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.

In June, 2013, the Company sold 2,857,142 shares of its common stock at a price of $5.25 per share in an underwritten public offering (the “Offering”) and received $13,877,447 in net proceeds, after deducting underwriting discounts and commissions and other offering expenses of $1,122,549. Under the terms of the underwriting agreement for the Offering, the Company granted the underwriter a 30-day option to purchase an additional 428,571 shares of its common stock to cover overallotments. The underwriter exercised its overallotment option during June 2013 and the closing of the sale of shares of the Company’s common stock pursuant to such option occurred during July 2013, resulting in $2,127,350 in additional net proceeds to the Company.

Warrants

Historically, the Company has granted warrants to purchase its common stock to service providers and investors. As of September 30, 2013, 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, 2013. These warrants expire in December 2014.

The following table summarizes warrant activity in the fiscal years ended September 30, 2013, 2012 and 2011:


	Number of shares			Weighted-average exercise price
Outstanding and exercisable at September 30, 2010		895,283		$	0.84
Granted		—
Exercised		(763,094	)	$	0.83
Cancelled		—

Outstanding and exercisable at September 30, 2011		132,189		$	0.91
Granted		—
Exercised		(125,522	)	$	0.91
Cancelled		—

Outstanding and exercisable at September 30, 2012		6,667		$	0.91
Granted		—
Exercised		—
Cancelled		—

Outstanding and exercisable at September 30, 2013		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, 2013 of 15.3% 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, 2013, 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, 2013, 2012 and 2011 were based on the following assumptions:


	2013	2012	2011
Risk-free interest rate	0.18% - 1.20%	0.35% - 1.06%	0.26% - 2.26%
Expected life (years)	5.3	5.0	5.5
Expected volatility	175%	110%	193%
Expected dividends	None	None	None

The following table summarizes stock-based compensation expense related to stock options and RSUs under ASC 718 for the fiscal years ended September 30, 2013, 2012 and 2011, which were allocated as follows:


	2013		2012		2011
Sales and marketing	$	433,130	$	471,716	$	235,710
Research and development		617,377		592,249		290,239
General and administrative		1,741,355		1,535,893		745,289

Stock-based compensation expense related to employee stock options included in operating expenses	$	2,791,862	$	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, 2013:


	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Vested		1,454,952	$	3.26		6.05	$	4,177,830
Unvested		1,370,012	$	4.97		8.61		1,821,844

Total		2,824,964	$	4.09		7.29	$	5,999,673

The Company recognized $2,023,023, $2,070,786 and $1,091,894 in stock-based compensation expense related to outstanding stock options in the fiscal years ended September 30, 2013, 2012 and 2011, respectively. As of September 30, 2013, the Company had $5,350,198 of unrecognized compensation expense related to outstanding stock options expected to be recognized over a weighted average period of approximately 2.73 years.

The following table summarizes stock option activity under the Company’s stock option plans during the fiscal years ended September 30, 2013, 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
Granted		651,563		$	3.63
Exercised		(1,103,582	)	$	0.90
Cancelled		(235,303	)	$	7.26

Outstanding, September 30, 2013		2,824,964		$	4.09		7.29

The following table summarizes significant ranges of outstanding and exercisable options as of September 30, 2013:


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 $0.79		405,841		6.27	$	0.74		405,841	$	0.74		—
$0.80 to $1.95		360,695		2.43	$	0.94		360,695	$	0.94		—
$2.34 to $2.60		802,258		7.83	$	2.51		290,015	$	2.60		512,243
$3.33 to $9.97		951,586		8.76	$	5.81		271,013	$	7.17		680,573
$11.05 to $11.68		304,584		8.38	$	11.08		127,388	$	11.08		177,196

		2,824,964		7.29	$	4.09		1,454,952	$	3.26		1,370,012

The total intrinsic value of options exercised during the fiscal years ended September 30, 2013, 2012 and 2011 was $3,832,374, $14,215,750 and $4,731,689, respectively. The per-share weighted average fair value of options granted during the fiscal years ended September 30, 2013, 2012 and 2011 was $3.57, $5.97 and $3.54, respectively.

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, RSUs 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, 2013, stock options to purchase 1,214,397 shares of the Company’s common stock and 217,504 RSUs were outstanding under the 2012 Plan, and 776,308 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, 2013:


2000 Stock Option Plan			215,412
2002 Stock Option Plan			226,100
2006 Stock Option Plan			49,000
2010 Stock Option Plan			1,120,055

Total stock options outstanding under the Prior Plans			1,610,567

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 RSUs 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.

In addition, the Company has awarded RSUs to certain of its employees under the 2012 Plan. The RSUs vest in equal annual installments over four years.

The following table summarizes RSU activity in the fiscal years ended September 30, 2013, 2012 and 2011:


	Number of shares			Weighted-average fair value per share
Outstanding at September 30, 2010		—			—
Granted		300,000		$	5.12
Settled		—			—
Cancelled		—			—

Outstanding at September 30, 2011		300,000		$	5.12
Granted		255,835		$	8.44
Settled		—			—
Cancelled		(40,001	)	$	11.05

Outstanding at September 30, 2012		515,834		$	6.30
Granted		255,000		$	3.15
Settled		(50,829	)	$	7.76
Cancelled		(27,501	)	$	11.05

Outstanding at September 30, 2013		692,504		$	4.85

The cost of a RSU 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 $768,839, $529,072 and $179,343 in stock-based compensation expense related to outstanding RSUs in the fiscal years ended September 30, 2013, 2012 and 2011, respectively. As of September 30, 2013, the Company had approximately $2,274,490 of unrecognized compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of approximately 3.1 years.