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, 1996 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 (619) 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 10,075,874 shares outstanding of the registrant's Common Stock as of January 31, 1997.
PART I: FINANCIAL INFORMATION MITEK SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS (Unaudited) December 31, September 30, 1996 1996 ------------ ------------- ASSETS CURRENT ASSETS: Cash $ 4,099,227 $ 210,413 Accounts receivable-net 2,196,123 2,258,541 Inventories 198,355 278,206 Prepaid expenses 136,406 240,364 ------------ ------------- Total current assets 6,630,111 2,987,524 ------------ ------------- PROPERTY AND EQUIPMENT-at cost 1,100,605 1,049,678 Less accumulated depreciation and amortization 932,449 902,790 ------------ ------------- Property and equipment-net 168,156 146,888 ------------ ------------- PREPAID LICENSE AND OTHER ASSETS 553,212 628,030 ------------ ------------- TOTAL $ 7,351,479 $ 3,762,442 ------------ ------------- ------------ ------------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of long-term liabilities $ 9,700 $ 9,190 Accounts payable 221,533 472,755 Accrued payroll and related taxes 164,239 302,037 Other accrued liabilities 183,683 319,973 ------------ ------------- Total current liabilities 579,155 1,103,955 ------------ ------------- LONG-TERM LIABILITIES 3,371 6,147 ------------ ------------- COMMITMENTS STOCKHOLDERS' EQUITY: Preferred stock - $.001 par value; 1,000,000 shares authorized; no shares issued and outstanding Common stock - $.001 par value; 20,000,000 shares authorized; 10,073,638 and 7,782,971 issued and outstanding, respectively 10,073 7,783 Additional paid-in capital 7,905,117 3,503,634 Accumulated deficit (1,146,237) (859,077) ------------ ------------- Total stockholders' equity 6,768,953 2,652,340 ------------ ------------- TOTAL $ 7,351,479 $ 3,762,442 ------------ ------------- ------------ -------------
MITEK SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) THREE MONTHS ENDED December 31, 1996 1995 ----------- ----------- NET SALES $ 1,100,932 $ 1,825,452 COST OF GOODS SOLD 400,993 740,061 ----------- ----------- GROSS MARGIN 699,939 1,085,391 ----------- ----------- COSTS AND EXPENSES: Selling and marketing 425,611 303,554 General and administrative 302,915 355,016 Research and development 304,196 267,763 Interest - net (13,623) 48,231 ----------- ----------- Total costs and expenses 1,019,099 974,564 ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES (319,160) 110,827 PROVISION (BENEFIT) FOR INCOME TAXES (32,000) 22,165 ----------- ----------- NET INCOME (LOSS) $ (287,160) $ 88,662 ----------- ----------- ----------- ----------- EARNINGS (LOSS) PER SHARE: Common and Common equivalent shares $ (.03) $ .01 ----------- ----------- ----------- ----------- WEIGHTED AVERAGE COMMON AND COMMON EQUIVALENT SHARES 9,803,047 7,835,458 ----------- ----------- ----------- ----------- See notes to financial statements.
MITEK SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended December 31, 1996 1995 ------------ ---------- OPERATING ACTIVITIES: Net income (loss) $ (287,160) $ 88,662 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 104,477 109,960 Change in operating assets and liabilities: (Increase) in accounts receivable 62,418 (390,692) Decrease in inventory and prepaid expense 183,809 6,523 Decrease in accounts payable and accrued expenses (525,282) (50,572) ------------ ---------- Net cash used in operating activities (461,738) (236,119) ------------ ---------- INVESTING ACTIVITIES: Purchases of property and equipment (50,927) (12,726) ------------ ---------- Net cash used in investing activities (50,927) (12,726) ------------ ---------- FINANCING ACTIVITIES: Proceeds from borrowings 150,000 549,435 Repayment of notes payable and long-term liabilities (152,294) (436,082) Proceeds from note receivable 0 95,406 Proceeds from exercise of stock options, warrants and secondary offering 4,403,773 177 ------------ ---------- Net cash provided by financing activities 4,401,479 208,936 ------------ ---------- NET INCREASE (DECREASE) IN CASH 3,888,814 (39,909) CASH AT BEGINNING OF PERIOD 210,413 103,895 ------------ ---------- CASH AT END OF PERIOD $ 4,099,227 $ 63,986 ------------ ---------- ------------ ----------
MITEK SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS A. Basis of Presentation The accompanying unaudited 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, 1996 are not necessarily indicative of results which may be reported for any other interim period or for the year as a whole. B. Inventories Inventories are summarized as follows: December 31, 1996 September 30, 1996 ----------------- ------------------ Raw materials $ 88,195 $ 55,366 Work in process 19,747 Finished goods 90,413 222,840 ----------- ----------- Total $ 198,355 $ 278,206 ----------- ----------- ----------- ----------- Inventories are recorded at the lower of cost (on the first-in, first-out basis) or market. C. Earnings Per Share Earnings per share amounts are computed based on the weighted average shares outstanding during the periods which include any delutive stock options and warrants. D. Sale of Common Stock In the first quarter of fiscal year 1997, the Company undertook a secondary public stock offering in which a total of 2,250,000 shares of common stock were sold at $2.25 per share, providing the Company with net proceeds of $4,352,590.
MITEK SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS Continued E. Commitments The Company's offices and manufacturing facilities are leased under non-cancellable operating leases. The primary facilities lease expires on April 30, 1998, at which time the lease is renewable at current market rates. Year ending September 30: 1997 $ 97,965 1998 58,457 1999 2,153 ----------- Total $ 158,575 ----------- -----------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Comparison of Three Months Ended December 31, 1996 and 1995 NET SALES. Net sales for the three month period ended December 31, 1996 were $1,101,000 compared to $1,825,000 for the same period in 1995, a decrease of $724,000 or 39.7%. The decrease is the result of order delays certain customers experienced in finalizing contracts. GROSS MARGIN. Gross margin for the three month period ended December 31, 1996 was $700,000 compared to $1,085,000 for the same period in 1995, a decrease of $385,000, or 35.5%. The decrease relates to reductions in revenues. As a percentage of sales, gross margin increased from 59.5% of sales in the three month period ended December 31, 1995 to 63.6% of sales in the same period in 1996. This increase is attributable to a change in sales product mix. RESEARCH AND DEVELOPMENT. Research and development expenses for the three months ended December 31, 1996 were $304,000 compared to $268,000 for the same period in 1995, an increase of $36,000 or 13.4%. This increase is primarily due to reduction of time spent on revenue generating government contract work, as well as additions to staff for new product development. As a percentage of net sales, research and development expenses increased to 27.6% for the three months of fiscal 1996 compared to 14.7% for the three months of fiscal 1995. The increase was primarily due to the decrease net sales, as the actual dollar amount spent on research and development increased insignificantly. SELLING AND MARKETING. Selling and marketing expenses for the three months ended December 31, 1996 were $426,000 compared to $304,000 for the same period in 1995, an increase of $122,000, or 40.1%. As a percentage of net sales, selling and marketing expenses increased to 38.7% for the three months ended December 31, 1996 compared to 16.6% for the three months ended December 31, 1995. The increase relates to additions to staff, opening of two sales offices, as well as increased product promotion and advertising campaigns. GENERAL AND ADMINISTRATIVE. General and administrative expenses for the three months ended December 31, 1996 were $303,000 compared to $355,000 for the same period in 1995, a decrease of $52,000, or 14.6%. As a percentage of net sales, general and administrative expenses increased to 27.5% for the first three months of fiscal 1997 compared to 19.5% for the first three months of fiscal 1995. The increase was primarily due to reduction in revenues, as costs relating to consulting and bad debt expenses were significantly lower than in the same period in the prior period. INTEREST EXPENSE (INCOME) Interest expense (income) for the three months ended December 31, 1996 was $(14,000) compared to $48,000 for the same period in 1995, a decrease of $62,000, or 129.2%. The decrease was due to interest earned on cash raised in the secondary common stock public offering as mentioned in item D. in the Notes to Financial Statements section. PROVISION FOR INCOME TAXES. The provision for income tax benefit or expense for federal and state income taxes is based on the estimated effective tax rates applied to year to date loss or income before income tax and projected utilization of tax credits from prior periods.
LIQUIDITY AND CAPITAL RESOURCES At December 31, 1996, stockholders' equity was $6,769,000, an increase of $4,117,000 from September 30, 1996. The Company's working capital and current ratio was $6,051,000 and 11.45 to 1 at December 31, 1996 compared to $1,884,000 and 2.71 to 1 at September 30, 1996, respectively. At December 31, 1996, the total liabilities to equity ratio was 0.086 to 1 compared to .419 to 1 at September 30, 1996. As of December 31, 1996, the Company's total liabilities were $528,000 less than September 30, 1996. Components of working capital with significant changes during the three months ended December 31, 1996 were: Cash, Inventory and Accounts Payable. Compared to September 30, 1996, the components changed as follows: Cash - Increased $3,889,000 primarily because of proceeds received from the secondary public common stock offering. Inventory - Decreased $80,000 due to adequate inventory levels at Sept. 30, 1996 to support shipments in the first quarter. Accounts Payable - Decreased by $251,000 because of payments made in the first quarter with cash generated from financing activities combined with reductions on procurement of inventory materials. In March, 1996 the Company achieved a line of credit financing with a bank in the amount of $400,000, with interest rate charges of 2.5% over prime lending rates. This financing arrangement was renewed on February 3, 1997 and expires February 3, 1998. As of December 31, 1996, there was no outstanding balance on the line of credit. The Company believes it will have sufficient cash flow generated from financing activities, operations and existing credit facilities to meet its operational needs in the coming year.
PART II - OTHER INFORMATION Item 4. The annual meeting of stockholders was held on February 11, 1997. Brought to vote were the election of Directors for the ensuing year. With 91.20% of shares represented at the meeting, all Directors from the prior year were re-elected. They are: John M. Thornton, Chairman, John F. Kessler, Daniel E. Steimle, James B. DeBello, Gerald I. Farmer and Sally B. Thornton. Item 6. Exhibits and Reports on Form 8-K a. The exhibits are on Form 8-K: None b. Reports on Form 8-K: 1996 Stock Option Plan
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. (Registrant) Date: February 12, 1997 ----------------------------------- John Kessler, President and Chief Executive Officer Date: February 12, 1997 ----------------------------------- Gerald I. Farmer, Executive Vice President and Assistant Treasurer