MITEK SYSTEMS INC - 10-Q Summary
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for MITEK SYSTEMS INC for the period ended December 31, 2010. Mitek provides advanced imaging and analytics software to financial institutions, focusing on mobile applications such as Mobile Deposit, Mobile Receipt, and Mobile Phax. The company is classified as a smaller reporting company.
Key Financial Metrics
| Metric | Q1 2011 (Ended Dec 31, 2010) | Q1 2010 (Ended Dec 31, 2009) |
|---|---|---|
| Total Revenue | $1,403,562 | $1,159,011 |
| Net Loss | $(800,727) | $(222,946) |
| Net Loss Per Share (Basic/Diluted) | $(0.04) | $(0.01) |
| Cash and Cash Equivalents | $2,141,488 | $1,089,725 |
| Working Capital | $2,119,442 | N/A |
| Convertible Debt | $0 | $679,801 |
| Accumulated Deficit | $(16,295,065) | N/A |
Margin Analysis: Cost of sales decreased to 15% of revenue (from 30% in the prior year). Operating expenses increased significantly, with Selling and Marketing at 28% of revenue and General and Administrative at 44% of revenue.
Material Changes vs. Prior Period
- Revenue Growth: Total revenue increased 21% to $1.4 million, driven primarily by a 39% increase in software license sales ($941k vs $677k), largely due to Mobile Deposit application sales.
- Expense Increases: Operating loss widened to $416k (from $198k) due to significant increases in Selling and Marketing expenses (+142%) and General and Administrative expenses (+87%). These increases were driven by higher headcount, stock-based compensation, and legal fees.
- Non-Cash Interest Expense: Other expense increased to $384k (from $23k) primarily due to the accretion of discounts and the write-off of unamortized beneficial conversion features upon the conversion of convertible debt to equity in December 2010.
- Debt Elimination: The company converted approximately $1.06 million of outstanding convertible debentures into 1.42 million shares of common stock, eliminating this liability from the balance sheet.
- Cash Position: Cash increased by $836k to $2.14 million, funded by a $750k private placement of common stock and $89k from option exercises.
Guidance, Outlook, and Risks
- Outlook: Management believes current cash and expected operating cash flows are adequate for the next 12 months. However, the company has a history of losses and may need to raise additional funds to continue operations if positive cash flows are not achieved.
- New Agreements: Entered into a licensing agreement with JP Morgan Chase for Mobile Deposit products. Revenue recognition is deferred until delivery of all products and payment terms are met.
- Subsequent Event: On January 31, 2011, the company secured a $400,000 line of credit with its primary operating bank, secured by equipment.
- Risks: Key risks include the inability to achieve profitability, dependence on a few major customers (two customers accounted for 55.4% of revenue), stock price volatility, and the need for future capital raises.
Investor Verification Checklist
- Liquidity Runway: Verify if the $2.14 million cash balance is sufficient given the $800k quarterly burn rate and the lack of positive operating cash flow.
- Revenue Concentration: Assess the risk associated with two customers representing 55.4% of total revenue.
- Deferred Revenue: Confirm the timing of revenue recognition for the new JP Morgan Chase contract included in deferred revenue ($1.18 million).
- Stock Dilution: Review the impact of the recent conversion of debt to equity and the outstanding options/warrants (approx. 4.8 million options and 695k warrants) on future share count.
- Expense Trajectory: Monitor if the sharp increase in G&A and Selling expenses is sustainable relative to revenue growth.