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SECURITIES AND EXCHANGE COMMISSION
Washington, DC. 20549
FORM 10-Q
(Mark One)
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended JUNE 30, 2000 or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission file number 0-15235
MITEK SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 87-0418827
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10070 CARROLL CANYON ROAD, SAN DIEGO, CALIFORNIA 92131
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (858) 635-5900
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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There were 11,103,525 shares outstanding of the registrant's Common Stock
as of August 10, 2000.
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MITEK SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, therefore, do not
include all information and footnote disclosures that are otherwise required by
Regulation S-X and that will normally be made in the Company's Annual Report on
Form 10-K. The financial statements do, however, reflect all adjustments (solely
of a normal recurring nature) which are, in the opinion of management, necessary
for a fair statement of the results of the interim periods presented.
In December 1999, the SEC issued Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition in Financial Statements". SAB 101 provides the SEC staff's
views in applying generally accepted accounting principles to selected revenue
recognition issues including software revenue recognition. We will be required
to adopt SAB 101 in the fourth quarter of the 2001 fiscal year. We have not
completed the process of evaluating the impact that the adoption of SAB 101 will
have on the Company's Financial position or results of operations.
Results for the three and nine months ended June 30, 2000 and September
30, 1999 are not necessarily indicative of results which may be reported for any
other interim period or for the year as a whole.
2. Inventories
Inventories are summarized as follows:
<TABLE>
<CAPTION>
JUNE 30, 2000 SEPTEMBER 30, 1999
-------------- ------------------
<S> <C> <C>
Raw materials $ 29,622 $29,703
Work in process 0 0
Finished goods 130,772 28,379
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Total $160,394 $58,082
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</TABLE>
Inventories are recorded at the lower of cost (on the first-in, first-out
basis) or market and are net of a $47,504 and $144,638 reserve for inventory
obsolescence for the respective periods.
3. Commitments and contingencies
In the general course of business the Company, at various times, has been
named in lawsuits. During fiscal 1998 the Company was involved in a number of
legal proceedings. All of these legal matters outstanding from fiscal 1998 were
resolved in the first month of fiscal year 1999, and the costs of these
settlements were included in the fiscal year ended September 30, 1998 financial
statements.
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MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following cautionary statements are made pursuant to the Private Securities
Litigation Reform Act of 1995 in order for the Company to avail itself of the
"safe harbor" provisions of that Act. The discussion and information in
Management's' Discussion and Analysis of Financial Condition and Result of
Operations (the "MD&A") may contain both historical and forward-looking
statements. To the extent that MD&A contains forward-looking statements
regarding the financial condition, operating results, business prospects or any
other aspect of the Company, please be advised that the Company's actual
financial condition, operating results and business performance may differ
materially from that projected or estimated by the Company in forward-looking
statements. The Company has attempted to identify, in context, certain of the
factors that it currently believes may cause actual future experience and
results to differ from the Company's current expectations. The difference may be
caused by a variety of factors, including but not limited to adverse economic
conditions, general decreases in demand for Company products and services,
intense competition, including entry of new competitors, increased or adverse
federal, state and local government regulation, inadequate capital, unexpected
costs, lower revenues and net income than forecast, price increases for
supplies, inability to raise prices, the risk of litigation and administrative
proceedings involving the Company and its employees, higher than anticipated
labor costs, the possible fluctuation and volatility of the Company's operating
results and financial condition, adverse publicity and news coverage, inability
to carry out marketing and sales plans, loss of key executives, changes in
interest rates, inflationary factors, and other specific risks that may be
alluded to in this MD&A.
The Company's strategy for fiscal 2000 continues its focus on the
Company's core strengths, and increased sales and marketing efforts to bring the
Company's products to new applications and markets. In particular, Mitek is
determined to expand into new markets by addressing the needs of new and
different types of customers with a variety of application specific solutions.
Mitek also sought to broaden the use of its products with current customers by
identifying new and innovative applications of its existing technology.
The Company believes that its results for the third quarter of fiscal 2000 are a
continuation of the successful implementation of that growth strategy. In the
three months ending June 30, 2000, revenues were $3,536,000, an increase of
$1,107,000 or 46% over the $2,429,000 revenues in the same period last year.
Gross margin for the quarter ended June 30, 2000 was $2,750,000, an increase of
$651,000 or 31% over the $2,099,000 gross margin in the same period last year.
The Company earned net income of $252,000 or $0.02 per share for the third
quarter of fiscal 2000, compared with net income of $502,000 or $0.05 per share
for the third quarter of fiscal 1999. In the nine months ending June 30, 2000,
revenues were $8,855,000, an increase of $2,146,000 or 32% over the $6,709,000
revenues in the same period last year. Gross margin for the nine months ended
June 30, 2000 was $7,355,000, an increase of $1,728,000 or 31% over the
$5,627,000 gross margin in the same period last year. The Company earned net
income of $1,175,000 or $0.10 per diluted share for the nine month period ending
June 30, 2000, compared with net income of $1,210,000 or $0.11 per diluted share
for the same period last year.
The Company's cash position declined in the third quarter of fiscal 2000. At
June 30, 2000 the Company had $.5 million in cash and cash equivalents as
compared to $1.4 million on September 30, 1999. The Company renewed its $750,000
revolving and $250,000 equipment lines of credit. The Company was advised by its
bank on August 9, 2000, that the revolving line of credit received approval to
be increased to $2,500,000. There were no borrowings under the lines of credit
as of June 30, 2000 or September 30, 1999.
During the third quarter of fiscal 2000, Mitek announced the release of version
2.7 of its QuickStrokes(R) intelligent character recognition engine. This latest
version features high-speed neural networks that improves throughput speeds and
increases accuracy rates. These improvements will allow faster and more accurate
processing of a wider variety of documents. The Company announced the signing of
original equipment manufacturer (OEM) agreements with J & B Software and
Docubase for its Doctus(TM) product which is a data capture and forms processing
system. Also announced were the licensing of its check processing application,
CheckQuest(TM), to Rancho Bernardo Bank in San Diego, CA, Bank of Ellaville in
Ellaville, GA, and Bank of Mulberry in Mulberry, Arkansas.
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The Company announced approval from the Nasdaq Stock market for listing on its
National Market System, effective May 9, 2000. Mitek stock previously traded on
the Nasdaq SmallCap market.
The Company demonstrated an alpha version of its Internet data capture product,
WEBrowz(TM), to potential customers and strategic partners at AIIM 2000 in New
York City, April 10-12. WEBrowz(TM) was later awarded a Best of AIIM 2000 honor
by Imaging & Document Solutions magazine.
Following the quarter end, Mitek announced a free 30-day license of its
WEBrowz(TM) beta application. Users can download the software from the Company's
new Web site at www.webrowz.com.
The Company is pleased it experienced a growth in revenue while continuing to
show earnings in the third quarter of fiscal 2000 and maintaining a positive
cash position with no borrowings against its lines of credit. The Company will
continue to work very closely with its customers to meet their needs and the
needs of their customers. The Company is looking for a continued upward trend in
the fourth quarter of fiscal 2000, with growth in most areas of the Company.
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Comparison of Three Months and Nine Months Ended June 30, 2000 and 1999
Net Sales. Net sales for the three-month period ended June 30, 2000 were
$3,536,000, compared to $2,429,000 for the same period in 1999, an increase of
$1,107,000, or 46%. Net sales for the nine-month period ended June 30, 2000 were
$8,855,000, compared to $6,709,000 for the same period in 1999, an increase of
$2,146,000 or 32%. The increase was primarily attributable to penetrating target
markets and successfully executing the Company's growth plan.
Gross Margin. Gross margin for the three-month period ended June 30,2000 was
$2,750,000, compared to $2,099,000 for the same period in 1999, an increase of
$651,000 or 31%. Stated as a percentage of net sales, gross margin decreased to
78% for the three-month period ended June 30, 2000 compared to 86% for the same
period in 1999. Gross margins for the nine-month period ended June 30, 2000 were
$7,355,000, compared to $5,627,000 for the same period in 1999, an increase of
$1,728,000 or 31%. Stated as a percentage of net sales, gross margins decreased
to 83% for the nine-month period ended June 30, 2000, compared to 84% for the
same period in 1999. Goodwill and license amortization charged to cost of sales
were $75,000 (2% of net sales) for the three months ended June 30, 2000 and
$51,000 (2% of net sales) for the same period in 1999. Goodwill and license
amortization charged to cost of sales were $200,000 (2% of net sales) for the
nine months ended June 30, 2000 and $152,000 (2% of net sales) for the same
period in 1999. The increase in gross margin resulted primarily from increased
sales and changes in product mix. The decrease in gross margin stated as a
percentage of sales resulted primarily from product mix.
OPERATIONS. Operations expenses for the three-month period ended June 30, 2000
were $390,000, compared to $157,000 for the same period in 1999, an increase of
$233,000 or 148%. Stated as a percentage of net sales, operations expenses
increased to 11% for the three-month period ended June 30, 2000, as compared to
6% for the three-month period ended June 30, 1999. This increase in expense is
primarily attributable to staff additions. Operations expenses for the
nine-month period ended June 30, 2000 were $898,000, compared to $426,000 for
the same period in 1999, an increase of $472,000 or 111%. Stated as a percentage
of net sales, operations expenses increased to 10% for the nine-month period
ended June 30, 2000, compared to 6% for the same period in 1999. This increase
in expenses is primarily attributable to staff additions.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three-month period ended June 30, 2000 were $563,000, compared to $366,000 for
the same period in 1999, an increase of $197,000 or 54%. Stated as a percentage
of net sales, general and administrative expenses increased to 16%
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for the three month period ended June 30, 2000, compared to 15% for the same
period in 1999. The increase in expenses for the three months were primarily
attributable to costs associated with outside professional services, legal fees
and costs associated with the Company's listing on the Nasdaq's National Market
System. General and administrative expenses for the nine-month period ended June
30, 2000 were $1,458,000, compared to $1,263,000 for the same period in 1999, an
increase of $195,000 or 15%. Stated as a percentage of net sales, general and
administrative expenses decreased to 16% for the nine-month period ended June
30, 2000, compared to 19% for the same period in 1999. The increases in expenses
for the nine months were primarily attributable to costs associated with outside
professional services and legal fees, while the decrease in the percentage of
net sales is primarily attributable to increased revenues.
RESEARCH AND DEVELOPMENT. Research and development expenses for the three-month
period ended June 30, 2000 were $704,000, compared to $385,000 for the same
period in 1999, an increase of $319,000 or 83%. The increase in expenses is the
result of engineering staff additions and the commencement of certain
engineering projects. Stated as a percentage of net sales, research and
development expenses increased to 20% for the three-month period ended June 30,
2000, compared to 16% for the same period in 1999. The increase as a percentage
of net sales for the three-month period is primarily attributable to the
increase in absolute dollar expenditures. Research and development expenses for
the nine-month period ended June 30, 2000 were $1,677,000, compared to $958,000
for the same period in 1999, an increase of $719,000 or 75%. The amounts for the
nine months ended June 30, 2000 and 1999 do not include $110,000 and $67,000,
respectively, that was spent on research and development related contract
development and charged to cost of sales. Research and development expenses
before charges to cost of sales were $1,787,000 and $1,025,000 for the nine
months ended June 30, 2000 and 1999, respectively. The increase in expenses is
the result of engineering staff additions and the commencement of certain
engineering projects. Stated as a percentage of net sales, research and
development expenses before charges to cost of goods sold increased to 20% for
the nine-month period ended June 30, 2000, compared to 15% for the same period
in 1999. The increase as a percentage of net sales for the nine-month period is
primarily attributable to the increase in absolute dollar expenditures.
SELLING AND MARKETING. Selling and marketing expenses for the three-month period
ended June 30, 2000 were $860,000, compared to $697,000 for the same period in
1999, an increase of $163,000 or 23%. Stated as a percentage of net sales,
selling and marketing expenses decreased to 24% from 29% for the same period in
1999. The increase in expenses is primarily attributable to the addition of
personnel and increased marketing efforts on certain products. The decrease as a
percentage of net sales is primarily attributable to increased revenues. Selling
and marketing expenses for the nine-month period ended June 30, 2000 were
$2,158,000, compared to $1,786,000 for the same period in 1999, an increase of
$372,000 or 21%. Stated as a percentage of net sales, selling and marketing
expenses decreased to 24% from 27% for the same period in 1999. The increase in
expenses is primarily attributable to the addition of personnel and increased
marketing efforts on certain products. The decrease as a percentage of net sales
is primarily attributable to the increase in revenues.
INTEREST INCOME. Interest income for the three-month period ended June 30,2000
was $22,000, compared to interest income of $9,000 for the same period in 1999,
an increase of $13,000 or 144%. Interest income for the nine-month period ended
June 30, 2000 was $30,000, compared to interest income of $26,000 for the same
period in 1999, an increase of $4,000 or 15%. Interest income was generated from
invested funds received from the secondary public offering in the quarter ended
December 31, 1996, combined with no bank borrowings in the quarters ended June
30, 2000 and 1999. The increase in interest income reflects the earnings from
invested funds.
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LIQUIDITY AND CAPITAL
The Company has financed its cash needs primarily from increased profits in the
fourth quarter of fiscal 1999 and the first, second and third quarters of fiscal
2000, collection of accounts and notes receivable, and execution of operations
within budget.
Net cash used by operating activities during the nine months ended June 30, 2000
was $1,304,000. The primary use of cash from operating activities was an
increase in accounts receivable of $3,448,000 and an increase in inventory,
prepaid expenses and other assets of $442,000. The primary source of cash from
operating activities was net income of $1,175,000, an increase in accounts
payable, accrued payroll and other liabilities and unearned income of
$1,067,000, and depreciation and amortization of $311,000.
Increased receivables resulted primarily from increased sales.
The Company's working capital and current ratio was $6,488,000 and 3.33 at June
30, 2000, and $4,816,000 and 3.81 at September 30, 1999. At June 30, 2000, total
liabilities to equity ratio was .38 to 1 compared to .31 to 1 at September 30,
1999. As of June 30, 2000, total liabilities were greater by $1,067,000 than on
September 30, 1999.
During the third quarter of 2000, the Company renewed its line of credit from
its bank, in the amount of $750,000, which now expires on June 8, 2001. Interest
is payable at prime plus 1.5 percentage points. In addition, the Company renewed
its equipment credit line in the amount of $250,000 under similar terms and
conditions. The Company was advised by its bank on August 9, 2000, that the
revolving line of credit received approval to be increased to $2,500,000. There
were no borrowings under the working capital or equipment lines of credit as of
June 30, 2000 or September 30, 1999. The Company believes that together with
existing cash, credit available under the credit lines, and cash generated from
operations, funds will be sufficient to finance its operations for the next
twelve months. All cash in excess of working capital requirements will be kept
in short term, investment grade securities.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None
b. Reports on Form 8-K: None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
MITEK SYSTEMS, INC.
Date: August 10, 2000 /s/ John Thornton
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John Thornton, Chairman, President and
Chief Executive Officer
