SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-KSB
(Mark
One)
x Annual
Report Pursuant to Section 13 or 15(d) of
the
Securities Exchange Act of 1934
For
the
fiscal year ended September 30, 2007
or
o Transition
Report Pursuant to Section 13 or 15(d)
of
the
Securities Exchange Act of 1934
Commission
file number 0-15235
MITEK
SYSTEMS, INC.
(Name
of
small business issuer in its charter)
|
Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
87-0418827
(I.R.S
Employer
Identification
No.)
|
8911
Balboa Ave., Suite B, San Diego, CA 92123
(Address
of principal executive offices) (Zip Code)
Issuer’s
telephone number (858)
503-7810
Securities
registered pursuant to Section 12(b) of the Act: None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, par value $.001 per share
(Title
of
class)
Check
whether the issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No
o
Check
if
there is no disclosure of delinquent filers pursuant to Item 405 of Regulation
S-B is contained in this form, and no disclosure will be contained, to the
best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB. o
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes o
No
x.
State
issuer’s revenues for its most recent fiscal year: $5,570,000
The
aggregate market value of voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity
was
sold, or the average bid and asked price of such common equity, as of November
30, 2007 (See definition of affiliate in Rule 12b-2 of the Exchange Act.) is
$4,986,795.
There
were 16,751,137 shares outstanding of the registrant's Common Stock as of
November 30, 2007.
MITEK
SYSTEMS, INC.
FORM
10-KSB
For
The Fiscal Year Ended September 30, 2007
Index
|
Part
I
|
||||
|
Item
1
|
Business
|
3
|
||
|
Item
2
|
Properties
|
11
|
||
|
Item
3
|
Legal
Proceedings
|
11
|
||
|
Item
4
|
Submission
of Matters to a Vote of Security Holders
|
11
|
||
|
Item
4A
|
Executive
Officers of the Registrant
|
11
|
||
|
Part
II
|
||||
|
Item
5
|
Market
for Registrant’s Common Stock and Related Stockholder
Matters
|
12
|
||
|
Item
6
|
Management’s
Discussion and Analysis or Plan of Operation
|
13
|
||
|
Item
7
|
Financial
Statements
|
28
|
||
|
Item
8
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosures
|
51
|
||
|
Item
8A
|
Controls
and Procedures
|
51
|
||
|
Item
8B
|
Other
Information
|
51
|
||
|
Part
III
|
||||
|
Item
9
|
Directors
and Executive Officers of the Registrant
|
51
|
||
|
Item
10
|
Executive
Compensation
|
54
|
||
|
Item
11
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
55
|
||
|
Item
12
|
Certain
Relationships and Related Transactions
|
57
|
||
|
Item
13
|
Exhibits
|
57
|
||
|
Part
IV
|
||||
|
Item
14
|
Principal
Accountant Fees and Services
|
59
|
||
|
Signatures
|
61
|
Page
2
PART
I
ITEM
1. BUSINESS
IMPORTANT
NOTE ABOUT FORWARD-LOOKING STATEMENTS
We
make
forward-looking statements in this Form 10-KSB and in the documents that are
incorporated by reference into this Form 10-KSB. These forward-looking
statements relate to Mitek’s outlook or expectations for earnings, revenues,
expenses, asset quality or other future financial or business performance,
strategies or expectations, or the impact of legal, regulatory or supervisory
matters on Mitek’s business, results of operations or financial condition.
Specifically, forward looking statements used in this Form 10-KSB may include
statements relating to future business prospects, revenue, income and financial
condition of Mitek.
Forward-looking
statements can be identified by the use of words such as “estimate,” “may,”
“plan,” “project,” “forecast,” “intend,” “expect,” “anticipate,” “believe,”
“seek,” “target” or similar expressions. These statements reflect Mitek’s
judgment based on currently available information and involve a number of risks
and uncertainties that could cause actual results to differ materially from
those in the forward-looking statements.
In
addition to those factors discussed under the heading “Risk Factors” in Part II,
Item 6 of this Form 10-KSB, and in Mitek’s other public filings with the SEC,
important factors could cause actual results to differ materially from our
expectations. These factors include, but are not limited to: (i) adverse
economic conditions; (ii) general decreases in demand for Mitek products and
services; (iii) intense competition (including entry of new competitors),
including among competitors with substantially greater resources than Mitek;
(iv) loss of key customers or contracts; (v)increased or adverse federal, state
and local government regulation; (vi) inadequate capital; (vii) unexpected
costs; (viii) lower revenues and net income than forecast; (ix) inability to
raise prices; (x) the risk of litigation and administrative proceedings; (xi)
higher than anticipated labor costs; (xii) the possible fluctuation and
volatility of operating results and financial condition; (xiii) adverse
publicity and news coverage; (xiv) inability to carry out marketing and sales
plans; (xv) loss of key employees and executives; (xvi) changes in interest
rates; and (xvii) inflationary factors.
You
are
cautioned not to place undue reliance on any forward-looking statements, which
speak only as of the date hereof, or in the case of a document incorporated
by
reference, as of the date of that document. Except as required by law, we
undertake no obligation to publicly update or release any revisions to these
forward-looking statements to reflect any events or circumstances after the
date
of this Form 10-KSB or to reflect the occurrence of unanticipated events.
The
above
list is not intended to be exhaustive and there may be other factors that would
preclude us from realizing the predictions made in the forward-looking
statement. We operate in a continually changing business environment and new
factors emerge from time to time. We cannot predict such factors or assess
the
impact, if any, of such factors on their respective financial positions or
results of operations.
Page
3
OVERVIEW
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, Document Image Processing and Image Analytics,
products commercially available for the recognition of scanned documents,
extraction of hand-printed as well as machine-printed text. We also develop
fraud detection and prevention products which find signatures on any document
and using patented algorithms, convert them into compact numeric codes, which
are then compared against one or more reference codes of trusted signatures
for
highly accurate signature verification. Other capabilities include the detection
of forged or illegally modified checks.
PRODUCTS
AND RELATED MARKETS
During
fiscal year ended September 30, 2007, we had one operating segment based on
our
product and service offerings: Document Image Processing and Image
Analytics.
DOCUMENT
IMAGE PROCESSING AND IMAGE ANALYTICS
Since
1992, we have developed and marketed pattern recognition products which enable
the automation of costly, labor-intensive business functions such as check
and
remittance processing, forms processing, order entry and fraud detection.
Our proprietary software algorithms allow us to process images of scanned
documents in many ways, including image “cleanup” and repair, image quality
analysis, document identification, and the extraction of hand-printed as well
as
machine-printed text. These capabilities work on a multitude
of scanned documents: checks, coupons and other financial documents, as
well as most types of other business forms. Our software can find data on
so-called unstructured documents which contain the data in variable locations
and formats. Our fraud detection and prevention products find signatures
on any document and, using patented algorithms, convert them into compact
numeric codes, which are then compared against one or more reference codes
of
trusted signatures for highly accurate signature verification. Other
capabilities include the detection of forged or illegally modified checks.
To further reduce manual labor, our software automatically distinguishes between
common document types such as personal and business checks, substitute checks
(so-called IRDs, permitted by the Check 21 law), pre-authorized drafts, and
almost any other document type specified by the customer.
Our
product family is made up of two distinct product lines: software development
toolkits (SDKs) and end-user applications, and the new product line-up is fully
Internet-enabled.
Page
4
Intelligent
Recognition Toolkits
Our
Intelligent Recognition Toolkits include a suite of products (Image Net) that
leverage our proprietary intelligent character recognition (ICR), image
processing, and dynamic data extraction software engines. The Image Net suite
of
recognition toolkits includes Payments, Prep and ID, Data Capture, Fraud and
Signature. These products are sold to original equipment manufacturers (OEMs)
such as Advanced Financial Solutions, a Metavante Company; Harland Financial
Solutions, a John Harland Company; Sungard; BancTec; J&B Software; and to
systems integrators such as Computer Sciences Corporation.
Our
products used in financial document processing, are a combination of the Legal
Amount Recognition (LAR) capabilities licensed from a vendor with our
proprietary Image Net Payments Courtesy Amount Recognition (CAR) technology.
These products provide a high level of accuracy in remittance processing, proof
of deposit, and lock box processing applications.
The
ImageNet Payments product allows for the automatic reading of machine and hand
print information found on scanned documents and forms from any structured
form
as well as bank documents, such as checks, deposit slips, and remittance
coupons. ImageNet Payments integrates technology components from the
”CheckReader” product licensed from a vendor which specifically increases read
rates of the courtesy and legal amounts of US and Canadian checks.
ImageNet
Prep and ID is a software toolkit that provides automatic form ID, form
registration and form/template removal. We believe it significantly improves
automatic data capture (ICR/OCR), forms processing, document imaging and storage
performance. Image Net Prep & ID 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 in accordance with
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.
ImageNet
Data Capture is a software toolkit that captures data from many types of
unstructured business documents. ImageNet Data Capture 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.
ImageNet Data Capture 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 ImageNet Data Catpure
as a
stand alone API to several important OEMs in the document processing field.
Page
5
IDENTITY
VALIDATION AND FORGERY DETECTION
Since
2001, we have applied and adapted our core competency in automatic document
processes and image analytics creating a product offering our image analytics,
which are built on our portfolio of innovative recognition technologies used
to
test, clean, read and authenticate imaged documents.
Our
capabilities include:
Image
analysis of signatures
Image
repair and optimization
OCR/ICR
Dynamic
data finding on any document or check
Distributed
Capture CAR/LAR
Forgery
Detection Toolkits
FraudProtect™
Toolkit is an innovative product for detecting check fraud and forgery using
image analytics to uncover inconsistencies and alterations in checks as they
are
processed by banks. These products are sold to OEMs and System
Integrators.
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.
Pre-authorized
Draft (PAD) safe toolkit is the first toolkit 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. Our
PayeeFind™ works to prevent 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.
Forgery
Detection Solution
FraudProtect™
System is a comprehensive, automated software application that allows banks
to
detect the most common forms of check fraud from forged signatures and
counterfeit checks, as well as the detection of pre-authorized drafts and payee
name alterations. Banks can significantly reduce losses due to Check Fraud
by
using the FraudProtect™ System.
Page
6
RESEARCH
AND DEVELOPMENT
Research
and Development expenses for fiscal year 2007 were approximately $1,901,000,
compared to approximately $1,349,000 for fiscal year 2006, an increase of
approximately $552,000 or 40%. Stated as a percentage of net sales, research
and
development expenses for fiscal year 2007 increased to 34% compared to 22%
for
fiscal 2006. The increase in expenses for fiscal 2007 is primarily due to
increasing outsourcing of programming and enhancements of existing products.
The
research and development expenses for fiscal 2007 include approximately $22,000
in stock based compensation expense. For the fiscal year 2007, approximately
$140,000 compared to $838,000 for fiscal 2006, were spent in research and
development related to contract development and charged to cost of
sales-professional services, education and other.
Typically,
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 or 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 document image processing.
We
intend to expand our existing product offerings and to introduce new document
image 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 Document Image Processing products, we devote
significant research and development resources to enhance our core technology
including our database of millions of character images that are used to "train"
the neural network software that forms the core of our Intelligent Character
Recognition (ICR) engine. In addition, we have expanded our research and
development tasks to include pre- and post-processing of data subject to
automated processing.
Our
research and development organization included twelve software engineers,
including three with advanced degrees, and three consultants as of September
30,
2007. We balance our engineering resources between development of ICR technology
and applications development. All the
software engineers are involved in applications development, including ICR
research and development of the Service Oriented Architecture (SOA) compliant
ImageNet API recognition engine suite, with solutions for Payments Prep &
ID, Data Capture, Fraud Detection and Signatures, quality assurance, and
customer services and support.
Page
7
INTELLECTUAL
PROPERTY
Our
success depends significantly upon our proprietary technology. We have received
registered trademark protection for the marks FRAUDPROTECT®, IMAGESCORE®,
MITEK®, MITEK SYSTEMS, INC®, PAYEEFIND®, QUICKFX®, DYNAFIND®, TRUESIGN®, and
CAPTUREQUEST®. We attempt to protect our intellectual property rights primarily
through copyrights, trade secrets, employee and third party nondisclosure
agreements and other measures. We have registered trademarks and will continue
to evaluate the registration of additional trademarks as appropriate. We claim
common law protection for, and may seek to register, other trademarks. In
addition, we generally enter into confidentiality agreements with our employees.
As
of
September 30, 2007, we have been awarded a total of four patents, three of
which
were awarded in 2007. Three patents generally cover System and Method for Check
Fraud detection using Signature Validation, which we believe could provide
us
with a material competitive advantage. In addition, as of September 30, 2007,
we
had five patent applications. If we are unable to protect our intellectual
property or infringe intellectual property of a third party, our operation
results could be harmed.
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 Original Equipment Manufacturers (OEM), Systems
Integrators, and distributors and software solution 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 that are positioning themselves in the emerging Remote Data Capture
(RDC) market. We currently maintain our sales and support office in California.
In addition, we sell and support our products through foreign resellers in
Australia, Canada, Greece, Italy, the United Kingdom, Spain, Sweden, India,
Switzerland and Japan. The sales process is supported with a broad range of
marketing programs which include trade shows, direct marketing, public relations
and advertising.
We
license our software to organizations on a term or 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.
Page
8
International
sales accounted for approximately 28% and 15%, of our net sales for the fiscal
years ended September 30, 2007 and 2006, respectively. International sales
in
fiscal year 2007 were made to customers in fourteen countries including
Australia, Greece, Canada, United Kingdom, Spain, India, Italy, Japan,
Switzerland and Sweden. We sell our products in United States currency only.
We
recorded a significant portion of our revenues from two customers in fiscal
year
2007 and from two customers in fiscal year 2006. Net sales from these customers
aggregated 32% and 35% for the fiscal years 2007 and 2006, 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, after customer consent, can log on to our
customers’ systems remotely. Occasionally, visits to the customers’ 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 an annual basis and are typically priced at approximately 8%
to
20% of the particular software product’s license fee.
We
provide maintenance and support on a contractual basis after the initial product
warranty has expired. We provide telephone support and on-site support. On
site
support is made at the customer’s request along with pre-approval of
reimbursable expenses from the customer. Customers with maintenance coverage
receive software updates from us on an if and when available basis only. 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 if necessary in
addition to those previously mentioned.
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. Maintenance and support service
fees are deferred and recognized as income over the contract period on a
straight-line basis. Costs incurred by us to supply maintenance and support
services are charged to cost of sales.
COMPETITION
The
market for our Document Image Processing 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.
Page
9
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
Service Oriented Architecture (SOA) compliant ImageNet API products and licensed
Payments, Prep & ID, Fraud Detection and Signatures products compete, to
various degrees, with products produced by a number of substantial competitors.
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 our products may operate in several Microsoft Web
Services environments, (iii) scalability and (iv) an architectural software
design, which allows our products to be more readily modified, improved with
added functionality, configured for new products allowing our software to be
easily upgraded. Despite these advantages, Image Net competitors have existed
longer and have far greater financial resources and industry connections than
we
have.
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 the Company's
business, operating results and financial condition.
EMPLOYEES
AND LABOR RELATIONS
As
of
September 30, 2007, we employed a total of 21 persons, consisting of 4 in sales
and marketing, 12 in research and development, product management and support,
1
in operations, and 4 in finance, administration and other capacities. We engaged
various consultants in the area of Product Development and Marketing during
the
fiscal year ended September 30, 2007. We have never had a work stoppage. None
of
our 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.miteksystems.com.
There
we make available, free of charge, our annual report on Form 10-KSB, quarterly
reports on Form 10-QSB, 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 public may also
obtain such information on the operation of the SEC Public Reference Room by
calling the SEC at 1-800-SEC-0330. The information found on our Web site is
not
part of this or any other report we file with or furnish to the
SEC.
Page
10
ITEM
2. PROPERTIES
Our
principal executive office, as well as its principal research and development
facility, is located in approximately 15,927 square feet of leased office
building space in San Diego, California. The lease on this facility commenced
in
early December 2005 and expires in early December, 2012. The base monthly rent
for our facility in fiscal 2007 under this lease was approximately $25,483.
The
base monthly rent increases every twelve months by approximately 3%.
ITEM
3. LEGAL
PROCEEDINGS
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.
ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
There
were no matters submitted to a vote of security holders during the fourth
quarter ended September 30, 2007.
ITEM
4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Our
executive officers as of November 30, 2007 were as follows:
|
Name
|
Age
|
Position
with Mitek
|
||
|
James
B. DeBello
|
49
|
President,
Chief Executive Officer
|
||
|
John
M. Thornton
|
75
|
Chairman
|
||
|
Tesfaye
Hailemichael
|
58
|
Chief
Financial Officer & Secretary
|
Mr.
Thornton currently serves as Chairman of the Board. He served as President,
Chief Executive Officer and Chief Financial Officer from August 1998 to May
2003, when he resigned as President and Chief Executive Officer but remained
as
Chairman and Chief Financial Officer. Mr. Thornton resigned as Chief Financial
Officer in May 2005 but remains as Chairman. He has served as Chairman since
1987.
Mr.
DeBello was named President and Chief Executive Officer in May 2003. He has
served as a director of Mitek since 1994. Prior to being named Chief Executive
Officer, he served as Chief Executive Officer of Asia Corporation Communications
from 2001 to May 2003. Prior to that, he served as Chief Executive Officer
of
IdeaEdge Ventures from 2000 to 2001. Prior to that, he served as Chief Operating
Officer of CollegeClub.com from 1999 to 2000.
Page
11
Mr.
Hailemichael joined Mitek in May 2005 as Chief Financial Officer. Prior to
joining Mitek, he served as Chief Financial Officer at Maxwell Technologies
from
2003 to 2005. Prior to that, he served as Chief Financial Officer at Raidtec
Ltd
from 2001 to 2003. Prior to that, he served as Executive Vice President of
Transnational Computer Technology, Inc. from 1998 to 2001. Mr. Hailemichael
served as Vice President of Finance and Chief Financial Officer of Dothill
Systems, Inc. from 1990 to 1998.
Part
II
ITEM
5. MARKET
FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
Market
Information
Our
common stock is traded on the OTC Bulletin Board under the symbol MITK.OB and
the closing bid price on October 29, 2007 was $0.50. As of October 29, 2007,
there were 432
holders of record of Mitek Systems, Inc. Common Stock.
The
following table sets forth, for the fiscal period indicated, the high and low
closing bid prices for the Common Stock as reported on the OTC Bulletin Board.
The quotations for the Common Stock traded on the OTC Bulletin Board may reflect
inter-dealer prices, without retail mark-up, markdown or commission and may
not
necessarily represent actual transactions.
|
Quarter
Ended
|
Dec.
31
|
Mar.
31
|
Jun.
30
|
Sept.
30
|
Year
|
|||||||||||
|
Fiscal
2007
|
||||||||||||||||
|
Common
stock price per share
|
||||||||||||||||
|
High
|
$
|
1.55
|
$
|
1.07
|
$
|
.78
|
$
|
.68
|
$
|
1.55
|
||||||
|
Low
|
.92
|
.66
|
.63
|
.49
|
.49
|
|||||||||||
|
Fiscal
2006
|
||||||||||||||||
|
Common
stock price per share
|
||||||||||||||||
|
High
|
$
|
1.88
|
$
|
1.85
|
$
|
1.75
|
$
|
1
.75
|
$
|
1.88
|
||||||
|
Low
|
.70
|
1.25
|
1.05
|
1
.01
|
.70
|
|||||||||||
Dividends
We
have
not paid any dividends on our common stock. We currently intend to retain
earnings for use in our business and do not anticipate paying cash dividends
in
the foreseeable future.
Page
12
ITEM
6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION
FORWARD
LOOKING STATEMENTS
In
addition to historical information, this Management's Discussion and Analysis
or
Plan of Operation (the "MD&A") contains certain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and
Section 21E of the Securities Exchange Act of 1934, as amended. As contained
herein, the words "expects," "anticipates," "believes," "intends," "will,"
and
similar types of expressions identify forward-looking statements, which are
based on information that is currently available to Mitek, speak only as of
the
date hereof, and are subject to certain risks and uncertainties. To the extent
that the MD&A contains forward-looking statements regarding the financial
condition, operating results, business prospects or any other aspect of Mitek,
please be advised that our actual financial condition, operating results and
business performance may differ materially from that projected or estimated
by
Mitek in forward-looking statements. We have attempted to identify, in context,
certain 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 its 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 MD&A. See
“Important Note About Forward-Looking Statements” in Part I of this
10-KSB.
RESULTS
OF OPERATIONS
NET
SALES
Net
sales
were approximately $5,570,000 and approximately $6,021,000 for fiscal 2007
and
2006, respectively. Net sales decreased by approximately $451,000, or 7%, in
fiscal 2007 compared to fiscal 2006. The decrease in fiscal 2007 revenue is
due
primarily to reduced development revenue from John H. Harland who purchased
a
reduced amount of development services in fiscal 2007, as compared to fiscal
2006.
Revenue
from John H. Harland for engineering development services were approximately
$280,000 in fiscal 2007 compared to approximately $1,100,000 for fiscal 2006.
We
will not realize engineering development services revenue and related
maintenance revenue from John H. Harland in the future as it has terminated
its
agreement for engineering services and related maintenance revenue in the fourth
quarter of fiscal 2007. The loss of revenue from John H. Harland may have an
adverse impact on our revenue in the coming year. John H. Harland and its
subsidiary, Harland Financial Solutions, is a related party which is discussed
in Note 7.
Page
13
COST
OF
SALES
Cost
of
sales for fiscal year 2007 was approximately $634,000 compared to approximately
$1,248,000 for fiscal year 2006, a decrease of approximately $614,000 or 49%.
Stated
as
a percentage of net sales, cost of sales were 11% compared to 21% for fiscal
2007. The dollar decrease, and the decrease as a percentage of sales, in cost
of
sales is due to a decrease in engineering services revenue from John Harland
and
direct costs related to the engineering services revenue. In the prior
comparable period we incurred certain non recurring engineering development
costs related to the achievement of a contractual milestone. Accordingly, cost
of sales as a percentage of the John Harland development revenue in the current
period is less than the percentage reflected in the prior comparable period.
OPERATIONS
Operations
expenses for fiscal year 2007 and 2006 included payroll, employee benefits,
and
other headcount-related costs associated with purchasing, shipping and
receiving. Operations expenses were approximately $88,000 and $83,000 for fiscal
2007 and 2006, respectively. Stated as a percentage of net sales, operations
expenses for fiscal year 2007 and 2006 were 2% and 1%, respectively. The dollar
increase in 2007 expense compared to 2006 is primarily the result of personnel
and employee benefit expenses.
SELLING
AND MARKETING
Selling
and marketing expenses include payroll, employee benefits, and other
headcount-related costs associated with sales and marketing personnel and
advertising, promotions, trade shows, seminars, and other programs. Selling
and
marketing expenses were approximately $1,173,000 and $1,306,000 for fiscal
2007
and 2006, respectively. Stated as a percentage of net sales, selling and
marketing expenses for fiscal year 2007 and 2006 were 21% and 22%, respectively.
The dollar decrease in 2007 expense compared to 2006 is primarily attributable
to headcount reduction which was made towards the end of fiscal year 2006.
RESEARCH
AND DEVELOPMENT
Research
and Development expenses include payroll, employee benefits, consultant expenses
and other headcount-related costs associated with product development. These
costs are incurred to maintain and enhance existing products. We maintain what
we believe to be sufficient staff to maintain our existing product lines,
including development of new, more feature-rich versions of our existing product
lines, as we determine the demands by the marketplace. We also maintain research
personnel, whose efforts are designed to ensure product paths from current
technologies to anticipated future generations of products within our area
of
business.
Page
14
Research
and Development expenses for fiscal year 2007 were approximately $1,901,000,
compared to approximately $1,349,000 for fiscal year 2006, an increase of
approximately $552,000 or 40%. Stated as a percentage of net sales, research
and
development expenses for fiscal year 2007 increased to 34% compared to 22%
for
fiscal 2006. The increase in expenses for fiscal 2007 is primarily due to
increasing outsourcing of programming and enhancements of existing products.
The
research and development expenses for fiscal 2007 include approximately $22,000
in stock based compensation expense. For the fiscal year 2007, approximately
$140,000 compared to $838,000 for fiscal 2006, were spent in research and
development related to contract development and charged to cost of
sales-professional services, education and other.
GENERAL
AND ADMINISTRATIVE
General
and administrative expenses include payroll, employee benefits, and other
headcount-related costs associated with the finance, facilities, and legal
and
other administrative fees. General and administrative costs were approximately
$2,162,000 and approximately $2,354,000 for fiscal year 2007 and 2006,
respectively.
Stated
as
a percentage of net sales, general and administrative expenses for fiscal year
2007 and 2006 were 39% and 39%, respectively. The dollar decrease in 2007 over
2006 was primarily due to a reduction of legal expenses.
INTEREST
AND OTHER INCOME (EXPENSE) - Net
Interest
and Other Income (Expense) - Net for fiscal year 2007 was approximately $4,000
as compared to approximately ($398,000) for fiscal year 2006, a change of
approximately $402,000. The primary reason for the change relates to the
elimination of interest expense in fiscal 2007 relating to the debt from Laurus
which was fully converted to equity in June 2006 leaving no principal balance
on
the note. Interest expense related to the note for fiscal year 2007 was $0
and
interest expense for fiscal year 2006 was approximately $466,000 which consists
of interest on the Convertible Note, as discussed in Note 6 of the accompanying
financial statements, which represents amortization of the beneficial conversion
feature and interest paid. Interest and other income for fiscal year 2007 was
approximately $14,000 compared to approximately $68,000 for fiscal year 2006.
Stated as a percentage of net sales, net interest and other income (expense)
for
the corresponding periods were less than 1% for fiscal year 2007 and 7% for
fiscal year 2006.
INCOME
TAXES
For
the
fiscal year 2007 and 2006, we recorded a tax provision of approximately $800
for
each year for income taxes which was primarily state franchise tax.
LIQUIDITY
AND CAPITAL RESOURCES
On
September 30, 2007, we had approximately $2,096,000 in cash and cash equivalents
as compared to approximately $2,331,000 on September 30, 2006 which is a
decrease of approximately $235,000. Accounts receivable totaled approximately
$542,000, a decrease of approximately $537,000 from the September 30, 2006
balance of approximately $1,079,000. The decrease in cash was due to the loss
for the year, capital equipment purchases, lower revenue and significant
reduction in accounts payable. The reduction in accounts receivable was due
to
the lower revenue for the year and improvement in collections.
Page
15
Unearned
revenue as of September 30, 2007 was approximately $541,000, a decrease of
approximately $116,000 from September 30, 2006, which reflects the recognition
of deferred license sales from September 30, 2006 of $175,000 to John H.
Harland, and new anniversary product support agreements offset by continued
recognition of unearned revenue from product support agreements licensed in
prior periods.
During
the fiscal year 2007, we financed our cash needs primarily from collections
of
accounts receivable and existing cash and cash equivalents. During fiscal year
2006, we financed our cash needs primarily from financing activities combined
with cash carried over from the prior fiscal year.
Net
cash
used by operating activities during the year ended September 30, 2007 was
approximately $206,000. The primary use of cash from operating activities was
the net loss of approximately $384,000, a decrease in accounts payable of
approximately $614,000 and a decrease in deferred revenue of approximately
$116,000.The primary sources of cash from operating activities was a decrease
in
accounts receivable, net of provision for bad debts, of approximately $537,000,
and a decrease of inventory, prepaid expenses and other assets of approximately
$122,000. The primary non-cash adjustment to operating activities was
depreciation and amortization expense for fixed assets of approximately $39,000
and stock based compensation expense of approximately $221,000. We used part
of
the cash provided from operating activities to finance the acquisition of
equipment used in our business.
Our
working capital and current ratio was approximately $1,796,000 and 2.91,
respectively on September 30, 2007 and approximately $1,905,000 and 2.12,
respectively, on September 30, 2006. On September 30, 2007 the total liabilities
to equity ratio was 0.53 to 1 compared to 0.86 to 1 on September 30, 2006.
As of
September 30, 2007, total liabilities decreased by approximately $741,000
compared to total liabilities on September 30, 2006.
On
June
11, 2004, we secured a financing arrangement with Laurus Master Fund (“Laurus”).
The financing consisted of a $3 million Secured Note that bore interest at
the
rate of prime (as published in the Wall Street Journal), plus one percent and
had a term of three years (matures June 11, 2007). Laurus has converted all
of
the secured note in 2006 and the agreement has expired. The company does not
have financing vehicle at the moment.
On
July
14, 2006, the Company announced that it had entered into an agreement to acquire
substantially all of the assets and liabilities of Parascript LLC
(“Parascript”), a Wyoming limited liability company. On January 23, 2007, Mitek
notified Parascript that it was terminating the merger agreement. In connection
with the merger, Mitek had accrued, but not yet paid, approximately $700,000
of
fees and costs which were expensed as incurred. As a result of the termination
of the merger agreement, Mitek was subject to additional merger related expenses
of up to approximately $1,300,000. During the quarter ended March 31 and June
30, 2007, we conducted discussions with the service providers who had provided
merger related services regarding the total amounts owed by Mitek inclusive
of
the approximate $1,300,000 of potential liabilities. During the quarter ended
March 31, 2007, we settled all outstanding merger related expenses with the
exception of an estimated $250,000 for remaining potential liabilities which
was
accrued in the quarter ended March 31, 2007. We settled the remaining potential
liabilities related to the merger for approximately $250,000 during the quarter
ended June 30, 2007. All accrued liabilities to various vendors who provided
merger related services have been paid during the quarter ended March 31, 2007
and in the quarter ended June 30, 2007. There are no merger related obligations
as of September 30, 2007. Such merger related expenses are included in general
and administrative expenses for the year ended September 30, 2007.
Page
16
John
H.
Harland Company (explained fully in Note 7 - Related Party Transactions) has
terminated its agreement for engineering services and related maintenance
revenue in the fourth quarter of fiscal 2007. The loss of revenue from John
H.
Harland may have an adverse impact on our revenue in the coming
year.
There
are
no significant capital expenditures planned for the foreseeable
future.
We
evaluate our cash requirements on a quarterly basis. Historically, we have
managed our cash requirements principally from cash generated from operations.
Although our strategy for fiscal 2008 is to grow the identified markets for
our
new products and enhance the functionality and marketability of our document
image processing and image analytic technology, we have not yet observed a
significant change in liquidity or future cash requirements as a result of
this
strategy. Anticipated cash requirements over the next twelve months are
principally to fund operations, including spending on research and development.
We believe that we will have sufficient liquidity to finance our operations
for
the next twelve months using existing cash and cash generated from operations,
as discussed above.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
In
February 2006, the FASB issued Statement of Financial Accounting Standards
No. 155 (“SFAS 155”), Accounting
for Certain Hybrid Financial Instruments
which
amends Statement of Financial Accounting Standards No. 133 (“SFAS 133”),
Accounting
for Derivative Instruments and
Hedging Activities
and
Statement of Financial Accounting Standards No. 140 (“SFAS 140”),
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.
SFAS
155 simplifies the accounting for certain derivatives embedded in other
financial instruments by allowing them to be accounted for as a whole if the
holder elects to account for the whole instrument on a fair value basis. SFAS
155 also clarifies and amends certain other provisions of SFAS 133 and SFAS
140.
SFAS 155 is effective for all financial instruments acquired, issued or subject
to a remeasurement event occurring in fiscal years beginning after
September 15, 2006. Earlier adoption is permitted, provided the Company has
not yet issued financial statements, including for interim periods, for that
fiscal year. Since the Company has no derivative instruments or hedging
activities, we do not expect the adoption of SFAS 155 to have a material impact
on our financial position, results of operations or cash flows.
Page
17
In
July
2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), Accounting
for Uncertainty
in Income Taxes,
which
prescribes a recognition threshold and measurement process for recording in
the
financial statements uncertain tax positions taken or expected to be taken
in a
tax return. Additionally, FIN 48 provides guidance on the de-recognition,
classification, interest and penalties, accounting in interim periods and
disclosure requirements for uncertain tax positions. The accounting provisions
of FIN 48 are effective for reporting periods beginning after December 15,
2006. The Company is currently assessing the impact of the adoption of FIN
48
and its impact on our financial position, results of operations, or cash flows.
In
September 2006, the FASB issued SFAS No. 157 Fair
Value Measurements
(“SFAS
157”). SFAS 157 provides a new single authoritative definition of fair value and
provides enhanced guidance for measuring the fair value of assets and
liabilities and requires additional disclosures related to the extent to which
companies measure assets and liabilities at fair value, the information used
to
measure fair value, and the effect of fair value measurements on earnings.
SFAS
157 is effective for us as of January 28, 2008. We are currently assessing
the impact, if any, of SFAS 157 on our financial position, results of operation,
or cash flows.
In
September 2006, the SEC released Staff Accounting Bulletin No. 108
Considering
the Effects
of Prior Year Misstatements When Quantifying Misstatements in Current Year
Financial Statements
(“SAB
108”). SAB 108 provides interpretative guidance on how public companies quantify
financial statement misstatements. There have been two common approaches used
to
quantify such errors. Under an income statement approach, the “roll-over”
method, the error is quantified as the amount by which the current year income
statement is misstated. Alternatively, under a balance sheet approach, the
“iron
curtain” method, the error is quantified as the cumulative amount by which the
current year balance sheet is misstated. In SAB 108, the SEC established an
approach that requires quantification of financial statement misstatements
based
on the effects of the misstatements on each of the company’s financial
statements and the related financial statement disclosures. This model is
commonly referred to as a “dual approach” because it requires quantification of
errors under both the roll-over and iron curtain methods. SAB 108 is effective
for us as of January 1, 2007. The adoption of SAB 108 is not expected to
have a material impact on our financial position, results of operations, or
cash
flows.
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities —
including an amendment of SFAS No. 115, which
allows measurement at fair value of eligible financial assets and liabilities
that are not otherwise measured at fair value. If the fair value option for
an
eligible item is elected, unrealized gains and losses for that item shall be
reported in current earnings at each subsequent reporting date. SFAS
No. 159 also establishes presentation and disclosure requirements designed
to draw comparison between the different measurement attributes the company
elects for similar types of assets and liabilities. This statement is effective
for fiscal years beginning after November 15, 2007. We are in the process
of evaluating the application of the fair value option and its effect on our
results of operations or financial condition.
Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the American Institute of Certified Public Accountants
(“AICPA”) and the SEC did not or are not believed by management to have a
material impact on the Company’s present or future financial statements.
Page
18
APPLICATION
OF CRITICAL ACCOUNTING POLICIES
Mitek’s
financial statements and accompanying notes are prepared in accordance with
generally accepted accounting principles in the United States of America.
Preparing financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets, liabilities, revenue,
and expenses. These estimates by management are affected by management’s
application of accounting policies are subjective and may differ from actual
results. Critical accounting policies for Mitek include revenue recognition,
allowance for accounts receivable, fair value of equity instruments and
accounting for income taxes.
Revenue
Recognition
We
enter
into contractual arrangements with integrators, resellers and end users that
may
include licensing of the our software products, product support and maintenance
services, consulting services, resale of third-party hardware, or various
combinations thereof, including the sale of such products or services
separately. Our accounting policies regarding the recognition of revenue for
these contractual arrangements is fully described in the Notes to the Financial
Statements.
We
consider many factors when applying generally accepted accounting principles
in
the United States of America to revenue recognition. These factors include,
but
are not limited to:
| · |
The
actual contractual terms, such as payment terms, delivery dates,
and
pricing of the various product and service elements of a
contract
|
| · |
Time
period over which services are to be
performed
|
| · |
Creditworthiness
of the customer
|
| · |
The
complexity of customizations to our software required by service
contracts
|
| · |
The
sales channel through which the sale is made (direct, VAR, distributor,
etc.)
|
| · |
Discounts
given for each element of a
contract
|
| · |
Any
commitments made as to installation or implementation “go live”
dates
|
Each
of
the relevant factors is analyzed to determine its impact, individually and
collectively with other factors, on the revenue to be recognized for any
particular contract with a customer. Management is required to make judgments
regarding the significance of each factor in applying the revenue recognition
standards, as well as whether or not each factor complies with such standards.
Any misjudgment or error by management in its evaluation of the factors and
the
application of the standards, especially with respect to complex or new types
of
transactions, could have a material adverse affect on our future revenues and
operating results.
Page
19
Accounts
Receivable.
We
constantly monitor collections from our customers and maintain a provision
for
estimated credit losses that is based on historical experience and on specific
customer collection issues. While such credit losses have historically been
within our expectations and the provisions established, we cannot guarantee
that
we will continue to experience the same credit loss rates that we have in the
past. Since our revenue recognition policy requires customers to be deemed
creditworthy, our accounts receivable are based on customers whose payment
is
reasonably assured. Our accounts receivable are derived from sales to a wide
variety of customers. We do not believe a change in liquidity of any one
customer or our inability to collect from any one customer would have a material
adverse impact on our financial position.
Fair
Value of Equity Instruments
The
valuation of certain items, including valuation of warrants, beneficial
conversion feature related to convertible debt and compensation expense related
to stock options granted, involve significant estimations with underlying
assumptions judgmentally determined. The valuation of warrants and stock options
are based upon a Black Scholes valuation model, which involve estimates of
stock
volatility, expected life of the instruments and other assumptions.
Deferred
Income Taxes.
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and
the amounts used for income tax purposes. We maintain a valuation allowance
against the deferred tax asset due to uncertainty regarding the future
realization based on historical taxable income, projected future taxable income,
and the expected timing of the reversals of existing temporary differences.
Until such time as we can demonstrate that we will no longer incur losses or
if
we are unable to generate sufficient future taxable income we could be required
to maintain the valuation allowance against our deferred tax
assets.
RISK
FACTORS
This
Annual Report on Form 10-KSB contains statements that are forward-looking.
These
statements are based on current expectations and assumptions that are subject
to
risks and uncertainties. Actual results could differ materially because of
issues and uncertainties such as those listed below and elsewhere in this
report, which, among others, should be considered in evaluating our financial
outlook.
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 software products to customers incorporate 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 document image processing, negative
publicity or obsolescence of the 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.
Page
20
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.
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
annual and 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 or year, which may cause downward pressure
on
our common stock price. We expect quarterly and annual fluctuations to continue
for the foreseeable future.
Page
21
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. We have
funded our operations in the past by raising capital, sale of certain assets
and
obtaining loans. If our revenues do not increase we will 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. 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
decline.
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.
Page
22
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 which
was subsequently superceded by SAB 104.
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.
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.
Page
23
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.
Page
24
We
depend upon our key personnel.
Our
future success depends in large part on the continued service of our key
technical and management personnel. We do not have employment contracts with,
or
"key person" life insurance policies on, any of our employees, including Mr.
James B. DeBello, our President and Chief Executive Officer, Mr. John M.
Thornton, our Chairman and Mr. Tesfaye Hailemichael, our 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, 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.
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, 2007, John M. Thornton, who is our Chairman of the Board and
his
spouse, Director Sally B. Thornton, beneficially owned 2,844,959 shares of
common stock including stock options or approximately 17% of our outstanding
common stock. Our directors and executive officers as a whole, own approximately
16% of our outstanding common stock, or approximately 27% including outstanding
options (vested and unvested) to acquire common stock. John H. Harland Company
(“John Harland”) has 2,142,856 shares of common stock or approximately 13% of
our outstanding common stock. John Harland also holds 321,428 warrants which
may
be exercised to acquire 321,428 shares of common stock, thereby increasing
the
number of shares of common stock held by John Harland to 2,464,284 shares or
approximately 15% of our outstanding common stock. Laurus Funds may acquire
up
to 1,060,000 shares of common stock upon exercise of its warrant or
approximately 6% of the outstanding common stock.
Page
25
The
above-described significant stockholders may have considerable influence over
the outcome of all matters submitted to our stockholders for approval, including
the election of directors. In addition, this ownership could discourage the
acquisition of our common stock by potential investors and could have an
anti-takeover effect, possibly depressing the trading price of our common
stock.
Our
common stock 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.
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.
Page
26
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, 2007, our common stock price ranged
from $0.49 to $1.55.
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.
Page
27
ITEM
7. FINANCIAL
STATEMENTS
Report
of Independent Registered Public Accounting Firm
The
Board
of Directors and Stockholders
Mitek
Systems, Inc.
We
have
audited the accompanying balance sheet of Mitek Systems, Inc. as of September
30, 2007, and the related statements of operations, stockholders’ equity, and
cash flows for the year then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Mitek Systems, Inc. as of September
30, 2007, and the results of its operations and its cash flows for the year
then
ended in conformity with accounting principles generally accepted in the United
States of America.
/s/Mayer
Hoffman McCann P.C.
San
Diego, California
December
11, 2007
Page
28
Report
of Independent Registered Public Accounting Firm
Board
of
Directors Mitek Systems, Inc.
San
Diego, California
We
have
audited the accompanying statements of operations, stockholders’ equity and cash
flows of Mitek Systems, Inc. (the “Company”) for the year ended September 30,
2006. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining,
on a
test basis, evidence supporting
the amounts and disclosures in the financial statements. We were not engaged
to
perform an audit of the Company’s internal control over financial reporting. Our
audit included consideration of internal control over financial reporting as
a
basis for designing audit procedures that are appropriate in the circumstances,
but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no
such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In
our
opinion, the financial statements referred to above present fairly, in all
material respects, the results of operations and their cash flows for year
ended
September 30, 2006 in conformity with accounting principles generally accepted
in the United States.
/s/
Stonefield Josephson, Inc.
Los
Angeles, California
December
19, 2006
Page
29
MITEK
SYSTEMS, INC.
BALANCE
SHEET
September
30, 2007
|
ASSETS
|
||||
|
CURRENT
ASSETS
|
||||
|
Cash
and cash equivalents
|
$
|
2,096,282
|
||
|
Accounts
receivable including related party of $203,462-net of
allowance
|
542,009
|
|||
|
for
doubtful accounts of $18,977
|
||||
|
Inventory,
prepaid expenses and other current assets
|
99,476
|
|||
|
Total
current assets
|
2,737,767
|
|||
|
PROPERTY
AND EQUIPMENT - net
|
77,827
|
|||
|
OTHER
ASSETS
|
29,465
|
|||
|
TOTAL
ASSETS
|
$
|
2,845,059
|
||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||
|
CURRENT
LIABILITIES:
|
||||
|
Accounts
payable
|
$
|
120,519
|
||
|
Accrued
payroll and related taxes
|
249,036
|
|||
|
Deferred
revenue
|
541,010
|
|||
|
Other
accrued liabilities
|
31,510
|
|||
|
Total
current liabilities
|
942,075
|
|||
|
Deferred
rent
|
44,596
|
|||
|
TOTAL
LIABILITIES
|
986,671
|
|||
|
COMMITMENTS
AND CONTINGENCIES (Note 4)
|
||||
|
STOCKHOLDERS'
EQUITY:
|
||||
|
Preferred
Stock, Par $0.001, 1,000,000 shares authorized,
|
||||
|
none
issued and outstanding
|
||||
|
Common
stock - $.001 par value; 40,000,000
|
||||
|
shares
authorized, 16,751,137 issued
|
||||
|
and
outstanding
|
16,751
|
|||
|
Additional
paid-in capital
|
14,582,894
|
|||
|
Accumulated
deficit
|
(12,741,257
|
)
|
||
|
Total
stockholders' equity
|
1,858,388
|
|||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$
|
2,845,059
|
||
The
accompanying notes form an integral part of these financial
statements.
Page
30
MITEK
SYSTEMS, INC.
STATEMENTS
OF OPERATIONS
FOR
THE
YEARS ENDED SEPTEMBER 30, 2007 and 2006
|
2007
|
2006
|
||||||
|
NET
SALES
|
|||||||
|
Software,
including approximately $268,000 in 2007 and approximately
$83,000
|
$
|
3,158,229
|
$
|
3,029,597
|
|||
|
in
2006 to a related party
|
|||||||
|
Professional
Services, education and other, including approximately
$731,000
|
2,411,711
|
2,991,509
|
|||||
|
in
2007 and $1,330,000 in 2006 to a related party
|
|||||||
|
5,569,940
|
6,021,106
|
||||||
|
COSTS
AND EXPENSES:
|
|||||||
|
Cost
of Sales-Software
|
380,792
|
276,971
|
|||||
|
Cost
of Sales-Professional Services, education and other
|
252,916
|
970,575
|
|||||
|
Operations
|
87,656
|
83,017
|
|||||
|
Selling
and marketing
|
1,172,689
|
1,306,157
|
|||||
|
Research
and development
|
1,901,215
|
1,348,721
|
|||||
|
General
and administrative
|
2,162,110
|
2,354,274
|
|||||
|
Total
costs and expenses
|
5,957,378
|
6,339,715
|
|||||
|
OPERATING
LOSS
|
(387,438
|
)
|
(318,609
|
)
|
|||
|
OTHER
INCOME (EXPENSE):
|
|||||||
|
Interest
expense
|
(9,556
|
)
|
(465,753
|
)
|
|||
|
Interest
and other income
|
13,996
|
67,836
|
|||||
|
Total
other income (expense)
|
4,440
|
(397,917
|
)
|
||||
|
LOSS
BEFORE TAXES
|
(382,998
|
)
|
(716,526
|
)
|
|||
|
PROVISION
FOR TAXES
|
800
|
800
|
|||||
|
NET
LOSS
|
$
|
(383,798
|
)
|
$
|
(717,326
|
)
|
|
|
NET
LOSS PER SHARE - BASIC AND DILUTED
|
$
|
(0.02
|
)
|
$
|
(0.05
|
)
|
|
|
WEIGHTED
AVERAGE NUMBER OF
|
|||||||
|
COMMON
SHARES OUTSTANDING - BASIC AND DILUTED
|
16,750,592
|
15,905,157
|
|||||
The
accompanying notes form an integral part of these financial
statements.
Page
31
MITEK
SYSTEMS, INC.
STATEMENTS
OF CASH FLOWS
FOR
THE
YEARS ENDED SEPTEMBER 30, 2007 AND 2006
|
2007
|
2006
|
||||||
|
OPERATING
ACTIVITIES
|
|||||||
|
Net
loss
|
$
|
(383,798
|
)
|
$
|
(717,326
|
)
|
|
|
Adjustments
to reconcile net loss to net cash
|
|||||||
|
used
in operating activities:
|
|||||||
|
Stock
based compensation expense
|
221,221
|
-
|
|||||
|
Provision
(recoveries) for bad debts
|
(50,654
|
)
|
21,000
|
||||
|
Depreciation
and amortization
|
39,343
|
51,815
|
|||||
|
Amortization
of debt discount
|
-
|
418,085
|
|||||
|
Provision
for sales returns & allowances
|
-
|
(85,068
|
)
|
||||
|
Gain
on disposal of property and equipment
|
-
|
(2,551
|
)
|
||||
|
Changes
in assets and liabilities:
|
|||||||
|
Accounts
receivable
|
587,221
|
(326,366
|
)
|
||||
|
Inventory,
prepaid expenses, and other assets
|
121,701
|
60,276
|
|||||
|
Accounts
payable
|
(614,188
|
)
|
527,771
|
||||
|
Accrued
payroll and related taxes
|
(31,364
|
)
|
(70,705
|
)
|
|||
|
Deferred
revenue
|
(116,495
|
)
|
229,998
|
||||
|
Other
accrued liabilities
|
583
|
(184,346
|
)
|
||||
|
Deferred
rent
|
20,706
|
23,890
|
|||||
|
Net
cash used in operating activities
|
(205,724
|
)
|
(53,527
|
)
|
|||
|
INVESTING
ACTIVITIES
|
|||||||
|
Purchases
of property and equipment
|
(34,685
|
)
|
(54,319
|
)
|
|||
|
Proceeds
from sale of property and equipment
|
1,044
|
4,150
|
|||||
|
Net
cash used in investing activities
|
(33,641
|
)
|
(50,169
|
)
|
|||
|
FINANCING
ACTIVITIES
|
|||||||
|
Proceeds
from exercise of stock options
|
4,636
|
47,503
|
|||||
|
Net
cash provided by financing activities
|
4,636
|
47,503
|
|||||
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
(234,729
|
)
|
(56,193
|
)
|
|||
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF YEAR
|
2,331,011
|
2,387,204
|
|||||
|
CASH
AND CASH EQUIVALENTS AT END OF YEAR
|
$
|
2,096,282
|
$
|
2,331,011
|
|||
|
SUPPLEMENTAL
DISCLOSURE
|
|||||||
|
OF
CASH FLOW INFORMATION
|
|||||||
|
Cash
paid for interest
|
$
|
9,556
|
$
|
47,668
|
|||
|
Cash
paid for income taxes
|
$
|
800
|
$
|
700
|
|||
|
SUPPLEMENTAL
DISCLOSURE OF NON-CASH FINANCING
|
|||||||
|
AND
INVESTING ACTIVITIES
|
|||||||
|
Conversion
of debt to equity
|
$
|
-
|
$
|
1,639,318
|
|||
The
accompanying notes form an integral part of these financial
statements.
Page
32
MITEK
SYSTEMS, INC.
STATEMENTS
OF STOCKHOLDERS' EQUITY
FOR
THE
YEARS ENDED SEPTEMBER 30, 2007 AND 2006
|
Common
|
Additional
|
Total
|
||||||||||||||
|
Stock
|
Common
|
Paid-In
|
Accumulated
|
Stockholders
|
||||||||||||
|
Outstanding
|
Stock
|
Capital
|
Deficit
|
Equity
|
||||||||||||
|
Balance,
September 30, 2005
|
14,332,337
|
$
|
14,332
|
$
|
12,672,635
|
$
|
(11,640,133
|
)
|
1,046,834
|
|||||||
|
Exercise
of stock options
|
71,389
|
71
|
47,432
|
47,503
|
||||||||||||
|
Common
stock issued in exchange for convertible debt
|
2,341,883
|
2,343
|
1,636,975
|
1,639,318
|
||||||||||||
|
Net
loss
|
(717,326
|
)
|
(717,326
|
)
|
||||||||||||
|
Balance,
September 30, 2006
|
16,745,609
|
$
|
16,746
|
$
|
14,357,042
|
$
|
(12,357,459
|
)
|
$
|
2,016,329
|
||||||
|
Exercise
of stock options
|
5,528
|
5
|
4,631
|
4,636
|
||||||||||||
|
Stock-based
compensation expense
|
0
|
0
|
221,221
|
221,221
|
||||||||||||
|
Net
loss
|
(383,798
|
)
|
(383,798
|
)
|
||||||||||||
|
Balance,
September 30, 2007
|
16,751,137
|
$
|
16,751
|
$
|
14,582,894
|
$
|
(12,741,257
|
)
|
$
|
1,858,388
|
||||||
The
accompanying notes form an integral part of these financial
statements.
Page
33
MITEK
SYSTEMS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED SEPTEMBER 30, 2007 AND 2006
NOTE
1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature
of
Operations - Mitek Systems, Inc. (the "Company") is a developer and marketer
of
pattern recognition products which enable the automation of costly labor
intensive business functions such as check and remittance processing, forms
processing, order entry and fraud detection. Our proprietary software algorithms
allow process images of scanned documents in many ways, including image
“cleanup” and repair, image quality analysis, document identification, and the
extraction of hand-printed as well as machine-printed text.
During
the years ended September 30, 2007 and 2006, the Company has incurred losses
of
$383,798 and $717,326, respectively. Cash used for operations increased from
$53,527 in 2006 to $205,724 in 2007. The Company has a cash balance of
approximately $2.1 million as of September 30, 2007. Management believes that
the current cash balance and cash expected to be generated from operations
for
the next twelve months will be adequate to satisfy its working capital needs
for
the next twelve months. Should additional losses occur, the Company may need
to
raise significant additional funds to continue its activities. In the absence
of
positive cash flows from operations, the Company may be dependent on its ability
to secure additional funding through the issuance of debt or equity instruments.
If adequate funds are not available, the Company may be forced to significantly
curtail its operations or to obtain funds through entering into additional
collaborative agreements or other arrangements that may be on unfavorable terms.
The Company's failure to raise sufficient additional funds on favorable terms,
or at all, would have a material adverse effect on its business, results of
operations and financial position.
Basis
of
Accounting - The financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America.
Accounting
Estimates
-
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. Examples include estimates of loss
contingencies and product life cycles, and assumptions such as the elements
comprising a software arrangement, including the distinction between
upgrades/enhancements and new products; and when technological feasibility
is
achieved for our products. The Balance Sheet items that are significantly
impacted by estimates include the contingencies related to the collectability
of
accounts receivable, the useful lives of fixed assets and the associated
depreciation expense thereupon, and the valuation of tax losses and credits.
In
addition, we use assumptions to estimate the fair value of stock-based
compensation. Actual results may differ from management’s estimates and
assumptions.
Fair
Value of Financial Instruments - The carrying amount of cash, cash equivalents,
accounts receivable, accounts payable, and accrued liabilities are considered
representative of their respective fair values because of the short-term nature
of those instruments.
Page
34
Revenue
Recognition - Revenue from sales of software licenses sold through direct and
indirect channels, which do not contain multiple elements, are recognized upon
shipment of the related product, if the requirements of Statement of Position
("SOP") 97-2, as amended, are met. If the requirements of SOP 97-2, including
evidence of an arrangement, delivery, fixed or determinable fee, collectability
or vendor specific evidence about the fair value of an element are not met
at
the date of shipment, revenue is not recognized until such elements are known
or
resolved. Customer support services, or maintenance revenues, include
post-contract support and the rights to unspecified upgrades and enhancements.
Vendor specific objective evidence (“VSOE”) of fair value for customer support
is determined by reference to the price the company’s customer’s pay for such
element when sold separately; that is, the renewal rates offered to customers.
Revenue from post-contract customer support is recognized ratably over the
term
of the contract. Revenue from professional services is recognized when such
services are delivered and accepted by the customer. When a software sales
arrangement requires professional services related to significant production,
modification or customization of software, or when a customer considers our
professional services essential to the functionality of the software product,
we
follow the guidance in Statement of Position 81-1, Accounting
for Performance
of Construction-Type and Certain Production-Type Contracts.
In
these arrangements, revenue is recognized based on predetermined milestone
objectives required to complete the project, under the guidance of SOP 81-1.
Any
expected losses on contracts in progress are recorded in the period in which
the
losses become probable and reasonably estimable.
Deferred
Revenue - Deferred revenue represents customer billings, paid either upfront
or
annually at the beginning of each billing period, which are accounted for as
subscriptions with revenue recognized ratably over the billing coverage period.
For certain other licensing arrangements revenue attributable to undelivered
elements, including post contract customer support which typically includes
telephone support and the right to receive unspecified upgrades/enhancements
on
our software on a when-and-if-available basis, is based upon the sales price
of
those elements when sold separately and is recognized ratably on a straight-line
basis over the term of the agreement
Stock-Based
Compensation - On October 1, 2006, Mitek adopted SFAS 123R, Share-Based
Payment,
which
requires the measurement and recognition of compensation expense for all
stock-based payment awards made to employees and directors based on estimated
fair values. SFAS 123R supersedes Mitek’s previous accounting under Accounting
Principles Board Opinion (“APB”) 25, Accounting
for Stock Issued to Employees
and SFAS
123, Accounting
for Stock-Based Compensation.
In
March 2005, the SEC issued SAB 107 relating to SFAS 123R. Mitek has applied
the
provisions of SAB 107 in its adoption of SFAS 123R. See Note 3-Accounting for
Stock-Based Compensation for additional information regarding Mitek’s
share-based compensation plans and the impact of adopting SFAS
123R.
Advertising
expense - Advertising costs are expensed as incurred and totaled approximately
$14,000 and $24,000 during the years ended September 30, 2007, and 2006,
respectively.
Cash
and
Cash Equivalents - Cash equivalents are defined as highly liquid financial
instruments with original maturities of three months or less. A substantial
portion of our cash is deposited with one financial institution. We monitor
the
financial condition of the financial institution and we do not believe that
the
deposit is subject to a significant degree of risk. However, the bank has FDIC
insurance of up to $100,000, and any financial problems with the bank may impact
the company.
Page
35
Allowance
for Doubtful Accounts - The allowance for doubtful accounts reflects our best
estimate for probable losses inherent in the accounts receivable balance. We
determine the allowance based on known troubled accounts, historical experience,
and other currently available evidence.
Inventories
- Inventories consisting of finished goods are recorded at the lower of cost
or
market.
Property
and equipment - Property and Equipment are carried at cost. Following is a
summary of property and equipment as of September 30, 2007.
|
Property
and equipment - at cost:
|
||||
|
Equipment
|
$
|
621,350
|
||
|
Furniture
and fixtures
|
132,015
|
|||
|
Leasehold
improvements
|
49,299
|
|||
|
$
|
802,664
|
|||
|
Less:
accumulated depreciation and amortization
|
(724,837
|
)
|
||
|
Total
|
$
|
77,827
|
||
Depreciation
and amortization of property and equipment are provided using the straight-line
method over estimated useful lives ranging from three to five years. Leasehold
improvements are amortized over the shorter of the life of the lease or 7 years.
Expenditures for repairs and maintenance are charged to operations while
renewals and betterments are capitalized. We have not capitalized any renewals
and betterments in fiscal 2007. Total repairs and maintenance expenses for
the
year ended September 30, 2007 amounted to approximately $39,000. Depreciation
and amortization of property and equipment totaled approximately $39,000 and
$52,000 for the years ended September 30, 2007 and 2006,
respectively.
Long-Lived
Assets - We periodically evaluate the carrying value of long-lived assets
including license agreements and other intangible assets when events and
circumstances indicate that these assets may be impaired or whether any revision
to the related amortization periods should be made. This evaluation is based
on
management’s projections of the undiscounted future cash flows associated with
each product or asset. If management’s evaluation were to indicate that the
carrying values of these intangible assets were impaired, the impairment to
be
recognized is measured by the amount the carrying amount of the assets exceeds
the fair value of the assets. We did not record any impairment for the years
ended September 30, 2007 and 2006.
Research
and Development -
Research and development costs are expensed in the period incurred.
Capitalized
Software Development Costs - The company accounts for software development
costs
intended for sale in accordance with SFAS No. 86, Accounting
for Costs of Computer
Software to be Sold, Leased, or Otherwise Marketed
(“SFAS
86”). SFAS 86 requires product development costs to be charged to expense as
incurred until technological feasibility is attained and all other research
and
development activities for the hardware components of the product have been
completed. Technological feasibility is attained when the Company has completed
the planning, design and testing phase of development and the product has been
determined viable for its intended use, which typically occurs when beta testing
commences. The time between the attainment of technological feasibility and
the
completion of software development has historically been relatively short with
immaterial amounts of development costs incurred during this period.
Accordingly, the Company has not capitalized any software development costs
during the periods presented.
Page
36
Income
Taxes - The Company accounts for income taxes in accordance with Statement
of
Financial Accounting Standards No. 109, Accounting
for Income Taxes.
Deferred tax assets and liabilities arise from temporary differences between
the
tax bases of assets and liabilities and their reported amounts in the financial
statements that will result in taxable or deductible amounts in future
years.
Management
evaluates the available evidence about future taxable income and other possible
sources of realization of deferred tax assets. The valuation allowance reduces
deferred tax assets to an amount that represents management’s best estimate of
the amount of such deferred tax assets that more likely than not will be
realized. - see Note 3.
Net
Income ( Loss)
Per
Share - We calculate net income (loss) per share in accordance with Statement
of
Financial Accounting Standards (“SFAS”) No. 128, Earnings
per Share.
Basic
net income (loss) per share is based on the weighted average number of common
shares outstanding during the period. Diluted net income per share also gives
effect to all potential dilutive common shares outstanding during the period,
such as convertible debt, options and warrants, if dilutive. Outstanding stock
options for fiscal 2007 and 2006 of 2,510,879 and 2,616,246
respectively, were excluded from this calculation, as they would have been
antidilutive. In addition,
1,060,000
Laurus warrants and 321,428 Harland warrants were excluded from this calculation
in fiscal 2007 and fiscal 2006, as they would reduce net loss per share.
Segment
Reporting - SFAS No. 131, Disclosures
About Segments of an Enterprise and Related Information,
results
in the use of a management approach in identifying segments of an enterprise.
Management has determined that we operate in only one segment.
Comprehensive
Income (Loss) - There are no differences between net income and comprehensive
income and, accordingly, no amounts have been reflected in the accompanying
financial statements and a statement of comprehensive loss is not
presented.
Recent
Accounting Pronouncements
In
February 2006, the FASB issued Statement of Financial Accounting Standards
No. 155 (“SFAS 155”), Accounting
for Certain Hybrid Financial Instruments
which
amends Statement of Financial Accounting Standards No. 133 (“SFAS 133”),
Accounting
for Derivative Instruments and
Hedging Activities
and
Statement of Financial Accounting Standards No. 140 (“SFAS 140”),
Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities.
SFAS
155 simplifies the accounting for certain derivatives embedded in other
financial instruments by allowing them to be accounted for as a whole if the
holder elects to account for the whole instrument on a fair value basis. SFAS
155 also clarifies and amends certain other provisions of SFAS 133 and SFAS
140.
SFAS 155 is effective for all financial instruments acquired, issued or subject
to a remeasurement event occurring in fiscal years beginning after
September 15, 2006. Earlier adoption is permitted, provided the Company has
not yet issued financial statements, including for interim periods, for that
fiscal year. Since the Company has no derivative instruments or hedging
activities, we do not expect the adoption of SFAS 155 to have a material impact
on our financial position, results of operations or cash flows.
Page
37
In
July
2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), Accounting
for Uncertainty
in Income Taxes,
which
prescribes a recognition threshold and measurement process for recording in
the
financial statements uncertain tax positions taken or expected to be taken
in a
tax return. Additionally, FIN 48 provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods and
disclosure requirements for uncertain tax positions. The accounting provisions
of FIN 48 are effective for reporting periods beginning after December 15,
2006. The Company is currently assessing the impact of the adoption of FIN
48
and its impact on our financial position, results of operations, or cash flows.
In
September 2006, the FASB issued SFAS No. 157 Fair
Value Measurements
(“SFAS
157”). SFAS 157 provides a new single authoritative definition of fair value and
provides enhanced guidance for measuring the fair value of assets and
liabilities and requires additional disclosures related to the extent to which
companies measure assets and liabilities at fair value, the information used
to
measure fair value, and the effect of fair value measurements on earnings.
SFAS
157 is effective for us as of January 28, 2008. We are currently assessing
the impact, if any, of SFAS 157 on our financial position, results of operation,
or cash flows.
In
September 2006, the SEC released Staff Accounting Bulletin No. 108
Considering
the Effects
of Prior Year Misstatements When Quantifying Misstatements in Current Year
Financial Statements
(“SAB
108”). SAB 108 provides interpretative guidance on how public companies quantify
financial statement misstatements. There have been two common approaches used
to
quantify such errors. Under an income statement approach, the “roll-over”
method, the error is quantified as the amount by which the current year income
statement is misstated. Alternatively, under a balance sheet approach, the
“iron
curtain” method, the error is quantified as the cumulative amount by which the
current year balance sheet is misstated. In SAB 108, the SEC established an
approach that requires quantification of financial statement misstatements
based
on the effects of the misstatements on each of the company’s financial
statements and the related financial statement disclosures. This model is
commonly referred to as a “dual approach” because it requires quantification of
errors under both the roll-over and iron curtain methods. SAB 108 is effective
for us as of January 1, 2007. The adoption of SAB 108 is not expected to
have a material impact on our financial position, results of operations, or
cash
flows.
Page
38
In
February 2007, the FASB issued SFAS No. 159, The
Fair Value Option for Financial Assets and Financial Liabilities —
including an amendment of SFAS No. 115, which
allows measurement at fair value of eligible financial assets and liabilities
that are not otherwise measured at fair value. If the fair value option for
an
eligible item is elected, unrealized gains and losses for that item shall be
reported in current earnings at each subsequent reporting date. SFAS
No. 159 also establishes presentation and disclosure requirements designed
to draw comparison between the different measurement attributes the company
elects for similar types of assets and liabilities. This statement is effective
for fiscal years beginning after November 15, 2007. We are in the process
of evaluating the application of the fair value option and its effect on our
results of operations or financial condition.
NOTE
2 - INVENTORIES, PREPAID EXPENSES AND OTHER CURRENT ASSETS
Inventories,
prepaid expenses and other current assets consisted of the following at
September 30, 2007:
|
Inventories
|
$
|
2,376
|
||
|
Prepaid
insurance
|
37,196
|
|||
|
Deposits
and prepaid rent
|
22,762
|
|||
|
Prepaid
expenses
|
37,142
|
|||
|
Total
|
$
|
99,476
|
NOTE
3 - ACCOUNTING FOR STOCK BASED COMPENSATION
Adoption
of SFAS 123 (R)
On
October 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004),
Share-Based Payment,
(“SFAS
123(R)”) which establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services,
primarily focusing on accounting for transactions where an entity obtains
employee services in share-based payment transactions. SFAS No. 123(R)
requires an entity to measure the cost of employee services received in exchange
for an award of equity instruments, including stock options, based on the
grant-date fair value of the award and to recognize it as compensation expense
over the period the employee is required to provide service in exchange for
the
award, usually the vesting period. SFAS 123(R) supersedes the Company’s previous
accounting under Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees
(APB 25)
for periods beginning in fiscal 2007. In March 2005, the Securities and Exchange
Commission issued Staff Accounting Bulletin No. 107 (SAB 107) relating to
SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption
of SFAS 123(R).
The
Company adopted SFAS 123(R) using the modified prospective transition method.
In
accordance with the modified prospective transition method, the Company’s
Financial Statements for prior periods have not been restated to reflect, and
do
not include, the impact of SFAS 123(R).
Page
39
Prior
to
the adoption of SFAS 123(R), the Company accounted for stock-based awards to
employees and directors using the intrinsic value method in accordance with
APB
25 as allowed under Statement of Financial Accounting Standards
No. 123,
Accounting for Stock-Based Compensation
(SFAS
123). Under the intrinsic value method, no stock-based compensation expense
had
been recognized in the Company’s Statement of Operations, other than as related
to option grants to employees and consultants below the fair market value of
the
underlying stock at the date of grant.
Stock-based
compensation expense recognized during the period is based on the value of
the
portion of share-based payment awards that is ultimately expected to vest during
the period. Stock-based compensation expense recognized in the Company’s
Statement of Operations for the twelve month period ended September 30, 2007
included compensation expense for share-based payment awards granted prior
to,
but not yet vested as of September 30, 2006 based on the grant date fair value
estimated in accordance with the provisions of SFAS 123 and compensation expense
for the share-based payment awards granted subsequent to September 30, 2006
based on the grant date fair value estimated in accordance with the provisions
of SFAS 123(R). As stock-based compensation expense recognized in the Statement
of Operations for the twelve months of fiscal 2007 is based on awards ultimately
expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R)
requires forfeitures to be estimated at the time of grant and revised, if
necessary, in subsequent periods if actual forfeitures differ from those
estimates. The estimated average forfeiture rates for the twelve months ended
September 30, 2007 of approximately
12% for grants to all employees were based on historical forfeiture experience.
The estimated expected remaining contractual life of stock option grants for
the
twelve month period ended September 30, 2007 was 1.3 years on grants to
directors and 7.2 years on grants to employees. In the Company’s pro forma
information required under SFAS 123 for the periods prior to fiscal 2007, the
Company accounted for forfeitures as they occurred.
SFAS
123R
requires the cash flows resulting from the tax benefits resulting from tax
deductions in excess of the compensation cost recognized for those options
to be
classified as financing cash flows. Due to the Company’s valuation allowance
from losses in the previous years, there were no such tax benefits during the
twelve month period ended September 30, 2007. Prior to the adoption of SFAS
123(R) those benefits would have been reported as operating cash flows had
the
Company received any tax benefits related to stock option
exercises.
The
fair
value of stock-based awards to employees and directors is calculated using
the
Black-Scholes option pricing model. The Black-Scholes model requires subjective
assumptions, including future stock price volatility and expected time to
exercise, which greatly affect the calculated values. The expected term of
options granted is derived from historical data on employee exercises and
post-vesting employment termination behavior. The risk-free rate selected to
value any particular grant is based on the U.S Treasury rate that corresponds
to
the expected life of the grant effective as of the date of the grant. The
expected volatility is based on the historical volatility of the Company’s stock
price. These factors could change in the future, affecting the determination
of
stock-based compensation expense in future periods.
Page
40
Valuation
and Expense Information under SFAS 123(R)
The
value
of stock-based compensation is based on the single option valuation approach
under SFAS 123R. It is assumed no dividends will be declared. The estimated
fair
value of stock-based compensation awards to employees is amortized using the
straight-line method over the vesting period of the options. The fair value
calculations for stock-based compensation awards to employees for the twelve
month period ended September 30, 2007 were based on the following
assumptions:
|
|
Twelve
Months
Ended
September
30, 2007
|
|||
|
Risk-free
interest rate
|
4.49%
- 4.71
|
%
|
||
|
Expected
life (years)
|
4.5
- 6.1
|
|||
|
Expected
volatility
|
90
|
%
|
||
|
Expected
dividends
|
None
|
|||
The
following table summarizes stock-based compensation expense related to stock
options under SFAS 123(R) for the twelve month period ended September 30,
2007 which was allocated as follows:
|
Twelve
Months
Ended
September
30, 2007
|
||||
|
Research
and development
|
$
|
21,517
|
||
|
Sales
and marketing
|
49,864
|
|||
|
General
and administrative
|
149,840
|
|||
|
Stock-based
compensation expense related to employee stock options included in
operating expenses
|
$
|
221,221
|
||
The
following table summarizes vested and unvested options, fair value per share,
weighted average remaining term and aggregate intrinsic value:
|
Number
of Shares
|
Weighted
Average Grant Date Fair Value Per Share
|
Weighted
Average Remaining contractual life (in Years)
|
Aggregate
Intrinsic Value
|
||||||||||
|
September
30, 2007
|
|||||||||||||
|
Vested
|
2,167,235
|
0.65
|
6.03
|
23,315
|
|||||||||
|
Unvested
|
343,644
|
0.48
|
8.62
|
1,214
|
|||||||||
|
Total
|
2,510,879
|
0.65
|
6.39
|
24,529
|
|||||||||
Page
41
As
of
September 30, 2007, the company had $151,706 of unrecognized compensation
expense expected to be recognized over a weighted average period of
approximately 1.81 years. During the twelve month period ended September 30,
2007, 5,528 options with intrinsic value of $3,380 were exercised.
Pro
Forma Information Under SFAS 123 for Periods Prior to Fiscal
2007
Prior
to
fiscal 2007, the weighted-average fair value of stock-based compensation to
employees was based on the single option valuation approach.
The
following table illustrates the effect on net loss and net loss per share at
our
fiscal year ended September 30, 2006 if we had applied the fair value
recognition provisions of SFAS No. 123 to stock-based
compensation.
|
Year
Ended
September
30, 2006
|
||||
|
Net
loss, as reported
|
($717,000
|
)
|
||
|
Add:
Stock-based employee compensation expense included in reported net
loss
net of related tax effects
|
-
|
|||
|
Deduct:
Total stock-based employee compensation expense determined under
the fair
value method, net of related tax effects
|
(406,000
|
)
|
||
|
Pro
Forma net loss
|
($1,123,000
|
)
|
||
|
Net
loss per share - basic and diluted, as reported
|
$
|
(
.05
|
)
|
|
|
Pro
Forma net loss per share - basic and diluted
|
$
|
(
.07
|
)
|
|
NOTE
4 - INCOME TAXES
For
the
years ended September 30, 2007 and 2006 the provision for income taxes were
as
follows:
|
2007
|
2006
|
||||||
|
Federal
- Current
|
$
|
0
|
$
|
0
|
|||
|
State
- Current
|
$
|
800
|
$
|
800
|
|||
|
Total
|
$
|
800
|
$
|
800
|
|||
Page
42
Under
SFAS No. 109, deferred income tax liabilities and assets reflect the net tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax
purposes.
Significant
components of our net deferred tax liabilities and assets as of September 30,
2007 and 2006 are as follows:
|
2007
|
2006
|
||||||
|
Deferred
tax assets (liabilities):
|
|||||||
|
Reserves
not currently deductible
|
$
|
8,000
|
$
|
28,000
|
|||
|
Book
depreciation and amortization in excess of tax
|
25,000
|
30,000
|
|||||
|
Stock
based compensation
|
88,000
|
- | |||||
|
Research
credit carryforwards
|
51,000
|
551,000
|
|||||
|
AMT
credit carryforward
|
69,000
|
69,000
|
|||||
|
Net
operating loss carryforwards
|
5,175,000
|
4,763,000
|
|||||
|
Capitalized
research and development costs
|
535,000
|
832,000
|
|||||
|
Uniform
capitalization
|
1,000
|
2,000
|
|||||
|
Other
|
302,000
|
356,000
|
|||||
|
Total
deferred tax assets
|
6,254,000
|
6,631,000
|
|||||
|
Valuation
allowance for net deferred tax assets
|
(6,254,000
|
)
|
(6,631,000
|
)
|
|||
|
Total
|
$
|
-
|
$
|
-
|
|||
We
have
provided a valuation allowance against deferred tax assets recorded as of
September 30, 2007 and 2006 due to uncertainties regarding the realization
of
such assets.
The
research credit and net operating loss carryforwards expire during the years
2007 to 2025. The federal and California net operating loss carryforwards at
September 30, 2007 are approximately $14,201,000 and $7,457,000,
respectively.
The
differences between the provision for income taxes and income taxes computed
using the U.S. federal income tax rate were as follows for the years ended
September 30:
|
2007
|
2006
|
||||||
|
Amount
computed using statutory rate
|
$
|
(132,000
|
)
|
$
|
(260,000
|
)
|
|
|
Net
change in valuation allowance
for
net deferred tax assets
|
(377,000
|
)
|
300,000
|
||||
|
Non-deductible
items
|
3,000
|
8,000
|
|||||
|
Expired
credit
|
529,000
|
||||||
|
State
income taxes
|
(
22,200
|
)
|
(
47,200
|
)
|
|||
|
Provision
for income taxes
|
$
|
800
|
$
|
800
|
|||
Page
43
NOTE
5 - COMMITMENTS AND CONTINGENCIES
Legal
Matters -
We are
not aware of any legal proceedings or claims that Management believes may have,
individually or in the aggregate, a material adverse effect on the business,
financial condition, operating results, cash flow or liquidity.
Employee
401(k) Plan - We
have a
401(k) plan that allows participating employees to contribute up to 15% of
their
salary, subject to annual limits. The Board may, at its sole discretion, approve
Mitek’s contributions. During fiscal 2007 and 2006, the Board elected not to
make any contributions to the plan.
Termination
of Merger Agreement - On
July
14, 2006, the Company announced that it had entered into an agreement to acquire
substantially all of the assets and liabilities of Parascript LLC
(“Parascript”), a Wyoming limited liability company. On January 23, 2007, Mitek
notified Parascript that it was terminating the merger agreement. In connection
with the merger, Mitek had accrued, but not yet paid, approximately $700,000
of
fees and costs which were expensed as incurred. As a result of the termination
of the merger agreement, Mitek was subject to additional merger related expenses
of up to approximately $1,300,000. During the quarter ended March 31 and June
30, 2007, we conducted discussions with the service providers who had provided
merger related services regarding the total amounts owed by Mitek inclusive
of
the approximate $1,300,000 of potential liabilities. During the quarter ended
March 31, 2007, we settled all outstanding merger related expenses with the
exception of an estimated $250,000 for remaining potential liabilities which
was
accrued in the quarter ended March 31, 2007. We settled the remaining potential
liabilities related to the merger for approximately $250,000 during the quarter
ended June 30, 2007. All accrued liabilities to various vendors who provided
merger related services have been paid during the quarter ended March 31, 2007
and in the quarter ended June 30, 2007. There are no merger related obligations
as of September 30, 2007.
Leases
- Our
office is leased under a non-cancelable operating lease. The lease costs are
expensed on a straight-line basis over the lease term. In September 2005, we
signed a seven year lease for a property located at 8911 Balboa Avenue, San
Diego, California and moved in early December of 2005. The initial term of
the
Lease is seven years. The Lease will be terminable by the Company after the
calendar month which is forty-eight (48) full calendar months after the
Commencement Date; however, termination will require certain penalties to be
paid equal to two months of base rent
and
all unamortized improvements and commissions. As of the date of this financial
statement, the Company does not have any intent to terminate this office
lease
Future
annual minimum rental payments payable by us under non-cancelable leases are
as
follows:
|
Operating
Leases
|
||||
|
Year
Ending September 30:
|
||||
|
2008
|
313,762
|
|||
|
2009
|
323,318
|
|||
|
2010
|
332,874
|
|||
|
2011
|
342,430
|
|||
|
2012
|
351,986
|
|||
|
Thereafter
|
58,930
|
|||
|
Total
|
$
|
1,723,300
|
||
Page
44
Rent
expense for operating leases for the years ended September 30, 2007 and 2006
totaled $326,304 and $337,639, respectively.
NOTE
6 - ISSUANCE OF CONVERTIBLE DEBT
On
June
11, 2004, we secured a financing arrangement with Laurus Master Fund (“Laurus”).
The financing consists of a $3 million Secured Note that bears interest at
the
rate of prime (as published in the Wall Street Journal), plus one percent and
has a term of three years (matures June 11, 2007).
As
noted
below, on June 2, 2006, Laurus converted the remaining Secured Note balance
to
Common Stock, leaving no principal balance due. The Secured Note was convertible
into shares of our common stock at an initial fixed price of $0.70 per share,
a
premium to the 10-day average closing share price as of June 11, 2004. The
Secured Note was not convertible until the sooner of (a) time the shares
underlying the debt was registered with the SEC and declared effective or (b)
shares were available for trading under the provisions of Rule 144.The
conversion price of the Secured Note was subject to adjustment upon the
occurrence of certain events, such as anti-dilution provisions, all of which
were within the control of the company. A registration rights agreement was
executed requiring us to register the shares of our common stock underlying
the
Secured Note and warrants so as to permit the public resale thereof. Liquidated
damages of 2% of the Secured Note balance per month would accrue if stipulated
deadlines were not met. Prior to the end of fiscal 2004, we incurred a penalty
of $208,000 to Laurus Funds for failing to register the securities underlying
the Secured Notes and Warrants. On October 4, 2004, the Company settled this
penalty with Laurus Master Fund, LLC by agreeing to issue an additional warrant
for the purchase of 200,000 shares at a price of $0.70 per share. The value
of
this additional warrant was calculated by us to be $73,159, using a
Black-Scholes option pricing model. We incurred additional liquidated damages,
payable in cash, in the amount of $215,000 for the period January 1, 2005 to
May
13, 2005. The registration became effective on May 13, 2005.
In
conjunction with raising capital through the issuance of convertible debt,
the
Company has issued various warrants that have registration rights for the
underlying shares. As the contracts required the company to register the
shares underlying the warrants and which contained liquidating damages, which
is
not within the control of the Company by September 10, 2004, pursuant to EITF
00-19, “Accounting for Derivative Financial Instruments Indexed to, and
Potentially Settled in, a Company’s Own Stock”, the value of the warrants at the
date of issuance was recorded as a warrant liability on the balance sheet
($367,887) and the change in fair value from the date of issuance to September
30, 2004 and the applicable period in 2005 has been included in other (expense)
income.
Page
45
In
connection with the financing, Laurus was also issued warrants to purchase
up to
860,000 shares of our common stock. The warrants are exercisable as follows:
230,000 shares at $0.79 per share; 230,000 shares at $0.85 per share and the
balance at $0.92 per share. The gross proceeds of the convertible debt were
allocated among the debt instrument and the warrants. Then we computed the
beneficial conversion feature embedded in the debt instrument using the
effective conversion price in accordance with EITF 98-5 and 00-27. We have
recorded a debt discount of (i) $367,887 for the valuation of the 860,000
warrants issued with the note (computed using a Black-Scholes model with an
interest rate of 2.53%, volatility of 81%, zero dividends and expected term
of
three years); (ii) $522,384 for a beneficial conversion feature inherent in
the
Secured Note and (iii) $151,000 for debt issue costs paid to affiliates of
the
lender, for a total discount of $1,041,271. The $1,041,271 is being amortized
over the term of the Secured Note. Cumulative amortization of the debt discounts
through June 30, 2006 was $1,041,271. The amortization of above mentioned
expenses were approximately $418,000 in fiscal 2006 and approximately $527,000
in fiscal 2005. The effective annual interest rate of this Convertible Debt,
after considering the total debt issue costs (discussed below), was
approximately 36%.
On
June
11, 2004, to secure the payment of all obligations, we entered into a Master
Security Agreement which assigned and granted to Laurus a continuing security
interest in all of the following property now owned or at any time upon
execution of the agreement, acquired by us or subsidiaries, or in which any
assignor now have or at any time in the future may acquire any right, title
or
interest: all cash, cash equivalents, accounts, deposit accounts, inventory,
equipment, goods, documents, instruments (including, without limitation,
promissory notes), contract rights, general tangibles, chattel paper, supporting
obligations, investment property, letter-of-credit rights, trademarks, trademark
applications, patents, patent applications, copyrights, copyright applications,
trade styles and any other intellectual property, in each case, in which any
Assignor now has or may acquire, any right, title or interest, all proceeds
and
products thereof (including, without limitation, proceeds of insurance) and
all
additions, accessions and substitutions. In the event any Assignor wishes to
finance an acquisition in the ordinary course of business of any
hereafter-acquired equipment and have obtained a commitment from a financing
source to finance such equipment from an unrelated third party, Laurus agreed
to
release its security interest on such hereafter-acquired equipment so financed
by such third party financing source.
The
Secured Note stipulated that it was to be repaid using cash payment along with
an equity conversion option; the details of both methods for repayment are
as
follows: The cash repayments stipulated that beginning on December 1, 2004,
or
the first amortization date, we would make monthly payments to Laurus on each
repayment date until the maturity date, each in the amount of $90,909, together
with any accrued and unpaid interest to date. The conversion repayment stated
that each month by the fifth business day prior to each amortization date,
Laurus would deliver to us a written notice converting the monthly amount
payable on the next repayment date in either cash or shares of common stock,
or
a combination of both. If a repayment notice was not delivered by Laurus on
or
before the applicable notice date for such repayment date, then we would pay
the
monthly amount due in cash. Any portion of the monthly amount paid in cash
would
be paid to Laurus in an amount equal to 102% of the principal portion of the
monthly amount due. If Laurus converted all or a portion of the monthly amount
in shares of our common stock, the number of such shares to be issued by us
would be the number determined by dividing the portion of the monthly amount
to
be paid in shares of common stock, by the applicable fixed conversion price.
Page
46
At
various time during fiscal 2006 through June 2, 2006, Laurus exercised its
right
to convert the outstanding principal balance of the note to common stock at
the
conversion price of $0.70 per share, leaving no principal balance due. We have
therefore expensed all unamortized deferred financing costs associated with
this
debt as of June 2, 2006. In fiscal 2006, we issued 2,341,883 shares of common
stock to Laurus upon conversion of $1,639,318 of debt to equity. In fiscal
2005,
we issued 800,000 shares of common stock to Laurus upon conversion of $560,000
of debt to equity. Interest expense, including expensing of unamortized
financing costs and amortization of financing costs, paid to Laurus during
fiscal 2006 amounted to approximately $466,000.
NOTE
7 - RELATED
PARTY TRANSACTIONS
John
H.
Harland Company made an investment in Mitek in February and May 2005, which
is
discussed in detail in Note 8 under Stockholders’ Equity in our 10-KSB for our
fiscal year 2006. John Harland acquired a total of 2,142,856 shares of
unregistered common stock for an aggregate purchase price of $1,500,000 or
$0.70
per share. As part of the acquisition of shares, John Harland received warrants
to purchase 321,428 additional shares of common stock at $0.70 per share. This
transaction resulted in John H. Harland Company and its subsidiary, Harland
Financial Services, (collectively “John Harland”) being considered related
parties. John Harland is not involved in the management decisions of the Company
and does not participate in any board meetings, unless invited.
In
fiscal
2007, we realized revenue of approximately $680,000 with John H. Harland Company
for engineering development services and for maintenance covering engineering
development services. In addition, we realized revenue of approximately $197,000
in software license and software maintenance. At September 30, 2007 there was
a
balance due from John H. Harland Company of approximately $180,000. This balance
was paid subsequent to September 30, 2007. In fiscal 2006, we realized revenue
of approximately $1,100,000 with John H. Harland Company for engineering
development services. We will not realize engineering development services
revenue and related maintenance revenue from John H. Harland in the future.
John
H. Harland has terminated its agreement for engineering services and related
maintenance revenue in the fourth quarter of fiscal 2007. The loss of revenue
from John H. Harland may have an adverse impact on our revenue in the coming
year.
In
fiscal
2007, we realized revenue of approximately $122,000 with Harland Financial
Solutions, a subsidiary of John Harland, for software license purchases and
for
software maintenance. At September 30, 2007 there was a balance due from Harland
Financial Solutions of approximately $22,000. This balance was paid subsequent
to September 30, 2007. In fiscal 2006, we realized revenue with Harland
Financial Solutions for software license purchases and software maintenance
for
approximately $100,000.
Page
47
NOTE
8 - STOCKHOLDERS’
EQUITY
Shares
Issued For Conversion Of Debt To Equity
In
fiscal
2006, we issued 2,341,883 shares of common stock to Laurus upon conversion
of
$1,639,318 in principal to equity. No shares were issued in fiscal
2007.
Stock
Options
We
have
stock option plans for executives and key individuals who make significant
contributions to Mitek. The option price to those persons owning more than
10%
of the total combined voting power of the Corporation’s stock shall not be less
than 110% of the fair market value of the stock as determined on the date of
the
grant of the options.
The
1996
plan provides for the purchase of up to 2,000,000 shares of common stock through
incentive and non-qualified options. Options are granted with an exercise price
equal to the fair market value of our stock at the grant date and for a term
of
not more than ten years. Employees owning in excess of 10% of the outstanding
stock are included in the plan on the same terms except that the options must
be
granted for a term of not more than five years. All the options available under
the 1996 plan were granted prior to March of 1999 and no additional options
will
be granted under this plan.
The
1999
plan provides for the purchase of up to 1,000,000 shares of common stock through
incentive and non-qualified options. Incentive stock options are granted with
an
exercise price equal to the fair market value of our stock at the grant date
and
for a term of not more than ten years. Non-qualified stock options may be
granted with an exercise price not less than 85% of fair market value of our
stock at the grant date, and for a term of not more than five years. To date,
we
have elected to grant non-qualified stock option grants under the 1999 plan
with
a three year term.
The
2000
plan provides for the purchase of up to 1,000,000 shares of common stock through
incentive and non-qualified options. Incentive options must be granted with
an
exercise price equal to the fair market value of our stock at the grant date
and
for a term of not more than ten years. Non-qualified stock options may be
granted with an exercise price of not less than 85% of fair market value of
our
stock at the grant date, and for a term of not more than five years. To date,
we
have elected to grant non-qualified stock option grants under the 2000 plan
with
a three year term.
The
2002
plan provides for the purchase of up to 1,000,000 shares of common stock through
incentive and non-qualified options. Incentive options must be granted with
an
exercise price equal to the fair market value of our stock at the grant date
and
for a term of not more than ten years. Non-qualified stock options may be
granted with an exercise price of not less than 85% of fair market value of
our
stock at the grant date, and for a term of not more than five years. To date,
we
have elected to grant non-qualified stock option grants under the 2002 plan
with
a three year term.
Page
48
The
2006
plan provides for the purchase of up to 1,000,000 shares of common stock through
incentive and non-qualified options. Incentive options must be granted with
an
exercise price equal to the fair market value of our stock at the grant date
and
for a term of not more than ten years. Non-qualified stock options may be
granted with an exercise price of not less than 85% of fair market value of
our
stock at the grant date, and for a term of not more than five years. To date,
we
have elected to grant non-qualified stock option grants under the 2006 plan
with
a three year term.
Information
concerning stock options granted by Mitek under all plans for the years ended
September 30, 2007 and 2006 is as follows:
|
Number
of
Shares
|
Weighted
Average Exercise Price Per Share
|
Weighted
Average Remaining Contractual Term (in Years)
|
||||||||
|
Balance,
September 30, 2005
|
2,006,719
|
$
|
1.06
|
|||||||
|
Granted:
|
||||||||||
|
Board
of Directors
|
175,000
|
$
|
.85
|
|||||||
|
Executive
Officers
|
525,000
|
$
|
.95
|
|||||||
|
Employees
|
347,000
|
$
|
.84
|
|||||||
|
Exercised
|
(71,389
|
)
|
$
|
1.04
|
||||||
|
Cancelled
|
(366,084
|
)
|
$
|
2.46
|
||||||
|
Balance,
September 30, 2006
|
2,616,246
|
$
|
1.01
|
|||||||
|
Granted:
|
||||||||||
|
Board
of Directors
|
90,000
|
$
|
.74
|
|||||||
|
Executive
Officers
|
-
|
-
|
||||||||
|
Employees
|
230,000
|
$
|
.72
|
|||||||
|
Exercised
|
(5,528
|
)
|
$
|
.84
|
||||||
|
Cancelled
|
(419,839
|
)
|
$
|
1.08
|
||||||
|
Balance,
September 30, 2007
|
2,510,879
|
$
|
.96
|
6.39
|
||||||
The
following table summarizes information about stock options outstanding on
September 30, 2007:
|
Range
of Exercise
Price
|
Number
Outstanding
|
Weighted
Average Remaining Contractual Life
|
Weighted
Average Exercise
Price
|
Number
Exercisable
|
Weighted
Average Exercise Price of Exercisable Options
|
Number
Unvested
|
|||||||||||||
|
$
0.43- - $ 0.69
|
515,111
|
6.35
|
$
|
0.51
|
490,833
|
$
|
0.51
|
24,278
|
|||||||||||
|
$
0.70- - $ 0.92
|
1,038,722
|
6.29
|
$
|
0.79
|
719,356
|
$
|
0.80
|
319,366
|
|||||||||||
|
$
1.06- - $ 1.68
|
865,000
|
6.82
|
$
|
1.13
|
865,000
|
$
|
1.13
|
-
|
|||||||||||
|
$
2.13- - $ 2.68
|
60,525
|
4.29
|
$
|
2.32
|
60,525
|
$
|
2.32
|
-
|
|||||||||||
|
$
3.25- - $12.37
|
31,521
|
2.53
|
$
|
6.81
|
31,521
|
$
|
6.81
|
-
|
|||||||||||
|
2,510,879
|
6.39
|
$
|
.96
|
2,167,235
|
$
|
1.00
|
343,644
|
||||||||||||
Page
49
NOTE
9 - PRODUCT REVENUES AND SALES CONCENTRATIONS
Product
Revenues - During fiscal years 2007 and 2006, our revenues were derived
primarily from the Character Recognition Product line. Revenues by product
line
as a percentage of net sales are summarized as follows:
|
Year
Ended September 30,
|
|||||||
|
2007
|
2006
|
||||||
|
Character
recognition
|
57
|
%
|
50
|
%
|
|||
|
Maintenance
& Other
|
43
|
%
|
50
|
%
|
|||
Sales
Concentrations - The Company sells its products primarily to community
depository institutions. For the years ended September 30, 2007 and 2006, the
Company had the following sales concentrations:
|
Year
Ended September 30,
|
|||||||
|
2007
|
2006
|
||||||
|
Customers
to which sales were
|
|||||||
|
in
excess of 10% of total sales
|
|||||||
|
Number
of customers
|
2
|
2
|
|||||
|
Aggregate
percentage of sales
|
32
|
%
|
35
|
%
|
|||
|
Foreign
Sales - primarily Europe & Asia
|
28
|
%
|
15
|
%
|
|||
Accounts
receivable to the customers to which sales were in excess of 10% of total sales
was approximately $237,000 as of September 30, 2007. This entire amount was
paid
subsequent to September 30, 2007. Sales to these customers including related
parties during fiscal 2007 were approximately $1,751,000.
Of
the
$542,000 accounts receivable as shown at September 30, 2007, $450,970 were
collected subsequent to September 30, 2007 but prior to December 1,
2007.
Below
is
a summary of the revenue by product lines:
|
2007
|
2006
|
||||||
|
Revenue
(000’s)
|
|||||||
|
Recognition
Toolkits
|
$
|
3,108
|
$
|
2,872
|
|||
|
Document
and Image Processing Solutions
|
50
|
116
|
|||||
|
Maintenance
and other
|
2,412
|
3,033
|
|||||
|
Total
Revenue
|
$
|
5,570
|
$
|
6,021
|
|||
Page
50
None
ITEM
8A. CONTROLS
AND PROCEDURES
Under
the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, we have evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period
covered by this report. Based on that evaluation, the Chief Executive Officer
and Chief Financial Officer have concluded that these disclosure controls and
procedures are effective as of the year ended September 30, 2007.
We
have
not made any changes in our internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d - 15(f) under the Exchange Act)
during the fiscal year ended September 30, 2007 that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
ITEM
8B. OTHER INFORMATION
None
PART
III
Pursuant
to our Bylaws, the Board of Directors has fixed the number of authorized
directors at seven. The members of the Board of Directors serve until the next
annual meeting of stockholders, or until their successors have been elected.
The
officers serve at the pleasure of the Board of Directors. The following table
includes the names and certain information about our directors and executive
officers.
Page
51
|
Name
|
Age
|
Position
|
||
|
John
M. Thornton
|
75
|
Chairman
of the Board
|
||
|
James
B. DeBello
|
49
|
Chief
Executive Officer, Director
|
||
|
Tesfaye
Hailemichael
|
57
|
Chief
Financial Officer
|
||
|
Michael
Bealmear (1)(2)(3)
|
60
|
Director
|
||
|
Vinton
Cunningham (2)
|
71
|
Director
|
||
|
Gerald
I. Farmer, Ph. D.(2) (3)
|
73
|
Director
|
||
|
Sally
B. Thornton
|
73
|
Director
|
||
|
William
P. Tudor (1)
|
61
|
Director
|
(1) Compensation
Committee
(2) Audit
Committee
(3)
Nominating
& Corporate Governance Committee
John
M. Thornton.
Mr.
Thornton has been a director of Mitek since March 1986. He was appointed
Chairman of the Board as of October 1, 1987 and served as President, Chief
Executive Officer and Chief Financial Officer from September 1998 to May 2003,
when he resigned from his positions as President and Chief Executive Officer.
He
resigned from his position as Chief Financial Officer in May 2005. He continues
to serve as Chairman of the Board. Previously, he served as President of Mitek
from May 1991 through July 1991 and Chief Executive Officer from May 1991
through February 1992. From 1976 through 1988, Mr. Thornton served as Chairman
and Vice Chairman of the Board at Micom Systems, Inc. Mr. Thornton was Chairman
and President of Wavetek Corporation for 18 years. Mr. Thornton is also Chairman
of the Board of Thornton Winery Corporation in Temecula,
California.
James
B. DeBello.
Mr.
DeBello has been a director of Mitek since November 1994. He has been President
and Chief Executive Officer of Mitek since May 2003. Previously he was Chief
Executive Officer of AsiaCorp Communications, Inc., a wireless data
infrastructure and software company, from July 2001 to May 2003. He was Venture
Chief Executive Officer for IdeaEdge Ventures, Inc., a venture capital company,
from June 2000 to June 2001. From May 1999 to May 2000 he was President, Chief
Operating Officer and a member of the Board of Directors of CollegeClub.com,
an
internet company. From November 1998 to April 1999 he was Chief Operating
Officer of WirelessKnowledge, Inc., a joint venture company formed between
Microsoft and Qualcomm, Inc. Before that, from November 1996 to November 1998,
Mr. DeBello held positions as Vice President, Assistant General Manager and
General Manager of Qualcomm, Inc.’s Eudora Internet Software Division, and Vice
President of Product Management of Qualcomm, Inc.’s Subscriber Equipment
Division. Mr. DeBello holds a B.A., magna cum laude and MBA from Harvard
Business School and was a Rotary Scholar at the University of Singapore where
he
studied economics and Chinese.
Page
52
Tesfaye
Hailemichael.
Mr.
Hailemichael joined Mitek in May 2005 as Chief Financial Officer. Prior to
joining Mitek, he served as Chief Financial Officer at Maxwell Technologies
from
2003 to 2005. Prior to that, he served as Chief Financial Officer at Raidtec
Ltd
from 2001 to 2003. Prior to that, he served as Executive Vice President and
Director of Transnational Computer Technology, Inc. from 1998 to 2001. Mr.
Hailemichael served as Vice President of Finance and Chief Financial Officer
of
Dothill Systems, Inc. from 1990 to 1998.
Michael
Bealmear.
Mr.
Bealmear has been a director of Mitek since April 2004. He has been President
and Chief Executive Officer of Hyperroll since 2004. He was EVP and President
of
Worldwide Operations at Sybase, Inc. from 2002 to 2004. From 2001 to 2000 he
was
CEO at Convansys, Inc., from 1999 to 2000 he was CEO at Spear Technologies,
and
from 1997 to 1998 he was EVP at Cadence Design Systems.
Vinton
Cunningham.
Mr.
Cunningham has been a director of the Company since May 2005. Retired since
2002, he served as Sr. Vice-President-Finance of EdVision Corporation from
1993
to 2002. Mr. Cunningham was Chief Operating Officer and Chief Financial Officer
of Founders Club Golf Company from 1990 to 1993. He was Vice President-Finance
of Amcor Capital, Inc from 1985 to 1990. Mr. Cunningham was Chief Financial
Officer and Treasurer of Superior Farming Company, a wholly owned subsidiary
of
Superior Oil Company, from 1981 to 1985.
Gerald
I. Farmer.
Dr.
Farmer has been a director of the Company since May 1994. He was Executive
Vice
President of the Company from November 1992 until June 1997. Before joining
the
Company, Dr. Farmer was Executive Vice President of HNC Software, Inc. from
January 1987 to November 1992. He has held senior management positions with
IBM
Corporation, Xerox, SAIC and Gould Imaging and Graphics.
Sally
B. Thornton.
Ms.
Thornton has been a director of the Company since April 1988. She has been
a
private investor for more than forty years. She served as a director of Micom
Systems, Inc. from 1976 to 1988. From 1987 until 1996 she served as Chairman
of
Medical Materials, Inc, a composite plastics manufacturer. Ms. Thornton is
on
the Board of Directors of Thornton Winery Corporation in Temecula, California.
She has been a Trustee of the Sjorgren’s Syndrome Foundation in New York and
Stephens College in Missouri. Ms. Thornton is also a Life Trustee of the San
Diego Museum of Art. Ms. Thornton is the spouse of John M. Thornton, Chairman
of
the Board.
William
P. Tudor.
Mr.
Tudor has been a director of the Company since September 2004. He is President
of Parent Tutor. Prior to that he was Executive Vice President of Scantron
Corporation from July 2002 to July 2005. He was Chief Executive Officer of
EdVision from June 1990 to July 2002.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section
16(a) of the Securities Exchange Act of 1934 requires our officers and directors
and persons who own more than 10% of a registered class of our equity securities
to file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than 10% stockholders
are
required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file. Based solely on a
review of Forms, 3, 4, and 5 and amendments thereto furnished to us, we are
not
aware of any director, officer or beneficial owner of 10% of our common stock
that failed to file on a timely basis as disclosed on the above forms, reports
required by Section 16(a) of the Securities Exchange Act of 1934, as amended,
during fiscal year 2007, except that Messrs. Thornton, Bealmear, Cunningham,
Farmer and Tudor and Ms. Thornton failed to file a timely Form 4 to reflect
option grants made on February 27, 2007.
Page
53
We
have
adopted the Mitek Systems, Inc. financial Code of Professional Conduct (the
“finance code of ethics”), a code of ethics that applies to our Chief Executive
Officer, Chief Financial Officer and other finance organization employees.
The
finance code of ethics is publicly available on our website at
www.miteksystems.com. If we make any amendments to the finance code of ethics
or
grant any waiver, including any implicit waiver, from a provision of the code
to
our Chief Executive Office and Chief Financial Officer that requires disclosure
under applicable SEC rules, we intend to disclose the nature of such amendment
or waiver on our website.
ITEM
10. EXECUTIVE
COMPENSATION
The
following table shows the compensation Mitek paid to its Chief Executive Officer
and other executive officers who served as such at the end of fiscal 2007 and
received annual compensation over $100,000.
|
Principal
Position
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Common
Stock Underlying Options (#)
|
||||||
|
James
B. DeBello
President
& Chief Executive Officer
|
2007
2006
2005
2004
|
332,174
316,113
300,385
275,000
|
—
—
—
|
—
350,000
800,000
|
|||||||||
|
Tesfaye
Hailemichael
Chief
Financial Officer
|
2007
2006
2005
|
181,191
173,250
67,872
|
—
—
|
—
125,000
150,000
|
|||||||||
Stock
Options
There
were no stock options granted during the fiscal year ended September 30, 2007
to
the individuals named in the Summary Compensation Table. The following table
shows, as to the individuals named in the Summary Compensation Table,
information concerning stock options granted during the fiscal year ended
September 30, 2006.
Page
54
Option
Grants in Fiscal Year 2006
|
Number
of Securities Underlying Options Granted
|
Total
Options
Granted
to Employees in FY 2006
|
Exercise
or Base Price
|
Expiration
|
Potential
Realizable Value at Assumed Annual Rates of Stock Price Appreciation
for
Option Term (2)
|
|||||||||||||||
|
(#)(1)
|
(%)
|
($/Share)
|
Date
|
5%($)
|
10%($)
|
||||||||||||||
|
James
B. DeBello
|
100,000
100,000
150,000
|
10
10
14
|
%
%
%
|
0.80
0.82
1.10
|
10/18/15
11/17/15
07/09/16
|
50,328
51,586
103,835
|
127,552
130,741
263,192
|
||||||||||||
|
Tesfaye
Hailemichael
|
25,000
100,000
|
2
10
|
%
%
|
0.80
1.10
|
10/18/15
07/09/16
|
12,582
69,223
|
31,888
175,461
|
||||||||||||
|
(1)
|
Options
vest monthly over a three-year period and have terms of ten years,
subject
to earlier termination on the occurrence of certain events related
to
termination of employment. In addition, the full vesting of the option
is
accelerated if there is a change in control of the Company. The options
expiring on July 9, 2016 were fully vested on the date of the grant
which
was July 10, 2006.
|
|
(2)
|
The
potential realizable value at assumed annual rates of stock price
appreciation for the option term represents hypothetical gains that
could
be achieved for the respective options if exercised at the end of
the
option term. The 5% and 10% assumed annual rates of compounded stock
price
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent our estimate or projection of our
future
common stock prices. These amounts represent assumed rates of appreciation
in the value of our common stock from the fair market value on the
date of
the grant. The amounts reflected in the table may not necessarily
be
achieved.
|
The
following table shows, as to the individuals named in the Summary Compensation
Table, information concerning stock option values at the fiscal year end
September 30, 2007.
|
Aggregated
Option Exercises in Last Fiscal Year
and
Fiscal Year-End Option Values
|
|||||||||||||
|
Number
of Securities Underlying Unexercised Options at FY
End
|
Value
of Unexercised In-the Money Options at FY-End
($)(1)
|
||||||||||||
|
Exercisable
|
Unexercisable
|
Exercisable
|
Unexercisable
|
||||||||||
|
James
B. DeBello
|
1,052,741
|
97,259
|
188,887
|
11,113
|
|||||||||
|
Tesfaye
Hailemichael
|
232,611
|
42,389
|
-
|
-
|
|||||||||
(1) Based
on
a closing bid price of $0.55 on September 28, 2007 as reported on the OTC
BB.
ITEM
11. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
The
table
below shows, as of November 30, 2007, the amount and class of the Company’s
voting stock owned beneficially (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended) by (i) each director of the
Company, (ii) the executive officers named in the Summary Compensation
Table, (iii) all directors and executive officers as a group and
(iv) each person known by us to own beneficially 5% or more of any class of
the Company’s voting stock (except as noted below). The business address for
each of these stockholders is c/o Mitek Systems, Inc., 8911 Balboa Ave., Suite
B, San Diego, CA 92123.
Page
55
|
Name
of beneficial Owner or Identify of Group
|
Number
of shares of common stock Beneficially Owned
|
Percent
of Class
|
|||||
|
John
M. and Sally B. Thornton
|
2,844,959
|
(1)
|
16.98
|
%
|
|||
|
Gerald
I. Farmer
|
45,000
|
(2)
|
*
|
||||
|
James
B. DeBello
|
1,150,000
|
(3)
|
6.87
|
%
|
|||
|
Michael
Bealmear
|
45,000
|
(4)
|
*
|
||||
|
William
Tudor
|
80,000
|
(5)
|
*
|
||||
|
Vinton
Cunningham
|
45,000
|
(6)
|
*
|
||||
|
Tesfaye
Hailemichael
|
275,000
|
(7)
|
1.64
|
%
|
|||
|
John
Harland Company
|
2,464,284
|
(8)
|
14.71
|
%
|
|||
|
White
Pine Capital, LLC
|
984,900
|
(9)
|
5.88
|
%
|
|||
|
Directors
and Officers as a Group
|
4,484,959
|
(10)
|
26.77
|
%
|
|||
| * | Less than 1%. |
|
(1)
|
John
M. Thornton and Sally B. Thornton, husband and wife, are trustees
of a
family trust, and are each directors of the Company. Includes 145,000
shares of common stock subject to options exercisable within 60 days
of
November 30, 2007.
|
|
(2)
|
Includes
45,000 shares of common stock subject to options exercisable within
60
days of
November 30, 2007.
|
|
(3)
|
Includes
1,097,183 shares of common stock subject to options exercisable within
60
days of November 30, 2007.
|
|
(4)
|
Includes
45,000 shares of common stock subject to options exercisable within
60
days of
November 30, 2007.
|
|
(5)
|
Includes
35,000 shares of common stock held by Mr. Tudor, and 45,000 shares
of
common stock subject to options exercisable within 60 days of
November 30, 2007.
|
|
(6)
|
Includes
45,000 shares of common stock subject to options exercisable within
60
days of
November 30, 2007.
|
|
(7)
|
Includes
252,051 shares of common stock subject to options exercisable within
60
days of
November 30, 2007.
|
|
(8)
|
Based
solely on Schedule 13G filed by the beneficial owner with the SEC
on May
13, 2005. The beneficial owner’s address is 2939 Miller Road, Decatur,
Georgia 30035.
|
|
(9)
|
Based
solely on Schedule 13G filed by the beneficial owner with the SEC
on
December 31, 2006. The beneficial owner’s address is 60 South 6th Street,
Suite 2530, Minneapolis, Minnesota
55402.
|
|
(10)
|
Includes
1,529,234 shares of common stock subject to options exercisable within
60
days of
November 30, 2007.
|
Information
with respect to beneficial ownership is based on information furnished to the
Company by each person identified above.
Page
56
Equity
Compensation Plan Information
The
following table sets forth information, as of September 30, 2007, with
respect to the Company’s compensation plans under which common stock is
authorized for issuance.
|
Plan
category
|
Number
of
securities
to
be
issued
upon
exercise
of
outstanding
options,
warrants
and
rights
|
Weighted-average
exercise
price of
outstanding
options,
warrants
and
rights
|
Number
of securities
remaining
available
for
future
issuance
under
equity
compensation
plans
(excluding
securities
reflected
in
column
(a)
|
|||||||
|
(a)
|
(b)
|
(c)
|
||||||||
|
Equity
compensation plans approved by security holders
|
2,510,879
|
0.96
|
1,592,311
|
|||||||
|
Equity
compensation
plans
not approved by
security
holders
|
-0-
|
-0-
|
-0-
|
|||||||
|
Total
|
2,510,879
|
0.96
|
1,592,311
|
|||||||
There
have been no related party transactions with Mitek directors or executive
officers in the last three fiscal years.
ITEM
13. EXHIBITS
|
Exhibit No.
|
Description
|
Incorporated
by Reference from Document
|
No.
in Document
|
|||
|
2.1
|
Amended
and Restated Agreement and Plan of Merger dated September 18, 2006
by and
among Mitek Systems, Inc., a Delaware corporation and Mitek Acquisition
Sub, LLC, a Wyoming limited liability company and Parascript, LLC,
a
Wyoming limited liability company and Parascript Management, Inc.,
a
Wyoming corporation, as the Member Representative.
|
A
|
2.1
|
Page
57
|
Exhibit No.
|
Description
|
Incorporated
by Reference from Document
|
No.
in Document
|
|||
|
3.1
|
Certificate
of Incorporation of Mitek Systems, Inc.
|
A
|
3.1
|
|||
|
3.2
|
Bylaws
of Mitek Systems, Inc.
|
A
|
3.2
|
|||
|
10.1
|
Mitek
Systems, Inc. 2006 Stock Option Plan.
|
A
|
10.1
|
|||
|
23.1
|
Consent
of Mayer Hoffman McCann P.C. and
Stonefield Josephson, Inc.
|
Filed
herewith
|
||||
|
31.1
|
Certification
of Periodic Report by the Chief Executive Officer Pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934..
|
Filed
herewith
|
||||
|
31.2
|
Certification
of Periodic Report by the Chief Financial Officer Pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934.
|
Filed
herewith
|
||||
|
32.1
|
Certification
of Periodic Report by the Chief Executive Officer Pursuant to Section
906
of the Sarbanes-Oxley Act of 2002.
|
Filed
herewith
|
||||
|
32.2
|
Certification
of Periodic Report by the Chief Financial Officer Pursuant to Section
906
of the Sarbanes-Oxley Act of 2002.
|
Filed
herewith
|
A.
Incorporated by reference to Mitek’s Registration Statement on Form S-4
Registration Number 333-138495.
Page
58
ITEM
14 PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Audit
Fees
The
fees
for professional services rendered for the audit of our financial statements
for
each of the fiscal years ended September 30, 2007 and September 30, 2006, and
the reviews of the financial statements included in our Quarterly Reports on
Form 10-Q (or 10-QSB) or services normally provided by the independent auditors
in connection with statutory or regulatory filings or engagements, were
approximately $133,000 to Mayer Hoffman McCann P.C. and approximately $70,000
to
Stonefield Josephson Inc. for a total of $203,000 for fiscal 2007, and
approximately $164,000 to Stonefield Josephson Inc. for fiscal
2006.
Audit
Related Fees
There
were no audit related fees for the fiscal years ended September 30, 2007 or
September 30, 2006.
Tax
Fees
There
were no fees for tax compliance, tax advice or tax planning billed or expected
to be billed by our independent auditors for the fiscal years ended September
30, 2007 or September 30, 2006.
All
Other Fees
Other
than described above, there were no other fees paid to our independent auditors.
The Audit Committee believes there were no services provided by our independent
auditors which would effect their independence.
Pre-Approval
Policies
In
accordance with the Audit Committee Charter, the Audit Committee has established
policies and procedures by which it approves in advance any audit and
permissible non-audit services to be provided by the Company’s independent
auditors. Under these procedures, prior to the engagement of the independent
auditor for pre-approved services, requests or applications for the auditors
to
provide services must be submitted to the Audit Committee and must include
a
detailed description of the services to be rendered. The chief financial officer
and the independent auditors must ensure that the independent auditors are
not
engaged to perform the proposed services unless those services are within the
list of services that have received the Audit Committee’s pre-approval and must
cause the Audit Committee to be informed in a timely manner of all services
rendered by the independent auditors and the related fees.
Each
request or application must include:
| ● |
a
recommendation by the chief financial officer as to whether the Audit
Committee should approve the request or application;
and
|
Page
59
| · |
a
joint statement of the chief financial officer and the auditors
as to
whether, in their view, the request or application is consistent
with the
Securities and Exchange Commission’s and the requirements for auditor
independence of the Public Company Accounting Oversight Board
(“PCAOB”).
|
The
Audit
Committee also will not permit the independent auditors to be engaged to provide
any services to the extent that the Securities and Exchange Commission has
prohibited the provision of those services by independent auditors, which
generally include:
| · |
bookkeeping
or other services related to accounting records or financial statements;
|
| · |
financial
information systems design and implementation;
|
| · |
appraisal
or valuation services, fairness opinions or contribution-in-kind
reports;
|
| · |
actuarial
services;
|
| · |
internal
audit outsourcing services;
|
| · |
management
functions;
|
| · |
human
resources;
|
| · |
broker-dealer,
investment adviser or investment banking services;
|
| · |
legal
services;
|
| · |
expert
services unrelated to the audit; and
|
| · |
any
service that the PCAOB determines is not
permissible.
|
Page
60
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on
its
behalf by the undersigned, thereunto duly authorized.
| Dated: December 11, 2007 | MITEK SYSTEMS, INC. | |
| |
|
|
| By: | /s/ James B. DeBello | |
|
James B. DeBello, |
||
| President, Chief Executive Officer | ||
Page
61
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
|
/s/
John M. Thornton
|
December
11, 2007
|
|
|
John
M. Thornton,
|
||
|
Chairman
of the Board
|
||
|
and
Director)
|
||
|
/s/
James B. DeBello
|
December
11, 2007
|
|
|
James
B. DeBello,
|
||
|
President
|
||
|
and
Chief Executive Officer
|
||
|
(Principal
Executive Officer
|
||
|
and
Director)
|
||
|
/s/Tesfaye
Hailemichael
|
December
11, 2007
|
|
|
Tesfaye
Hailemichael
|
||
|
Chief
Financial officer
|
||
|
/s/
Gerald I. Farmer
|
December
11, 2007
|
|
|
Gerald
I. Farmer, Director
|
||
|
/s/
Michael Bealmear
|
December
11, 2007
|
|
|
Michael
Bealmear, Director
|
||
|
/s/
Sally B. Thornton
|
December
11, 2007
|
|
|
Sally
B. Thornton, Director
|
||
|
/s/
William P. Tudor
|
December
11, 2007
|
|
|
William
P. Tudor, Director
|
||
|
/s/
Vinton Cunningham
|
December
11, 2007
|
|
|
Vinton
Cunningham, Director
|
Page
62
SUPPLEMENTAL
INFORMATION
CORPORATE
OFFICE
Mitek
Systems, Inc.
8911
Balboa Ave, Suite B
San
Diego, California 92123
(858)
503-7810
CORPORATE
OFFICERS
James
B.
DeBello , President and Chief Executive Officer
Tesfaye
Hailemichael, Chief Financial Officer
TRANSFER
AGENT
Mellon
Investor Services LLC
480
Washington Blvd., Jersey City, NJ 07310-1900
www.melloninvestor.com/isd
AUDITORS
Maher
Hoffman McCann, P.C.
10616
Scripps Summit Court, San Diego, California 92131
DIRECTORS
John
M.
Thornton, Chairman of the Board
Sally
B.
Thornton, Investor
Michael
Bealmear (1) (2)
James
B.
DeBello, President, Chief Executive Officer
Gerald
I.
Farmer, Ph.D. (2)
William
P. Tudor (1)
Vinton
Cunningham (2)
NOTES
(1)
Compensation Committee
(2)
Audit
Committee
Page
63
FORM
10-K REPORT
Copies
of
our Form 10-KSB report to the Securities and Exchange Commission, are available
free to stockholders and may be obtained by writing or calling Secretary,
Mitek
Systems, Inc., 8911 Balboa Ave., Suite B, San Diego, California 92123, phone
(858) 503-7810.
Page
64
Exhibit
23
INDEPENDENT
AUDITORS’
CONSENT
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in Registration Statement Nos.
333-80567, 333-58032, 333-106843 and 333-133765 on Form S-8 of our report dated
December 11, 2007, relating to the financial statements of Mitek Systems,
Inc., appearing in this Annual Report on Form 10-KSB of Mitek Systems, Inc.
for
the year ended September 30, 2007.
|
/s/
Mayer Hoffman McCann P.C.
|
|||
|
San
Diego, California
|
|||
|
December
11, 2007
|
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We
consent to the incorporation by reference in Registration Statement Nos.
33-3888, 333-23707, 333-80567, 333-58032 and 333-106843 of Mitek Systems, Inc.
of our report dated December 19, 2006 on the financial statements for the year
ended September 30, 2006, appearing in this Annual Report on Form 10-KSB of
Mitek Systems, Inc.
/s/
Stonefield Josephson, Inc.
Stonefield
Josephson, Inc.
Los
Angeles, California
December
6, 2007
Exhibit
31.1
CERTIFICATION
OF
CHIEF
EXECUTIVE OFFICER
I,
James
B. DeBello, certify that:
1. I
have
reviewed this annual report on Form 10-KSB of Mitek Systems, Inc.;
2. Based
on
my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on
my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this report.
4. The
registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared; and
b)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect,
the
registrant's internal control over financial reporting; and
5. The
registrant's other certifying officer(s) and I have disclosed, based on our
most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a)
All
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b)
Any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant's internal control over financial
reporting.
| Dated: December 11, 2007 | By: | /s/ James B. DeBello |
|
James
B. DeBello
Chief
Executive Officer
|
||
Exhibit
31.2
CERTIFICATION
OF
CHIEF
FINANCIAL OFFICER
I,
Tesfaye Hailemichael, certify that:
1. I
have
reviewed this annual report on Form 10-KSB of Mitek Systems, Inc.;
2. Based
on
my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made,
in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3. Based
on
my knowledge, the financial statements, and other financial information included
in this report, fairly present in all material respects the financial condition,
results of operations and cash flows of the registrant as of, and for, the
periods presented in this report.
4. The
registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange
Act
Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a)
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared; and
b)
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c)
Disclosed in this report any change in the registrant's internal control over
financial reporting that occurred during the registrant's most recent fiscal
quarter (the registrant's fourth fiscal quarter in the case of an annual report)
that has materially affected, or is reasonably likely to materially affect,
the
registrant's internal control over financial reporting; and
5. The
registrant's other certifying officer(s) and I have disclosed, based on our
most
recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent functions):
a)
All
significant deficiencies and material weaknesses in the design or operation
of
internal control over financial reporting which are reasonably likely to
adversely affect the registrant's ability to record, process, summarize and
report financial information; and
b)
Any
fraud, whether or not material, that involves management or other employees
who
have a significant role in the registrant's internal control over financial
reporting.
| December 11, 2007 | By: | /s/ Tesfaye Hailemichael |
|
Tesfaye
Hailemichael
Chief
Financial Officer
|
||
Exhibit
32.1
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER
I,
James
B. DeBello, Chief Executive Officer of Mitek Systems, Inc. (the “Registrant”),
do hereby certify pursuant to Rule 13a of the Securities and Exchange Act of
1934, as amended, and Section 906 of the Sarbanes-Oxley Act of 2002 and Section
1350 of Chapter 63 of Title 18 of the United States Code that:
(1)
the
Registrant’s Annual Report on Form 10-KSB of the Registrant for the year ended
September 30, 2007 (the "Report"), to which this statement is filed as an
exhibit, fully complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934, as amended; and
(2)
the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the
Registrant.
| Dated: December 11, 2007 | By: | /s/ James B. DeBello |
|
James
B. DeBello
Chief
Executive Officer
|
||
Exhibit
32.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
I,
Tesfaye Hailemichael, Chief Financial Officer of Mitek Systems, Inc. (the
“Registrant”), do hereby certify pursuant to Rule 13a of the Securities and
Exchange Act of 1934, as amended, and Section 906 of the Sarbanes-Oxley Act
of
2002 and Section 1350 of Chapter 63 of Title 18 of the United States Code
that:
(1)
the
Registrant’s Annual Report on Form 10-KSB of the Registrant for the year ended
September 30, 2007 (the "Report"), to which this statement is filed as an
exhibit, fully complies with the requirements of Section 13(a) of the Securities
Exchange Act of 1934, as amended; and
(2)
the
information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the
Registrant.
| Dated: December 11, 2007 | By: | /s/ Tesfaye Hailemichael |
|
Tesfaye
Hailemichael
Chief
Financial Officer
|
||