5. STOCKHOLDERS’ EQUITY

Common Stock

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 $13.9 million in net proceeds, after deducting underwriting discounts and commissions and other offering expenses of $1.1 million. 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 $2.1 million in additional net proceeds to the Company, after deducting other offering expenses of $0.1 million.

Warrants

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

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, 2016 of 12.1% 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, 2016, 2015 and 2014.

No stock options were granted to employees during the fiscal year ended September 30, 2014. The fair value calculations for stock-based compensation awards to employees for the fiscal years ended September 30, 2016 and 2015 were based on the following assumptions:

	2016		2015
Risk-free interest rate	1.43% - 1.66%		1.29% - 1.66%
Expected life (years)	5.9		5.3
Expected volatility		83%		90%
Expected dividends	None		None

The following table summarizes stock-based compensation expense under ASC 718 for the fiscal years ended September 30, 2016, 2015 and 2014, which were allocated as follows (amounts shown in thousands):

	2016		2015		2014
Sales and marketing	$	1,122	$	743	$	824
Research and development		669		592		675
General and administrative		2,288		2,032		1,945
Acquisition-related costs and expenses		1,503		393		—
Stock-based compensation expense related to employee stock options included in operating expenses	$	5,582	$	3,760	$	3,444

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, 2016:

	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Life (in Years)		Aggregate Intrinsic Value
Vested		2,107,825	$	4.31		5.55	$	9,491,803
Unvested		907,549	$	3.11		8.33		4,700,241
Total		3,015,374	$	3.95		6.39	$	14,192,044

The Company recognized $1.3 million, $2.2 million and $2.2 million in stock-based compensation expense related to outstanding stock options in the fiscal years ended September 30, 2016, 2015 and 2014, respectively. As of September 30, 2016, the Company had $2.0 million of unrecognized compensation expense related to outstanding stock options expected to be recognized over a weighted average period of approximately 2.3 years.

The following table summarizes stock option activity under the Company’s stock option plans during the fiscal years ended September 30, 2016, 2015 and 2014:

	Number of Shares			Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term (in Years)
Outstanding, September 30, 2013		2,824,964		$	4.09		7.29
Granted		—		$	—
Exercised		(108,135	)	$	1.27
Cancelled		(382,503	)	$	4.77
Outstanding, September 30, 2014		2,334,326		$	4.11		5.46
Granted		1,927,500		$	2.92
Exercised		(232,203	)	$	1.06
Cancelled		(381,918	)	$	3.85
Outstanding, September 30, 2015		3,647,705		$	3.70		7.15
Granted		98,500		$	4.51
Exercised		(661,663	)	$	2.67
Cancelled		(69,168	)	$	4.51
Outstanding, September 30, 2016		3,015,374		$	3.95		6.39

The total intrinsic value of options exercised during the fiscal years ended September 30, 2016, 2015 and 2014 was $3.3 million, $0.6 million and $0.5 million, respectively. The per-share weighted average fair value of options granted during the fiscal years ended September 30, 2016 and 2015 was $3.29 and $2.83, respectively. No stock options were granted to employees during the fiscal year ended September 30, 2014.

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 2012 Plan was approved by the Company’s stockholders on February 22, 2012. On February 19, 2014, the Company’s stockholders approved an amendment to the 2012 Plan that increased the total number of shares of the Company’s common stock reserved for issuance thereunder from 2,000,000 shares to 4,000,000 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, 2016, stock options to purchase 1,916,646 shares of the Company’s common stock and 1,401,169 RSUs were outstanding under the 2012 Plan, and 2,040,378 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, 2016:

2000 Stock Option Plan			6,262
2002 Stock Option Plan			36,750
2006 Stock Option Plan			43,000
2010 Stock Option Plan			1,012,716
Total stock options outstanding under the Prior Plans			1,098,728

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, 2016, 2015 and 2014:

	Number of shares			Weighted- average fair value per share
Outstanding at September 30, 2013		692,504		$	4.85
Granted		625,139		$	4.83
Settled		(63,334	)	$	4.66
Cancelled		(153,006	)	$	5.03
Outstanding at September 30, 2014		1,101,303		$	4.71
Granted		104,000		$	2.29
Settled		(255,041	)	$	2.96
Cancelled		(147,345	)	$	3.54
Outstanding at September 30, 2015		802,917		$	4.49
Granted		1,536,000		$	4.82
Settled		(261,621	)	$	4.77
Cancelled		(31,127	)	$	4.19
Outstanding at September 30, 2016		2,046,169		$	4.90

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 $2.7 million, $1.2 million and $1.3 million in stock-based compensation expense related to outstanding RSUs in the fiscal years ended September 30, 2016, 2015 and 2014, respectively. As of September 30, 2016, the Company had approximately $6.3 million of unrecognized compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of approximately 2.7 years.

Closing Shares

In connection with the Acquisition, the Company issued to the Sellers 712,790 shares of Common Stock. Vesting of these shares is subject to the continued employment of the founders of IDchecker and occurs over a period of 27 months from the date of issuance. The cost of the Closing Shares is determined using the fair value of Common Stock on the award date, and the stock based compensation is recognized ratably over the vesting period. The Company recognized $1.3 million and $0.3 million in stock based compensation expense related to the Closing Shares for the years ended September 30, 2016 and 2015, respectively. As of September 30, 2016, the Company had $1.2 million of unrecognized compensation expense related to Closing Shares expected to be recognized over the remaining service period.

Earnout Shares

In addition to the cash payments made to the Sellers and the issuance of Closing Shares, in each case at the closing of the Acquisition, and subject to the achievement of certain revenue and net income targets for IDchecker for the nine-month period ended on September 30, 2015, and the twelve-month period ended September 30, 2016, the Company will issue to the Sellers up to an aggregate of $2,000,000 in shares of Common Stock (referred to elsewhere herein as the “Earnout Shares”) as follows (i) for the nine month period ending September 30, 2015, a maximum of $1,000,000 in Common Stock if certain revenue and net income targets (as set forth in the Share Purchase Agreement) are met; and (ii) for the twelve month period ending September 30, 2016, a maximum of $1,000,000 in Common Stock if certain revenue and net income targets (as set forth in the Share Purchase Agreement) are met.

Within 75 days after the last date of the respective earnout period (the “Earnout Determination Date”), the Company shall deliver to the Sellers a written statement of the calculation of the revenue and net income for the applicable earnout period. The number of shares issuable upon achievement of the revenue targets and net income targets, as applicable, will be calculated based on the volume weighted average closing price of the Common Stock over the 10 trading-day period ending on and including the applicable Earnout Determination Date. Earnout Shares issued, if any, shall vest and be eligible for resale such that 12.5% of the Earnout Shares shall vest and be released for resale on the six-month anniversary of the Earnout Determination Date applicable to such Earnout Shares and thereafter, the remaining 87.5% of the applicable Earnout Shares shall vest and be released for resale in equal quarterly installments. Vesting of the Earnout Shares is subject to the continued employment of the founders of IDchecker and occurs over a period of 27 months from the applicable Earnout Determination Date.

As of the closing date of the Acquisition, the Company calculated the fair value of the Earnout Shares using the Monte-Carlo simulation (using the Company’s stock price, the annual risk-free interest rate, expected volatility, the probability of reaching the performance targets and a 10 trading day average stock price). This model was updated as of September 30, 2016 and will be updated and the respective fair value adjusted each reporting period based on the relevant facts and conditions at the reporting date. The Company recognized $0.3 million and $47,000 in stock based compensation expense related to the Earnout Shares for the fiscal years ended September 30, 2016 and 2015, respectively.