SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
Form
10-K
x ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the fiscal year ended September 30, 2009
o TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For
the transition period from _________ to ___________.
Commission
File Number 0-15235
MITEK
SYSTEMS, INC.
(Exact
name of registrant as specified in its charter)
|
Delaware
(State
of Incorporation)
|
87-0418827
(I.R.S.
Employer Identification No.)
|
|
8911
Balboa Ave., Suite B
San Diego,
California
(Address
of principal executive offices)
|
92123
(Zip
Code)
|
Registrant'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)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. Yes o No x
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No x
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this
chapter) during the preceding 12 months (or such shorter period that the
registrant was required to submit and post such
files). Yes o No o
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
|
Large
Accelerated Filer o
|
Accelerated
Filer o
|
|||
|
Non-Accelerated
Filer o
|
Smaller
Reporting Company x
|
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
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 December
23, 2009 (See definition of affiliate in Rule 12b-2 of the Exchange Act.) is
$8,300,825.
There
were 16,751,137 shares outstanding of the registrant's Common Stock as of
December 23, 2009.
MITEK
SYSTEMS, INC.
FORM
10-K
For
The Fiscal Year Ended September 30, 2009
|
Important
Note About Forward-Looking Statements
|
(i)
|
|
|
Part
I
|
||
|
Item
1.
|
Business.
|
1
|
|
Item
1A.
|
Risk
Factors.
|
6
|
|
Item
1B.
|
Unresolved
Staff Comments.
|
12
|
|
Item
2.
|
Properties.
|
12
|
|
Item
3.
|
Legal
Proceedings.
|
12
|
|
Item
4.
|
Submission
of Matters to a Vote of Security Holders
|
12
|
|
Part
II
|
||
|
Item
5.
|
Market
for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
|
13
|
|
Item
6.
|
Selected
Financial Data.
|
14
|
|
Item
7.
|
Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
|
14
|
|
Item
7A.
|
Quantitative
and Qualitative Disclosures About Market Risk
|
18
|
|
Item
8.
|
Financial
Statements and Supplementary Data
|
19
|
|
Item
9.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
39
|
|
Item
9A(T).
|
Controls
and Procedures
|
39
|
|
Item
9B.
|
Other
Information.
|
40
|
|
Part
III
|
||
|
Item
10.
|
Directors,
Executive Officers and Corporate Governance
|
41
|
|
Item
11.
|
Executive
Compensation
|
43
|
|
Item
12.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
45
|
|
Item
13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
47
|
|
Item
14.
|
Principal
Accountant Fees and Services
|
47
|
|
Part
IV
|
||
|
Item
15.
|
Exhibits
and Financial Statement Schedules
|
49
|
|
Signatures
|
50
|
|
|
Exhibit
Index
|
51
|
|
IMPORTANT
NOTE ABOUT FORWARD-LOOKING STATEMENTS
We make
forward-looking statements in this report, particularly in Item 1. "Business"
and Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations", and in the documents that are incorporated by reference
into this report, if any. 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 report 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 I,
Item 1A of this report, and in Mitek's other public filings with the Securities
and Exchange Commission, important factors could cause actual results to differ
materially from our expectations. These factors include, but are not limited
to:
|
|
·
|
adverse
economic conditions;
|
|
|
·
|
general
decreases in demand for Mitek products and
services;
|
|
|
·
|
intense
competition (including entry of new competitors), including among
competitors with substantially greater resources than
Mitek;
|
|
|
·
|
loss
of key customers or contracts;
|
|
|
·
|
increased
or adverse federal, state and local government
regulation;
|
|
|
·
|
inadequate
capital;
|
|
|
·
|
unexpected
costs;
|
|
|
·
|
lower
revenues and net income than
forecast;
|
|
|
·
|
the
risk of litigation and administrative
proceedings;
|
|
|
·
|
higher
than anticipated labor costs;
|
|
|
·
|
the
possible fluctuation and volatility of operating results and financial
condition;
|
|
|
·
|
adverse
publicity and news coverage;
|
|
|
·
|
inability
to carry out marketing and sales plans;
and
|
|
|
·
|
loss
of key employees and executives.
|
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 report 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.
(i)
PART
I
|
ITEM
1.
|
BUSINESS.
|
Overview
Mitek
Systems, Inc., referred to as "we," "our," "us," "Mitek," or the "Company" in
this report, was incorporated under the laws of the State of Delaware in 1986.
We are primarily engaged in the development and sale of software
solutions.
Our
business develops and markets intelligent character recognition and document
capture products and services deployed primarily in the financial services
markets. Our technology is currently used to process checks by banks and is used
in other markets for specialized applications.
During
the past fiscal year, we have leveraged our technology and industry customer
relationships to enter the rapidly growing market for smartphone mobile business
applications. Branded “Oomph” for Office on My Phone, our new mobile
applications use our proprietary technology to capture and read data from photos
of documents taken using camera-equipped smartphones.
We have
developed and deployed a software application that allows users to remotely
deposit a check using their smartphone camera. Additionally, we have developed
and deployed a receipt archival application and a mobile document faxing
application using our proprietary technology.
Products
and Related Markets
Our
product family consists of mobile applications and software development
toolkits, or “SDKs.” During fiscal year ended September 30, 2009, we had one
operating segment based on our product and service offerings that use our
intelligent character recognition and document capture technology, commonly
referred to as Image Analytics.
Document
Image Processing and Image Analytics
Since
1992, we have developed and marketed intelligent character recognition products
used to enable the automation of costly, labor-intensive business functions. Our
proprietary software processes images of documents in many ways, including
quality analysis, image repair, document identification and the extraction of
hand-printed and machine-printed text. These capabilities work on any scanned
check, invoice or other financial document, as well as most types of other
business forms including images captured on camera-equipped
smartphones.
Our
capabilities include:
|
|
·
|
Image
repair and optimization;
|
|
|
·
|
Optical
Character Recognition (“OCR”) and Intelligent Character Recognition
(“ICR”);
|
|
|
·
|
Dynamic
data finding on any document or
check;
|
|
|
·
|
Distributed
capture;
|
|
|
·
|
Courtesy
Amount Recognition (“CAR”) and Legal Amount Recognition
(“LAR”);
|
|
|
·
|
Image
analysis of signatures; and
|
|
|
·
|
Mobile
document capture.
|
OOMPH
Mobile Document Capture Applications using IMagePROVETM
We have
invented new pattern recognition algorithms that provide the ability to read and
extract data from any digital photo of a document taken by a
smartphone.
1
Dubbed
IMagePROVE, our mobile document capture software is an advanced form of Image
Analytics that converts any document photographed with a smartphone camera into
a digital image that is equivalent in size, resolution and quality to documents
scanned with traditional office copiers and fax machines.
Unlike
their scanned counterparts, mobile images captured by smartphones are exposed to
variable lighting conditions, various angles and focal distance. Raw photos of
documents taken by a smart phone may be of an unknown size and resolution from
the original document and are often geometrically distorted, skewed or warped.
As a result, the “raw” mobile document image is virtually unusable. IMagePROVE
uses advanced algorithms designed to identify and correct geometric and optical
distortions and automatically correct each mobile document image.
Using
IMagePROVE we have created OOMPH, a suite of business productivity applications
specifically for camera-equipped smartphones including the iPhone and selected
BlackBerry and Windows Mobile handsets. Our flagship application, Mobile
Deposit®, is the
first smartphone application to utilize Mitek’s image analytics and pattern
recognition software to allow banks to accept check deposits via images of
checks taken with camera-equipped smartphones. We began to recognize revenue
related to Mobile Deposit in the third fiscal quarter of 2009.
Mobile
Deposit is designed to enable a user to make a deposit by photographing the
front and back of a check and submitting the item electronically to their bank
from their smartphone. During fiscal 2009, we also launched Mobile Receipt and
Mobile Phax. Mobile ReceiptTM is
designed to convert the photo of a receipt taken with a smartphone into a high
quality image and with a single touch, converts the data into a professional
looking expense report. Mobile PhaxTM is
designed to allow a user to take a photo of any letter sized document or page
and send it as a portable document format (“PDF”) file to any email address or
fax machine.
ImageNetTM,
Intelligent Recognition Toolkits
Our
Intelligent Recognition Toolkits are marketed under the brand ImageNetTM and
include a suite of products that leverage our proprietary intelligent character
recognition and data extraction software engines. The ImageNet suite of
recognition toolkits includes the following products: Payments, Prep and ID,
Data Capture, Fraud and Signature. These products are sold to original equipment
manufacturers or "OEMs" such as Metavante Image Solutions, Harland Financial
Solutions, a John Harland Company, SunGard, BancTec, J&B Software and Leap,
Inc.
ImageNet
products are designed to provide a high level of accuracy in remittance
processing, proof of deposit and lock box processing applications. Our products
are used to reduce manual labor by automatically extracting amounts and routing
information from checks and distinguishing 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 other document types specified by
the customer.
ImageNet
PaymentsTM 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 that we license from a
vendor which is designed to specifically increase read rates of the currency and
legal amounts of checks drawn on US and Canadian financial
institutions.
ImageNet
Prep & IDTM is a
software toolkit that is designed to provide 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 to allow better
recognition, enhanced throughput, and higher accuracy rates.
ImageScoreTM 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 is designed to 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 increasing the integrity of check images they process, and they reduce costly
manual processes associated with managing transactions from bad check
images.
2
ImageNet
Data CaptureTM 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 is designed to locate 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 Capture as a
stand alone application programming interface, or "API," to several OEMs in the
document processing field.
ImageNet
SignaturesTM is
designed to locate, extract and verify signatures in any document. It encodes
each target signature and compares it with encoded reference examples rather
than comparing actual images. Mitek’s image analytics encode 60 characteristics
of each signature which allows for accurate signature fraud
detection.
Identity
Validation and Check Fraud Detection Toolkits
Our
FraudProtect™ Toolkit product is designed to detect 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 and can detect forged or illegally modified checks.
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 signatures on checks that pass through a bank, and analyzes
paper stock for any indication that an item is a counterfeit.
Pre-authorized
Draft, or "PAD," safe toolkit is the first toolkit of its kind using Mitek’s
patented technology to detect fraudulent preauthorized drafts. It is designed to
automatically identify PADs from checks, and then notify the user of potentially
suspicious PADs. This product helps reduce the withdrawal of unauthorized funds
due to fraudulent PAD transactions is reduced and often prevented.
Our
PayeeFind™ product is designed to prevent payee-altered checks from clearing. As
a result, PayeeFind™ can 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. PayeeFind™
is designed to prevent this type of fraud before recovery becomes an
issue.
Fraud
Detection Solution
FraudProtect™
System is a comprehensive, automated software application designed to allow
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.
Research
and Development
Typically,
our software products are developed internally. We also purchase or 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.
3
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 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 eight software engineers,
including four with advanced degrees, and four consultants as of September 30,
2009. We balance our engineering resources between development of ICR technology
and applications development. All of our software engineers are involved in
applications development, including ICR research and development of the Service
Oriented Architecture compliant ImageNet API recognition engine suite, with
solutions for Payments Prep & ID, Mobile Capture, Data Capture, Fraud
Detection and Signatures, quality assurance, and customer services and
support.
Intellectual
Property
Our
success depends significantly upon our proprietary technology. We attempt to
protect our intellectual property rights primarily through copyrights, trade
secrets, employee and third party nondisclosure agreements and other measures.
If we are unable to protect our intellectual property or infringe intellectual
property of a third party, our operating results could be harmed.
As of
September 30, 2009, we have been awarded a total of six patents, one of which
was awarded in 2009. Five of the 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, 2009,
we had five patent applications on file.
We have
21 registered trademarks and we 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.
Sales
and Marketing
We market
our products and services primarily through our internal, direct sales
organization. We contract the services of marketing companies to assist us with
our marketing strategy during new product introduction and to provide us insight
in marketing materials design. We employ a technically oriented sales force with
management assistance to identify the needs of existing and prospective
customers. Our sales strategy concentrates on OEMs, 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 mobile capture and remote data
capture market. We currently maintain our sales and support office in
California. In addition, we sell and support our products through foreign
resellers. 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 mostly appeal to large
organizations that want to acquire perpetual licenses to software products for
their entire enterprise.
4
International
sales accounted for approximately 15% and 35%, of our net sales for the fiscal
years ended September 30, 2009 and 2008, respectively. International sales in
fiscal year 2009 were made to customers in 14 countries including Australia,
Canada, Finland, Greece, Japan, Spain and the United Kingdom. We sell our
products in United States currency only. We recorded a significant portion (16%)
of our revenues from one customer in fiscal year 2009. In fiscal year 2008, 31%
of our net sales were to two customers.
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 customers purchase post contract support from us. These
services are a significant source of our recurring revenue and they are
typically contracted on an annual basis and priced at approximately 10% to 20%
of the license fee of the particular software product.
We
typically provide telephone maintenance and support on a contractual basis after
the initial product warranty of 90 days has expired. 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 distributors. 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
Our OOMPH
mobile products address a new market for the use of smartphone cameras and
therefore face emerging competition primarily from start-up ventures. We believe
our products are among the first smartphone solutions of their type, but we
anticipate growing competition as the market matures.
The
market for 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.
It is
also possible that we will face competition from participants new to the
industry. 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 potential customers.
5
Our
Service Oriented Architecture 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 and 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 our business,
operating results and financial condition.
Employees
and Labor Relations
As of
September 30, 2009, we employed a total of 13 persons, all of which are employed
on a full-time basis, consisting of two in sales and marketing, eight in
research and development, product management and support and three in finance,
administration and other capacities. We engaged various consultants in the area
of research and development, product development and marketing during the fiscal
year ended September 30, 2009. 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, quarterly reports,
current reports 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 website. Our public filings may also be obtained from the SEC’s website
at www.sec.gov. The information found on our website is not part of this or any
other report we file with or furnish to the SEC.
|
ITEM
1A.
|
RISK
FACTORS.
|
The risks
described below could materially and adversely affect our business, results of
operations, financial condition and liquidity. These risks are not the only
risks that we face. Our business operations could also be affected by additional
factors that apply to all businesses operating in the United States and
globally, as well as other risks that are not presently known to us or that we
currently consider to be immaterial to our operations.
Risks
Associated With Our Business
We
may need to raise additional capital to fund continuing operations. If our
financing efforts are not successful, we may not be able to continue as a going
concern.
We may
require additional financing in order to complete our stated plan of operations
for the next twelve months. There can be no assurance, however, that such
financing will be available or, if it is available, that we will be able to
structure such financing on terms acceptable to us or that it will be sufficient
to fund our cash requirements until we can reach a level of profitable
operations and positive cash flows. If we are unable to obtain the financing
necessary to support our operations, we will be unable to continue as a going
concern.
The
trading price of our shares of common stock and the tightening of the credit
markets, disruption in the financial markets and global economic downturn
experienced over the last several quarters could make it more difficult to
obtain financing through the issuance of equity or debt securities. Any
additional equity financing will be dilutive to our stockholders, and debt
financing, if available, may include restrictive covenants and require
significant collateral. Further, if we issue additional equity or debt
securities, stockholders may experience additional dilution or the new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our shares of common stock.
6
While we
believe that we will be successful in generating additional cash through outside
financing, the outcome of these matters cannot be predicted at this time. If we
are not able to secure additional funding, we may be required to defer, reduce
or eliminate certain planned expenditures or significantly curtail our
operations.
Note 1 to
our financial statements included in Item 8 of this report has additional
disclosures related to our ability to continue as a going concern.
We have a history of losses and we may not achieve
profitability in the future.
Our operations resulted in a net loss of approximately
$1,322,000 and $749,000 for the
years ended September 30, 2009 and 2008, respectively. In
addition, as a public company, we incur
significant legal, accounting, and other expenses related to being a public
company. As a result of these expenditures, we will have to generate and sustain
increased revenue to achieve and maintain future profitability. We may not
achieve sufficient revenue to achieve or maintain
profitability. We have incurred and may
continue to incur significant losses in the future for a number of reasons,
including due to the other risks described in this report, and we may encounter
unforeseen expenses, difficulties,
complications, delays, and other unknown factors. Accordingly, we may not be
able to achieve or maintain profitability and we may continue to incur
significant losses for the foreseeable future.
We do not have a current credit facility.
We have experienced a significant decline in working
capital over the last fiscal year. We do not currently have any credit
facilities in place, or any arrangement that we can draw upon for additional
capital. Our current cash on hand and cash
generated from operations may not be
sufficient to sustain our business 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.
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 incorporating our character recognition
technology. As a result, factors adversely affecting the pricing of or demand
for our products and services, such as competition from other products or
technologies, any decline in the demand for 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.
If
economic or other factors negatively affect the small and medium-sized business
sector, our customers may become unwilling or unable to purchase our products
and services, which could cause our revenue to decline.
Many of
our existing and target customers are in the small and medium business sector.
These businesses are more likely to be significantly affected by economic
downturns than larger, more established businesses. Additionally, these
customers often have limited discretionary funds, which they may choose to spend
on items other than our products and services. If small and medium businesses
experience economic hardship, it could negatively affect the overall demand for
our products and services, and could cause our revenue to decline.
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.
7
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 decreased
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, including our recently developed Mobile Capture software solution,
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 decreased 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.
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.
8
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
("SOP 97-2"). We adopted SOP 97-2, as amended by SOP No. 98-4, Deferral of the
Effective Date of a Provision of SOP 97-2 ("SOP 98-4"), as of July 1, 1998. In
December 1998, the AICPA issued SOP No. 98-9, Modification of SOP 97-2, Software
Revenue Recognition, With Respect to Certain Transactions ("SOP 98-9"). 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. In addition, in December 1999, the Securities
and Exchange Commission ("SEC") staff issued Staff Accounting Bulletin ("SAB")
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. In
December 2003, the SEC issued SAB No. 104, Revenue Recognition ("SAB 104"),
which superseded SAB 101. In June 2009, the Financial Accounting Standards Board
(“FASB”) incorporated the forgoing revenue recognition standards into the FASB
Accounting Standards Codification™ (“ASC”) within ASC Topic 985-605, Software
Revenue Recognition (“ASC 985-605). We believe that we are currently in
compliance with ASC 985-605.
The
accounting profession and the SEC continue to discuss certain provisions of ASC
985-605 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 and
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 in general.
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.
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.
9
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 the laws of the United
States. 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 or 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.
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. John M. Thornton, our Chairman, and Mr. James B.
DeBello, our President, Chief Executive Officer and Chief Financial
Officer. Loss of services of key employees could have a material
adverse effect on our operations and financial condition. We are also
dependent on our ability to identify, hire, train, retain and motivate high
quality personnel, especially highly skilled engineers involved in the ongoing
developments required to refine our technologies and to introduce future
applications. The high technology industry is characterized by a high
level of employee mobility and aggressive recruiting of skilled
personnel.
We cannot
assure you that we will be successful in attracting, assimilating and retaining
additional qualified personnel in the future. If we were to lose the
services of one or more of our key personnel, or if we failed to attract and
retain additional qualified personnel, it could materially and adversely affect
our customer relationships, competitive position and revenues.
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.
10
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
November 30, 2009, John M. Thornton, who is our Chairman of the Board and
his spouse, Director Sally B. Thornton, beneficially owned 2,869,959 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 25%
including outstanding options (vested and unvested) to acquire our common
stock. John H. Harland Company ("John Harland") has 2,142,856 shares
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
our common stock, thereby increasing the number of shares of common stock held
by John Harland to 2,464,284 shares or approximately 14% of our outstanding
common stock. Laurus Funds may acquire up to 1,060,000 shares of our
common stock upon exercise of its warrant or approximately 6% of our outstanding
common stock.
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 ("OTC") Bulletin
Board. If our common stock became ineligible to be listed on the OTC
Bulletin Board, it would likely continue to be listed on the "pink
sheets." Securities traded on the OTC Bulletin Board 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.
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 our
product pricing policies or those of our 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, 2009, the closing price of our common stock ranged from
$0.05 to $1.01.
11
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.
So long
as 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, and the practices
required by them, 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.
|
ITEM
1B.
|
UNRESOLVED
STAFF COMMENTS.
|
None.
|
ITEM
2.
|
PROPERTIES.
|
Our
principal executive office, as well as our research and development facility, is
located in an office building in San Diego, California that we lease under a
non-cancelable operating lease. The lease costs are expensed on a
straight-line basis over the lease term. The lease on this facility,
which included approximately 15,927 square feet of office space, commenced in
December 2005 and expires in December 2012. On February 1,
2009, the lease was amended to allow us to defer the payment of 50% of the basic
rent due for the months of February through September 2009. We will
repay the deferred rent with interest at an annual rate of 6% in equal monthly
installments payable on the first day of each calendar month commencing October
1, 2009 and continuing through March 1, 2010. In addition, in
connection with the amendment, we waived our right to exercise an early
termination option. The base monthly rent for our facility in fiscal
2009 under this lease was approximately $27,080. The base monthly
rent increases every twelve months by approximately 3%. On September
13, 2009, the lease was amended to reduce the amount of office space subject to
the lease by approximately 1,722 square feet, which reduced our basic rent
proportionately starting in December 2009.
Our
facility is covered by adequate insurance and we believe the leased space is
sufficient for our current and future needs.
|
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, 2009.
12
PART
II
|
ITEM
5.
|
MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES.
|
Market
Information
Our
common stock is traded on the Over-The-Counter ("OTC") Bulletin Board under the
symbol MITK.OB and the closing bid price of our common stock on December 23,
2009 was $0.70. The following table sets forth, for the fiscal period
indicated, the high and low closing bid prices for our common stock as reported
on the OTC Bulletin Board. The quotations for our 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.
|
High
|
Low
|
|||||||
|
FISCAL
YEAR ENDED SEPTEMBER 30, 2009
|
||||||||
|
Fourth
Quarter
|
$ | 1.01 | $ | 0.11 | ||||
|
Third
Quarter
|
0.35 | 0.10 | ||||||
|
Second
Quarter
|
0.13 | 0.05 | ||||||
|
First
Quarter
|
0.34 | 0.06 | ||||||
|
FISCAL
YEAR ENDED SEPTEMBER 30, 2008
|
||||||||
|
Fourth
Quarter
|
$ | 0.60 | $ | 0.15 | ||||
|
Third
Quarter
|
0.51 | 0.15 | ||||||
|
Second
Quarter
|
0.40 | 0.25 | ||||||
|
First
Quarter
|
0.60 | 0.31 | ||||||
Holders
As of
November 30, 2009, there were 424 shareholders of record of our common
stock.
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.
Repurchases
We did
not repurchase any of our equity securities during the year ended
September 30, 2009.
Securities
Authorized for Issuance Under Equity Compensation Plans.
The table
below sets forth information as of September 30, 2009, with respect to
compensation plans under which our common stock is authorized for
issuance. The figures related to the equity compensation plan
approved by security holders relate to our 1999 Stock Option Plan, 2000 Stock
Option Plan, 2002 Stock Option Plan and 2006 Stock Option Plan. We do
not have any equity compensation plans that have not been approved by security
holders.
|
Number of securities to
be issued upon exercise of outstanding options, warrants and rights (a)
|
Weighted-average
exercise price of outstanding options, warrants and rights (b)
|
Number of securities remaining
available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
|
||||||||||
|
Equity
Compensation Plans Approved by Security Holders
|
3,533,000 | $ | 0.56 | 396,811 | ||||||||
13
Our 1996
Stock Option Plan, which provided for the purchase of up to 2,000,000 shares of
our common stock through incentive and non-qualified stock options, terminated
on October 30, 2006; however options granted under the plan that were
outstanding at such date remained in effect until such options were exercised or
expired. As of September 30, 2009, no options were outstanding or
available for grant under the 1996 Stock Option Plan.
|
ITEM
6.
|
SELECTED
FINANCIAL DATA.
|
Disclosure
not required as a result of the Company's status as a smaller reporting
company.
|
ITEM
7.
|
MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
|
You
should read the following discussion and analysis of our financial condition and
results of operations in conjunction with our financial statements and the notes
to those statements included in this report. This discussion and
analysis may contain forward-looking statements, which are based on information
that is currently available to us, speak only as of the date hereof, and are
subject to certain risks and uncertainties. See "IMPORTANT NOTE ABOUT
FORWARD-LOOKING STATEMENTS," at the beginning of this report. Our
actual results may differ materially from those anticipated in these
forward-looking statements. In evaluating such statements, we urge
you to carefully consider various factors identified in this report, including
those discussed under "Risk Factors" in Part I, Item 1A of this report, which
could cause actual results to differ materially from those indicated by such
forward-looking statements.
In
June 2009, the FASB issued ASC Topic 105-10, Generally Accepted Accounting
Principles (“ASC 105-10”), formerly known as SFAS No. 168, The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles—a replacement of FASB Statement
No. 162. The FASB Accounting Standards Codification
(“Codification”) will be the single source of authoritative nongovernmental U.S.
generally accepted accounting principles. Rules and interpretive
releases of the SEC under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. ASC 105-10 is effective
for interim and annual periods ending after September 15,
2009. All existing accounting standards are superseded as described
in ASC 105-10. All other accounting literature not included in the
Codification is non-authoritative. The adoption of ASC 105-10 did not
have a material impact on our financial condition or results of
operations.
RESULTS
OF OPERATIONS
Net
Sales
Net sales
were approximately $3,619,000 and $5,229,000 for fiscal 2009 and 2008,
respectively, a decrease of approximately $1,610,000, or 31%. The
decrease in net sales primarily relates to reduced sales of our core products
due to, among other factors, the economic downturn, accelerating consolidation
of financial institutions and the continued decline of check processing in the
back office.
We
recognized revenue from the sale of software licenses to John Harland of
approximately $6,000 in fiscal 2009, compared to approximately $228,000 in
fiscal 2008, a reduction of 97%. Revenue recognized from professional
services, including software maintenance, were approximately $60,000 and $58,000
in fiscal 2009 and 2008, respectively. John H. Harland Company and
its subsidiary, Harland Financial Solutions, is a related party which is
discussed in Note 6 to our financial statements included in Item 8 of this
report.
Cost
of Sales
Cost of
sales for fiscal year 2009 was approximately $669,000 compared to approximately
$899,000 for fiscal year 2008, a decrease of approximately $230,000 or
26%. The decrease is primarily due to decreased sales, partially
offset by an increase in third-party license fees, which are included in cost of
sales. Stated as a percentage of net sales, cost of sales were 18% in
fiscal 2009 compared to 17% in fiscal 2008.
14
Operations
Expenses
Operations
expenses include payroll, employee benefits, and other personnel-related costs
associated with purchasing, shipping and receiving and facilities
management. In connection with the workforce reduction we implemented
in January 2009, we eliminated our operations department. Other costs
previously included in that department were reallocated to the other
departments.
Operations
expenses decreased by approximately $65,000 or 68% to approximately $30,000 in
fiscal 2009 from approximately $95,000 in fiscal 2008. The decrease
in expenses for the current fiscal year primarily relates to reduced
personnel-related costs and reductions in other direct operating expenses due to
the workforce reduction we implemented in January 2009. Stated as a
percentage of net sales, operations expenses were less than 1% in fiscal 2009
compared to 2% in fiscal 2008.
Selling
and Marketing Expenses
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 $857,000
and $1,469,000 for fiscal 2009 and 2008, respectively. Stated as a
percentage of net sales, selling and marketing expenses in fiscal years 2009 and
2008 were 24% and 28%, respectively. The dollar decrease in the
current fiscal year primarily relates to lower personnel costs due to the
workforce reduction in January 2009, decreased commissions due to declining
sales and to cost savings in outside services, travel expenses, website
development and other promotional costs and stock-based
compensation.
Research
and Development Expenses
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 retain what we believe to be sufficient staff
to sustain our existing product lines, including development of new, more
feature-rich versions of our existing product, as we determine the marketplace
demands. We also employ research personnel, whose efforts are
instrumental in ensuring product paths from current technologies to anticipated
future generations of products within our area of business.
Research
and development expenses for fiscal 2009 were approximately $1,901,000, compared
to approximately $1,802,000 for fiscal 2008, an increase of approximately
$99,000 or 5%. The increase in the current fiscal period primarily
relates to software development costs of approx $284,000, associated with our
Mobile Capture software application, incurred subsequent to making the product
available for general release to customers, and therefore expensed during the
current period in accordance with FASB ASC Topic 985-20, Costs of Software to Be
Sold, Leased or Marketed. These development costs were capitalized in
the prior period. The increase in the current period was partially
offset by decreased personnel costs in connection with the workforce reduction
we implemented in January 2009 and decreases in certain direct operating
expenses, such as software licenses, materials and supplies, repairs and
maintenance and recruitment costs in fiscal 2009. Stated as a
percentage of net sales, research and development expenses were 53% and 34% in
fiscal years 2009 and 2008, respectively
General
and Administrative Expenses
General
and administrative expenses include payroll, employee benefits, and other
personnel-related costs associated with the finance, facilities, and legal,
accounting and other administrative fees. General and administrative
expenses were approximately $1,481,000 in fiscal 2009 compared to
approximately $1,719,000 in fiscal 2008, a decrease of approximately $238,000 or
14%. The decrease in the current fiscal year was primarily due to
decreased personnel costs due to the workforce reduction implemented in January
2009, reduced bad debt expense and decreases in other direct operating expenses,
including stock-based compensation, travel and charitable contributions,
partially offset by increased legal fees and other outside
services. Stated as a percentage of net sales, general and
administrative expenses were 41% and 33% in fiscal 2009 and 2008,
respectively.
15
Interest
and Other Income (Expense)
Interest
income decreased by approximately $4,000 or 44% to approximately $5,000 in
fiscal 2009 compared to approximately $9,000 in fiscal 2008 due to lower average
cash balances. We recorded interest expense of approximately $4,000
in fiscal 2009 compared to a negligible amount of interest expense in fiscal
2008. In fiscal 2009, we recorded a loss on the disposal of fixed
assets of approximately $2,000. There was no such loss in fiscal
2008.
Income
Taxes
For the
fiscal 2009 and 2008, we recorded tax provisions of approximately $1,800 and
$2,800, respectively, for income taxes which was primarily state franchise
tax.
LIQUIDITY
AND CAPITAL RESOURCES
On
September 30, 2009, we had approximately $674,000 in cash and cash
equivalents compared to approximately $1,300,000 on September 30, 2008, a
decrease of approximately $626,000 or 48%. The decrease in cash was
primarily due to the loss for the year, largely due to decreased revenue,
partially offset by decreased capital invested in software development and lower
accounts receivable balances at the end of September 2009. The
balance of accounts receivable at the end of fiscal 2009 was approximately
$361,000, a decrease of approximately $552,000 from the September 30, 2008
balance of approximately $913,000. The decrease in accounts
receivable was primarily due to reduced sales, better collection efforts and the
timing of customer billings and the receipt of payments.
Deferred
revenue, which consists of maintenance and support service fees that are
deferred and recognized as income over the contract period on a straight-line
basis, was approximately $701,000 and $676,000 at September 30, 2009 and
2008, respectively, an increase of approximately $25,000 or 4%. We
believe that as the installed base of our products grows and as customers
purchase additional complementary products, the maintenance and support service
fees that are deferred, as well those recognized as income over the contract
term, will continue to increase.
We
financed our cash needs during the twelve months ended September 30, 2009
and for the same period in fiscal 2008 primarily from collections of accounts
receivable and existing cash and cash equivalents.
Net cash
used in operating activities during the twelve months ended September 30,
2009 was approximately $553,000 compared to approximately $399,000 during the
twelve months ended September 30, 2008, an increase of approximately $154,000 or
39%. The primary uses of cash from operating activities during the
current fiscal year included the net loss of approximately $1,322,000, decreases
in accounts receivable of approximately $576,000, accrued payroll and related
taxes of approximately $83,000 and accounts payable of approximately $48,000,
partially offset by an increase in other accrued liabilities of approximately
$138,000. Net cash used in operating activities in fiscal 2009 also
included non-cash stock-based compensation of approximately $116,000,
amortization of software development costs of approximately $46,000 and
depreciation and amortization of fixed assets of approximately
$38,000.
Net cash
used in investing activities during the twelve months ended September 30, 2009
was approximately $73,000, compared to approximately $397,000 during fiscal
2008, a decrease of approximately $324,000 or 82%. The decrease in
cash used in investing activities in the current period is primarily due to
a decrease of approximately $284,000 in software development costs
related to our Mobile Capture software application, which costs we ceased
capitalizing when we completed our first production general release in November
2008, and a decrease of approximately $40,000 in purchases of property and
equipment. We do not have any significant capital expenditures
planned for the foreseeable future.
We had
negative working capital of approximately $280,000 and a current ratio of 0.80
at September 30, 2009, compared to working capital of approximately $919,000 and
a current ratio 1.66 at September 30, 2008. On September 30,
2009, our total liability to equity ratio was 11.73 to 1 compared to 1.09 to 1
on September 30, 2008. We have
experienced a significant decline in working capital over the last fiscal year. We do not currently have any credit
facilities in place, or any arrangement
that we can draw upon for additional capital.
16
On
January 9, 2009, we implemented a plan to decrease our operating expenses
by reducing our workforce in light of the economic contraction of the financial
services market into which we primarily sell our products. The staff
reduction included general and administrative, sales and marketing and technical
staff. We have diligently maintained key resources to adequately
pursue new sales opportunities and support our operations.
On
December 10, 2009, we sold: (i) 5% senior secured convertible debentures in the
principal amount of approximately $1.0 million, and (ii) warrants to purchase an
aggregate of 334,167 shares of our common stock with an exercise price of $0.91
per share. The debentures are convertible into shares of our common
stock at any time at the discretion of the holder at a conversion price per
share of $0.75, subject to adjustment for stock splits, stock dividends and the
like. The transaction resulted in net proceeds to us of approximately
$930,000, excluding transactions costs and expenses.
Based on
our current operating plan, our existing working capital may not be sufficient
to fund our planned operating expenses, capital expenditures, and working
capital requirements through September 30, 2010 without additional sources of
cash and/or the deferral, reduction or elimination of significant planned
expenditures. A shortfall from projected sales levels could have a
material adverse effect on our ability to continue operations at current
levels. If this were to occur, we would be forced to liquidate
certain assets where possible, and/or to suspend or curtail certain of our
operations. Any of these actions could harm our business, results of
operations and future prospects. To guard against this risk, we
intend to seek debt, equity or equity-based financing, as we recently did in
December 2009. We can give no assurance that we will be able to
obtain additional financing on favorable terms or at all. If we raise
additional funds by selling additional shares of our capital stock, or
securities convertible into shares of our capital stock, the ownership interest
of our existing shareholders may be diluted. The amount of dilution
could be increased by the issuance of warrants or securities with other dilutive
characteristics, such as anti-dilution clauses or price resets. If we
need additional funding for operations and we are unable to raise it, we may be
forced to liquidate assets and/or curtail or cease operations or to obtain funds
through entering into additional collaborative agreements or other arrangements
that may be on unfavorable terms. These factors raise substantial
doubt about our ability to continue as a going concern.
RECENTLY
ISSUED ACCOUNTING PRONOUNCEMENTS
The
possible effect on our financial statements of new accounting pronouncements
that have been issued for future implementation is discussed in Note 1 to our
audited financial statements included in this report.
APPLICATION
OF CRITICAL ACCOUNTING POLICIES
Our
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. Our critical accounting policies
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.
17
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;
and
|
|
|
·
|
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.
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.
|
ITEM
7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
|
Disclosure
not required as a result of the Company's status as a smaller reporting
company.
18
|
ITEM
8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
Report
of Independent Registered Public Accounting Firm
The Board
of Directors and Stockholders
Mitek
Systems, Inc.
We have
audited the accompanying balance sheets of Mitek Systems, Inc. as of
September 30, 2009 and 2008, and the related statements of operations,
stockholders' equity, and cash flows for the years 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 audits.
We
conducted our audits 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. The
Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. 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 audits provide 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, 2009 and 2008, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As more fully described in Note 1,
the Company has negative working capital and has incurred recurring operating
losses and negative cash flows from operations. These conditions
raise substantial doubt about the Company’s ability to continue as a going
concern. Management’s plans in regard to these matters are also
described in Note 1. The financial statements do not include any
adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/Mayer
Hoffman McCann P.C.
San Diego,
California
December
29, 2009
19
MITEK
SYSTEMS, INC
BALANCE
SHEET
|
September 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
ASSETS
|
||||||||
|
CURRENT
ASSETS:
|
||||||||
|
Cash
and cash equivalents
|
$ | 674,115 | $ | 1,300,281 | ||||
|
Accounts
receivable including related party of $10,003 and $4,591,
|
360,817 | 912,831 | ||||||
|
respectively,
net of allowance of $24,268 and $47,877, respectively
|
||||||||
|
Deferred
maintenance fees
|
60,683 | - | ||||||
|
Inventory,
prepaid expenses and other current assets
|
49,910 | 100,000 | ||||||
|
Total
current assets
|
1,145,525 | 2,313,112 | ||||||
|
PROPERTY
AND EQUIPMENT-net
|
60,367 | 91,066 | ||||||
|
SOFTWARE
DEVELOPMENT COSTS-net
|
365,753 | 347,738 | ||||||
|
DEPOSIT
|
29,465 | 29,465 | ||||||
|
TOTAL
ASSETS
|
$ | 1,601,110 | $ | 2,781,381 | ||||
|
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
|
CURRENT
LIABILITIES:
|
||||||||
|
Accounts
payable
|
$ | 356,305 | $ | 403,925 | ||||
|
Accrued
payroll and related taxes
|
206,197 | 289,300 | ||||||
|
Deferred
revenue
|
700,714 | 676,085 | ||||||
|
Deferred
rent, current
|
118,732 | - | ||||||
|
Other
accrued liabilities
|
44,023 | 24,712 | ||||||
|
Total
current liabilities
|
1,425,971 | 1,394,022 | ||||||
|
Deferred
rent, non-current
|
49,374 | 55,745 | ||||||
|
TOTAL
LIABILITIES
|
1,475,345 | 1,449,767 | ||||||
|
STOCKHOLDERS'
EQUITY:
|
||||||||
|
Preferred
stock, $0.001 par value; 1,000,000 shares authorized,
|
||||||||
|
none
issued and outstanding
|
- | - | ||||||
|
Common
stock, $0.001 par value; 40,000,000 shares authorized,
|
||||||||
|
16,751,137
issued and outstanding
|
16,751 | 16,751 | ||||||
|
Additional
paid-in capital
|
14,920,999 | 14,804,884 | ||||||
|
Accumulated
deficit
|
(14,811,985 | ) | (13,490,021 | ) | ||||
|
Total
stockholders' equity
|
125,765 | 1,331,614 | ||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 1,601,110 | $ | 2,781,381 | ||||
20
MITEK
SYSTEMS, INC
STATEMENTS
OF OPERATIONS
|
For the years ended
|
||||||||
|
September 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
SALES
|
||||||||
|
Software
including sales to a related party of $6,237 and $227,812
|
$ | 1,692,707 | $ | 3,396,054 | ||||
|
for
the years ended September 30, 2009 and 2008, respectively
|
||||||||
|
Maintenance
and professional services including sales to a related
party
|
1,925,908 | 1,833,394 | ||||||
|
of
$60,385 and $56,792 for the years ended September 30, 2009 and
2008,
|
||||||||
|
respectively
|
||||||||
| 3,618,615 | 5,229,448 | |||||||
|
COSTS
AND EXPENSES:
|
||||||||
|
Cost
of sales-software
|
438,385 | 729,818 | ||||||
|
Cost
of sales-maintenance and professional services
|
230,972 | 168,879 | ||||||
|
Operations
|
29,840 | 94,852 | ||||||
|
Selling
and marketing
|
857,088 | 1,469,103 | ||||||
|
Research
and development
|
1,901,327 | 1,801,633 | ||||||
|
General
and administrative
|
1,480,666 | 1,719,463 | ||||||
|
Total
costs and expenses
|
4,938,278 | 5,983,748 | ||||||
|
OPERATING
LOSS
|
(1,319,663 | ) | (754,300 | ) | ||||
|
OTHER
INCOME (EXPENSE):
|
||||||||
|
Interest
and other expense
|
(5,572 | ) | (294 | ) | ||||
|
Interest
income
|
5,071 | 8,630 | ||||||
|
Total
other income (expense) - net
|
(501 | ) | 8,336 | |||||
|
LOSS
BEFORE INCOME TAXES
|
(1,320,164 | ) | (745,964 | ) | ||||
|
PROVISION
FOR INCOME TAXES
|
(1,800 | ) | (2,800 | ) | ||||
|
NET
LOSS
|
$ | (1,321,964 | ) | $ | (748,764 | ) | ||
|
NET
LOSS PER SHARE - BASIC AND DILUTED
|
$ | (0.08 | ) | $ | (0.04 | ) | ||
|
WEIGHTED
AVERAGE NUMBER OF
|
||||||||
|
COMMON
SHARES OUTSTANDING - BASIC AND DILUTED
|
16,751,137 | 16,751,137 | ||||||
The
accompanying notes form an integral part of these financial
statements.
21
MITEK
SYSTEMS, INC
STATEMENTS
OF CASH FLOWS
|
For the years ended
|
||||||||
|
September 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
OPERATING
ACTIVITIES
|
||||||||
|
Net
loss
|
$ | (1,321,964 | ) | $ | (748,764 | ) | ||
|
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
|
Stock-based
compensation expense
|
116,115 | 221,990 | ||||||
|
Depreciation
and amortization
|
83,631 | 36,084 | ||||||
|
Loss
on disposal of property and equipment
|
1,767 | - | ||||||
|
Provision
for bad debts
|
(23,609 | ) | 26,900 | |||||
|
Changes
in assets and liabilities:
|
||||||||
|
Accounts
receivable
|
575,623 | (397,722 | ) | |||||
|
Deferred
maintenance fees
|
(60,683 | ) | - | |||||
|
Inventory,
prepaid expenses, and other assets
|
50,090 | (524 | ) | |||||
|
Accounts
payable
|
(47,620 | ) | 283,406 | |||||
|
Accrued
payroll and related taxes
|
(83,103 | ) | 40,264 | |||||
|
Deferred
revenue
|
24,629 | 135,075 | ||||||
|
Other
accrued liabilities
|
19,311 | (6,798 | ) | |||||
|
Deferred
rent
|
112,361 | 11,149 | ||||||
|
Net
cash used in operating activities
|
(553,452 | ) | (398,940 | ) | ||||
|
INVESTING
ACTIVITIES
|
||||||||
|
Investment
in software development costs
|
(63,734 | ) | (347,738 | ) | ||||
|
Purchases
of property and equipment
|
(9,050 | ) | (49,323 | ) | ||||
|
Proceeds
from sale of property and equipment
|
70 | - | ||||||
|
Net
cash used in investing activities
|
(72,714 | ) | (397,061 | ) | ||||
|
FINANCING
ACTIVITIES
|
||||||||
|
Net
cash provided by financing activities
|
- | - | ||||||
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
(626,166 | ) | (796,001 | ) | ||||
|
CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
1,300,281 | 2,096,282 | ||||||
|
CASH
AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 674,115 | $ | 1,300,281 | ||||
|
SUPPLEMENTAL
DISCLOSURE OF
|
||||||||
|
CASH
FLOW INFORMATION
|
||||||||
|
Cash
paid for interest
|
$ | 3,724 | $ | 243 | ||||
|
Cash
paid for income taxes
|
$ | 1,800 | $ | 2,800 | ||||
The
accompanying notes form an integral part of these financial
statements.
22
MITEK
SYSTEMS, INC.
STATEMENTS
OF STOCKHOLDERS' EQUITY
For
the years ended September 30, 2009 and 2008
|
Common Stock
|
Additional
|
Total
|
||||||||||||||||||
|
Outstanding
|
Common
|
Paid-In
|
Accumulated
|
Stockholders
|
||||||||||||||||
|
(Shares)
|
Stock
|
Capital
|
Deficit
|
Equity
|
||||||||||||||||
|
Balance,
September 30, 2007
|
16,751,137 | $ | 16,751 | $ | 14,582,894 | $ | (12,741,257 | ) | $ | 1,858,388 | ||||||||||
|
Stock-based
compensation expense
|
221,990 | 221,990 | ||||||||||||||||||
|
Net
loss
|
(748,764 | ) | (748,764 | ) | ||||||||||||||||
|
Balance,
September 30, 2008
|
16,751,137 | 16,751 | 14,804,884 | (13,490,021 | ) | 1,331,614 | ||||||||||||||
|
Stock-based
compensation expense
|
116,115 | 116,115 | ||||||||||||||||||
|
Net
loss
|
(1,321,964 | ) | (1,321,964 | ) | ||||||||||||||||
|
Balance,
September 30, 2009
|
16,751,137 | $ | 16,751 | $ | 14,920,999 | $ | (14,811,985 | ) | $ | 125,765 | ||||||||||
The
accompanying notes form an integral part of these financial
statements.
23
MITEK
SYSTEMS, INC.
NOTES
TO FINANCIAL STATEMENTS
FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
|
1.
|
NATURE
OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
Nature
of Operations
Mitek
Systems, Inc. (the "Company") primarily develops and markets intelligent
character recognition and document capture products and services. The
Company’s technology is currently used to process checks by banks and is used in
other markets for specialized applications.
During
the past fiscal year, the Company has leveraged its technology and industry
customer relationships to enter the rapidly growing market for smartphone mobile
business applications. Branded “OOMPH” for Office on My Phone, the
Company’s new mobile applications use its proprietary technology to capture and
read data from photos of documents taken using camera-equipped
smartphones.
The
Company has developed and deployed a software application that allows users to
remotely deposit a check using their smartphone camera. Additionally, the
Company has developed and deployed a receipt archival application and a mobile
document faxing application using its proprietary technology.
Basis
of Accounting
The
financial statements are prepared under the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification TM
(“ASC”) Topic 105-10, Generally Accepted Accounting Principles (“ASC 105-10”),
in accordance with accounting principles generally accepted in the United States
of America.
Going
Concern
The
Company incurred net losses of approximately $1,322,000 and $749,000 for the
years ended September 30, 2009 and 2008, respectively, and has an accumulated
deficit of approximately $14,800,000 as of September 30, 2009. In
addition, the Company had negative working capital of approximately $280,000 at
the end of fiscal 2009, compared to working capital of approximately $919,000 at
the end of fiscal 2008. Cash used for operations increased from
approximately $399,000 in 2008 to $553,000 in 2009. Cash used in investing
activities during the twelve months ended September 30, 2009 was approximately
$73,000, compared to approximately $397,000 in the same period in fiscal
2008. The Company has a cash balance of approximately $674,000 as of
September 30, 2009.
On
January 9, 2009, the Company implemented a plan to decrease its operating
expenses by reducing its workforce in light of the economic contraction of the
financial services market into which the Company primarily sells its
products. The staff reduction included general and administrative, sales
and marketing and technical staff. The Company has diligently maintained
key resources to adequately pursue new sales opportunities and support its
operations. The Company's management does not believe that such reductions
will impair the Company’s ability to develop its ImageNet Mobile Deposit
application and other mobile capture products, or to provide technical support
to its current and prospective customers.
On
December 10, 2009, the Company entered into a securities purchase agreement with
accredited investors pursuant to which the Company agreed to issue in exchange
for aggregate consideration of approximately $1.0 million the following
securities: (i) 5% senior secured convertible debentures in the principal amount
of approximately $1.0 million, and (ii) warrants to purchase an aggregate of
334,167 shares of the Company’s common stock with an exercise price of $0.91 per
share. The debentures are convertible into shares of the Company’s common
stock at any time at the discretion of the holder at a conversion price per
share of $0.75, subject to adjustment for stock splits, stock dividends and the
like. Each investor received a warrant to purchase that number of shares
of the Company’s common stock that equals 25% of the quotient obtained by
dividing such investor’s aggregate subscription amount by $0.75. The
transaction resulted in net proceeds to the Company of approximately $930,000,
excluding transactions costs and expenses. The notes are due and payable
on December 31, 2011.
24
Based on
its current operating plan, the Company’s existing working capital may not be
sufficient to meet the cash requirements to fund its planned operating expenses,
capital expenditures, and working capital requirements through September 30,
2010 without additional sources of cash and/or the deferral, reduction or
elimination of significant planned expenditures. The Company may need to
raise significant additional funds to continue its operations. 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.
These factors raise substantial doubt
about the Company’s ability to continue as a going concern. The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. This basis of accounting contemplates
the recovery of the Company’s assets and the satisfaction of liabilities in the
normal course of business. In addition, these financial statements do not
include any adjustments to the specific amounts and classifications of assets
and liabilities, which might be necessary should the Company be unable to
continue as a going concern. The Company is taking expense reduction
measures to conserve cash and has retained an investment banking firm to explore
strategic alternatives.
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 or
enhancements and new products; and when technological feasibility is achieved of
new products. 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, the Company uses 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.
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 FASB ASC Topic 985-605, Software Revenue
Recognition (“ASC 985-605”), are met. If the requirements of ASC 985-605,
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, or VSOE, of fair
value for customer support is determined by reference to the price the customer
pays for such element when sold separately; that is, the renewal rates offered
to customers. In those instances when objective and reliable evidence of
fair value exists for the undelivered items but not for the delivered items, the
residual method is used to allocate the arrangement consideration. Under
the residual method, the amount of arrangement consideration allocated to the
delivered items equals the total arrangement consideration less the aggregate
fair value of the undelivered items. Revenue from post-contract customer
support is recognized ratably over the term of the contract. 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, revenue is
recognized based on predetermined milestone objectives required to complete the
project as those milestone objectives are deemed to be substantive in
relationship to the work performed. Any expected losses on contracts in
progress are recorded in the period in which the losses become probable and
reasonably estimable.
25
Guarantees
In the
ordinary course of business, the Company is not subject to potential obligations
under guarantees that fall within the scope of FASB ASC Topic 460,
Guarantees (“ASC 460”), except for standard indemnification and warranty
provisions that are contained within many of the Company’s customer license and
service agreements and certain supplier agreements, and give rise only to the
disclosure requirements prescribed by ASC 460.
Indemnification
and warranty provisions contained within the Company’s customer license and
service agreements and certain supplier agreements are generally consistent with
those prevalent in the Company’s industry. The Company has not incurred
significant obligations under customer indemnification or warranty provisions
historically and does not expect to incur significant obligations in the
future. Accordingly, the Company does not maintain accruals for potential
customer indemnification or warranty-related obligations.
Deferred
Revenue
Deferred
revenue represents customer billings, paid either upfront or annually at the
beginning of each billing period, 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 and enhancements of 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
The
Company records stock-based compensation in accordance with FASB ASC Topic 718,
Compensation-Stock Compensation (“ASC 718”), formerly SFAS No. 123 (R),
Share-Based Payments. The Company estimates the fair value of stock
options using the Black-Scholes option pricing model. The fair value of
stock options granted is recognized as expense over the requisite service
period. Stock-based compensation expense for all share-based payment
awards is recognized using the straight-line single-option method.
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.
Advertising
Expense
Advertising
costs are expensed as incurred and totaled approximately $18,000 and $7,000
during the years ended September 30, 2009, and 2008,
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 the Company’s
cash is deposited with two financial institutions. The Company monitors
the financial condition of these financial institutions and it does not believe
that funds on deposit are subject to a significant degree of risk. On May
20, 2009, in response to the crisis in the banking industry, the FDIC extended
the increased basic deposit insurance limit of $250,000 per depositor through
December 31, 2013, at which time the limit will return to $100,000. Any
financial problems with the financial institutions in which the Company deposits
its funds may impact the Company’s cash balances.
26
Allowance
for Doubtful Accounts
The
allowance for doubtful accounts reflects the Company's best estimate for
probable losses inherent in accounts receivable balances. Management
determines the allowance based on known troubled accounts, historical
experience, and other currently available evidence.
Inventories
Inventories
primarily consisting of media storage devices 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, 2009:
|
Property
and equipment - at cost:
|
||||
|
Equipment
|
$ | 642,158 | ||
|
Furniture
and fixtures
|
143,701 | |||
|
Leasehold
improvements
|
49,300 | |||
| 835,159 | ||||
|
Less:
accumulated depreciation and amortization
|
(774,792 | ) | ||
|
Total
property and equipment, net
|
$ | 60,367 | ||
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 seven years. Depreciation and amortization of property and equipment
totaled approximately $38,000 and $36,000 for the years ended September 30,
2009 and 2008, respectively. Expenditures for repairs and maintenance are
charged to operations. Total repairs and maintenance expenses were
approximately $9,000 and $64, 000 for the years ended September 30, 2009
and 2008, respectively.
Long-Lived
Assets
The
Company evaluates 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. The Company did not record any
impairment for the years ended September 30, 2009 and 2008.
Research
and Development
Research
and development costs are expensed in the period incurred.
Capitalized
Software Development Costs
The
Company has developed Mobile Capture software, a software solution that captures
and reads data from mobile devices using proprietary technology. The
Company has completed all of the planning, designing, coding, and testing
activities necessary to establish technological feasibility of the product and
has determined that the product can be produced to meet its design
specifications including functions, features, and technical performance
requirements.
27
Costs of
internally developed software are expensed until the technological feasibility
of the software product has been established. Thereafter, software
development costs, to the extent that management expects such costs to be
recoverable against future revenues, are capitalized until the product's general
availability to customers in accordance with FASB ASC Topic 985-20, Costs of
Software to Be Sold, Leased, or Marketed ("ASC 985-20").
The
Company evaluates its capitalized software development costs at each balance
sheet date to determine if the unamortized balance related to any given product
exceeds the estimated net realizable value of that product. Any such
excess is written off through accelerated amortization in the quarter it is
identified. Determining net realizable value, as defined by ASC 985-20,
requires making estimates and judgments in quantifying the appropriate amount to
write off, if any. Actual amounts realized from the software products
could differ from those estimates. Also, any future changes to the
Company's product portfolio could result in significant increases to its cost of
license revenue as a result of the write-off of capitalized software development
costs. The Company completed its first production general release of
ImageNet Mobile DepositTM on
October 31, 2008, and entered into an agreement with a major financial
institution on November 4, 2008 to conduct a performance evaluation of the
product. In accordance with ASC 985-20, the Company ceased capitalizing
software development costs related to this product on the date that it completed
its first production general release.
In
June 2009, the Company began to recognize revenue from the sale of ImageNet
Mobile DepositTM, at
which time it started amortizing the capitalized software development costs
associated with the product in accordance with ASC 985-20. Under ASC
985-20, the annual amortization shall be the greater of the amount computed
using (a) the ratio that current gross revenues for a product bear to the total
of current and anticipated future gross revenues for that or (b) the
straight-line method over the remaining estimated economic life of the product
including the period being reported on. The Company determined it was
appropriate to amortize the related capitalized software development costs over
the remaining economic life of the product, estimated to be three years.
In the fiscal year ended September 30, 2009, the Company recorded approximately
$46,000 in amortization of software development costs. No amortization of
software development costs were recorded in the fiscal year ended September 30,
2008.
Income
Taxes
The
Company accounts for income taxes in accordance with FASB ASC Topic 740, Income
Taxes ("ASC 740"). 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 4.
Net
Income (Loss) Per Share
The
Company calculates net income (loss) per share in accordance with FASB ASC Topic
260, Earnings per Share ("ASC 260"). 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. For fiscal 2009 and 2008 the Company
had outstanding stock options to acquire 3,533,000 and 3,740,158 shares of the
Company’s common stock, respectively, which were excluded from this calculation,
as they would have been antidilutive. In addition, warrants held by Laurus
Master Fund to acquire 1,060,000 shares of the Company’s common stock and
warrants held by John Harland Company to acquire 321,428 shares of the Company’s
common stock were excluded from this calculation in fiscal 2009 and fiscal 2008,
as they would reduce net loss per share.
28
Segment
Reporting
FASB ASC
Topic 280, Segment Reporting (“ASC 280”), requires the use of a management
approach in identifying segments of an enterprise. Management has
determined that the Company operates in only one segment, document image
processing and image analytics.
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 June 2009, the FASB issued ASC
Topic 105-10, Generally Accepted Accounting Principles (“ASC 105-10”), formerly
known as SFAS No. 168, The FASB Accounting Standards Codification and
the Hierarchy of Generally Accepted Accounting Principles—a replacement of FASB
Statement No. 162. The FASB Accounting Standards Codification
(“Codification”) will be the single source of authoritative nongovernmental U.S.
generally accepted accounting principles. Rules and interpretive releases
of the SEC under authority of federal securities laws are also sources of
authoritative GAAP for SEC registrants. ASC 105-10 is effective for
interim and annual periods ending after September 15, 2009. All
existing accounting standards are superseded as described in ASC 105-10.
All other accounting literature not included in the Codification is
non-authoritative. The adoption of ASC 105-10 did not have a material
impact on the Company’s financial condition or results of
operations.
Effective October 1, 2008, the Company
adopted the guidance in FASB ASC Topic 820, Fair Value Measurements and
Disclosures (“ASC
820”), which defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements required under other
accounting pronouncements. ASC 820 clarifies that fair value is an exit
price, representing the amount that would be received pursuant to the sale of an
asset or paid pursuant to the transfer a liability in an orderly transaction
between market participants. It also requires that a fair value
measurement reflect the assumptions market participants would use in pricing an
asset or liability based on the best information available. Assumptions
include the risks inherent in a particular valuation technique (such as a
pricing model) and/or the risks inherent in the inputs to the model. The
adoption of this guidance did not have a significant impact on the Company’s
financial statements.
In February 2007, the FASB issued ASC
Topic 825, Financial Instruments (“ASC 825”), which permits an entity to choose
to measure many financial instruments and certain other items at fair
value. The fair value option established by ASC 825 permits all entities
to choose to measure eligible items at fair value at specified election
dates. Under ASC 825, the Company would report unrealized gains and losses
on items for which the fair value option has been elected in earnings at each
subsequent reporting date. The fair value option: (a) may be applied
instrument by instrument, with a few exceptions, such as investments otherwise
accounted for by the equity method; (b) is irrevocable (unless a new election
date occurs); and (c) is applied only to entire instruments and not to portions
of instruments. This statement became effective for the Company October 1,
2008; however, the Company did not elect the fair value option for any of its
financial assets or financial liabilities.
In June 2008, the FASB ratified a
section of ASC Topic 815, Derivatives and Hedging (“ASC 815-40”). ASC
815-40 provides that an entity should use a two step approach to evaluate
whether an equity-linked financial instrument (or embedded feature) is indexed
to its own stock, including evaluating the instrument’s contingent exercise and
settlement provisions. It also clarifies the impact of foreign currency
denominated strike prices and market-based employee stock option valuation
instruments on the evaluation. ASC 815-40 is effective for fiscal years
beginning after December 15, 2008. The Company is in process of
determining what the impact of adoption of ASC 815-40 will have on the Company’s
financial position, results of operations or cash flows.
29
On April 1, 2009, the FASB issued ASC
Topic 855, Subsequent Events (“ASC 855”). ASC 855 establishes general
standards for accounting for and disclosure of events that occur after the
balance sheet date but before financial statements are issued. ASC 855
sets forth the period after the balance sheet date during which management of a
reporting entity should evaluate events or transactions that may occur for
potential recognition in the financial statements, identifies the circumstances
under which an entity should recognize events or transactions occurring after
the balance sheet date in its financial statements, and the disclosures that
should be made about events or transactions that occur after the balance sheet
date. In preparing these financial statements, the Company evaluated the
events and transactions that occurred from September 30, 2009 through the date
these financial statements were issued.
On April 1, 2009, the FASB issued ASC
Topic 805, Business Combinations (“ASC 805), which amends the guidance for
business combinations, to: (i) require that assets acquired and liabilities
assumed in a business combination that arise from contingencies be recognized at
fair value if fair value can be reasonably estimated; (ii) eliminate the
requirement to disclose an estimate of the range of outcomes of recognized
contingencies at the acquisition date; and (iii) require that contingent
consideration arrangements of an acquiree assumed by the acquirer in a business
combination be treated as contingent consideration of the acquirer and should be
initially and subsequently measured at fair value. ASC 805 is effective
for assets or liabilities arising from contingencies in business combinations
for which the acquisition date is on or after the beginning of the first annual
reporting period beginning on or after December 15, 2008. The Company is
currently evaluating the impact, if any, that the adoption of this pronouncement
will have on its financial statements.
Effective June 30, 2009, the
Company adopted three accounting standard updates which were intended to provide
additional application guidance and enhanced disclosures regarding fair value
measurements and impairments of securities. They also provide additional
guidelines for estimating fair value in accordance with fair value
accounting. The first update, as codified in ASC 820, provides additional
guidelines for estimating fair value in accordance with fair value
accounting. The second accounting update, as codified in ASC Topic 320,
Investments – Debt and Equity Securities (“ASC 320”), changes accounting
requirements for other-than-temporary-impairment for debt securities by
replacing the current requirement that a holder have the positive intent and
ability to hold an impaired security to recovery in order to conclude an
impairment was temporary with a requirement that an entity conclude it does not
intend to sell an impaired security and it will not be required to sell the
security before the recovery of its amortized cost basis. The third
accounting update, as codified in ASC 825, increases the frequency of fair value
disclosures. These updates were effective for fiscal years and interim
periods ended after June 15, 2009. The adoption of these accounting
updates did not have any impact on the Company’s financial
statements.
In June 2009, the FASB issued ASC Topic
810, Consolidation (“ASC 810”), which amends the consolidation guidance related
to variable interest entities including removing the scope exemption for
qualifying special-purpose entities. This statement is effective as of the
first fiscal year that begins after November 15, 2009 with early adoption
prohibited. The Company does not anticipate the adoption of ASC 810 to
have a material effect on its financial statements.
In October 2009, the FASB issued
Accounting Standards Update (“ASU”) 2009-13, Revenue Recognition:
Multiple-Deliverable Revenue Arrangements (“ASU 2009-13”), which amends ASC
Topic 605, Revenue Recognition. ASU 2009-13 revises the current accounting
treatment to specifically address how to determine whether an arrangement
involving multiple deliverables contains more than one unit of accounting.
This guidance is applicable to revenue arrangements entered into or materially
modified during our first fiscal year that begins after June 15,
2010. The guidance may be applied either prospectively from the beginning
of the fiscal year for new or materially modified arrangements or
retrospectively. We are currently evaluating this authoritative guidance
to determine any potential impact that it may have on our financial
results.
In
October 2009, the FASB issued ASU No. 2009-14, Certain Revenue Arrangements
That Include Software Elements (“ASU 2009-14”), which amends ASC Topic 985,
“Software.” ASU 2009-14 amends the ASC to change the accounting model for
revenue arrangements that include both tangible products and software elements,
such that tangible products containing both software and non-software components
that function together to deliver the tangible product’s essential functionality
are no longer within the scope of software revenue guidance. The changes
to the ASC as a result of this update are effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010. The Company does not anticipate the adoption of
this guidance will have a material impact on the financial
statements.
30
|
2.
|
INVENTORIES,
PREPAID EXPENSES AND OTHER CURRENT
ASSETS
|
Inventories,
prepaid expenses and other current assets consisted of the following at
September 30, 2009:
|
Inventories
|
$ | 4,075 | ||
|
Prepaid
insurance
|
22,029 | |||
|
Prepaid
expenses
|
23,806 | |||
| $ | 49,910 |
|
3.
|
STOCKHOLDERS’
EQUITY
|
Warrants
Historically,
the Company has granted warrants to purchase its common stock to service
providers and investors. As of September 30, 2009, the Company had
warrants to purchase 1,381,428 shares of its common stock outstanding with
exercise prices ranging from $0.70 to $0.92 per share, subject to adjustment per
the terms of the agreements. These warrants expire from June 2011 to May
2012.
Included
in the warrants discussed above, the Company entered into a warrant agreement
with John H. Harland Company (“John Harland”), a related party, pursuant to
which the Company granted to John Harland the right to purchase 321,428 shares
of the Company’s common stock at exercise prices ranging of $0.70 per share,
subject to adjustment per the terms of the agreement. These warrants
expire from February 2012 to May 2012.
Stock-based
Compensation
ASC 718
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, 2009 of approximately 17% 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, 2009 was 1.8 years on grants to
directors and 6.0 years on grants to employees.
ASC 718
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 was no such tax benefits
during the twelve month period ended September 30, 2009. Prior
to the adoption of ASC 718 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 calculations for stock-based compensation awards to employees for the
twelve month period ended September 30, 2009 and 2008 were based on the
following assumptions:
|
Twelve Months Ended
|
||||||
|
September 30,
|
||||||
|
2009
|
2008
|
|||||
|
Risk-free
interest rate
|
0.44%
- 2.46%
|
1.74%
- 3.67%
|
||||
|
Expected
life (years)
|
5.3
|
5.4
|
||||
|
Expected
volatility
|
192%
|
98%
|
||||
|
Expected
dividends
|
None
|
None
|
||||
31
The
following table summarizes stock-based compensation expense related to stock
options under ASC 718 for the twelve month period ended September 30, 2009
and 2008 which was allocated as follows:
|
Twelve Months Ended
|
||||||||
|
September 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Research
and development
|
$ | 33,974 | $ | 36,779 | ||||
|
Sales
and marketing
|
13,424 | 45,783 | ||||||
|
General
and administrative
|
68,717 | 139,428 | ||||||
|
Stock-based
compensation expense related to employee stock options included in
operating expenses
|
$ | 116,115 | $ | 221,990 | ||||
The
following table summarizes vested and unvested options, fair value per share
weighted average remaining term and aggregate intrinsic value at
September 30, 2009:
|
Number of Shares
|
Weighted Average
Grant Date Fair
Value Per Share
|
Weighted Average
Remaining
Contractual Life (in
Years)
|
Aggregate Intrinsic
Value
|
|||||||||||||
|
Vested
|
2,625,973 | 0.39 |
5.09
|
$ | 980,641 | |||||||||||
|
Unvested
|
907,027 | 0.17 |
9.02
|
706,789 | ||||||||||||
|
Total
|
3,533,000 | 0.34 |
6.10
|
$ | 1,687,430 | |||||||||||
As of
September 30, 2009, the Company had $149,251 of unrecognized compensation
expense expected to be recognized over a weighted average period of
approximately 1.0 year.
A summary
of option activity under the Company's stock equity plans during the twelve
months ended September 30, 2009 and 2008, as follows:
|
Weighted Average
|
||||||||||||
|
Weighted Average
|
Remaining
|
|||||||||||
|
Number of
|
Exercise Price Per
|
Contractual Term
|
||||||||||
|
Shares
|
Share
|
(in Years)
|
||||||||||
|
Oustanding,
September 30, 2007
|
2,510,879 | $ | 0.96 | 6.39 | ||||||||
|
Granted:
|
||||||||||||
|
Board
of Directors
|
175,000 | $ | 0.37 | 2.18 | ||||||||
|
Executive
Officers
|
600,000 | $ | 0.35 | 9.18 | ||||||||
|
Employees
|
762,000 | $ | 0.35 | 8.95 | ||||||||
|
Cancelled
|
(307,721 | ) | $ | 1.05 | 5.63 | |||||||
|
Oustanding,
September 30, 2008
|
3,740,158 | $ | 0.71 | 6.52 | ||||||||
|
Granted:
|
||||||||||||
|
Board
of Directors
|
150,000 | $ | 0.09 | 2.41 | ||||||||
|
Executive
Officers
|
249,000 | $ | 0.09 | 9.41 | ||||||||
|
Employees
|
540,000 | $ | 0.13 | 9.40 | ||||||||
|
Cancelled
|
(1,146,158 | ) | $ | 0.67 | 6.14 | |||||||
|
Oustanding,
September 30, 2009
|
3,533,000 | $ | 0.56 | 6.10 | ||||||||
32
The
following table summarizes significant ranges of outstanding and exercisable
options as of September 30, 2009:
|
Number of
|
Weighted
|
Number of
|
Weighted
|
Number of
|
||||||||||||||||||||
|
Shares
|
Average
|
Shares
|
Average
|
Shares
|
||||||||||||||||||||
|
Subject to
|
Remaining
|
Weighted
|
Subject to
|
Exercise Price of
|
Subject to
|
|||||||||||||||||||
|
Range of
|
Options
|
Contractual Life
|
Average
|
Exercisable
|
Exercisable
|
Unvested
|
||||||||||||||||||
|
Exercise Prices
|
Outstanding
|
(in Years)
|
Exercise Price
|
Options
|
Options
|
Options
|
||||||||||||||||||
|
$0.07
- $0.69
|
2,300,500 |
6.92
|
$ | 0.29 | 1,431,959 | $ | 0.35 | 868,541 | ||||||||||||||||
|
$0.70
- $0.92
|
461,000 |
4.81
|
$ | 0.78 | 422,514 | $ | 0.79 | 38,486 | ||||||||||||||||
|
$1.06
- $1.68
|
725,000 |
4.57
|
$ | 1.11 | 725,000 | $ | 1.11 | - | ||||||||||||||||
|
$2.13
- $2.68
|
38,500 |
2.40
|
$ | 2.28 | 38,500 | $ | 2.28 | - | ||||||||||||||||
|
$3.25
to $12.37
|
8,000 |
0.63
|
$ | 7.21 | 8,000 | $ | 7.21 | - | ||||||||||||||||
| 3,533,000 |
6.10
|
$ | 0.56 | 2,625,973 | $ | 0.68 | 907,027 | |||||||||||||||||
The per-share weighted average fair
value of options granted during the twelve months ended September 30, 2009
was $0.11.
Stock
Option Plans
The
Company currently has four stock option plans that allow the Company to grant
options to purchase common stock to the Company's directors, executive officers
and key individuals who make, or are expected to make, significant contributions
to the Company. Under the terms of each of the Company's stock option
plans, the exercise price of options granted to persons owning more than 10% of
the total combined voting power of the Company's stock is not to be less than
110% of the fair market value of the Company's common stock as determined on the
date of the grant of the options.
Under the
terms of the 1999 Plan, 2000 Plan, 2002 Plan and 2006 Plan, each of which
provides for the grant of incentive and non-qualified options: incentive stock
options are granted with an exercise price equal to the fair market value of the
Company's common 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 the Company's common stock at the grant
date and for a term of not more than five years; and to date, the Company has
elected to grant non-qualified stock options under these plans with a three year
term.
The 1999
Plan provides for the purchase of up to 1,000,000 shares of the Company's common
stock. The 1999 Plan terminated on June 10, 2009; however
options granted under the plan that were outstanding at such date remain in
effect until such options are exercised or expire. As of
September 30, 2009, options to purchase 724,750 shares of the Company's
common stock were outstanding and no options were available for grant under the
1999 Plan.
The 2000
Plan provides for the purchase of up to 1,000,000 shares of the Company's common
stock. As of September 30, 2009, options to purchase 633,200
shares of the Company's common stock were outstanding and options to purchase up
to 204,916 shares of the Company's common stock were available for grant under
the 2000 Plan.
The 2002
Plan provides for the purchase of up to 1,000,000 shares of the Company's common
stock. As of September 30, 2009, options to purchase 907,150
shares of the Company's common stock were outstanding and options to purchase up
to 59,795 shares of the Company's common stock were available for grant under
the 2002 Plan.
The 2006
Plan provides for the purchase of up to 1,000,000 shares of the Company's common
stock. As of September 30, 2008, options to purchase 867,900
shares of the Company's common stock were outstanding and options to purchase up
to 132,100 shares of the Company's common stock were available for grant under
the 2006 Plan.
33
The
Company’s 1996 Stock Option Plan, which provided for the purchase of up to
2,000,000 shares of the Company’s common stock through incentive and
non-qualified stock options, terminated on October 30, 2006; however options
granted under the plan that were outstanding at such date remained in effect
until such options were exercised or expired. As of September 30,
2009, no options were outstanding or available for grant under the 1996 Stock
Option Plan.
|
4.
|
INCOME
TAXES
|
On
October 1, 2007, the Company adopted the provisions of FASB ASC Topic 740,
Income Taxes (“ASC 740”), formerly FIN 48, which clarifies the accounting
for uncertainty in income taxes recognized in a company's financial statements
and prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. Further, ASC 740 gives guidance
regarding the recognition of a tax position based on a "more likely than not"
recognition threshold; that is, evaluating whether the position is more likely
than not of being sustained upon examination by the appropriate taxing
authorities, based on the technical merits of the position. The
adoption of ASC 740 did not impact the Company's financial condition, results of
operations or cash flows.
The
following table summarizes the activity related to our unrecognized tax
benefits:
|
Balance
at September 30, 2008
|
None
|
|
Increases
related to current year tax posistions
|
None
|
|
Expiration
of statue of limitation of the assessment of taxes
|
None
|
|
Other
|
None
|
|
Balance
at September 30, 2009
|
None
|
For the
years ended September 30, 2009 and 2008 the provisions for income taxes
were as follows:
|
2009
|
2008
|
|||||||
|
Federal
- current
|
$ | - | $ | - | ||||
|
State
- current
|
1,800 | 2,800 | ||||||
|
Total
|
$ | 1,800 | $ | 2,800 | ||||
Under ASC
740, 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.
34
Significant
components of our net deferred tax liabilities and assets as of
September 30, 2009 and 2008 are as follows:
|
2009
|
2008
|
|||||||
|
Deferred
tax assets (liabilities):
|
||||||||
|
Reserves
not currently deductible
|
$ | 10,000 | $ | 18,000 | ||||
|
Book
depreciation and amortization in excess of tax
|
2,000 | 2,000 | ||||||
|
Stock
based compensation
|
223,000 | 177,000 | ||||||
|
Research
credit carryforwards
|
44,000 | 44,000 | ||||||
|
AMT
credit carryforwards
|
69,000 | 69,000 | ||||||
|
Net
operating loss carryforwards
|
5,777,000 | 5,600,000 | ||||||
|
Capitalized
research and development costs
|
865,000 | 551,000 | ||||||
|
Uniform
capitalization
|
1,000 | 1,000 | ||||||
|
Other
|
245,000 | 259,000 | ||||||
|
Total
deferred assets
|
7,236,000 | 6,721,000 | ||||||
|
Valuation
allowance for net deferred tax assets
|
(7,236,000 | ) | (6,721,000 | ) | ||||
|
Total
|
$ | - | $ | - | ||||
The
Company has provided a valuation allowance against deferred tax assets recorded
as of September 30, 2009 and 2008 due to uncertainties regarding the
realization of such assets.
The net change in the total valuation
allowance for the year ended September 30, 2009 was an increase of approximately
$515,000. The net change in the total valuation allowance for the
year ended September 30, 2008 was a decrease of approximately
$248,000. In assessing the realizability of deferred tax assets, the
Company considers whether it is more likely than not that some portion or all of
the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the generation of future
taxable income during periods in which those temporary differences become
deductible. The Company considers projected future taxable income and
planning strategies in making this assessment. Based on the level of
historical operating results and projections for the taxable income for the
future, the Company has determined that it is more likely than not that the
deferred tax assets will not be realized. Accordingly, the Company
has recorded a valuation allowance to reduce deferred tax assets to
zero. There can be no assurance that the Company will ever be able to
realize the benefit of some or all of the federal and state loss carryforwards
or the credit carryforwards, either due to ongoing operating losses or due to
ownership changes, which limit the usefulness of the loss
carryforwards.
As of
September 30, 2009, the Company has available net operating loss carryforwards
of approximately $15,500,000 for federal income tax purposes, which will start
to expire in 2018. The net operating loss carryforwards for state
purposes are approximately $8,700,000. As of September 30, 2009, the
Company has available federal research and development credit carryforwards of
approximately $44,000 and alternative minimum tax credit carryforwards of
approximately $69,000. The research and development credits will
start to expire in 2023. As of September 30, 2009, the Company has
available California research and development credit carryforwards of
approximately $22,000. The state research and development credits
have no expiration date.
35
The
difference between the provision for income taxes and income taxes computed
using the U.S. federal income tax rate was as follows for the years ended
September 30:
|
2009
|
2008
|
|||||||
|
Amount
computed using statutory rate
|
$ | (443,000 | ) | $ | (260,000 | ) | ||
|
Net
change in valuation allowance for net deferred tax assets
|
514,000 | 248,000 | ||||||
|
Non-deductible
items
|
4,000 | 8,000 | ||||||
|
Expired
credit
|
- | 33,000 | ||||||
|
Other
|
- | 29,000 | ||||||
|
State
income tax
|
(73,200 | ) | (55,200 | ) | ||||
|
Provision
for income taxes
|
$ | 1,800 | $ | 2,800 | ||||
|
5.
|
COMMITMENTS
AND CONTINGENCIES
|
Legal
Matters
In the ordinary course of business, the
Company is at times subject to various legal proceedings. Management
is not aware of any legal proceedings or claims that it believes may have,
individually or in the aggregate, a material adverse effect on the Company's
business, financial condition, operating results, cash flow or
liquidity.
Employee
401(k) Plan
The
Company has a 401(k) plan that allows participating employees to contribute
up to 15% of their salary, subject to annual limits. The Board of
Directors may, at its sole discretion, approve matching contributions by the
Company. During fiscal 2009 and 2008, the Board of Directors did not
approve any Company matching contributions to the plan.
Leases
The
Company’s principal executive office, as well as its research and development
facility, is located in an office building in San Diego, California that the
Company leases under a non-cancelable operating lease. The lease
costs are expensed on a straight-line basis over the lease term. The
lease on this facility, which included approximately 15,927 square feet of
office space, commenced in December 2005 and expires in
December 2012. On February 1, 2009, the lease was amended to
allow the Company to defer the payment of 50% of the basic rent due for the
months of February through September 2009. The Company will repay the
deferred rent with interest at an annual rate of 6% in equal monthly
installments payable on the first day of each calendar month commencing October
1, 2009 and continuing through March 1, 2010. In addition, in
connection with the amendment, the Company waived its right to exercise an early
termination option. The base monthly rent for the facility in fiscal
2009 under this lease was approximately $27,080. The base monthly
rent increases every twelve months by approximately 3%. On September
13, 2009, the lease was amended to reduce the amount of office space subject to
the lease by approximately 1,722 square feet, which reduced the Company’s basic
rent proportionately starting in December 2009.
The
facility is covered by insurance and the Company believes the leased space is
sufficient for its current and future needs.
36
Future
annual minimum rental payments payable under the lease are as
follows:
|
Year
ending September 30:
|
||||
|
2010
|
$ | 414,385 | ||
|
2011
|
304,697 | |||
|
2012
|
313,220 | |||
|
2013
|
52,559 | |||
|
Thereafter
|
- | |||
|
Total
|
$ | 1,084,861 | ||
Rent
expense for operating leases for the years ended September 30, 2009 and
2008 totaled $324,114 and $324,911, respectively.
|
6.
|
RELATED
PARTY TRANSACTIONS
|
John H.
Harland Company ("JHH Co.") made investments in the Company in February and
May 2005. JHH Co. 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, JHH Co. received
warrants to purchase 321,428 additional shares of common stock at $0.70 per
share. This transaction resulted in JHH Co. and its subsidiary,
Harland Financial Solutions (collectively "John Harland"), being considered
related parties of the Company due to the amount of the Company's common stock
beneficially owned by John Harland. John Harland is not involved in
the management decisions of the Company and does not participate in any board
meetings, unless invited.
The
following table summarizes revenue realized from John Harland during the twelve
months ended September 30, 2009 and 2008:
|
Twelve Months Ended September 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Revenue
|
||||||||
|
Software
licenses
|
$ | 6,237 | $ | 227,812 | ||||
|
Maintenance
and professional services
|
60,385 | 56,792 | ||||||
|
Total
Revenue
|
$ | 66,622 | $ | 284,604 | ||||
At
September 30, 2009, there was an outstanding accounts receivable balance of
approximately $10,000 due from John Harland, compared to a balance of
approximately $5,000 at September 30, 2008.
|
7.
|
PRODUCT
REVENUES AND SALES CONCENTRATIONS
|
Product
Revenues
During
the twelve months ended September 30, 2009 and 2008, the Company's revenues
were derived primarily from its Character Recognition Product line.
Below is
a summary of the revenues by product lines:
|
Twelve Months Ended September 30,
|
||||||||
|
2009
|
2008
|
|||||||
|
Revenue
|
||||||||
|
Software
licenses
|
$ | 1,692,707 | $ | 3,396,054 | ||||
|
Maintenance
and professional services
|
1,925,908 | 1,833,394 | ||||||
|
Total
Revenue
|
$ | 3,618,615 | $ | 5,229,448 | ||||
37
The
Company sells its products primarily to original equipment manufacturers, system
integrators and resellers who ultimately sell to depository
institutions.
For the
twelve months ended September 30, 2009 and 2008, the Company had the
following sales concentrations:
|
2009
|
2008
|
|||||||
|
Customers
to which sales were in excess of 10% of total
sales:
|
||||||||
|
Number
of customers
|
1 | 2 | ||||||
|
Aggregate
percentage of sales
|
15.5 | % | 31.0 | % | ||||
Sales to
customers in excess of 10% of total sales were approximately $561,000 and
$1,622,000 for the twelve months ended September 30, 2009 and
2008. The balance of accounts receivable from customers with sales in
excess of 10% of total sales was approximately $1,000 as of September 30,
2009, compared to $402,000 as of September 30, 2008.
International
sales accounted for approximately 15% and 35%, of the Company’s net sales for
the fiscal years ended September 30, 2009 and 2008,
respectively. International sales in fiscal 2009 were made to
customers in 14 countries including Australia, Canada, Finland, Greece, Japan,
Spain and the United Kingdom. The Company sells its products in
United States currency only. The Company recorded a significant
portion (16%) of its revenues from one customer in fiscal 2009. In
fiscal 2008, 31% of net sales were to two customers.
|
8.
|
SUBSEQUENT
EVENTS
|
On
December 10, 2009, the Company entered into a securities purchase agreement with
accredited investors pursuant to which the Company agreed to issue in exchange
for aggregate consideration of approximately $1.0 million the following
securities: (i) 5% senior secured convertible debentures in the principal amount
of approximately $1.0 million, and (ii) warrants to purchase an aggregate of
334,167 shares of the Company’s common stock with an exercise price of $0.91 per
share. The debentures are convertible into shares of the Company’s
common stock at any time at the discretion of the holder at a conversion price
per share of $0.75, subject to adjustment for stock splits, stock dividends and
the like. Each investor received a warrant to purchase that number of
shares of the Company’s common stock that equals 25% of the quotient obtained by
dividing such investor’s aggregate subscription amount by $0.75. The
transaction resulted in net proceeds to the Company of approximately $930,000,
excluding transactions costs and expenses.
The
following summarizes the terms of the debentures we issued:
|
Term:
|
Due
and payable on December 10, 2011.
|
|
|
Interest:
|
Interest
is payable in cash or stock at the rate of 5% on each conversion date (as
to the principal amount being converted), on each early redemption date
(as to the principal amount being redeemed) and on the maturity
date.
|
|
|
Principal
Payment:
|
The
principal amount, if not paid earlier, is due and payable on
December 10, 2011.
|
|
|
Early
Redemption:
|
|
The
Company has the right to redeem all or a portion of the debenture before
maturity by payment in cash of the outstanding principal amount plus
accrued and unpaid interest being redeemed. The payment of the
debenture would occur on the 10th trading day following the date the
Company gave the holder notice of its intent to redeem the
debenture. The Company agreed to honor any notices of
conversion that it receives from the holder before the date the Company
pays off the
debenture.
|
38
|
Voluntary
Conversion:
|
The
debentures are convertible at anytime at the discretion of the holder at a
conversion price per share of $0.75, subject to adjustment for stock
splits, stock dividends and the like.
|
|
|
Forced
Conversion:
|
The
Company has the right to force conversion of the debentures if (i) the
closing price of its common stock exceeds 200% of the then effective
conversion price for 20 trading days out of a consecutive 30 trading day
period or (ii) the average daily trading volume for its common stock
exceeds 100,000 shares per trading day for 20 trading days out of a
consecutive 30 trading day period and the closing price of its common
stock exceeds 100% of the then effective conversion price for 20 trading
days out of a consecutive 30 trading day period.
|
|
|
Covenants:
|
The
debentures impose certain covenants on the Company including restrictions
against paying cash dividends or distributions on shares of its
outstanding common stock.
|
|
|
Security
Interest:
|
|
The
debentures are secured by all of the Company’s assets under the terms of a
security agreement it entered into with the investors dated December 10,
2009.
|
|
ITEM
9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None.
|
ITEM
9A(T).
|
CONTROLS
AND PROCEDURES
|
Disclosure
Controls and Procedures
Under the
supervision and with the participation of our management, including the Chief
Executive Officer and Chief Financial Officer, the Company has evaluated the
effectiveness of the design and operation of its disclosure controls and
procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period
covered by this report. The term "disclosure controls and
procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
Act, means controls and other procedures of a company that are designed to
ensure that information required to be disclosed by the company in the reports
it files or submits under the Exchange Act is recorded, processed, summarized
and reported, within the time periods specified in the SEC's rules and
forms. Disclosure controls and procedures also include, without
limitation, controls and procedures designed to ensure that information required
to be disclosed by a company in the reports that it files or submits under the
Exchange Act is accumulated and communicated to the company's management,
including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate, to allow timely decisions
regarding required disclosure. Based on that evaluation, the Chief
Executive Officer and Chief Financial Officer have concluded that the design and
operation of the Company’s disclosure controls and procedures are effective as
of the year ended September 30, 2009.
Management's
Report on Internal Control over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as defined in
Rules 13a-15(f) and 15d-15(f) under the Exchange
Act. The Company’s internal control over financial reporting is
intended to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with accounting principles, generally accepted in the United States
of America.
39
The
Company’s management has used the framework set forth in the report entitled
Internal Control—Integrated Framework published by the Committee of Sponsoring
Organizations (COSO) of the Treadway Commission to evaluate the effectiveness of
the Company’s internal control over financial reporting. The
Company’s management has concluded that the Company’s internal control over
financial reporting was effective as of September 30, 2009.
This
annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit us to provide only
management's report in this annual report.
Changes
in Internal Control over Financial Reporting
On
January 13, 2009, Tesfaye Hailemichael, the Company’s Chief Financial Officer,
Vice President, Treasurer and Secretary, tendered his resignation to pursue
other interests, effective January 14, 2009 and the Company’s Board of Directors
appointed James B. DeBello, the Company’s President and Chief Executive Officer,
as Chief Financial Officer and Secretary. Mr. DeBello also continues
his current responsibilities as President and Chief Executive
Officer.
Other
than the aforementioned change, the Company has not made any changes in its
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, 2009 that have materially affected, or are
reasonably likely to materially affect, its internal control over financial
reporting.
|
ITEM 9B.
|
OTHER INFORMATION.
|
None.
40
PART
III
|
ITEM
10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
|
Directors
and Executive Officers
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 and 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.
|
Name
|
Age
|
Position
|
||
|
John
M. Thornton
|
77
|
Chairman
of the Board
|
||
|
James
B. DeBello
|
51
|
Chief
Executive Officer, Chief Financial Officer and Director
|
||
|
Tesfaye
Hailemichael (1)
|
60
|
Chief
Financial Officer
|
||
|
Michael
W. Bealmear (2) (3) (4)
|
62
|
Director
|
||
|
Vinton
P. Cunningham (3)
|
73
|
Director
|
||
|
Gerald
I. Farmer, Ph. D. (2) (3) (4)
|
75
|
Director
|
||
|
Sally
B. Thornton
|
75
|
Director
|
||
|
William
P. Tudor (2)
|
64
|
Director
|
(1) On
January 13, 2009, Tesfaye Hailemichael tendered his resignation from all offices
with the Company to pursue other interests, effective January 14,
2009.
(2) Member of
the Compensation Committee of the Board of Directors
(3) Member of
the Audit Committee of the Board of Directors
(4) Member of
the Nominating & Corporate Governance Committee of the Board of
Directors
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 from May 1991 to July 1991, as
Chief Executive Officer from May 1991 to February 1992 and again as 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. From 1976 through 1988, Mr. Thornton served as Chairman
and Vice Chairman of the Board at Micom Systems,
Inc. 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. In January 2009, Mr. DeBello was named
Mitek’s Chief Financial Officer and Secretary, in addition to his other
positions. Prior to joining Mitek Systems, 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.
41
Tesfaye
Hailemichael. Mr. Hailemichael joined Mitek in
May 2005, serving as Chief Financial Officer until his resignation in
January 2009. 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 W.
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 P.
Cunningham. Mr. Cunningham has been a director of Mitek
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 Mitek since
May 1994. He was Executive Vice President of Mitek from
November 1992 until June 1997. Before joining Mitek, from
January 1987 to November 1992, Dr. Farmer was Executive Vice
President of HNC Software, Inc. 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 Mitek since
April 1988. She has been a private investor for more than 40
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 Mitek since
September 2004. He is President of International Learning
Corporation. 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 us 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
2009.
42
Code
of Ethics
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,
under the Company tab. We will provide a copy of the Finance Code of
Ethics, free of charge, to any stockholder upon written request to our Corporate
Secretary at Mitek Systems, Inc., 8911 Balboa Ave., Suite B,
San Diego, CA 92123. 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 or Chief Financial Officer
that requires disclosure under applicable SEC rules, we intend to disclose the
nature of such amendment or waiver on our website.
Audit
Committee and Audit Committee Financial Expert
We have
an audit committee established in accordance with
Section 3(a)(58)(a) of the Exchange Act. The members of the
audit committee include Messrs. Bealmear, Cunningham and
Farmer. The Board of Directors has determined that Mr. Cunningham is
an "audit committee financial expert" and "independent" as defined under
applicable SEC and NASDAQ Marketplace rules.
|
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
following table summarizes compensation paid to or earned by each of our named
executive officers:
|
Summary Compensation Table
|
|||||||||||||||||
|
Name and Principal Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Option
Awards
($)(1)
|
Total
Compensation
($)
|
||||||||||||
|
James
B. DeBello
|
2009
|
$ | 318,683 | — | $ | 47,890 | $ | 366,573 | |||||||||
|
President,
CEO and CFO
|
2008
|
$ | 333,497 | — | $ | 70,325 | $ | 403,822 | |||||||||
|
Tesfaye
Hailemichael
|
2009
|
$ | 43,960 | — | — | $ | 43,960 | ||||||||||
|
2008
|
$ | 186,915 | — | $ | 27,483 | $ | 214,398 | ||||||||||
(1) Represents
the dollar amount recognized for financial statement report purposes with
respect to the fiscal year in accordance with ASC 718. Please see
"NOTE 3. ACCOUNTING FOR STOCK BASED COMPENSATION," to our financial statements
included in this report for the relevant assumptions used to determine the
valuation of our option awards.
(2) On
January 13, 2009, Tesfaye Hailemichael tendered his resignation from all offices
with the Company to pursue other interests, effective January 14,
2009.
43
Outstanding
Equity Awards at Fiscal Year-End
The following table presents the
outstanding equity awards held by each of the named executive officers as of the
September 30, 2009. The only outstanding equity awards are stock
options. All options we granted to our named executive officers
during our fiscal year ended September 30, 2009, vest monthly over a
three-year period and have ten-year terms, subject to earlier termination on the
occurrence of certain events related to termination of employment. In
addition, the full vesting of options is accelerated if there is a change in
control of the Company.
|
Option Awards
|
|||||||||||||||||
|
Name
|
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
|
Equity
Incentive
Plan Awards
Number of
Securities
Underlying
Unexercised
Unearned
Options
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
||||||||||||
|
James
B. DeBello
|
400,000 | - | - | $ | 1.06 |
05/19/13
|
|||||||||||
| 400,000 | - | - | $ | 0.50 |
11/17/14
|
||||||||||||
| 100,000 | - | - | $ | 0.80 |
10/19/15
|
||||||||||||
| 100,000 | - | - | $ | 0.82 |
11/18/15
|
||||||||||||
| 150,000 | - | - | $ | 1.10 |
07/10/16
|
||||||||||||
| 275,000 | 175,000 | - | $ | 0.35 |
12/04/17
|
||||||||||||
| 48,412 | 200,588 | - | $ | 0.09 |
02/25/19
|
||||||||||||
|
Tesfaye
Hailemichael
|
- | - | - | - |
-
|
||||||||||||
Option
Exercises and Stock Vested at Fiscal Year End
During
the fiscal year ended September 30, 2009, no stock options were exercised by any
named executive officer.
Pension
Benefits
We do not
have any defined benefit plans at this time.
Nonqualified
Deferred Compensation
None of
our named executive officers participate in or have account balances in
non-qualified defined contribution plans or other deferred compensation
plans.
Employment
Arrangements and Change in Control Arrangements
The stock
option agreements of our named executive officers provide that, generally, in
case of a change of control, the option will be assumed or an equivalent option
or right substituted by the successor corporation or a parent or subsidiary of
the successor corporation. If the successor corporation refuses to
assume or substitute for the option, then immediately before and contingent on
the consummation of the change in control, the optionee will fully vest in and
have the right to exercise his or her options.
44
As of
September 30, 2009, the value of the unvested, in-the-money options of our
named executive officers that would accelerate upon a change of control, based
on the difference between the closing bid price on the last trading day of the
year of $0.98 per share and the exercise price of the respective options, was as
follows:
|
Name
|
Option Value as of
September 30, 2009
|
|||
|
James
B. DeBello
|
$ | 288,773 | ||
|
Tesfaye
Hailemichael
|
- | |||
Director
Compensation
Our
Chairman receives $2,250 and all of our other non-employee directors received
$1,500 for each regularly scheduled Board meeting attended in person and $500
per meeting attended by phone. In addition, they received $500 for
each regularly scheduled committee meeting. We reimbursed our
directors for their reasonable expenses incurred in attending meetings of our
Board of Directors. The members of the Board are eligible for
reimbursement of expenses incurred in connection with their service on the
Board.
The
following table provides director compensation information for the year ended
September 30, 2009.
|
Name
|
Fees Earned
or Paid in Cash ($) |
Option Awards
($)(1)
|
All Other
Compensation
($)
|
Total
Compensation
($)
|
||||||||||||
|
John
M. Thornton(2)
|
$ | 12,960 | $ | 2,073 | $ | - | $ | 15,033 | ||||||||
|
Michael
W. Bealmear(2)
|
$ | 8,500 | $ | 2,073 | $ | - | $ | 10,573 | ||||||||
|
Vinton
P. Cunningham(2)
|
$ | 8,000 | $ | 2,073 | $ | - | $ | 10,073 | ||||||||
|
Gerald
I. Farmer(2)
|
$ | 9,000 | $ | 2,073 | $ | - | $ | 11,073 | ||||||||
|
Sally
B. Thornton(2)
|
$ | 6,000 | $ | 2,073 | $ | - | $ | 8,073 | ||||||||
|
William
P. Tudor(2)
|
$ | 7,000 | $ | 2,073 | $ | - | $ | 9,073 | ||||||||
|
(1)
|
Represents
the dollar amount recognized for financial statement report purposes with
respect to the fiscal year in accordance with ASC 718. Please
see "NOTE 3. ACCOUNTING FOR STOCK BASED COMPENSATION," to our financial
statements included in this report for the relevant assumptions used to
determine the valuation of our option
awards.
|
|
(2)
|
The
outstanding equity awards held by each of our directors as of
September 30, 2009 are as
follows:
|
|
|
John
M. Thornton, 90,000 shares;
|
|
|
Michael
W. Bealmear, 65,000 shares;
|
|
|
Vinton
P. Cunningham, 65,000 shares;
|
|
|
Gerald
I. Farmer, 65,000 shares;
|
|
|
Sally
B. Thornton, 65,000 shares; and
|
|
|
William
P. Tudor, 65,000 shares.
|
|
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS.
|
The
following table presents information concerning the beneficial ownership of the
shares of our common stock as of November 30, 2009, by:
|
|
·
|
each
person we know to be the beneficial owner of 5% of more of our outstanding
shares of common stock;
|
|
|
·
|
each
of our named executive officers and current directors;
and
|
|
|
·
|
all
of our current executive officers and directors as a
group.
|
45
We have
determined beneficial ownership in accordance with the rules of the SEC. Except
as indicated by the footnotes below, we believe, based on the information
furnished to us, that the persons and entities named in the table below have
sole voting and investment power with respect to all shares of common stock that
they beneficially own, subject to applicable community property
laws.
Applicable
percentage ownership is based on 16,751,137 shares of common stock outstanding
on November 30, 2009. In computing the number of shares of common
stock beneficially owned by a person and the percentage ownership of that
person, we deemed as outstanding shares of common stock subject to options or
warrants held by that person that are currently exercisable or exercisable
within 60 days of November 30, 2009. We did not deem these shares
outstanding, however, for the purpose of computing the percentage ownership of
any other person.
Except as
indicated by the footnotes below, the business address for each of these
stockholders is c/o Mitek Systems, Inc., 8911 Balboa Ave., Suite B,
San Diego, CA 92123.
|
Name of Beneficial Owner or Identify of Group
|
Number of shares of
common stock
Beneficially Owned
|
Percent
of Class
|
||||||
|
Directors and Executive
Officers
|
||||||||
|
John
M. and Sally B. Thornton (1)
|
2,869,959 | 16.98 | % | |||||
|
James
B. DeBello (2)
|
1,551,076 | 8.47 | % | |||||
|
William
P. Tudor (3)
|
100,000 | * | ||||||
|
Michael
W. Bealmear (4)
|
65,000 | * | ||||||
|
Vinton
P. Cunningham (5)
|
65,000 | * | ||||||
|
Gerald
I. Farmer (6)
|
65,000 | * | ||||||
|
Tesfaye
Hailemichael
|
— | * | ||||||
|
Directors
and Executive Officers as a Group (seven individuals)(7)
|
4,716,035 | 25.20 | % | |||||
|
Five Percent Stockholders
|
||||||||
|
John
M. and Sally B. Thornton (1)
|
2,869,959 | 16.98 | % | |||||
|
John
Harland Company (8)
|
2,464,284 | 14.43 | % | |||||
|
Prescott
Group Capital Management LLC (9)
|
1,666,985 | 9.95 | % | |||||
|
Isaac
and Frieda Schlesinger (10)
|
1,000,000 | 5.97 | % | |||||
|
Laurus
Master Fund Ltd. (11)
|
1,061,000 | 5.96 | % | |||||
|
White
Pine Capital, LLC (12)
|
913,300 | 5.45 | % | |||||
|
*
|
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
155,000 shares of common stock subject to
options.
|
|
(2)
|
Consists
of 1,551,076 shares of common stock subject to
options.
|
|
(3)
|
Includes
65,000 shares of common stock subject to
options.
|
|
(4)
|
Consists
of 65,000 shares of common stock subject to
options.
|
|
(5)
|
Consists
of 65,000 shares of common stock subject to
options.
|
|
(6)
|
Consists
of 65,000 shares of common stock subject to
options.
|
|
(7)
|
Includes
1,966,076 shares of common stock subject to
options.
|
|
(8)
|
Based
solely on Schedule 13G filed by the beneficial owner with the SEC on
May 13, 2005. The stockholder's address is 2939 Miller Road, Decatur,
Georgia 30035.
|
|
(9)
|
Based
solely on Schedule 13G/A filed by the beneficial owner with the SEC
on February 14, 2008. This stockholder's address is 1924
South Utica, Suite 1120, Tulsa, OK
74104-6529.
|
|
(10)
|
Based
solely on Schedule 13G/A filed by the beneficial owner with the SEC on
March 6, 2008. Consists of 1,000,000 shares of common stock as
to which Isaac Schlesinger and Frieda Schlesinger have shared voting and
dispositive power. This stockholder's address is c/o Bishop, Rosen &
Co, Inc., 100 Broadway 16th Floor, New York, NY
10005.
|
|
(11)
|
Consists
of 1,061,000 shares of common stock issuable upon exercise of
warrants.
|
46
|
12)
|
Based
solely on Schedule 13G/A filed by the beneficial owner with the SEC
on February 12, 2008. This stockholder's address is 60
South 6th Street, Suite 2530 Minneapolis,
MN 55402.
|
|
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Related
Transactions
Except as
noted below, there have been no related party transactions with any of our
directors, executive officers or five percent stockholders in the last three
fiscal years.
John H.
Harland Company beneficially owns more than five percent of our outstanding
common stock. During the twelve months ended September 30, 2009,
we realized revenue of approximately $67,000 from transactions between us and
John H. Harland Company and its subsidiary, Harland Financial Solutions
(collectively "John Harland"). During the twelve months ended
September 30, 2008, we realized revenue of $285,000 from transactions
between us and John Harland. At September 30, 2009, there was an
outstanding accounts receivable balance of approximately $10,000 due from John
Harland, compared to a balance of approximately $5,000 at September 30,
2008.
Director
Independence
Our board
of directors has determined that each of Messrs. Bealmear, Cunningham,
Farmer and Tudor are "independent" under the criteria established by the NASDAQ
Marketplace Rules for independent board members. In addition, our
board of directors has determined that the members of our audit committee meet
the additional independence criteria required for audit committee
membership.
|
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, 2009 and September 30,
2008, and the reviews of our interim financial statements included in our
Quarterly Reports on Form 10-Q (or 10-QSB) or services normally provided by
Mayer Hoffman McCann P.C., our independent registered public accounting firm, in
connection with statutory or regulatory filings or engagements were
approximately $129,300 and $140,500 for the fiscal years ended September 30,
2009 and 2008, respectively.
Audit
Related Fees
There
were no audit related fees for the fiscal years ended September 30, 2009 or
September 30, 2008.
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, 2009 or September 30, 2008.
All
Other Fees
Other
than described above, there were no other fees paid to our independent
auditors.
Independence
The Audit
Committee of our Board of Directors believes there were no services provided by
our independent auditors which would affect their independence.
47
Pre-Approval
Policies
In
accordance with the Audit Committee Charter, the Audit Committee of our Board of
Directors has established policies and procedures by which it approves in
advance any audit and permissible non-audit services to be provided by our
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. Our 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 our chief financial officer as to whether the Audit
Committee should approve the request or application;
and
|
|
|
·
|
a
joint statement of our chief financial officer and the independent
auditors as to whether, in their view, the request or application is
consistent with the SEC'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 SEC 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.
|
48
PART
IV
|
ITEM
15.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
|
|
(a)
|
The
following documents are filed as part of this
report:
|
|
|
(1)
|
Financial
Statements:
|
Reports
of Independent Registered Public Accounting Firm
Balance
Sheet as of September 30, 2009 and 2008
Statements
of Operations for the years ended September 30, 2009 and 2008
Statements
of Cash Flows for the years ended September 30, 2009 and 2008
Statements
of Stockholders' Equity for the years ended September 30, 2009 and
2008
Notes to
Financial Statements
|
|
(2)
|
Financial
Statement Schedule:
|
None.
|
|
(3)
|
Exhibits.
|
See
subsection (b) below.
|
|
(b)
|
Exhibits.
The exhibits set forth in the Exhibit Index following the signature
page of this report are filed as part of this Annual Report on Form
10-K.
|
49
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, there unto duly authorized.
|
December
29, 2009
|
MITEK
SYSTEMS, INC.
|
|
|
By:
|
/s/ James B. De Bello
|
|
|
James
B. DeBello
|
||
|
President,
Chief Executive Officer
|
||
|
(Principal
Executive Officer)
|
||
POWER
OF ATTORNEY
KNOW ALL
PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby
severally constitutes and appoints James B. DeBello, his or her true and lawful
agent and attorney-in-fact, with full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to this report, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Commission, granting unto said attorney-in-fact full power and authority to do
and perform each and every act and thing requisite or necessary fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent or his or her substitute
or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant
to the requirements of the Securities Exchange Act of 1934, 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
|
Chairman
of the Board of Directors and Director
|
December
29, 2009
|
||
|
John M. Thornton
|
||||
|
/s/ James B. DeBello
|
President,
Chief Executive Officer, Chief Financial Officer
|
December
29, 2009
|
||
|
James B. DeBello
|
and
Director (Principal Executive Officer and Principal Financial
Officer)
|
|||
|
/s/ Michael W. Bealmear
|
Director
|
December
29, 2009
|
||
|
Michael W. Bealmear
|
||||
|
/s/ Vinton P. Cunningham
|
Director
|
December
29, 2009
|
||
|
Vinton P. Cunningham
|
||||
|
/s/ Gerald I. Farmer
|
Director
|
December
29, 2009
|
||
|
Gerald I. Farmer
|
||||
|
/s/ Sally B. Thornton
|
Director
|
December
29, 2009
|
||
|
Sally B. Thornton
|
||||
|
/s/ William P. Tudor
|
Director
|
December
29, 2009
|
||
|
William P. Tudor
|
|
|
50
EXHIBIT
INDEX
|
Exhibit No.
|
Description
|
Incorporated by
Reference from
Document
|
||
|
3.1
|
Certificate
of Incorporation of Mitek Systems, Inc.
|
(1)
|
||
|
3.2
|
Bylaws
of Mitek Systems, Inc
|
(1)
|
||
|
4.1
|
Form
of debenture issued on December 10, 2009
|
(2)
|
||
|
4.2
|
Form
of warrant issued on December 10, 2009
|
(2)
|
||
|
10.1
|
Mitek
Systems, Inc. 1996 Stock Option Plan.
|
(3)
|
||
|
10.2
|
Mitek
Systems, Inc. 1999 Stock Option Plan.
|
(4)
|
||
|
10.3
|
Mitek
Systems, Inc. 2000 Stock Option Plan.
|
(5)
|
||
|
10.4
|
Mitek
Systems, Inc. 2002 Stock Option Plan.
|
(6)
|
||
|
10.5
|
Mitek
Systems, Inc. 2006 Stock Option Plan.
|
(7)
|
||
|
10.6
|
Mitek
Systems, Inc. 401(k) Savings Plan
|
(8)
|
||
|
10.7
|
Securities
purchase agreement dated December 10, 2009
|
(2)
|
||
|
10.8
|
Security
agreement dated December 10, 2009
|
(2)
|
||
|
23.1
|
Consent
of Mayer Hoffman McCann P.C.
|
Filed
herewith
|
||
|
24.1
|
Power
of Attorney
|
Incorporated
by reference from the signature page of this report
|
||
|
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.
|
Furnished
herewith
|
||
|
32.2
|
|
Certification
of Periodic Report by the Chief Financial Officer Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
|
|
Furnished
herewith
|
|
(1)
|
Incorporated
by reference to the exhibits to the Company’s Annual Report on Form 10-K
for the fiscal year ended September 30,
1987.
|
|
(2)
|
Incorporated
by reference to the Company’s Current Report on Form 8-K originally filed
with the SEC on December 16, 2009.
|
|
(3)
|
Incorporated
by reference to the exhibits to the Company’s Registration Statement on
Form S-8 originally filed with the SEC on March 21,
1997.
|
|
(4)
|
Incorporated
by reference to the exhibits to the Company’s Registration Statement on
Form S-8 originally filed with the SEC on June 11,
1999.
|
|
(5)
|
Incorporated
by reference to the exhibits to the Company’s Registration Statement on
Form S-8 originally filed with the SEC on March 30,
2001.
|
|
(6)
|
Incorporated
by reference to the exhibits to the Company’s Registration Statement on
Form S-8 originally filed with the SEC on July 7,
2003.
|
|
(7)
|
Incorporated
by reference to the exhibits to the Company’s Registration Statement on
Form S-8 originally filed with the SEC on May 3,
2006.
|
|
(8)
|
Incorporated by reference to the
exhibits to the Company's Registration Statement on Form SB-2 originally
filed with the SEC on July 9,
1996.
|
51
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, Chief Executive Officer and Chief Financial
Officer
TRANSFER
AGENT
Mellon
Investor Services LLC
480
Washington Blvd., Jersey City, NJ 07310-1900
www.mellon.com
REGISTERED
INDEPENDENT PUBLIC ACCOUNTING FIRM
Mayer
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
W. Bealmear (1) (2) (3)
James B.
DeBello, President, Chief Executive Officer
Gerald I.
Farmer, Ph.D. (1) (2) (3)
William
P. Tudor (1)
Vinton P.
Cunningham (2)
NOTES
(1) Compensation
Committee
(2) Audit
Committee
(3) Nominating &
Corporate Governance Committee
FORM
10-K REPORT
Copies of
our Form 10-K 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.
52
Exhibit 23.1
CONSENT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
As
independent registered public accountants, we hereby consent to the
incorporation by reference in Registration Statement Nos. 333-23707 (as
amended on January 27, 1999), 333-80567, 333-58032, 333-106843 and 333-133765 on
Form S-8 of our report dated December 29, 2009, relating to the financial
statements of Mitek Systems, Inc. (which report includes an explanatory
paragraph relating to the uncertainty of the Company’s ability to continue as a
going concern), as of and for the year ended September 30, 2009, included in the
Annual Report on Form 10-K for the year ended September 30,
2009. It should be noted that we have not audited any financial
statements of the company subsequent to December 29, 2009, or performed any
audit procedures subsequent to the date of our report.
|
/s/ Mayer Hoffman McCann
P.C.
|
|
|
San
Diego, California
|
|
|
December
29, 2009
|
Exhibit 31.1
CERTIFICATION
OF
CHIEF
EXECUTIVE OFFICER
I, James
B. DeBello, certify that:
|
1.
|
I
have reviewed this annual report on Form 10-K 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 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared;
|
|
|
(b)
|
Designed
such internal control over financial reporting, or cause such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
(c)
|
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
|
|
|
(d)
|
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 the
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.
|
|
Date:
December 29, 2009
|
/s/
James B. DeBello
|
|
James
B. DeBello, Chief Executive Officer
|
|
|
(Principal
Executive Officer)
|
Exhibit 31.2
CERTIFICATION
OF
CHIEF
FINANCIAL OFFICER
I, James
B. DeBello, certify that:
|
1.
|
I
have reviewed this annual report on Form 10-K 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 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)) and internal
control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) 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, is made known to us
by others within those entities, particularly during the period in which
this report is being prepared;
|
|
|
(b)
|
Designed
such internal control over financial reporting, or cause such internal
control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting
principles;
|
|
|
(c)
|
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
|
|
|
(d)
|
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 the
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.
|
|
Date:
December 29, 2009
|
/s/
James B. DeBello
|
|
James
B. DeBello, Chief Financial Officer
|
|
|
(Principal
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-K of the Registrant for the year
ended September 30, 2009 (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.
|
|
Date:
December 29, 2009
|
/s/
James B. DeBello
|
|
James
B. DeBello
|
|
|
Chief
Executive Officer
|
Exhibit 32.2
CERTIFICATION
OF CHIEF FINANCIAL OFFICER
I, James
B. DeBello, 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-K of the Registrant for the year
ended September 30, 2009 (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.
|
|
Date:
December 29, 2009
|
/s/
James B. DeBello
|
|
James
B. DeBello
|
|
|
Chief
Financial Officer
|