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Stockholders' Equity
 11 Months Ended
Sep. 30, 2012
Stockholders' Equity [Abstract]  
STOCKHOLDERS' EQUITY
4. STOCKHOLDERS’ EQUITY

Common Stock

In October 2010, the Company sold 500,000 shares of common stock at $1.50 per share to accredited investors in a private placement, resulting in net proceeds of $750,000.

In December 2010, the Company issued 1,418,573 shares of common stock upon the conversion of outstanding convertible debentures as discussed in greater detail in Note 3.

 

In May 2011, the Company entered into a securities purchase agreement with certain accredited investors pursuant to which the Company sold to the investors an aggregate of 2,857,143 shares of the Company’s common stock at a purchase price of $5.25 per share for aggregate gross proceeds of $15,000,000. The Company paid cash compensation of approximately $1,050,000 in placement agent fees and reimbursed $25,000 of placement agent out-of-pocket expenses incurred in connection with the financing. In addition, the Company incurred legal fees of approximately $80,000 in connection with the private placement, resulting in net proceeds of approximately $13,845,000.

Warrants

Historically, the Company has granted warrants to purchase its common stock to service providers and investors. As of September 30, 2012, there were warrants to purchase 6,667 shares of the Company’s common stock outstanding with an exercise price of $0.91 per share, subject to adjustment for stock splits, stock dividends and the like. These warrants expire in December 2014.

In connection with the issuance of shares of common stock to John H. Harland Company (“JHH Co.”) in February and May 2005, the Company issued to JHH Co. warrants to purchase 321,428 shares of the Company’s common stock at an exercise price of $0.70 per share, subject to adjustment for stock splits, stock dividends and the like. In June 2011, JHH Co. exercised the warrants, which were due to expire between February and May 2012. The warrants were exercised under the cashless exercise method, resulting in the issuance of 288,582 shares of common stock to the warrant holder and the cancellation of the remaining 32,846 shares in consideration of the issuance.

In connection with issuance of convertible debentures in December 2009, the Company issued warrants to purchase an aggregate of 337,501 shares of the Company’s common stock with an exercise price of $0.91 per share, as discussed in greater detail in Note 3. Of such warrants, warrants to purchase 330,834 shares of the Company’s common stock have been exercised and warrants to purchase 6,667 shares of common stock remain outstanding as of September 30, 2012. These warrants expire in December 2014.

The following table summarizes warrant activity in the fiscal year ended September 30, 2012:

 

                 
    Number
of warrants		     Weighted-average
exercise price		  

Oustanding and exercisable at September 30, 2011

     132,189     $ 0.91  

Issued

     —            

Exercised

     (125,522 )    $ 0.91  

Expired

     —            
   

 

 

          

Oustanding and exercisable at September 30, 2012

     6,667     $ 0.91  
   

 

 

          

Stock-based Compensation

The Company applies the fair value recognition provisions of ASC 718.

The fair value of stock options granted to employees and directors is calculated using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the expected life of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of the Company’s stock price. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods.

 

The value of stock-based compensation is based on the single option valuation approach under ASC 718. It is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards is amortized using the straight-line method over the vesting period of the option.

ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated average forfeiture rate for the fiscal year ended September 30, 2012 of approximately 14.85% for all stock option grants was based on historical forfeiture experience.

ASC 718 requires the cash flows from tax benefits resulting from tax deductions in excess of the compensation cost recognized for options to be classified as financing cash flows. Due to the Company’s valuation allowance from losses in the previous years, there were no such tax benefits during the fiscal years ended September 30, 2012 and 2011. Prior to the adoption of ASC 718, any tax benefits received by the Company related to stock option exercises would have been reported as operating cash flows.

The fair value calculations for stock-based compensation awards to employees for the fiscal years ended September 30, 2012 and 2011 were based on the following assumptions:

 

         
    2012   2011

Risk-free interest rate

   0.35% - 1.06%   0.26% - 2.26%

Expected life (years)

   5   5.5

Expected volatility

   110%   193%

Expected dividends

   None   None

The following table summarizes stock-based compensation expense related to stock options and restricted stock unit awards under ASC 718 for the fiscal years ended September 30, 2012 and 2011, which were allocated as follows:

 

                 
    2012     2011  

Sales and marketing

   $ 471,716     $ 235,710  

Research and development

     592,249       290,239  

General and administrative

     1,535,893       745,289  
   

 

 

    

 

 

  

Stock-based compensation expense included in operating expenses

   $ 2,599,858     $ 1,271,238  
   

 

 

    

 

 

  

The following table summarizes vested and unvested options, weighted average exercise price per share, weighted average remaining term and aggregate intrinsic value at September 30, 2012:

 

                                 
    Number of Shares     Weighted Average
Exercise Price Per
Share		     Weighted Average
Remaining
Contractual Life
(in Years)		     Aggregate Intrinsic
Value		  

Vested

     2,074,410     $ 1.44       4.72     $ 4,322,186  

Unvested

     1,437,876     $ 6.20       8.97       440,698  
   

 

 

                    

 

 

  

Total

     3,512,286     $ 3.39       6.46     $ 4,762,884  
   

 

 

                    

 

 

  

As of September 30, 2012, the Company had $6,161,479 of unrecognized compensation expense related to outstanding stock options expected to be recognized over a weighted-average period of approximately 3.3 years.

 

The following table summarizes stock option activity under the Company’s stock option plans during the fiscal years ended September 30, 2012 and 2011:

 

                         
    Number of
Shares		     Weighted Average
Exercise Price Per
Share		     Weighted Average
Remaining
Contractual Term
(in Years)		  

Outstanding, September 30, 2010

     4,534,328     $ 0.66       6.21  

Granted

     976,531     $ 3.70          

Exercised

     (942,639 )    $ 0.53          

Cancelled

     (14,316 )    $ 0.57          
   

 

 

                  

Outstanding, September 30, 2011

     4,553,904     $ 1.34       6.15  

Granted

     1,095,750     $ 8.54          

Exercised

     (1,812,215 )    $ 0.81          

Cancelled

     (325,153 )    $ 6.41          
   

 

 

                  

Outstanding, September 30, 2012

     3,512,286     $ 3.39       6.46  
   

 

 

                  

The following table summarizes significant ranges of outstanding and exercisable options as of September 30, 2012:

 

                                                 

Range of

Exercise Prices

   Number of
Options
Outstanding		     Weighted
Average
Remaining
Contractual Life
(in Years)		     Weighted
Average
Exercise Price		     Number of
Exercisable
Options		     Weighted
Average
Exercise Price of
Exercisable
Options		     Number of
Unvested
Options		  

$0.09 to $0.70

     358,840       5.27       $0.33       358,840       $0.33       —    

$0.79 to $0.82

     787,319       5.43       $0.80       695,145       $0.80       92,174  

$1.06 to $2.32

     729,302       2.56       $1.21       729,302       $1.21       —    

$2.60 to $5.90

     948,575       8.76       $3.34       199,448       $2.74       749,127  

$6.39 to $11.68

     688,250       9.22       $10.30       91,675       $9.54       596,575  
   

 

 

                    

 

 

            

 

 

  
      3,512,286       6.46       $3.39       2,074,410       $1.44       1,437,876  
   

 

 

                    

 

 

            

 

 

  

The total intrinsic value of options exercised during the fiscal year ended September 30, 2012 was $14,215,750. The per-share weighted average fair value of options granted during the fiscal year ended September 30, 2012 was $5.97.

2012 Incentive Plan

In January 2012, the Company’s board of directors adopted the Mitek Systems, Inc. 2012 Incentive Plan (the “2012 Plan”), upon the recommendation of the compensation committee of the board of directors. The total number of shares of the Company’s common stock reserved for issuance under the 2012 Plan is 2,000,000 shares, plus that number of shares of the Company’s common stock that would otherwise return to the available pool of unissued shares reserved for awards under the Company’s 1999 Stock Option Plan, 2000 Stock Option Plan, 2002 Stock Option Plan, 2006 Stock Option Plan and 2010 Stock Option Plan (collectively, the “Prior Plans”). There were no awards granted under the Prior Plans after the approval of the 2012 Plan by the Company’s stockholders on February 22, 2012. Stock options granted under the Prior Plans that were outstanding at such date remain in effect until such options are exercised or expire.

The 2012 Plan authorizes the grant of stock options, stock appreciation rights, restricted stock, restricted stock units and cash awards. Stock options granted under the 2012 Plan may be either options intended to constitute incentive stock options or nonqualified stock options, in each case as determined by the compensation committee of the board of directors in accordance with the terms of the 2012 Plan. As of September 30, 2012, stock options to purchase 723,000 shares of the Company’s common stock and 215,834 restricted stock units were outstanding under the 2012 Plan, and 1,245,067 shares of the Company’s common stock were reserved for future grants.

The following table summarizes the number of stock options outstanding under the Prior Plans as of September 30, 2012:

 

         

2000 Stock Option Plan

     317,812  

2002 Stock Option Plan

     255,663  

2006 Stock Option Plan

     405,490  

2010 Stock Option Plan

     1,410,321  
   

 

 

  

Total stock options outstanding under the Prior Plans

     2,389,286  
   

 

 

  

In May 2003, the Chief Executive Officer of the Company was granted an option to purchase up to 400,000 shares of the Company’s common stock in connection with his appointment as President and Chief Executive Officer. This grant was made without shareholder approval as an inducement award pursuant to Rule 5635(c)(4) of the NASDAQ Listing Rules. The Company filed a registration statement on Form S-8 with the Securities and Exchange Commission registering the shares subject to the grant on December 15, 2011.

Restricted Stock Units

In January 2011, the Company’s board of directors adopted, subject to stockholder approval, the Mitek Systems, Inc. Director Restricted Stock Unit Plan, as amended and restated (the “Director Plan”), reserving up to 1,000,000 shares of the Company’s common stock for the issuance of restricted stock units to both employee and non-employee members of the board of directors of the Company. On February 23, 2011, the Director Plan was approved by the Company’s stockholders at its annual meeting.

On March 15, 2011, the Company awarded an aggregate of 300,000 restricted stock units to its directors at a fair value of $5.12 per share. The restricted stock units vest monthly over five years. To the extent a restricted stock unit becomes vested, and subject to satisfaction of any tax withholding obligations, each vested restricted stock unit will entitle its holder to receive one share of the Company’s common stock, which will be settled and deemed issued and outstanding upon the earlier to occur of: (i) a change in control; (ii) a director’s separation from service; or (iii) the fifth anniversary of the award date. A holder of outstanding restricted stock units has none of the rights and privileges of a stockholder of the Company, including no right to vote or to receive dividends (if any), until such time as the awards are settled in shares of common stock.

The Company has awarded restricted stock units to certain of its employees at a weighted-average fair value of $8.44 per share. The restricted stock units vest in equal annual installments over four years.

 

The following table summarizes restricted stock unit activity under the Company’s plans during the fiscal years ended September 30, 2012 and 2011:

 

                 
    Number of
Shares		     Weighted Average
Fair Market Value
Per Share		  

Outstanding, September 30, 2010

     —         —    

Granted

     300,000     $ 5.12  

Settled

     —         —    

Cancelled

     —         —    
   

 

 

          

Outstanding, September 30, 2011

     300,000     $ 5.12  

Granted

     255,835     $ 8.44  

Settled

     —         —    

Cancelled

     (40,001 )    $ 11.05  
   

 

 

          

Outstanding, September 30, 2012

     515,834     $ 6.30  
   

 

 

          

The cost of the restricted stock units is determined using the fair value of the Company’s common stock on the award date, and the compensation expense is recognized ratably over the vesting period. The Company recognized $529,072 and $179,343 in stock-based compensation expense related to outstanding restricted stock units in the fiscal years ended September 30, 2012 and 2011, respectively. As of September 30, 2012, the Company had approximately $2,543,465 of unrecognized compensation expense related to outstanding restricted stock units expected to be recognized over a weighted-average period of approximately 3.5 years.