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Nature of Operations and Summary of Significant Accounting Policies | 6 Months Ended
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Mar. 31, 2015
Accounting Policies [Abstract] |
Nature of Operations and Summary of Significant Accounting Policies | 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Mitek Systems, Inc. (the “Company”) is engaged in the development, sale and service of its proprietary software solutions related to mobile capture and identity authentication. The Company applies its patented technology in image capture, correction and intelligent data extraction in the mobile financial and business services markets. The Company’s technology allows users to remotely deposit checks, pay bills, transfer credit card balances, open accounts and get insurance quotes by taking pictures of various documents with their camera-equipped smartphones and tablets instead of using the device keyboard. The Company’s products use advanced algorithms to correct image distortion, extract relevant data, route images to their desired location and process transactions through users’ financial institutions. As of March 31, 2015, the Company has been granted 21 patents and has an additional 21 patent applications pending. The Company’s products enable deposits, confirm identity and accelerate payments for mobile transactions. Deposit The Company’s Mobile Deposit® and Commercial Mobile Deposit Capture™ products are software that allows consumers and businesses to remotely deposit checks using their camera-equipped smartphone or tablet. As of March 31, 2015, 3,705 financial institutions have signed agreements to deploy Mobile Deposit® and 3,181 of these financial institutions have deployed Mobile Deposit® to their consumers, including all of the top ten, and nearly all of the top 50, U.S. retail banks, as ranked by SNL Financial for the fourth quarter of calendar year 2014. Commercial Mobile Deposit Capture™ utilizes the same technology as Mobile Deposit®, but has additional capabilities specifically designed to meet the needs of business users such as invoice capture. Identity The Company’s identity offerings feature Mobile Photo Account Opening™ which allows a consumer to take a photo of his or her driver’s license or other identity document to pre-fill mobile application forms on a mobile device. The Company’s identity offerings are currently in early deployment with large banks and insurance companies where they help consumers to open new financial accounts or get competitive rate quotes. Mobile Photo Account Opening™ can be used by bank personnel (both in-branch or at a community event) as well as by consumers on their mobile device (both native app or mobile web). Payment The Company’s mobile photo payment solutions enable mobile bill payment for financial institutions and organizations that bill consumers directly. Mobile Photo Bill Pay® is for financial institutions and Mobile Photo Payments™ is for organizations that bill consumers directly. Both allow a consumer to take a photo of a bill to extract data which is then used to pre-fill the fields required to accomplish certain tasks such as making a mobile payment, adding a new payee or paying monthly bills on a smartphone or tablet. Mobile Photo Balance Transfer™ allows a consumer to take a photo of a credit card statement to extract data which is then used to pre-fill the fields of a credit card balance transfer application. The consumer is then presented with a competitive credit card offer and can transfer the existing credit card balance to the new credit card. The Company’s mobile photo payment software solutions are available for iOS and Android operating systems. Developer Program In February 2014, the Company launched Mitek Developers. The program extends use of the Company’s mobile capture SDK and Mobile Imaging Platform™ to developers interested in creating new mobile applications that use camera-equipped smartphones and tablets to capture data from documents. Distribution Model The Company delivers its mobile capture software solutions on-premise as well as in the cloud and markets and sells these solutions through channel partners or directly to enterprise customers. The Company’s mobile capture software solutions are often embedded in mobile banking or enterprise applications developed by banks, insurance companies or their partners, and marketed under their own proprietary brands. Basis of Presentation The accompanying unaudited financial statements of the Company as of March 31, 2015 have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, they do not include all information and footnote disclosures required by accounting principles generally accepted in the U.S. (“GAAP”). The Company believes the footnotes and other disclosures made in the financial statements are adequate for a fair presentation of the results of the interim periods presented. The financial statements include all adjustments (solely of a normal recurring nature) which are, in the opinion of management, necessary to make the information presented not misleading. You should read these financial statements and the accompanying notes in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2014, filed with the U.S. Securities and Exchange Commission (the “SEC”) on December 5, 2014 (the “Form 10-K”). Results for the three and six months ended March 31, 2015 are not necessarily indicative of results for any other interim period or for a full year. Reclassifications Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications do not impact the reported net loss for such periods and do not have a material impact on the presentation of the overall financial statements. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, management reviews its estimates based upon currently available information. Actual future results could differ materially from those estimates. These estimates include, but are not limited to, assessing the collectability of accounts receivable, estimation of the value of stock-based compensation awards and income taxes. Net Income (Loss) Per Share The Company calculates net income (loss) per share in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 260, Earnings Per Share. Basic and diluted net income (loss) per share are based on the weighted-average number of common shares outstanding during the period, without giving effect to potentially dilutive securities. In a period with a net loss position, potentially dilutive securities, such as options, warrants and restricted stock units (“RSUs”), are not included in the calculation of diluted net loss because to do so would be antidilutive, and the number of shares used to calculate basic and diluted net loss is the same. For the three and six months ended March 31, 2015 and 2014, the following potentially dilutive common shares were excluded from the calculation of net income (loss) per share, as they would have been antidilutive:
|  | Three Months Ended March 31, |  |  | Six Months Ended March 31, |
|  | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Stock options |  |  | 2,507,643 |  |  |  | 2,708,063 |  |  |  | 2,218,425 |  |  |  | 2,708,063 |
Restricted stock units |  |  | 399,780 |  |  |  | 1,155,472 |  |  |  | 435,461 |  |  |  | 1,155,472 |
Warrants |  |  | - |  |  |  | 6,667 |  |  |  | - |  |  |  | 6,667 |
Total potentially dilutive common shares outstanding |  |  | 2,907,423 |  |  |  | 3,870,202 |  |  |  | 2,653,886 |  |  |  | 3,870,202 |
The calculation of basic and diluted net income (loss) per share is as follows:
|  | Three Months Ended March 31, |  |  | Six Months Ended March 31, |
|  | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
Net income (loss) |  | $ | 507,650 |  |  | $ | (2,193,017 | ) |  | $ | 653,830 |  |  | $ | (3,661,317 | )
Weighted-average common shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 30,697,391 |  |  |  | 30,453,455 |  |  |  | 30,657,308 |  |  |  | 30,427,646 |
Diluted |  |  | 31,321,259 |  |  |  | 30,453,455 |  |  |  | 31,241,374 |  |  |  | 30,427,646 |
Net income (loss) per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 0.02 |  |  |  | (0.07 | ) |  |  | 0.02 |  |  |  | (0.12 | )
Diluted |  |  | 0.02 |  |  |  | (0.07 | ) |  |  | 0.02 |  |  |  | (0.12 | )
Revenue Recognition Revenue from sales of software licenses sold through direct and indirect channels is recognized upon shipment of the related product, if the requirements of FASB ASC Topic 985-605, Software Revenue Recognition (“ASC 985-605”) are met, including evidence of an arrangement, delivery, fixed or determinable fee, collectability and vendor specific objective evidence (“VSOE”) of the fair value of the undelivered element. If the requirements of ASC 985-605 are not met at the date of shipment, revenue is not recognized until such elements are known or resolved. Revenue from customer support services, or maintenance revenue, includes post-contract support and the rights to unspecified upgrades and enhancements. VSOE of fair value for customer support services is determined by reference to the price the customer pays for such element when sold separately; that is, the renewal rate offered to customers. Revenue derived from professional services primarily includes consulting, implementation, and training. Revenue from fixed fee service engagements is recognized after the services are performed using the completed performance method. Revenue from time and materials service engagements is generally recognized as the services are performed. In those instances when objective and reliable evidence of fair value exists for the undelivered items but not for the delivered items, the residual method is used to allocate the arrangement consideration. Under the residual method, the amount of arrangement consideration allocated to the delivered items equals the total arrangement consideration less the aggregate fair value of the undelivered items. Revenue from post-contract customer support is recognized ratably over the term of the contract. Certain customers have agreements that provide for usage fees above fixed minimums. Fixed minimum transaction fees are recognized as revenue ratably over the term of the arrangement. Usage fees above fixed minimums are recognized as revenue when such amounts are reasonably estimable and billable. Revenue from professional services is recognized when such services are delivered. When a software sales arrangement requires professional services related to significant production, modification or customization of software, or when a customer considers professional services essential to the functionality of the software product, revenue is recognized based on predetermined milestone objectives required to complete the project, as those milestone objectives are deemed to be substantive in relation to the work performed. Any expected losses on contracts in progress are recorded in the period in which the losses become probable and reasonably estimable. Accounts Receivable and Allowance for Doubtful Accounts Accounts receivable, net, is as follows:
|  | March 31, 2015 |  |  | September 30, 2014 |
Accounts receivable |  | $ | 2,998,753 |  |  | $ | 2,961,450 |
Less: Allowance for doubtful accounts |  |  | (16,000 | ) |  |  | (6,100 | )
Accounts receivable, net |  | $ | 2,982,753 |  |  | $ | 2,955,350 |
Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the contractual payment terms. Allowances for doubtful accounts are established based on various factors, including credit profiles of the Company’s customers, contractual terms and conditions, historical payments, and current economic trends. The Company reviews its allowances by assessing individual accounts receivable over a specific aging and amount. Accounts receivable are written off on a case-by-case basis, net of any amounts that may be collected. Capitalized Software Development Costs Costs incurred for the development of software that will be sold, leased or otherwise marketed are capitalized when technological feasibility has been established. Software development costs consist primarily of compensation of development personnel and related overhead incurred to develop new products and upgrade and enhance the Company’s current products, as well as fees paid to outside consultants. Capitalization of software development costs ceases and amortization of capitalized software development costs commences when the products are available for general release. For the three and six months ended March 31, 2015 and 2014, no software development costs were capitalized because the time period and costs incurred between technological feasibility and general release for all software product releases were not material. Fair Value of Equity Instruments The fair value of equity instruments involves significant estimates based on underlying assumptions made by management. The fair value for purchase rights under the Company’s equity plans is measured at the grant date using a Black-Scholes valuation model, which involves estimates of stock volatility, expected life of the instruments and other assumptions, and using the closing price of the Company’s common stock on the grant date for RSUs. The fair value of stock-based awards is recognized as an expense over the respective terms of the awards. Deferred Income Taxes Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the tax basis of such assets and liabilities. The Company maintains a valuation allowance against its deferred tax assets due to the uncertainty regarding the future realization of such assets, which is based on historical taxable income, projected future taxable income and the expected timing of the reversals of existing temporary differences. Until such time as the Company can demonstrate that it will no longer incur losses, or if the Company is unable to generate sufficient future taxable income, it could be required to maintain the valuation allowance against its deferred tax assets. Comprehensive Income (Loss) Comprehensive income (loss) consists of net income (loss) and unrealized gains and losses on available-for-sale securities. Included on the balance sheet at March 31, 2015 is an accumulated other comprehensive loss of $13,664, compared to an accumulated other comprehensive loss of $7,810 at September 30, 2014, related to the Company’s available-for-sale securities. Recent Accounting Pronouncements In May 2014, the FASB issued guidance codified in ASC 606, Revenue Recognition – Revenue from Contracts with Customers (“ASC 606”) which amends the guidance in former ASC 605, Revenue Recognition. This accounting standard update will be effective for the Company beginning in the first quarter of fiscal 2018. The FASB has issued for public comment a proposed Accounting Standards Update, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date that would defer the effective date of its new revenue recognition standard by one year. The Company is currently evaluating the impact of the provisions of ASC 606.

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