Business Context and Reporting Period
Company: MITEK SYSTEMS, INC.
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2009
Business Overview: Mitek Systems develops software for document image processing, intelligent character recognition, and mobile capture technologies (ImageNet Mobile Deposit). The company primarily sells to original equipment manufacturers, system integrators, and resellers serving the financial services industry.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2009 |
Nine Months Ended June 30, 2009 |
Nine Months Ended June 30, 2008 |
|---|---|---|---|
| Total Revenue | $914,738 | $2,814,469 | $4,205,605 |
| Net Loss | $(85,677) | $(993,704) | $(461,512) |
| Operating Loss | $(84,983) | $(992,576) | $(465,808) |
| Cash and Equivalents | $537,216 | $537,216 (End of Period) | $1,369,571 (End of Period) |
| Working Capital | $(17,490) | $(17,490) | $919,090 (Sep 30, 2008) |
| Accumulated Deficit | $(14,483,725) | $(14,483,725) | $(13,490,021) (Sep 30, 2008) |
Liquidity: The company reported negative working capital of approximately $18,000 and a current ratio of 0.99 as of June 30, 2009, a significant decline from positive working capital of $919,000 and a current ratio of 1.66 as of September 30, 2008.
Material Changes vs. Prior Period
- Revenue Decline: Revenue for the nine months ended June 30, 2009, decreased by 33% ($1.39 million) compared to the same period in 2008. The three-month revenue dropped 46%. Management attributes this to a downturn in the banking and financial services industry.
- Increased Losses: Net loss for the nine months ended June 30, 2009, more than doubled to $994,000 compared to $462,000 in the prior year period.
- Expense Reductions: Following a workforce reduction implemented in January 2009, selling and marketing expenses decreased by 37% ($409,000) and general and administrative expenses decreased by 15% ($205,000) for the nine-month period.
- Cash Burn: Net cash used in operating activities increased by 20% to $690,000 for the nine months ended June 30, 2009, compared to $575,000 in the prior year.
Outlook, Risks, and Management Commentary
Going Concern Warning: The filing explicitly states that the company's existing working capital may not be sufficient to fund operations for the next twelve months without additional funding. Management has retained an investment banking firm to explore strategic alternatives and is taking expense reduction measures. There is substantial doubt about the company's ability to continue as a going concern.
Strategic Focus: The company is shifting focus toward its "Mobile Capture" technology (ImageNet Mobile Deposit) while maintaining its core character recognition products. Revenue from the new mobile product began in June 2009.
Risk Factors:
- History of losses and uncertainty regarding future profitability.
- Dependence on key personnel without employment contracts.
- Concentration of sales (two customers accounted for 30.5% of sales in the quarter).
- Need for additional capital to continue operations.
Investor Verification Checklist
- Cash Runway: Verify the company's ability to secure additional debt or equity financing given the negative working capital and "going concern" warning.
- Revenue Concentration: Assess the risk associated with two customers representing over 30% of quarterly sales.
- Cost Cutting Efficacy: Monitor whether the January 2009 workforce reduction is sufficient to stabilize cash burn rates.
- Mobile Product Adoption: Evaluate the traction of the new ImageNet Mobile Deposit product as a potential revenue driver.
- Related Party Transactions: Review the $45,422 in revenue from John Harland (a related party) for the nine-month period to understand dependency.