Restatement of previously reported unaudited interim consolidated financial statements

6 Months Ended

Mar. 31, 2023

Restatement of previously reported unaudited interim consolidated financial statements

13. RESTATEMENT OF PREVIOUSLY REPORTED UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

In connection with the preparation of its consolidated financial statements for the twelve months ended September 30, 2022, the Company determined that its previously issued unaudited interim consolidated financial statements for the periods ended March 31, 2022 and June 30, 2022 contained errors in the application of GAAP as summarized below.

In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the corrections and determined that the related impact was material to the previously filed consolidated financial statements that contained the error for the quarterly periods ended March 31, 2022 and June 30, 2022 (the “Affected Quarterly Periods”). Therefore, the Company, in consultation with the Audit Committee of the Company’s Board of Directors, concluded that the Affected Quarterly Periods should be restated to present the identified adjustments discussed below. The Company restated the Affected Quarterly Periods in its Annual Report on Form 10-K filed with the SEC on July 31, 2023.

Background of Restatement

In connection with the preparation of the Company’s financial statements for the fiscal year ended September 30, 2022, the Company noted that certain revenue contracts and other items were improperly accounted for during three and six months ended March 31, 2022 and the three and nine months ended June 30, 2022. Specifically, the Company (a) did not appropriately (i) recognize revenue on its multiyear term licenses; (ii) recognize revenue related to guaranteed minimums and overages for software as a service (“SaaS”) product sales; (iii) cut off revenue related to term license sales; (iv) capitalize certain commissions paid to the HooYu Ltd (“HooYu”) sales team subsequent to the acquisition of HooYu in March 2022; (v) recognize a lease liability and right-of-use asset related to the office lease assumed in the HooYu acquisition; and (vi) recognize certain liabilities upon the acquisition of HooYu that were not valid liabilities; and (b) misclassified certain employee costs related to cloud operations as research and development expense instead of cost of revenue.

The financial statement line items impacted by the respective adjustments are labeled in the tables below based on the identifiers from the paragraph above. The condensed consolidated statements of stockholders’ equity have been excluded from the financial statements presented below as they were only impacted by adjustments to net income which are presented below in the condensed consolidated statements of operations and other comprehensive income (loss) and condensed consolidated balance sheets.

The impact of the restatement on the Affected Quarterly Period as of and for the three and six months ended March 31, 2022 is presented in the following tables:

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands except share data)


	As of March 31, 2022
	As Previously Reported		Total Adjustments		As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	23,984	$	—	$	23,984
Short-term investments	37,910		—		37,910
Accounts receivable, net (iii)	23,858		(76)		23,782
Contract assets (i)	4,503		—		4,503
Prepaid expenses	2,409		—		2,409
Other current assets	1,849		—		1,849
Total current assets	94,513		(76)		94,437
Long-term investments	31,493		—		31,493
Property and equipment, net	3,938		—		3,938
Right-of-use assets (v)	6,098		259		6,357
Intangible assets, net	96,364		—		96,364
Goodwill (iv)	135,519		(701)		134,818
Deferred income tax assets (i)	11,003		240		11,243

Other non-current assets (iv), (vi)	5,292		(211)		5,081
Total assets	$	384,220	$	(489)	$	383,731
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	6,688	$	—	$	6,688
Accrued payroll and related taxes	8,271		—		8,271

Deferred revenue, current portion (ii)	9,700		660		10,360
Lease liabilities, current portion (v)	1,944		259		2,203
Acquisition-related contingent consideration (vi)	10,790		(590)		10,200


Other current liabilities (iv), (vi)	3,469		(450)		3,019
Total current liabilities	40,862		(121)		40,741
Convertible senior notes	124,370		—		124,370

Deferred revenue, non-current portion	1,053		—		1,053
Lease liabilities, non-current portion	5,485		—		5,485
Deferred income tax liabilities, non current portion	20,730		—		20,730
Other non-current liabilities (iv), (vi)	6,250		210		6,460
Total liabilities	198,750		89		198,839
Commitments and contingencies (Note 10)
Stockholders’ equity:
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding	—		—		—
Common stock, $0.001 par value, 120,000,000 shares authorized, 44,344,361 and 44,168,745 issued and outstanding, as of March 31, 2022 and September 30, 2021, respectively	44		—		44
Additional paid-in capital	207,491		—		207,491
Accumulated other comprehensive income (loss)	(5,170)		—		(5,170)
Accumulated deficit	(16,895)		(578)		(17,473)

Total stockholders’ equity	185,470		(578)		184,892
Total liabilities and stockholders’ equity	$	384,220	$	(489)	$	383,731

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE (LOSS)

(amounts in thousands except per share data)


	Three Months Ended March 31, 2022
	As Previously Reported		Total Adjustments		As Restated
Revenue
Software and hardware (i), (ii)	$	19,280	$	(1,130)	$	18,150
Services and other (i), (ii)	15,434		(74)		15,360
Total revenue	34,714		(1,204)		33,510
Operating costs and expenses
Cost of revenue—software and hardware	310		—		310
Cost of revenue—services and other (b)	3,000		1,141		4,141
Selling and marketing	9,206		—		9,206
Research and development (b)	8,236		(1,141)		7,095
General and administrative	6,073		—		6,073
Amortization and acquisition-related costs (iv)	4,385		(380)		4,005

Total operating costs and expenses	31,210		(380)		30,830
Operating income	3,504		(824)		2,680
Interest expense	2,040		—		2,040
Other income (expense), net (v)	(231)		6		(225)
Income before income taxes	1,233		(818)		415
Income tax benefit (provision) (i), (ii), (iii)	(220)		240		20
Net income	$	1,013	$	(578)	$	435
Net income per share—basic	$	0.02	$	(0.01)	$	0.01
Net income per share—diluted	$	0.02	$	(0.01)	$	0.01
Shares used in calculating net income per share—basic	44,775		—		44,775
Shares used in calculating net income per share—diluted	46,097		—		46,097

Comprehensive (loss)
Net income	$	1,013	$	(578)	$	435
Foreign currency translation adjustment	(1,862)		—		(1,862)
Unrealized (loss) on investments	(828)		—		(828)
Comprehensive (loss)	$	(1,677)	$	(578)	$	(2,255)

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE (LOSS)

(amounts in thousands except per share data)


	Six Months Ended March 31, 2022
	As Previously Reported		Total Adjustments		As Restated
Revenue
Software and hardware (i), (ii)	$	34,725	$	(1,130)	$	33,595
Services and other (i), (ii)	32,461		(74)		32,387
Total revenue	67,186		(1,204)		65,982
Operating costs and expenses
Cost of revenue—software and hardware	688		—		688
Cost of revenue—services and other (b)	5,978		2,340		8,318
Selling and marketing	17,644		—		17,644
Research and development (b)	15,842		(2,340)		13,502
General and administrative	12,037		—		12,037
Amortization and acquisition-related costs (iv)	6,664		(380)		6,284

Total operating costs and expenses	58,853		(380)		58,473
Operating income	8,333		(824)		7,509
Interest expense	4,048		—		4,048
Other income (expense), net (v)	(96)		6		(90)
Income before income taxes	4,189		(818)		3,371
Income tax benefit (provision) (i), (ii), (iii)	(52)		240		188
Net income	$	4,137	$	(578)	$	3,559
Net income per share—basic	$	0.09	$	(0.01)	$	0.08
Net income per share—diluted	$	0.09	$	(0.01)	$	0.08
Shares used in calculating net income per share—basic	44,795		—		44,795
Shares used in calculating net income per share—diluted	46,206		—		46,206

Comprehensive (loss)
Net income	$	4,137	$	(578)	$	3,559
Foreign currency translation adjustment	(3,129)		—		(3,129)
Unrealized (loss) on investments	(1,098)		—		(1,098)
Comprehensive (loss)	$	(90)	$	(578)	$	(668)

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)


	Six Months Ended March 31, 2022
	As Previously Reported		Total Adjustments		As Restated
Operating activities:
Net income	$	4,137	$	(578)	$	3,559
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	6,429		—		6,429
Amortization of intangible assets	4,525		—		4,525
Depreciation and amortization	555		—		555
Amortization of investment premiums & other	1,109		—		1,109
Accretion and amortization on debt securities	3,453		—		3,453
Net changes in estimated fair value of acquisition-related contingent consideration (vi)	(780)		(590)		(1,370)
Deferred taxes (i), (ii), (iii)	(523)		(240)		(763)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (iii)	(6,171)		76		(6,095)
Contract assets	345		—		345
Other assets (iv), (vi)	498		(48)		450
Accounts payable	3,769		—		3,769
Accrued payroll and related taxes	(4,693)		—		(4,693)
Deferred revenue (i), (ii), (iii)	(3,126)		911		(2,215)

Other liabilities (iv), (vi)	159		469		628
Net cash provided by operating activities	9,686		—		9,686
Investing activities:
Purchases of investments	(47,818)		—		(47,818)
Sales and maturities of investments	173,316		—		173,316
Acquisitions, net of cash acquired	(126,607)		—		(126,607)
Purchases of property and equipment	(634)		—		(634)
Net cash used in investing activities	(1,743)		—		(1,743)
Financing activities:




Proceeds from the issuance of equity plan common stock	1,128		—		1,128
Repurchases and retirements of common stock	(14,828)		—		(14,828)



Principal payments on other borrowings	(36)		—		(36)
Net cash provided by (used in) financing activities	(13,736)		—		(13,736)
Foreign currency effect on cash and cash equivalents	(535)		—		(535)
Net increase (decrease) in cash and cash equivalents	(6,328)		—		(6,328)
Cash and cash equivalents at beginning of period	30,312		—		30,312
Cash and cash equivalents at end of period	$	23,984	$	—	$	23,984
Supplemental disclosures of cash flow information:

Cash paid for interest	$	582	$	—	$	582
Cash paid for income taxes	$	597	$	—	$	597
Supplemental disclosures of non-cash investing and financing activities:
Reclassification of convertible senior notes hedge and embedded conversion derivative to additional paid-in capital	$	42,821	$	—	$	42,821
Unrealized holding (loss) on available-for-sale investments	$	(1,098)	$	—	$	(1,098)