% of the then principal balance, plus all other amounts owing
under the note. See "COMPANY OVERVIEW - Laurus Debt Investment" below. Based on
a principal balance of $3.0 million, a prepayment would require a cash payment
of $3.6 million. As we make principal payments over time on the secured debt,
the prepayment amount would also decrease. As of September 30, 2004, we had $2.7
million in cash and cash equivalents, and $3.5 million in current assets.
Accordingly, if at any time during the term of the note we desire to prepay the
debt, we may not be able to, unless we were able to obtain additional available
cash, which we may not be able to do. This could impact our ability to enter
into any potential significant transaction in which we would need to have the
debt paid off and security interests released (such as a merger, sale of
substantially all our assets, joint venture, or similar transaction).
6
WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO FUND CONTINUING OPERATIONS. IF OUR
FINANCING EFFORTS ARE NOT SUCCESSFUL, WE WILL NEED TO EXPLORE ALTERNATIVES TO
CONTINUE OPERATIONS, WHICH MAY INCLUDE A MERGER, ASSET SALE, JOINT VENTURE,
LOANS OR FURTHER EXPENSE REDUCTIONS. IF THESE MEASURES ARE NOT SUCCESSFUL, WE
MAY BE UNABLE TO CONTINUE OUR OPERATIONS.
Our efforts to reduce expenses and generate revenue may not be successful.
Although we recently raised $3.0 million in gross proceeds from our June secured
debt financing and approximately $1.4 million in gross proceeds from our July
sale of certain assets and granting of exclusive distribution and licensing
rights related to our CheckQuest(R) item processing and CaptureQuest(R)
electronic document management solutions to Harland Financial Solutions, Inc.,
if our revenues do not increase we expect to need to raise additional capital
through equity or debt financing or through the establishment of other funding
facilities in order to keep funding operations.
However, raising capital has been, and will continue to be difficult, and
we may not receive sufficient funding. Any future financing that we seek may not
be available in amounts or at times when needed, or, even if it is available,
may not be on terms acceptable to us. Also, if we raise additional funds by
selling equity or equity-based securities, the percentage ownership of our
existing stockholders will be reduced and such equity securities may have
rights, preferences or privileges senior to those of the holders of our common
stock.
If we are unable to obtain sufficient cash either to continue to fund
operations or to locate a strategic alternative, we may be forced to seek
protection from creditors under the bankruptcy laws or cease operations. Any
inability to obtain additional cash as needed could have a material adverse
effect on our financial position, results of operations and ability to continue
in existence.
OUR HISTORICAL ORDER FLOW PATTERNS, WHICH WE EXPECT TO CONTINUE, HAVE CAUSED
FORECASTING DIFFICULTIES FOR US. IF WE DO NOT MEET OUR FORECASTS OR ANALYSTS'
FORECASTS FOR US, THE PRICE OF OUR COMMON STOCK MAY GO DOWN.
Historically, a significant portion of our sales have resulted from
shipments during the last few weeks of the quarter from orders received in the
last month of the applicable quarter. We do, however, base our expense levels,
in significant part, on our expectations of future revenue. As a result, we
expect our expense levels to be relatively fixed in the short term. Any
concentration of sales at the end of the quarter may limit our ability to plan
or adjust operating expenses. Therefore, if anticipated shipments in any quarter
do not occur or are delayed, expenditure levels could be disproportionately high
as a percentage of sales, and our operating results for that quarter would be
adversely affected. As a result, we believe that period-to-period comparisons of
our results of operations are not and will not necessarily be meaningful, and
you should not rely upon them as an indication of future performance. If our
operating results for a quarter are below the expectations of public market
analysts and investors, the price of our common stock may be materially
adversely affected.
7
REVENUE RECOGNITION ACCOUNTING STANDARDS AND INTERPRETATIONS MAY CHANGE, CAUSING
US TO RECOGNIZE LOWER REVENUES.
In October 1997, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position (SOP) No. 97-2, Software Revenue
Recognition. We adopted SOP 97-2, as amended by SOP 98-4 Deferral of the
Effective Date of a Provision of SOP 97-2 as of July 1, 1998. In December 1998,
the AICPA issued SOP 98-9, Modification of SOP 97-2, Software Revenue
Recognition, With Respect to Certain Transactions. We adopted SOP 98-9 on
January 1, 2000. These standards address software revenue recognition matters
primarily from a conceptual level and do not include specific implementation
guidance. We believe that we are currently in compliance with SOP 97-2 and SOP
98-9. In addition, in December 1999, the Securities and Exchange Commission
(SEC) staff issued Staff Accounting Bulletin No. 101, Revenue Recognition in
Financial Statements (SAB 101), which provides further guidance with regard to
revenue recognition, presentation and disclosure. We adopted SAB 101 during the
fourth quarter of fiscal 2000.
The accounting profession and the SEC continue to discuss certain
provisions of SOP 97-2, SAB 101 and other revenue recognition standards and
related interpretations with the objective of providing additional guidance on
potential application of the standards and interpretations. These discussions
could lead to unanticipated changes in revenue recognition standards and, as a
result, in our current revenue accounting practices, which could cause us to
recognize lower revenues and lead to a decrease in our stock price.
IF OUR PRODUCTS HAVE PRODUCT DEFECTS, IT COULD DAMAGE OUR REPUTATION, SALES,
PROFITABILITY AND RESULT IN OTHER COSTS, ANY OF WHICH COULD ADVERSELY AFFECT OUR
OPERATING RESULTS WHICH COULD CAUSE OUR COMMON STOCK PRICE TO GO DOWN.
Our products are extremely complex and are constantly being modified and
improved, and as such they may contain undetected defects or errors when first
introduced or as new versions are released. As a result, we have in the past and
could in the future face loss or delay in recognition of revenues as a result of
software errors or defects. In addition, our products are typically intended for
use in applications that are critical to a customer's business. As a result, we
believe that our customers and potential customers have a greater sensitivity to
product defects than the market for software products generally.
There can be no assurance that, despite our testing, errors will not be
found in new products or releases after commencement of commercial shipments,
resulting in loss of revenues or delay in market acceptance, diversion of
development resources, damage to our reputation, adverse litigation, or
increased service and warranty costs, any of which would have a material adverse
effect upon our business, operating results and financial condition.
8
OUR SUCCESS AND OUR ABILITY TO COMPETE ARE DEPENDENT, IN PART, UPON PROTECTION
OF OUR PROPRIETARY TECHNOLOGY. IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY
TECHNOLOGY, OUR REVENUES AND OPERATING RESULTS WOULD BE MATERIALLY ADVERSELY
AFFECTED.
We generally rely on trademark, trade secret, copyright and patent law to
protect our intellectual property. We may also rely on creative skills of our
personnel, new product developments, frequent product enhancements and reliable
product maintenance as means of protecting our proprietary technologies. There
can be no assurance, however, that such means will be successful in protecting
our intellectual property. There can be no assurance that others will not
develop technologies that are similar or superior to our technology.
The source code for our proprietary software is protected both as a trade
secret and as a copyrighted work. Despite these precautions, it may be possible
for a third party to copy or otherwise obtain and use our products or technology
without authorization, or to develop similar technology independently.
WE MAY HAVE DIFFICULTY PROTECTING OUR PROPRIETARY TECHNOLOGY IN COUNTRIES OTHER
THAN THE UNITED STATES. IF WE ARE UNABLE TO PROTECT OUR PROPRIETARY TECHNOLOGY,
OUR REVENUES AND OPERATING RESULTS WOULD BE MATERIALLY ADVERSELY AFFECTED.
We operate in a number of countries other than the United States.
Effective copyright and trade secret protection may be unavailable or limited in
certain countries. Moreover, there can be no assurance that the protection
provided to our proprietary technology by the laws and courts of foreign nations
against piracy and infringement will be substantially similar to the remedies
available under United States law. Any of the foregoing considerations could
result in a loss or diminution in value of our intellectual property, which
could have a material adverse effect on our business, financial condition, and
results of operations.
COMPANIES MAY CLAIM THAT WE INFRINGE THEIR INTELLECTUAL PROPERTY OR PROPRIETARY
RIGHTS, WHICH COULD CAUSE US TO INCUR SIGNIFICANT EXPENSES OR PREVENT US FROM
SELLING OUR PRODUCTS.
We have in the past had companies claim that certain technologies
incorporated in our products infringe their patent rights. Although we have
resolved the past claims and there are currently no claims of infringement
pending against us, there can be no assurance that we will not receive notices
in the future from parties asserting that our products infringe, or may
infringe, those parties' intellectual property rights. There can be no assurance
that licenses to disputed technology or intellectual property rights would be
available on reasonable commercial terms, if at all.
Furthermore, we may initiate claims or litigation against parties for
infringement of our proprietary rights or to establish the validity of our
proprietary rights. Litigation, either as plaintiff or defendant, could result
in significant expense to us and divert the efforts of our technical and
management personnel from operations, whether or not such litigation is resolved
in our favor. In the event of an adverse ruling in any such litigation, we might
be required to pay substantial damages, discontinue the use and sale of
infringing products, expend significant resources to develop non-infringing
technology or obtain licenses to infringing technology. In the event of a
successful claim against us and our failure to develop or license a substitute
technology, our business, financial condition and results of operations would be
materially and adversely affected.
9
WE DEPEND UPON OUR KEY PERSONNEL.
Our future success depends in large part on the continued service of our
key technical and management personnel. We do not have employment contracts
with, or "key person" life insurance policies on, any of our employees,
including James B. DeBello, our President and Chief Executive Officer, or John
M. Thornton, our Chairman of the Board and Chief Financial Officer. Loss of
services of key employees could have a material adverse effect on our operations
and financial condition. We are also dependent on our ability to identify, hire,
train, retain and motivate high quality personnel, especially highly skilled
engineers involved in the ongoing developments required to refine our
technologies and to introduce future applications. The high technology industry
is characterized by a high level of employee mobility and aggressive recruiting
of skilled personnel.
We cannot assure you that we will be successful in attracting,
assimilating and retaining additional qualified personnel in the future. If we
were to lose the services of one or more of our key personnel, or if we failed
to attract and retain additional qualified personnel, it could materially and
adversely affect our customer relationships, competitive position and revenues.
WE DO NOT HAVE A CURRENT CREDIT FACILITY.
While we believe that our current cash on hand and cash generated from
operations, is sufficient to finance our operations for the next twelve months,
we can make no assurance that we will not need additional financing during the
next twelve months or beyond. Actual sales, expenses, market conditions or other
factors which could have a material affect upon us could require us to obtain
additional financing. If such financing is not available, or if available, is
not available on reasonable terms, it could have a material adverse effect upon
our results of operations and financial condition.
THE LIABILITY OF OUR OFFICERS AND DIRECTORS IS LIMITED PURSUANT TO DELAWARE LAW.
Pursuant to our Certificate of Incorporation, and as authorized under
applicable Delaware Law, our directors and officers are not liable for monetary
damages for breach of fiduciary duty, except for liability (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit.
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RISKS RELATED TO OUR STOCK
A FEW OF OUR STOCKHOLDERS HAVE SIGNIFICANT CONTROL OVER OUR VOTING STOCK WHICH
MAY MAKE IT DIFFICULT TO COMPLETE SOME CORPORATE TRANSACTIONS WITHOUT THEIR
SUPPORT AND MAY PREVENT A CHANGE IN CONTROL.
As of September 30, 2004, John M. Thornton, who is our Chairman of the
Board and Chief Financial Officer and his spouse, Director Sally B. Thornton,
beneficially owned 2,699,959 shares of common stock or approximately 23.86% of
our outstanding common stock. Our directors and executive officers as a whole,
own approximately 30% of our outstanding common stock. Laurus Master Funds Ltd.
may acquire up to 5,145,714 shares of common stock in the aggregate, which would
amount to approximately 31% of our outstanding common stock, assuming Laurus
converts its promissory note in the original principal amount of $3,000,000,
into approximately 4,285,714 shares of common stock, and assuming it exercises a
warrant for 1,060,000 shares of common stock. Because the Laurus promissory note
is subject to anti-dilution provisions and accrues interest which may be
converted into common stock, Laurus could acquire an even greater number of
shares of common stock than described.
The above-described significant stockholders may effectively control the
outcome of all matters submitted to our stockholders for approval, including the
election of directors. In addition, this ownership could discourage the
acquisition of our common stock by potential investors and could have an
anti-takeover effect, possibly depressing the trading price of our common stock.
OUR COMMON STOCK IS LISTED ON THE OVER-THE-COUNTER BULLETIN BOARD.
Our common stock is currently listed on the Over-The-Counter Bulletin
Board (the "OTCBB"). If our common stock became ineligible to be listed on the
OTCBB, it would likely continue to be listed on the "pink sheets." Securities
traded on the OTCBB or the "pink sheets" are subject to certain securities
regulations. These regulations may limit, in certain circumstances, certain
trading activities in our common stock, which could reduce the volume of trading
in our common stock or the market price of our common stock. The OTC market and
the "pink sheets" also typically exhibit extreme price and volume fluctuations.
These broad market factors may materially adversely affect the market price of
our common stock, regardless of our actual operating performance. In the past,
individual companies whose securities have exhibited periods of volatility in
their market price have had securities class action litigation instituted
against that company. This type of litigation, if instituted, could result in
substantial costs and a diversion of management's attention and resources.
AS WE ISSUE ADDITIONAL EQUITY SECURITIES IN THE FUTURE, INCLUDING UPON
CONVERSION OF ANY OF OUR SECURED CONVERTIBLE DEBT, YOUR SHARE OWNERSHIP WILL BE
DILUTED. IN PARTICULAR, THE SECURED CONVERTIBLE DEBT HAS A FULL RATCHET
ANTI-DILUTION PROVISION THAT COULD SIGNIFICANTLY DILUTE OUR STOCKHOLDERS.
In connection with our recent debt financing, we issued a $3.0 million
convertible note and warrants to Laurus. See "COMPANY OVERVIEW -- Laurus Debt
Investment" below. The note is convertible into shares of our common stock at an
initial conversion price of $.70 per share. At this initial conversion rate, for
example, we would issue 4,285,714 shares upon conversion of $3.0 million owing
under the note. The actual number of shares to be issued will depend on the
actual dollar amount of principal and interest being converted. In addition, the
note carries a full ratchet anti-dilution provision, such that if we issue in
the future convertible or equity securities (subject to certain exceptions,
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including stock option grants) at a price less than the initial $.70 conversion
price, the note conversion price will be automatically adjusted down to that
lesser price. For example, if we had a non-exempted issuance at $0.50 per share,
the note conversion price would become $0.50, and upon an assumed conversion of
$3.0 million, we would have to issue 6,000,000 shares. In addition to the
conversion rights of the convertible debt, as we issue stock or convertible
securities in the future, including for any future equity financing or upon
exercise of any of the outstanding stock purchase warrants and stock options,
those issuances would also dilute our stockholders. If any of these additional
shares are issued and are sold into the market, it could decrease the market
price of our common stock and could also encourage short sales. Short sales and
other hedging transactions could place further downward pressure on the price of
our common stock.
WE MAY ISSUE PREFERRED STOCK, WHICH COULD ADVERSELY AFFECT THE RIGHTS OF COMMON
STOCK HOLDERS.
The Board of Directors is authorized to issue up to 1,000,000 shares of
preferred stock and to determine the price, rights, preferences, privileges and
restrictions, including voting rights, of those shares without any further vote
or action by the stockholders. The rights of the holders of common stock will be
subject to, and may be adversely affected by, the rights of the holders of any
preferred stock that may be issued in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of our outstanding voting
stock. We have no current plans to issue shares of preferred stock. In addition,
Section 203 of the Delaware General Corporation Law restricts certain business
combinations with any "interested stockholder" as defined by such statute. The
statute may have the effect of delaying, deferring or preventing a change in our
control.
OUR COMMON STOCK PRICE HAS BEEN VOLATILE. YOU MAY NOT BE ABLE TO SELL YOUR
SHARES OF OUR COMMON STOCK FOR AN AMOUNT EQUAL TO OR GREATER THAN THE PRICE AT
WHICH YOU ACQUIRE YOUR SHARES OF COMMON STOCK.
The market price of our common stock has been, and is likely to continue
to be, highly volatile. Future announcements concerning us or our competitors,
quarterly variations in operating results, announcements of technological
innovations, the introduction of new products or changes in the product pricing
policies of Mitek or its competitors, claims of infringement of proprietary
rights or other litigation, changes in earnings estimates by analysts or other
factors could cause the market price of our common stock to fluctuate
substantially. In addition, the stock market has from time-to-time experienced
significant price and volume fluctuations that have particularly affected the
market prices for the common stocks of technology companies and that have often
been unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the market price of our common stock.
During the fiscal year ended September 30, 2004, our common stock price ranged
from $.40 to $3.32.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE.
The sale of a large number of shares of our common stock in the market
after this offering, or the belief that such sales could occur, could cause a
drop in the market price of our common stock. The shares registered in this
offering will be freely tradable without restriction or further registration
under the Securities Act, unless the shares are purchased by our affiliates.
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APPLICABLE SEC RULES GOVERNING THE TRADING OF "PENNY STOCKS" LIMIT THE TRADING
AND LIQUIDITY OF OUR COMMON STOCK WHICH MAY ADVERSELY AFFECT THE TRADING PRICE
OF OUR COMMON STOCK.
Our common stock currently trades on the OTC Bulletin Board. Since our
common stock continues to trade below $5.00 per share, our common stock is
considered a "penny stock" and is subject to SEC rules and regulations that
impose limitations upon the manner in which our shares can be publicly traded.
These regulations require the delivery, prior to any transaction involving a
penny stock, of a disclosure document explaining the penny stock market and the
associated risks. Under these regulations, brokers who recommend penny stocks to
persons other than established customers or certain accredited investors must
make a special written suitability determination for the purchaser and receive
the purchaser's written agreement to a transaction prior to sale. These
regulations have the effect of limiting the trading activity of our common stock
and reducing the liquidity of an investment in our common stock.
WE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We have never declared or paid a dividend on our common stock. We intend
to retain earnings, if any, for use in the operation and expansion of our
business and, therefore, do not anticipate paying any dividends in the
foreseeable future.
USE OF PROCEEDS
We will not receive any proceeds from the sale of common stock by the
selling shareholders. However, to the extent that the selling security holders
exercise their stock purchase warrants for cash for up to 1,060,000 shares
included in this prospectus, we would receive proceeds of up to $885,200, which
we anticipate would be used for general working capital.
DESCRIPTION OF SECURITIES
COMMON STOCK
We are authorized to issue 20,000,000 shares of common stock, $.001
par value per share, of which 11,389,481 are currently outstanding. Holders of
our common stock have equal rights to receive dividends when, as and if declared
by our Board of Directors, out of funds legally available therefor. Holders of
our common stock are entitled to one vote per share and do not have cumulative
voting rights. In the event of our liquidation, holders of our common stock are
entitled to share ratably in the net assets available for distribution to
stockholders, subject to the rights, if any, of holders of any preferred stock
then outstanding. Shares of common stock are not redeemable and have no
preemptive or similar rights. All outstanding shares of common stock are fully
paid and nonassessable.
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PREFERRED STOCK
Within the limits and restrictions provided in our Articles of
Incorporation, our Board of Directors has the authority, without further action
by our shareholders, to issue up to 1,000,000 shares of preferred stock, $.001
par value per share, in one or more series, and to fix, as to any such series,
any dividend rate, redemption price, preference on liquidation or dissolution,
sinking fund terms, conversion rights, voting rights, and any other preference
or special rights and qualifications. Of such shares, we have issued no shares.
ANTI-TAKEOVER PROVISIONS OF OUR ARTICLES OF INCORPORATION
Blank Check Preferred Stock. As described above, our Board of Directors is
authorized without further stockholder action, to designate any number of series
of preferred stock with such rights, preferences and designations as determined
by our board. Shares of preferred stock issued by our Board of Directors could
be utilized, under certain circumstances, to make an attempt to gain control of
us more difficult or time consuming. For example, shares of preferred stock
could be issued with certain rights that might have the effect of diluting the
percentage of common stock owned by a significant stockholder or issued to
purchasers who might side with management in opposing a takeover bid that our
Board of Directors determines is not in the best interest of us and our
stockholders. The existence of the preferred stock may, therefore, be viewed as
having possible anti-takeover effects.
PLAN OF DISTRIBUTION
We are registering all of the shares of common stock offered by this
prospectus on behalf of the selling shareholder. The selling shareholders may
sell any or all of the shares, subject to federal and state securities law, but
are under no obligation to do so. The selling shareholders will act
independently of us in making decisions with respect to the timing, manner and
size of each sale of the common stock covered hereby.
The selling security holders have not advised us of any specific plan for
distribution of the shares offered hereby, but it is anticipated that the shares
will be sold from time to time by the selling security holders or by pledgees,
donees, transferees or other successors in interest on a best efforts basis
without an underwriter. Such sales may be made on the OTC Bulletin Board or any
national securities exchange upon which our shares may trade in the future,
over-the-counter, or otherwise, at prices and at terms then prevailing or at
prices related to the then current market price, or in negotiated transactions.
The shares may be sold by one or more of the following, without limitation:
o a block trade in which the broker or dealer so engaged will attempt
to sell the shares as agent but may position and resell a portion of
the block as principal to facilitate the transaction;
o purchases by a broker or dealer for its account pursuant to this
prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchases;
o through options, swaps or derivatives;
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o in privately negotiated transactions;
o in transactions to cover short sales;
o through a combination of any such methods of sale;
o in accordance with Rule 144 under the Securities Act, rather than
pursuant to this prospectus; or
o any other matter provided by law.
Each of the selling security holders may sell its shares directly to
purchasers or may use brokers, dealers, underwriters or agents to sell its
shares. Brokers or dealers engaged by the selling security holder may arrange
for other brokers or dealers to participate. Brokers or dealers may receive
commissions, discounts or concessions from a selling security holder, or, if any
such broker-dealer acts as agent for the purchaser of shares, from the purchaser
in amounts to be negotiated immediately prior to the sale. The compensation
received by brokers or dealers may, but is not expected to, exceed that which is
customary for the types of transactions involved. Broker-dealers may agree with
a selling security holder to sell a specified number of shares at a stipulated
price per share, and, to the extent the broker-dealer is unable to do so acting
as agent for a selling security holder, to purchase as principal any unsold
shares at the price required to fulfill the broker-dealer commitment to a
selling security holder. Broker-dealers who acquire shares as principal may
thereafter resell the shares from time to time in transactions, which may
involve block transactions and sales to and through other broker-dealers,
including transactions of the nature described above, in the over-the counter
market or otherwise at prices and on terms then prevailing at the time of sale,
at prices then related to the then-current market price or in negotiated
transactions. In connection with resales of the shares, broker-dealers may pay
to or receive from the purchasers of shares commissions as described above.
Each selling security holder and any broker-dealers or agents that
participate with a selling security holder in the sale of the shares may be
deemed to be an "underwriter" within the meaning of the Securities Act. In that
event, any commissions received by broker-dealers or agents and any profit on
the resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
From time to time the selling security holders may engage in short sales,
short sales against the box, puts and calls and other hedging transactions in
our securities, and may sell and deliver the shares in connection with such
transactions or in settlement of securities loans. These transactions may be
entered into with broker-dealers or other financial institutions. In addition,
from time to time, a selling security holder may pledge its shares pursuant to
the margin provisions of its customer agreements with its broker-dealer. Upon
delivery of the shares or a default by a selling security holder, the
broker-dealer or financial institution may offer and sell the pledged shares
from time to time.
15
The selling shareholders and any other person participating in the
distribution of the shares of our common stock being offered hereby will be
subject to applicable provisions of the Exchange Act, and the rules and
regulations promulgated thereunder, including, without limitation, Regulation M.
This may limit the timing of purchases and sales of any of the shares of our
common stock by the selling shareholders. Regulation M may also restrict the
ability of any person engaged in the distribution of the shares of our common
stock to engage in market-making activities with respect to the shares of our
common stock being distributed for a period of 5 business days before the
distribution. These restrictions may affect the marketability of the shares of
our common stock and the ability of any person to engage in market-making
activities with respect to such shares.
We have agreed to indemnify certain of the selling shareholders against
liabilities, including certain liabilities under the Securities Act, pursuant to
the terms of the agreements by which the selling securities holders purchased
their shares of our common stock being registered hereby. We may be indemnified
by certain of the selling shareholders against civil liabilities, including
liabilities under the Securities Act, that may arise from any written
information furnished by such selling shareholders specifically for use in this
prospectus, pursuant to the terms of the agreements by which the selling
securities holders purchased their shares of our common stock being registered
hereby.
We will not receive any proceeds from the sale of the shares of our common
stock registered hereby. We will pay all expenses incurred in connection with
this registration of the shares of our common stock under the Securities Act,
including registration and filing fees, fees an expenses of compliance with
securities or blue sky laws, listing fees, printing and engraving expenses,
messenger and delivery expenses, and fees and disbursements of our counsel,
accountants and other persons retained by us, but excluding commissions and
discounts incurred by the selling shareholders in connection with the resale of
such shares.
We cannot assure you that the selling shareholders will sell all or any
portion of the securities offered hereby.
SELLING SHAREHOLDER
The selling shareholder identified in the following table is offering for
sale up to 5,300,000 shares of our common stock.
The following table sets forth as of December 31, 2004 with respect to the
selling shareholder:
o the names of such selling shareholder and any material relationship
between us and such selling shareholder, based upon information
currently available to us;
o the number of shares held of record or beneficially and the
percentage ownership prior to the offering;
o the number of shares offered hereunder; and
o the number of shares held of record or beneficially and the
percentage ownership after the offering.
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The information presented in this table has been calculated based on the
assumption that all shares offered hereby are sold and that no other shares of
our common stock are acquired or disposed of by the selling shareholder prior to
the termination of this offering. The beneficial owners set forth below have
been determined in accordance with Rule 13d-3 under the Securities Exchange Act.
Except as indicated by footnote, and subject to applicable community property
laws, we believe that the beneficial owners of the common stock listed below
have sole voting power and investments power with respect to their shares.
BENEFICIAL OWNERSHIP OF BENEFICIAL OWNERSHIP OF
SELLING SHAREHOLDERS PRIOR TO THE SELLING SHAREHOLDERS
OFFERING (2) AFTER THE OFFERING
----------------------------------- ------------------------------------
NUMBER OF SHARES
NAME OF SELLING SHAREHOLDER NUMBER PERCENT OFFERED HEREBY NUMBER PERCENT
- --------------------------- --------------- ------------ ----------------- ----------------- --------------
Laurus Master Fund, Ltd. 5,300,000 (1) 31.8% 5,300,000 0 -
- ----------
(1) The number and percentage of shares beneficially owned is determined in
accordance with Rule 13d-3 of the Securities Exchange Act of 1934, as
amended, and the information is not necessarily indicative of beneficial
ownership for any other purpose. Under such rule, beneficial ownership
includes any shares as to which the selling shareholder has sole or shared
voting power or investment power and also any shares that the selling
shareholder has the right to acquire within 60 days.
(2) Laurus Capital Management, LLC is the investment manager for Laurus Master
Fund, Ltd. The directors of Laurus Capital Management, LLC are David and
Eugene Grin. By virtue of their position as directors of Laurus Capital
Management, LLC, Messrs. Grin share voting and dispositive power over
these securities.
DIVIDEND POLICY
We have not paid any cash dividends to date, and have no intention of
paying any cash dividends on our common stock in the foreseeable future.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
In addition to historical information, this prospectus contains
"forward-looking statements" within the meaning of Section 27A of the Securities
Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the
Exchange Act. As contained herein, the words "expects," "anticipates,"
"believes," "intends," "will," and similar types of expressions identify
forward-looking statements, which are based on information that is currently
available to us, speak only as of the date hereof, and are subject to certain
risks and uncertainties.
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To the extent that the Prospectus contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect regarding Mitek, please be advised that our actual financial
condition, operating results and business performance may differ materially from
that projected or estimated by us in forward-looking statements. We have
attempted to identify, in context, certain of the factors that we currently
believe may cause actual future experiences and results to differ from our
current expectations. The difference may be caused by a variety of factors,
including, but not limited to, adverse economic conditions, general decreases in
demand for our products and services, intense competition, including entry of
new competitors, increased or adverse federal, state and local government
regulation, inadequate capital, unexpected costs, lower revenues and net income
than forecast, price increases for supplies, inability to raise prices, the risk
of litigation and administrative proceedings involving Mitek and our employees,
higher than anticipated labor costs, the possible fluctuation and volatility of
our operating results and financial condition, adverse publicity and news
coverage, inability to carry out marketing and sales plans, loss of key
executives, changes in interest rates, inflationary factors, and other specific
risks that may be alluded to in this Prospectus. Except as required by law, we
assume no duty to update or revise our forward-looking statements based on
changes in internal estimates or expectations or otherwise.
COMPANY OVERVIEW
GENERAL
We were incorporated under the laws of the State of Delaware in 1986. We
are primarily engaged in the development and sale of software products with
particular focus on intelligent character recognition and forms processing
technology, products and services for the document imaging markets.
We develop, market and support what we believe to be the most accurate
Automated Document Recognition ("ADR") products commercially available for the
recognition of hand printed characters. Our unique proprietary technology
recognizes hand printed and machine generated characters with a level of
accuracy that renders our ADR products a viable alternative to manual data entry
in certain applications. The Mitek solution allows customers that process large
volumes of hand printed and machine generated documents to do so more quickly,
with greater accuracy and at reduced costs.
PRODUCTS AND RELATED MARKETS
During fiscal 2003 and fiscal 2004, we had one operating segment based on
our product and service offerings: Automated Document Processing.
AUTOMATED DOCUMENT PROCESSING
Since 1992 we have developed and marketed ADR products, which enable the
automation of costly, labor intensive business functions such as check and
remittance processing, forms processing and order entry. Our ADR products
incorporate proprietary neural network software technology for the recognition
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and conversion of hand printed and machine generated characters into digital
data. Neural networks are powerful tools for pattern recognition applications
and consist of sets of coupled mathematical equations with adaptive parameters
that self adjust to "learn" various forms and patterns. Our ADR products combine
our neural network software technology with an extensive database of character
patterns, enabling the products to make fine distinctions across a wide variety
of patterns with high speed, accuracy and consistency. We leverage our core
technology across a family of ADR products that we believe offers the highest
accuracy commercially available for the recognition of hand printed characters
and the automated processing of documents. Our family of ADR products is made up
of the three distinct product lines: Recognition Toolkits, Document and Image
Processing Solutions and Check Imaging Solutions.
Recognition Toolkits. Our ADR products incorporate our proprietary
intelligent character recognition (ICR) software engine QuickStrokes(R) API
(Application Programmers Interface), and a licensed ICR software engine
CheckScript((TM)) (a trademark of Parascript LLC). QuickStrokes(R) API and
CheckScript((TM)) are sold to original equipment manufacturers (OEMs) such as
BancTec, Unisys, and J&B Software, and to systems integrators such as Computer
Sciences Corporation. We estimate that one-third of all checks processed in the
U.S. use Mitek's software.
The CheckScript((TM)) product, used in financial document processing,
combines the Legal Amount Recognition (LAR) capabilities licensed from
Parascript, LLC with our proprietary QuickStrokes(R) API Courtesy Amount
Recognition (CAR) technology. This product provides a high level of accuracy in
remittance processing, proof of deposit, and lock box processing applications.
QuickFX(R) Pro is a software toolkit that provides automatic form ID, form
registration and form/template removal. We believe it will significantly improve
automatic data capture (ICR/OCR), forms processing, document imaging and storage
performance. QuickFX(R) Pro reduces the image size by removing extraneous
information such as pre-printed text, lines, and boxes; leaving only the
filled-in data. It repairs the characters that are left, ensuring better
recognition, enhanced throughput, and higher accuracy rates.
ImageScore is our Check 21 readiness solution for any financial
institution that truncates or uses check images in an accounts receivables
conversion environment. Integrated solution providers for financial institutions
can also buy ImageScore to enhance their products. ImageScore can quickly,
accurately and comprehensively analyze check images to provide the usability and
quality information needed to help financial institutions act and conform to
regulatory and industry mandates. As a result, institutions minimize their risk
by ensuring the integrity of check images they process, and they eliminate
costly manual processes associated with managing transactions from bad check
images.
Forgery Detection Toolkits. Our Signature & Check Stock Verification API
is fully automated and incorporates advanced imaging, image analysis and data
extraction technologies that can help verify the authenticity of every signature
on every check that passes through a bank, and analyzes paper stock for any
indication that an item is a counterfeit.
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Our PayeeFind prevents payee-altered checks from clearing. As a result,
PayeeFind can substantially reduce losses and cut administrative costs by
eliminating the need for organizations to complete and file affidavits to
recover funds from checks that have cleared with fraudulent payees. With
PayeeFind, this type of fraud can be stopped before recovery becomes an issue.
Our PADsafe toolkit is the first tookit of its kind to detect fraudulent
preauthorized drafts. It automatically identifies PADs from checks, then
notifies the user of any potentially suspicious PADs. As a result, the
withdrawal of unauthorized funds due to fraudulent PAD transactions is reduced
and often prevented.
Forgery Detection Solution. Our FraudProtect(TM) System is a unique and
innovative solution for community and mid-sized banks to detect the most common
forms of check fraud, signature forgery and counterfeit checks. Using
FraudProtect System, banks can significantly reduce losses due to fraud.
Document and Image Processing Solutions.
DynaFind(R) is a software toolkit that captures data from many types of
unstructured business documents. DynaFind is used in challenging data capture
applications where data must be found and extracted from documents that have no
pre-determined format or layout, but share common data elements. DynaFind
locates this data on documents using contextual, positional, format- and
keyword-specific information, even if it appears in a different location on each
document. We have supplied DynaFind(R)as a stand alone API to several important
OEMs in the document processing field. DynaFind(R) is also available as an
add-on feature that has been integrated into Doctus, Mitek's forms processing
solution.
Leveraging its core technical competency in ICR, we have addressed the
forms processing market with its Doctus(R) product. Doctus(R) incorporates our
core ICR technology in an application designed for end users in a broad variety
of industries that require high volume automated data entry. We believe our
Doctus(R) software is a major innovation in forms processing because it
economically handles both structured and unstructured forms. As a result, it
significantly increases the number and types of forms that can be automatically
processed. Doctus(R) is able to process unstructured forms because it
incorporates Mitek's DynaFind(R) forms understanding technology. With
DynaFind(R), Doctus(R) automatically classifies unstructured forms and extracts
relevant data from the form contents. Major Doctus(R) customers include AIG and
Sungard.
Check Imaging Solutions.
CheckQuest(R) is our image-enabled check and item processing solution. It
is specifically designed for check image processing applications at community
and regional banks, such as Proof of Deposit, Retail/Wholesale Lock Box, and
Remittance Processing. CheckQuest is designed to expand and improve an
institution's operational efficiency and customer service without adding staff,
while reducing monthly expenses. CheckQuest utilizes our field-proven CAR/LAR
technology, currently in use worldwide for processing billions of checks per
year.
20
With the passage of the Check Clearing for the 21st Century Act, or Check 21, in
October of 2003, banks can substitute electronic check images for paper checks
in the clearance and settlement process. This new electronic format is expected
to dramatically reduce bank operating costs and save millions of dollars each
year. With Check 21 calling for the use of electronic check images within a
year's time, we believe CheckQuest can play a strategic role in preparing banks
for check truncation and electronic check presentment. We have substantially
exited this line of business, through entry of a transaction with Harland
Financial Solutions in fiscal year 2004.
RESEARCH AND DEVELOPMENT
During fiscal years 2004, 2003, and 2002 research and development expense
was approximately $2,204,000, $2,242,000, and $2,049,000, respectively. Those
amounts represented 42%, 19%, and 16%, respectively, of revenue in each of those
years. We plan to continue spending significant amounts for research and product
development.
Most of our software products are developed internally. We also purchase
technology and license intellectual property rights. We believe that our future
success depends in part on our ability to maintain and improve our core
technologies, enhance our existing products and develop new products that meet
an expanding range of customer requirements. We do not believe we are materially
dependent upon licenses and other agreements with third parties, relating to the
development of our products. Internal development allows us to maintain closer
technical control over our products and gives us the freedom to designate which
modifications and enhancements are most important and when they should be
implemented. We devise innovative solutions to automated character processing
problems, such as the enhancement and improvement of degraded images, and the
development of user-manipulated tools to aid in automated document processing.
We intend to expand our existing product offerings and to introduce new document
processing software solutions. In the development of new products and
enhancements to existing products, we use our own tools extensively. We perform
all quality assurance and develop documentation internally. We strive to become
informed at the earliest possible time about changing usage patterns and
hardware advances that may affect software design. We intend to continue to
support industry standard operating environments.
Our team of specialists in recognition algorithms, software engineering,
user interface design, product documentation and quality improvement is
responsible for maintaining and enhancing the performance, quality and usability
of all of our products. In addition to research and development, the engineering
staff provides customer technical support on an as needed basis, along with
technical sales support.
In order to improve the accuracy of our ADR products, we focus research
and development efforts on continued enhancement of our core technology and on
our database of millions of character images that is used to "train" the neural
network software that forms the core of our ICR engine. In addition, we have
expanded our research and development tasks to include pre- and post-processing
of data subject to automated processing.
21
Our research and development organization included nineteen software
engineers at September 30, 2004, including seven with advanced degrees. We
balance our engineering resources between development of ICR technology and
applications development. Of the thirteen software engineers, approximately nine
are involved in ICR research and development of the QuickStrokes(R) API
recognition engine. The remaining software engineers are involved in
applications development, including the Doctus(R), QuickFX(R) Pro, CheckQuest(R)
and FraudProtect(TM) products, and customer services and support.
INTELLECTUAL PROPERTY
Our success and ability to compete is dependent in part upon our
proprietary technology. We rely on a combination of patent, copyright and trade
secret laws and non-disclosure agreements to protect our proprietary technology.
We hold a U.S. patent for our hierarchical character recognition systems. The
patent covers our multiple-pass, multiple-expert system that significantly
increases the accuracy of forms processing and item processing applications. We
may seek to file additional patents to expand the scope of patent coverage. We
may also file future patents to cover technologies under development. There can
be no assurance that patents will be issued with respect to future patent
applications or that our patents will be upheld as valid or will prevent the
development of competitive products.
We also seek to protect our intellectual property rights by limiting
access to the distribution of our software, documentation and other proprietary
information. In addition, we enter into confidentiality agreements with our
employees and certain customers, vendors and strategic partners. There can be no
assurance that the steps we take will be adequate to prevent misappropriation of
our technology or that our competitors will not independently develop
technologies that are substantially equivalent or superior to our technologies.
We are also subject to the risk of adverse claims and litigation alleging
infringement on the intellectual property rights of others. In this regard,
there can be no assurance that third parties will not assert infringement claims
in the future with respect to our current or future products or that any such
claims will not require us to enter into license arrangements or result in
protracted and costly litigation, regardless of the merits of such claims. No
assurance can be given that any necessary licenses will be available or that, if
available, such licenses can be obtained on commercially reasonable terms.
SALES AND MARKETING
We market our products and services primarily through our internal, direct
sales organization. We employ a technically-oriented sales force with management
assistance to identify the needs of existing and prospective customers. Our
sales strategy concentrates on those companies that we believe are key users and
designers of automated document processing systems for high- performance, large
volume applications, in addition to small and large financial institutions. We
currently maintain our sales and support office in California. In addition, we
sell and support our products through foreign resellers in Germany, France,
Italy, the United Kingdom and Australia. The sales process is supported with a
broad range of marketing programs which include trade shows, direct marketing,
public relations and advertising.
22
We provide maintenance and support on a contractual basis after the
initial product warranty has expired. We provide telephone support and on-site
support. Customers with maintenance coverage receive software updates from
Mitek. Foreign distributors generally provide customer training, service and
support for the products they sell. Additionally, our products are supported
internationally by periodic distributor and customer visits by our management.
These visits include attending imaging shows, as well as sales and training
efforts. Technical support is provided by telephone as well as technical visits
in addition to those previously mentioned.
We license our software to organizations on a perpetual basis. We also
license software to organizations under Enterprise Agreements that allow the
end-user customer to acquire multiple licenses, without having to acquire
separate packaged products. These Enterprise Agreements are targeted at large
organizations that want to acquire perpetual licenses to software products for
their entire enterprise along with rights to unspecified future versions of
software products over the term of the agreement.
The ability to support international markets has assisted us in our
international sales effort. International sales accounted for approximately 4%
and 3% of our net sales for the fiscal years ended September 30, 2004, and 2003,
respectively. We believe that a significant percentage of the products in our
domestic sales are incorporated into systems that are delivered to end users
outside the United States. International sales in fiscal 2004 were made to
customers in fifteen countries including Australia, Brazil, Canada, Czech
Republic, United Kingdom, France, Germany, Spain, India, Italy, Jamaica, Japan,
Netherlands, Portugal, and Sweden. We sell our products in United States
currency only. We recorded a significant portion of its revenues from one
customer in fiscal 2004, and three customers in fiscal 2003. Net sales from
these customers aggregated 12%, and 30% for the fiscal years 2004 and 2003,
respectively.
MAINTENANCE AND SUPPORT
Following the installation of our software at a customer site, we provide
ongoing software support services to assist our customers in operating the
systems. We have an internal customer service department that handles
installation and maintenance requirements. The majority of inquiries are handled
by telephone. For more complicated issues, our staff, with our customers'
permission, can log on to our customers' systems remotely. Occasionally, visits
to the customer's facilities are required to resolve support issues. We maintain
our customers' software largely through releases which contain improvements and
incremental additions. Nearly all of our in-house customers contract for annual
support services from us. These services are a significant source of recurring
revenue, and are contracted for on an annual basis and are typically priced at
approximately 15% to 18% of the particular software product's license fee. We
believe that as the installed base of our products grows and as customers
purchase additional complementary products, the software support function will
become a larger source of recurring revenues. Costs we incur to supply
maintenance and support services are charged to cost of sales.
23
COMPETITION
The market for our ADR products is intensely competitive, subject to rapid
change and significantly affected by new product introductions and other market
activities of industry participants. We face direct and indirect competition
from a broad range of competitors who offer a variety of products and solutions
to our current and potential customers. Our principal competition comes from (i)
customer-developed solutions; (ii) direct competition from companies offering
automated document processing systems; (iii) companies offering competing
technologies capable of recognizing hand-printed and cursive characters; and
(iv) direct competition from companies offering check imaging systems to banks.
It is also possible that we will face competition from new competitors.
Moreover, as the market for automated document processing, ICR, check imaging
and fraud detection software develops, a number of companies with significantly
greater resources than we have could attempt to enter or increase their presence
in our market either independently or by acquiring or forming strategic
alliances with our competitors or to otherwise increase their focus on the
industry. In addition, current and potential competitors have established or may
establish cooperative relationships among themselves or with third parties to
increase the ability of their products to address the needs of our current and
prospective customers.
Our QuickStrokes(R) API product and licensed CheckScript(TM) product
compete, to various degrees, with products produced by a number of substantial
competitors such as A2IA, Parascript, and Orbograph. Competition among product
providers in this market generally focuses on price, accuracy, reliability and
technical support. We believe our primary competitive advantages are (i)
recognition accuracy with regard to hand printed characters, (ii) flexibility,
since it may operate on a broad range of computer operating platforms, (iii)
scalability and (iv) an architectural software design, which allows it to be
more readily modified, improved with added functionality, configured for new
products, and ported to new operating systems and upgrades. Despite these
advantages, QuickStrokes(R) API and CheckScript(TM) competitors have existed
longer and have far greater financial resources and industry connections than we
have.
Our Doctus(R) product competes against complete proprietary systems
offered by software developers, such as Microsystems Technology, Readsoft, and
Cardiff Software, Inc. In addition, Doctus(R) faces competition from providers
of recognition systems that incorporate ADR technology such as Microsystems
Technology, Inc., and Captiva. Because Doctus(R) is based on our proprietary
QuickStrokes(R) API engine, its competitive advantages reflect the advantages of
the QuickStrokes(R) engine. We believe our Doctus(R) and DynaFind(R) software
provide the highest levels of automation in the industry. DynaFind, our document
understanding software, does not require extensive rules written by a programmer
based on a large set of training documents. The software automatically "learns"
how to process unstructured forms by reading only a few examples. Competitors in
this market offer both high and low cost systems. Our strategy is to position
Doctus(R) to compete successfully in a scalable midrange price while offering a
higher degree of accuracy and greater flexibility than competing systems
currently on the market.
24
Increased competition may result in price reductions, reduced gross
margins, and loss of market share, any of which could have a material adverse
effect on our business, operating results and financial condition.
EMPLOYEES AND LABOR RELATIONS
As of September 30, 2004, we employed a total of 30 full-time and 1
part-time person, consisting of 10 in marketing, sales and support, 13 in
research and development, 1 in operations, and 6 in finance, administration and
other capacities. We have never had a work stoppage. None of its employees are
represented by a labor organization, and we consider our relations with our
employees to be good
AVAILABLE INFORMATION
Our internet address is www.miteksys.com. There we make available, free of
charge, our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and any amendments to those reports, as soon as reasonably
practicable after we electronically file such material with, or furnish it to,
the SEC. Our SEC reports can be accessed through the investor relations section
of our Web site. The information found on our Web site is not part of this or
any other document we file with or furnish to the SEC.
PROPERTIES
Our principal executive offices, as well as our principal research and
development facility, is located in approximately 26,455 square feet of leased
office building space in Poway, California. The lease on this facility expires
September 30, 2005. We also lease a sales, customer services and support
facility in Maryland. We believe that our existing facilities are adequate for
our current needs.
LEGAL PROCEEDINGS
We are currently in litigation with BSM regarding a certain license
agreement pursuant to which we licensed certain of BSM's technology. BSM has
claimed over $400,000 in unpaid royalties and we have counterclaimed for over
$1,000,000 with respect to interference with business relations, breach of
confidentiality and unfair competition. At this time, the matter is in binding
arbitration and we cannot make a reasonable determination regarding the outcome
of this matter.
Other than as described above, we are not aware of any legal proceedings
or claims that we believe may have, individually or in the aggregate, a material
adverse effect on our business, financial condition, operating results, cash
flow or liquidity.
LAURUS DEBT INVESTMENT
During June, 2004, we issued a $3.0 million convertible note and warrants
to Laurus Master Fund, Ltd. The note has a three year term, with monthly
payments of interest only commencing July 1, 2004, and monthly principal
payments commencing December 1, 2004. Based on current interest rates, our
monthly cash payments of principal and interest beginning December 1, 2004 would
be approximately $90,909.09. Our actual required cash payments on the note will
vary depending on interest rates and whether amounts under the note are
converted into our common stock.
25
The note issued to Laurus is convertible into shares of our common stock
at an initial conversion price of $.70 per share. At this initial conversion
rate, we would issue approximately 4,285,714 shares upon conversion of $3.0
million owing under the note. The actual number of shares to be issued will
depend on the actual dollar amount of principal and interest being converted. In
addition, the note carries a full ratchet anti-dilution provision, such that if
we issue convertible or equity securities (subject to certain exceptions,
including stock option grants) at a price less than the initial $.70 conversion
price, the note conversion price will be automatically adjusted down to that
lesser price. For example, if we had a non-exempted issuance at $0.50 per share,
the note conversion price would become $0.50, and upon an assumed conversion of
$3.0 million, we would have to issue 6,000,000 shares. In addition to the
conversion rights of the convertible debt, as we issue stock or convertible
securities in the future, including for any future equity financing or upon
exercise of any of the outstanding stock purchase warrants and stock options,
those issuances would also dilute our stockholders.
The warrant issued to Laurus in connection with the issuance of the note
is exercisable at any time through June 11, 2011, to purchase up to 860,000
shares of common stock at an exercise price of (i) $0.79 for the first 230,000
shares acquired thereunder; (ii) $0.85 for the next 230,000 shares acquired
thereunder; and (iii) $0.92 for the remaining shares acquired thereunder.
We have agreed with Laurus Master Fund, Ltd. to register with the SEC for
resale the shares of common stock that are issuable upon conversion of the note
and upon exercise of the warrant by filing a registration statement by July 11,
2004 which would be declared effective by the SEC by September 9, 2004. Because
we did not comply with the timeline set forth in the registration rights
agreement with Laurus, we were subject to a penalty of 2% of the original
principal amount of the note for each thirty day period which elapses until the
filing or effectiveness of the registration statement, as the case may be, is
completed. In settlement of such penalty, we have entered into an agreement with
Laurus whereby we have agreed to issue to Laurus a warrant exercisable, to
purchase up to 200,000 shares of common stock at an exercise price of $.70 and
Laurus has agreed to halt accrual of penalties and extend the deadline for
effectiveness of registration until December 31, 2004. To the extent the selling
shareholders exercise warrants for cash, we will receive proceeds of up to a
maximum of $885,200 from such exercise.
This Registration Statement is intended to comply with our registration
obligations. The note and warrant were offered and sold in reliance on the
exemption from registration provided by Rule 506 of Regulation D under the
Securities Act. At closing, we paid a closing payment of $105,000 to Laurus
Capital Management, LLC, manager of Laurus Master Fund, Ltd. and additional fees
of approximately $46,000.
26
HOLDERS
As of June 30, 2004 the number of stockholders of record of our common
stock was 511. Based on broker inquiry conducted in connection with the
distribution of proxy solicitation materials in connection with our special
meeting of shareholders in 2004, we believe that there are approximately 3,425
beneficial owners of our common stock.
TRANSFER AGENT
The transfer agent for our common stock is Mellon Investor Services LLC,
P.O. Box 3315, South Hackensack, NJ 07606, (800) 356-2017.
DISCLOSURE OF COMMISSION POSITION
ON INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Our Articles of Incorporation provide that members of our Board of
Directors shall not be personally liable to us or our stockholders for monetary
damages for breach of fiduciary duty as a director except for liability:
o for any breach of the director's duty of loyalty to the corporation
or its stockholders;
o for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
o under Section 174 of the General Corporation Law of the State of
Delaware (relating to distributions by insolvent corporations); or
o for any transaction from which the director derived an improper
personal benefit.
Our Charter also provides that if the General Corporation Law of the State
of Delaware is amended to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of members of
our Board of Directors will be eliminated or limited to the fullest extent
permitted by the General Corporation Law of the State of Delaware, as so
amended.
Our Charter and By-laws also provide that we may indemnify our directors
and officers to the fullest extent permitted by Delaware law. A right of
indemnification shall continue as to a person who has ceased to be a director or
officer and will inure to the benefit of the heirs and personal representatives
of such a person. The indemnification provided by our Charter and By-laws will
not be deemed exclusive of any other rights that may be provided now or in the
future under any provision currently in effect or hereafter adopted by our
Charter, By-laws, by any agreement, by vote of our stockholders, by resolution
of our directors, by provision of law or otherwise. We have also secured
directors' and officers' liability insurance on behalf of our directors and
officers.
27
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons in
accordance with the provisions contained in our Charter and By-laws, Delaware
law or otherwise, we have been advised that, in the opinion of the Securities
and Exchange Commission, this indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. If a claim for
indemnification against such liabilities (other than the payment by us of
expenses incurred or paid by a director, officer or controlling person in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person, we will, unless in the opinion of our
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by us is
against public policy as expressed in the Securities Act and we will follow the
court's determination.
LEGAL MATTERS
Certain legal matters, including the validity of the securities being
issued, have been passed upon for us by Duane Morris LLP, 101 West Broadway,
Suite 900, San Diego, California 92101.
EXPERTS
The financial statements for the fiscal year ended September 30, 2004
incorporated in this prospectus by reference from our Annual Report on Form l0-K
for the fiscal year ended September 30, 2004, have been audited by Stonefield
Josephson, Inc., an independent registered public accounting firm, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing. The financial statements for the fiscal
year ended September 30, 2003 incorporated in this prospectus by reference from
our Annual Report on Form l0-K for the fiscal year ended September 30, 2004,
have been audited by Deloitte & Touche LLP, an independent registered public
accounting firm, as stated in their report, which is incorporated herein by
reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
INFORMATION WITH RESPECT TO THE REGISTRANT
This prospectus is being delivered with a copy of our Form l0-K for the
fiscal year ended September 30, 2004.
ABOUT THIS PROSPECTUS
This prospectus is part of a registration statement we filed with the SEC.
You should rely only on the information provided in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. The selling shareholders are offering to sell, and seeking
offers to buy, shares of common stock only in jurisdictions where offers and
sales are permitted. The information contained in this prospectus is accurate
only as of the date of this prospectus, regardless of the time of delivery of
this prospectus or of any sale of common stock. Applicable SEC rules may require
us to update this prospectus in the future. This preliminary prospectus is
subject to completion prior to this offering.
28
5,300,000 SHARES
[LOGO]
MITEK SYSTEMS, INC.
COMMON STOCK, $.001 PAR VALUE
-------------------
P R O S P E C T U S
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FEBRUARY __, 2005
PART II TO FORM S-2
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses payable by us in
connection with the sale of the common stock being registered by this
registration statement. All amounts shown are estimates, except for the
Securities and Exchange Commission registration fee.
SEC registration fee.............................. $453.52
Printing and engraving expenses................... 5,000.00
Accounting fees and expenses...................... 15,000.00
Legal fees and expenses........................... 15,000.00
Miscellaneous expenses............................ 5,000.00
----------
Total........................................ $40,453.52
==========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a
corporation to indemnify its directors, officers, employees or other agents in
terms sufficiently broad to permit indemnification (including reimbursement for
expenses incurred) under certain circumstances for liabilities arising under the
Securities Act of 1933. Our Certificate of Incorporation and Bylaws contain
provisions intended to indemnify our officers and directors against liability to
the fullest extent permitted by Delaware law. The following discussion of our
Certificate of Incorporation and Bylaws is not intended to be exhaustive and is
qualified in its entirety by reference to the actual text of our Certificate of
Incorporation and Bylaws.
Our certificate of incorporation, as amended, contains a provision
permitted by Delaware law which eliminates the personal liability of our
directors for monetary damages for breach or alleged breach of their fiduciary
duty of care which arises under state law. Although this does not change the
directors' duty of care, it limits legal remedies which are available for breach
of that duty to equitable remedies, such as an injunction or rescission. This
provision of our certificate of incorporation has no effect on directors'
liability for: (1) breach of the directors' duty of loyalty; (2) acts or
omissions not in good faith or involving intentional misconduct or known
violations of law; and (3) approval of any transactions from which the directors
derive an improper personal benefit.
Our bylaws contain a provision that provides for the indemnification of
any individual who was, is, or is threatened to be made a party, by reason of
the fact that the individual is a director or officer of ours or serves in a
similar role, to any pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative. Pursuant to this provision,
the individual is indemnified against all expenses, liability and loss actually
and reasonably incurred to the extent such individual is not otherwise
indemnified and to the extent such indemnification is permitted by law.
II-1
We also maintain directors' and officers' reimbursement and liability
insurance pursuant to standard form policies, insuring our directors and
officers against certain liabilities for certain acts or omissions while acting
in their official capacity, including liability under the Securities Act of
1933, as amended.
Insofar as indemnification for liabilities arising under the Securities
Act may be allowed to our directors, officers and controlling persons under the
forgoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
ITEM 16. EXHIBITS
The following exhibits are filed as part of this registration statement:
EXHIBIT NO. EXHIBIT
----------- --------------------------------------------------------------
3.1 Certificate of Incorporation (incorporated by reference to the
registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1987)
3.2 Bylaws, as amended and restated (incorporated by reference to
the registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1987)
5.1* Opinion of Duane Morris LLP
10.1 1986 Stock Option Plan (incorporated by reference to the
registrant's Registration Statement on Form SB-2, dated July
9, 1996)
10.2 1988 Non Qualified Stock Option Plan (incorporated by
reference to the registrant's Registration Statement on Form
SB-2, dated July 9, 1996)
10.3 1996 Stock Option Plan (incorporated by reference to the
registrant's Annual Report on Form 10-K, for the fiscal year
ended September 30, 2001)
10.4 1999 Stock Option Plan (incorporated by reference to the
registrant's Registration Statement on Form S-8, dated June
10, 1999)
10.5 Securities Purchase Agreement dated June 11, 2004 between
Mitek Systems, Inc. and Laurus Master Fund, Ltd. (incorporated
by reference to the registrant's Quarterly Report on Form
10-Q, for the period ended June 30, 2004)
10.6 Form of Warrant Certificate issued in connection with receipt
of proceeds from issuance of Promissory Note dated June 11,
2004 (incorporated by reference to the registrant's Report on
Form 10-Q for the quarter ended June 30, 2004)
II-2
EXHIBIT NO. EXHIBIT
----------- --------------------------------------------------------------
10.7 Security Agreement dated June 11, 2004 issued to Laurus Master
Fund, Ltd. (incorporated by reference to the registrant's
Quarterly Report on Form 10-Q, for the period ended June 30,
2004)
10.8 Registration Rights Agreement dated June 11, 2004 between
Mitek Systems, Inc. and Laurus Master Fund, Ltd. (incorporated
by reference to the registrant's Report on Form 10-Q for the
quarter ended June 30, 2004)
10.9 10% Secured Convertible Term Note, dated June 11, 2004 issued
to Laurus Master Fund, Ltd. (incorporated by reference to the
registrant's Report on Form 10-Q for the quarter ended June
30, 2004)
23.1* Consent of Stonefield Josephson, Inc.
23.2* Consent of Deloitte & Touche LLP
23.3* Consent of Duane Morris LLP (included in Exhibit 5.1)
24 Power of Attorney (included on the signature page)
- ----------
* Filed herewith.
II-3
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to:
1. file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to: (i) include any
prospectus required by Section 10(a)(3) of the Securities Act of 1933, as
amended (the "Securities Act"); (ii) reflect in the prospectus any facts or
events arising after the effective date of the registration statement which,
individually or together, represent a fundamental change in the information in
the registration statement; and (iii) include any additional or changed material
information on the plan of distribution.
2. for the purpose of determining liability under the Securities Act,
treat each post-effective amendment as a new registration statement of the
securities offered, and the offering of such securities at that time to be the
initial bona fide offering thereof.
3. file a post-effective amendment to remove from registration any of the
securities being registered that remain unsold at the termination of the
offering.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements of filing on Form S-2 and authorized this
registration statement to be signed on its behalf by the undersigned, in the
City of Poway, State of California, on February 8, 2005.
MITEK SYSTEMS, INC.
By: /s/ James B. DeBello
-------------------------------------
James B. DeBello
Chief Executive Officer and President
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints James B. DeBello, with full authority to
act without the others, his true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments to this
registration statement, and to file the same, with all exhibits thereto, and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing requisite and necessary to be done in and
about the premises, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as
amended, this registration statement was signed by the following persons in the
capacities and on the dates stated:
SIGNATURE TITLE DATE
- ---------------------------- --------------------------------------- ----------------
/s/ James B. DeBello Chief Executive Officer, President, and February 8, 2005
- ---------------------------- Director (Principal Executive Officer)
James B. DeBello
/s/ John M. Thornton Chief Financial Officer and Director February 8, 2005
- ---------------------------- (Principal Financial Officer, Principal
John M. Thornton Accounting Officer)
/s/ Gerald I. Farmer Director February 8, 2005
- ----------------------------
Gerald I. Farmer
/s/ William P. Tudor Director February 8, 2005
- ----------------------------
William P. Tudor
/s/ Sally B. Thornton Director February 8, 2005
- ----------------------------
Sally B. Thornton
/s/ Michael W. Bealmear Director February 8, 2005
- ----------------------------
Michael W. Bealmear
II-5
EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
---------- --------------------------------------------------------------
3.1 Certificate of Incorporation (incorporated by reference to the
registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1987)
3.2 Bylaws, as amended and restated (incorporated by reference to
the registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1987)
5.1* Opinion of Duane Morris LLP
10.1 1986 Stock Option Plan (incorporated by reference to the
registrant's Registration Statement on Form SB-2, dated July
9, 1996)
10.2 1988 Non Qualified Stock Option Plan (incorporated by
reference to the registrant's Registration Statement on Form
SB-2, dated July 9, 1996)
10.3 1996 Stock Option Plan (incorporated by reference to the
registrant's Annual Report on Form 10-K, for the fiscal year
ended September 30, 2001)
10.4 1999 Stock Option Plan (incorporated by reference to the
registrant's Registration Statement on Form S-8, dated June
10, 1999)
10.5 Securities Purchase Agreement dated June 11, 2004 between
Mitek Systems, Inc. and Laurus Master Fund, Ltd. (incorporated
by reference to the registrant's Quarterly Report on Form
10-Q, for the period ended June 30, 2004)
10.6 Form of Warrant Certificate issued in connection with receipt
of proceeds from issuance of Promissory Note dated June 11,
2004 (incorporated by reference to the registrant's Quarterly
Report on Form 10-Q, for the period ended June 30, 2004)
10.7 Security Agreement dated June 11, 2004 issued to Laurus Master
Fund, Ltd. (incorporated by reference to the registrant's
Quarterly Report on Form 10-Q, for the period ended June 30,
2004)
10.8 Registration Rights Agreement dated June 11, 2004 between
Mitek Systems, Inc. and Laurus Master Fund, Ltd. (incorporated
by reference to the registrant's Quarterly Report on Form
10-Q, for the period ended June 30, 2004)
10.9 10% Secured Convertible Term Note, dated July 11, 2004, issued
to Laurus Master Fund, Ltd. (incorporated by reference to the
registrant's Quarterly Report on Form 10-Q, for the period
ended June 30, 2004)
II-6
EXHIBIT NO. EXHIBIT
---------- --------------------------------------------------------------
23.1* Consent of Stonefield Josephson, Inc.
23.2* Consent of Deloitte & Touche LLP
23.3* Consent of Duane Morris LLP (included in Exhibit 5.1)
24 Power of Attorney (included on the signature page)
- ----------
* Filed herewith.
II-7
EXHIBIT 5.1
[LETTERHEAD OF DUANE MORRIS LLP]
February 8, 2005
Mitek Systems, Inc.
14145 Danielson Street, Suite B
Poway, CA 92064
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form S-2
of Mitek Systems, Inc., a Delaware corporation (the "Company"), filed with the
Securities and Exchange Commission (the "Registration Statement") relating to
the registration under the Securities Act of 1933, as amended, of up to
5,300,000 shares of the Company's common stock, $0.001 par value per share (the
"Stock"), issued to certain selling shareholders named in the Registration
Statement (the "Shareholders") or issuable to such Shareholders pursuant to the
exercise of certain warrants to purchase shares of Common Stock (the
"Warrants"). The 5,300,000 shares of Stock include 1,060,000 shares that are
issuable upon exercise of the Warrants (the "Warrant Shares").
As counsel to the Company, we have examined the proceedings taken by the
Company in connection with the issuance by the Company of the Stock and
Warrants, made such inquiries of certain officers of the Company and considered
such questions of law as we have deemed necessary for the purpose of rendering
the opinions set forth herein. For the purpose of the opinion rendered below, we
have assumed that in connection with the issuance of the Warrant Shares, the
Company will receive consideration in an amount not less than the aggregate
exercise price per share of Stock covered by such Warrants.
We are of the opinion that all of the shares of Stock have been duly
authorized by the Company. In addition, we are of the opinion that the shares of
Stock when issued, including the Warrant Shares when such are issued and paid
for in accordance with the terms of the Warrants, will be legally issued, fully
paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to all references to us in the Registration
Statement, the prospectus constituting a part thereof and any amendments
thereto.
Very truly yours,
/s/ Duane Morris LLP
---------------------------
Duane Morris LLP
Exhibit 23.1
[Letterhead of Stonefield Josephson, Inc.]
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Mitek Systems, Inc.
We consent to the use of our Independent Registered Public Accounting
Firm's Report, dated January 13, 2005 covering the financial statements
of Mitek Systems, Inc. for the year ended September 30, 2004 to be
included in this registration statement on Form S-2 to be filed with
the Commission on or about February 7, 2005.
We also consent to the reference to us as experts in matters of
accounting and auditing in this registration statement.
/s/ Stonefield Josephson, Inc.
STONEFIELD JOSEPHSON, INC.
CERTIFIED PUBLIC ACCOUNTANTS
Santa Monica, California
February 7, 2005
EXHIBIT 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in Amendment No. 1 to Registration
Statement No. 333-119505 of Mitek Systems, Inc. on Form S-2 of our report dated
December 29, 2003 appearing in the Annual Report on Form 10-K of Mitek Systems,
Inc. for the year ended September 30, 2004 and to the reference to us under the
heading "Experts" in the Prospectus, which is part of this Registration
Statement.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
San Diego, California
February 7, 2005