<PAGE>
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 DECEMBER 31, 1999 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
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (858) 635-5900
-----------------------------
- --------------------------------------------------------------------------------
(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 .
--- ---
There were 10,590,857 shares outstanding of the registrant's Common Stock
as of January 31, 2000.
<PAGE>
PART 1: FINANCIAL INFORMATION
MITEK SYSTEMS, INC
CONSOLIDATED BALANCE SHEETS
UNAUDITED
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1999 1999
---------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 949,347 $ 1,398,589
Accounts receivable - net 6,048,855 5,006,081
Inventories 50,804 58,082
Prepaid expenses and other assets 134,172 69,232
---------------------------------------------------------------
Total current assets 7,183,178 6,531,984
PROPERTY AND EQUIPMENT - net 291,346 281,571
OTHER ASSETS 645,736 575,298
===============================================================
TOTAL ASSETS $ 8,120,260 $ 7,388,853
===============================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 663,605 $ 738,195
Accrued payroll and related taxes 516,903 720,300
Unearned income 396,269 203,408
Other accrued liabilities 230,425 53,885
---------------------------------------------------------------
Total current liabilities 1,807,202 1,715,788
LONG-TERM LIABILITIES 48,885 51,040
---------------------------------------------------------------
Total liabilities 1,856,087 1,766,828
COMMITMENTS AND CONTINGENCIES (Note 5)
STOCKHOLDERS' EQUITY
Common stock - $.001 par value; 20,000,000
shares authorized, 10,514,541 and
10,438,854 issued and outstanding, respectively 10,515 10,439
Additional paid-in capital 8,559,698 8,507,613
Accumulated deficit (2,306,040) (2,896,027)
---------------------------------------------------------------
Total stockholders' equity 6,264,173 5,622,025
===============================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,120,260 $ 7,388,853
===============================================================
</TABLE>
See notes to consolidated financial statements
<PAGE>
MITEK SYSTEMS, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1999 1998
--------------------------------------------------------------
<S> <C> <C>
NET SALES $ 2,725,084 $ 2,210,477
COST OF SALES 380,985 422,653
--------------------------------------------------------------
GROSS MARGIN 2,344,099 1,787,824
COSTS AND EXPENSES:
Operations 218,149 126,045
General and administrative 437,143 506,569
Research and development 500,191 295,134
Selling and marketing 592,876 495,556
Interest (income) - net (6,246) (9,796)
--------------------------------------------------------------
Total costs and expenses 1,742,113 1,413,508
--------------------------------------------------------------
OPERATING INCOME 601,986 374,316
--------------------------------------------------------------
INCOME BEFORE INCOME TAXES 601,986 374,316
PROVISION FOR INCOME TAXES 12,000 0
==============================================================
NET INCOME $ 589,986 $ 374,316
==============================================================
==============================================================
EARNINGS PER SHARE - BASIC $ 0.06 $ 0.04
==============================================================
==============================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING - BASIC 10,485,684 10,420,568
==============================================================
==============================================================
EARNINGS PER SHARE - DILUTED $ 0.05 $ 0.04
==============================================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES AND
==============================================================
COMMON SHARE EQUIVALENTS OUTSTANDING - DILUTED 11,295,038 10,572,288
==============================================================
</TABLE>
See notes to consolidated financial statements
<PAGE>
MITEK SYSTEMS, INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
1999 1998
-------------------------------------------------
<S> <C> <C>
Net income $ 589,986 $ 374,316
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 84,958 77,543
Loss on sale of property and equipment 0 1,242
Value of stock options granted to non-employee 1,335 6,511
Changes in assets and liabilities:
Accounts and notes receivable (1,042,774) (728,378)
Inventories, prepaid expenses, and other assets (178,662) 76,681
Accounts payable, accrued payroll and related taxes,
unearned maintenance income, and other accrued liabilities 89,259 (339,512)
-------------------------------------------------
Net cash used in operating activities (455,898) (531,597)
INVESTING ACTIVITIES
Proceeds from note receivable 0 56,478
Purchases of property and equipment (44,170) (69,436)
-------------------------------------------------
Net cash used in investing activities (44,170) (12,958)
FINANCING ACTIVITIES
Repurchase of common stock 0 (14,150)
Proceeds from exercise of stock options and warrants 50,826 0
-------------------------------------------------
Net cash provided by (used in) financing activities 50,826 (14,150)
-------------------------------------------------
NET (DECREASE) IN CASH (449,242) (558,705)
CASH AT BEGINNING OF PERIOD 1,398,589 1,740,760
=================================================
CASH AT END OF PERIOD $ 949,347 $ 1,182,055
=================================================
Supplemental Disclosure of Cash Flow Information
Cash paid for income taxes $ 70,000 0
Significant non-cash investing and financing activities:
591,114 shares of unregistered common stock reacquired
pursuant to settlement agreement - see Note 3 0 $ 369,446
763,922 shares of unregistered common stock reacquired pursuant to revised
cross investment and licensing
agreements - see Note 4 0 $ 477,451
</TABLE>
See notes to consolidated financial statements
<PAGE>
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.
Results for the three months ended December 31, 1999 and 1998 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>
December 31, 1999 December 31, 1998
----------------- -----------------
<S> <C> <C>
Raw materials $ 29,657 $ 18,144
Work in process 0 0
Finished goods 21,147 6,880
-------- --------
Total $ 50,804 $ 25,024
======== ========
</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 $200,000 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 proceedings were resolved in October 1998 and
the costs of these settlements were included in the fiscal year ended September
30, 1998 financial statements.
<PAGE>
MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION
The following cautionary statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 in order for the Company to avail
itself on 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 first quarter of fiscal
2000 ended December 31, 1999 are a result of the successful implementation of
that growth strategy. In the three months ending December 31, 1999, revenues
were $2,725,000, an increase of $515,000 or 23% over the $2,210,000 revenues in
the same period last year. Gross margin for the quarter ended December 31, 1999
was $2,344,000, an increase of $556,000 or 31% over the $1,788,000 gross margin
in the same period last year. The Company earned net income of $590,000 or $0.05
per diluted share for the first quarter of fiscal 2000, compared with a net
income of $374,000 or $0.04 per diluted share for the first quarter of fiscal
1999.
The Company continued to maintain its cash position in the first quarter
of fiscal 2000. At December 31, 1999 the Company had $949,000.in cash and cash
equivalents as compared to $1,399,000 on September 30, 1999. The Company
retained its $750,000 revolving and $250,000 equipment lines of credit. There
were no borrowings under the lines of credit as of December 31, 1999 or
September 30, 1999.
During the first quarter of fiscal 2000 Mitek announced a significant
relationship with a key customer, BancTec. The agreement is a multiyear license
for Mitek's CogniForms(TM) and Doctus(TM) technology products. These products
will be integrated into BancTec's document processing solutions family.
The Company is pleased it experienced a growth in revenue and earnings in
the first quarter of fiscal 2000 while 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 second
quarter of fiscal 2000, with growth in most areas of the Company.
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:
Comparison of Three Months Ended December 31, 1999 and 1998
NET SALES. Net sales for the three month period ended December 31, 1999
was $2,725,000, compared to $2,210,000 for the same period in 1998, an increase
of $515,000, or 23%. The increase was primarily attributable to penetrating the
forms processing market with the Company's CogniForms(TM) and Doctus(TM)
technology products and successfully executing the Company's growth plan.
Page 3 of 8
<PAGE>
GROSS MARGIN. Gross margin for the three month period ended December 31,
1999 was $2,344,000, compared to $1,788,000 for the same period in 1998, an
increase of $556,000 or 31%. Stated as a percentage of net sales, gross margin
increased to 86% for the three month period ended December 31, 1999 compared to
81% for the same period in 1998. Goodwill and license amortization charged to
cost of sales was $51,000 (2% of net sales) for the three month period ended
December 31, 1999 and $50,000 (2% of net sales) for the same period in 1998. The
increase in both gross margin and as a percentage of net sales resulted
primarily from increased sales and product mix.
OPERATIONS. Operations expenses for the three month period ended December
31, 1999 were $218,000, compared to $126,000 for the same period in 1998, an
increase of $92,000 or 73%. Stated as a percentage of net sales, operations
expenses increased to 8% for the three month period ended December 31, 1999,
compared to 6% for the same period in 1998. The increase in expenses and the
percentage of net sales is primarily attributable to staff additions.
GENERAL AND ADMINISTRATIVE. General and administrative expenses for the
three month period ended December 31, 1999 were $437,000, compared to $507,000
for the same period in 1998, a decrease of $70,000 or 14%. Stated as a
percentage of net sales, general and administrative expenses decreased to 16%
for the three month period ended December 31, 1999, compared to 23% for the same
period in 1998. The decrease in expenses and as a percentage of net sales for
the three month period is primarily attributable to costs associated with
outside professional services and legal fees.
RESEARCH AND DEVELOPMENT. Research and development expenses for the three
month period ended December 31, 1999 were $500,000 compared to $295,000 for the
same period in 1998, an increase of $205,000 or 69%. Stated as a percentage of
net sales, research and development expenses increased to 18% for the three
month period ended December 31, 1999, compared to 14% for the same period in
1998. The increase in expenses and as a percentage of net sales for the three
month period is the result of engineering staff additions.
SELLING AND MARKETING. Selling and marketing expenses for the three month
period ended December 31, 1999 were $593,000, compared to $496,000 for the same
period in 1998, an increase of $97,000 or 20%. Stated as a percentage of net
sales, selling and marketing expenses remained at 22% from 22% for the same
period in 1998. The increase in expenses are primarily attributable to staff
additions, while maintaining the same percentage of net sales is primarily
related to the increase in revenues.
INTEREST INCOME -NET. Net interest income for the three month period
ended December 31, 1999 was $6,000, compared to net interest income of $10,000
for the same period in 1998, a decrease of $4,000 or 40%. Stated as a percentage
of net sales, net interest income for the corresponding periods were 1% and 1%,
respectively. The decrease in net interest income for the period ended December
31, 1999 is primarily the result of lower invested funds during the period.
LIQUIDITY AND CAPITAL
The Company has financed its cash needs primarily from increased profits
during fiscal 1999 and the first uarter of fiscal 2000, collection of accounts
and notes receivable, and execution of operations within budget.
Net cash used by operating activities during the year ended December 31,
1999 was $456,000. The primary use of cash from operating activities was an
increase in accounts receivable of $1,043,000 and an increase in inventories,
prepaids and other assets of $179,000. The primary source of cash from operating
activities was net income of $590,000 plus depreciation and amortization of
$85,000 and an increase in accounts payable of $89,000. Higher receivables
resulted primarily from increased sales.
The Company's working capital and current ratio was $5,376,000 and 3.97
at December 31, 1999, and $4,816,000 and 3.81 at September 30, 1999. At December
31, 1999, total liabilities to equity ratio was .30 to 1 compared to .31 to 1 at
September 30, 1999. As of December 31, 1999, total liabilities were greater by
$89,000 than on September 30, 1999 .
In June 1999, the Company renewed its working capital line of credit of
$750,000. The line of credit expires on June 8, 2000 and 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. There
were no borrowings under the working capital or equipment lines of credit as of
December 31, 1999 or September 30, 1999. The Company believes that together with
existing cash, credit available under the credit lines, and cash generated
Page 4 of 8
<PAGE>
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.
YEAR 2000
Historically, most computer databases, as well as embedded microprocessors in
computer systems and industrial equipment, were designed with date data fields
which used only two digits of the year. Most computer programs, computers, and
embedded microprocessors controlling equipment were programmed to assume that
all two digit dates were preceded by "19", causing "00" to be interpreted as the
year 1900. This formerly common practice now could result in a computer system
or embedded microprocessor which fails to recognize properly a year that begins
with "20", rather than "19". This in turn could result in computer system
miscalculations or failures, as well as failures of equipment controlled by
date-sensitive microprocessors, and is generally referred to as the "Year 2000
problem."
1. The Company's State of Year 2000 Readiness. In 1997 the Company began to
formulate a plan to address its year 2000 issues. The Company's Year 2000 plan
now contemplates five phases: AWARENESS, ASSESSMENT, REMEDIATION, TESTING, and
IMPLEMENTATION.
AWARENESS involves ensuring that employees who deal with the Company's computer
assets, and all managers, executives and directors, understand the nature of the
Year 2000 problem and the adverse effects on the business operations of the
Company that would result from the failure to become and remain Year 2000 ready.
ASSESSMENT involves the identification and inventorying of all computer assets
of the Company (both information technology systems and embedded
microprocessors) and the determination as to whether such assets will properly
recognize a year that begins with "20", rather than "19". Computer hardware,
software and firmware, and embedded microprocessors, that, among other things,
properly recognize a year beginning with "20" are said to be "Year 2000 ready".
REMEDIATION involves the repair or replacement of computer assets that are not
Year 2000 ready. TESTING involves the validation of the actions taken in the
remediation phase. IMPLEMENTATION is the installation and integration of
remediated and tested computer assets into an overall information technology and
embedded microprocessor system that is Year 2000 ready.
These phases have substantial overlap. The Company has completed Awareness
phases (4th Quarter 1998) Assessment phases (4th Quarter 1998) Remediation
phases (4th Quarter 1998) Testing (2nd Quarter 1999) and Implementation (3rd
Quarter 1999) phases. The Company has assigned Noel Flynn, Vice President of
Operations/Customer Support, the responsibility for overseeing the timely
completion of each phase of the Company's Year 2000 plan.
The Company believes that all employees who deal with the Company's computer
assets, and all levels of the Company's management appreciate the importance of
Year 2000 readiness, and understand that achieving such readiness is primarily a
business problem, not merely a technology problem. The Company has also
communicated directly with its vendors of goods and services in an attempt to
assure that its key vendors are aware of the importance the Company places on
Year 2000 readiness.
The Company began its assessment of its internal computer systems in 1997.
Computers and applications were identified, assessed and ranked for critical
importance to the operations of the Company. Since then, the Company has
modified and tested such applications and replaced the one system that was not
Year 2000 compliant. The Company has addressed all computer systems that are
critical to its operations as of September 1999.
The Company has completed its assessment of the potential for Year 2000 problems
with embedded microprocessors in its equipment, and has remedied all
non-compliant equipment as of September 1999.
The Company has mailed information concerning Year 2000 readiness to vendors of
goods and services. The Company is not presently dependent upon any single
source and supply for critical components or services for its products, and
believes it can acquire such products from a number of suppliers. The Company
had on-going discussions with all of its vendors of goods and services during
1999 to ensure the uninterrupted supply of such goods and services and to
develop contingency plans in the event of the failure of any vendors to become
and remain Year 2000 ready.
The total cost of completing all five phases of its Year 2000 plan did not
exceed $50,000.
2. The Risks of the Company's Year 2000 Issues. If any computer hardware,
software applications, or embedded microprocessors critical to the Company's
operations have been overlooked in the assessment or remediation
Page 5 of 8
<PAGE>
phases, if any of the Company's remediated or replaced internal computer systems
fail the testing phase, there could be a material adverse effect on the
Company's results of operations, liquidity and financial condition of a
magnitude which the Company has not yet fully analyzed.
In addition, the Company has not yet been assured that (1) the computer systems
of all of its "key" or "mission critical" vendors of goods and services will be
Year 2000 ready in a timely manner or that (2) the computer systems of third
parties with which the Company's computer systems exchange data will be Year
2000 ready both in a timely manner and in a manner compatible with continued
data exchange with the Company's computer systems.
If the vendors of the Company's most important goods and services, or the
suppliers of the Company's necessary energy, telecommunications and
transportation needs, fail to provide the Company with (1) the materials and
services which are necessary to produce, distribute and sell its product, (2)
the electrical power and other utilities necessary to sustain its operations, or
(3) reliable means of transporting supplies to its customers, such failure could
have a material adverse effect on the results of operations, liquidity and
financial condition of the Company.
The Company's customers are primarily banks and financial institutions or
entities that provide financial services to those industries. The banking
industry has indicated it may experience severe problems associated with the
Year 2000 problem. Banks and other financial institutions are spending
significant capital resources to remedy their own Year 2000 issues. These
expenditures may reduce budgeted funds that would otherwise be available to
acquire new technologies and systems from the Company and other suppliers. To
the extent that those customers experience or continue to experience significant
capital costs for Year 2000 compliance, the demand for the Company's products
may be reduced because of budgetary constraints.
Page 6 of 8
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: None
b. Reports on Form 8-K:
Page 7 of 8
<PAGE>
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: February 11, 2000 /s/ John Thornton
--------------------------------------
John Thornton, Chairman, President and
Chief Executive Officer
Page 8 of 8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> OCT-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 949,347
<SECURITIES> 0
<RECEIVABLES> 6,327,766
<ALLOWANCES> 278,911
<INVENTORY> 50,804
<CURRENT-ASSETS> 7,183,178
<PP&E> 1,278,172
<DEPRECIATION> 986,826
<TOTAL-ASSETS> 8,120,260
<CURRENT-LIABILITIES> 1,807,202
<BONDS> 48,885
0
0
<COMMON> 10,515
<OTHER-SE> 6,264,173
<TOTAL-LIABILITY-AND-EQUITY> 8,120,260
<SALES> 2,725,084
<TOTAL-REVENUES> 2,725,084
<CGS> 380,985
<TOTAL-COSTS> 1,748,359
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,246
<INCOME-PRETAX> 601,986
<INCOME-TAX> 12,000
<INCOME-CONTINUING> 589,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 589,986
<EPS-BASIC> .06
<EPS-DILUTED> .05
</TABLE>
