RESTATEMENT OF PREVIOUSLY REPORTED UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

9 Months Ended

Jun. 30, 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 nine months ended June 30, 2022 is presented in the following tables:

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in thousands except share data)


	As of June 30, 2022
	As Previously Reported		Total Adjustments		As Restated
ASSETS
Current assets:
Cash and cash equivalents	$	21,543	$	—	$	21,543
Short-term investments	49,531		—		49,531
Accounts receivable, net (iii)	29,618		(65)		29,553
Contract assets (i)	5,125		—		5,125
Prepaid expenses	3,078		—		3,078
Other current assets	3,194		—		3,194
Total current assets	112,089		(65)		112,024
Long-term investments	19,534		—		19,534
Property and equipment, net	3,802		—		3,802
Right-of-use assets (v)	5,484		189		5,673
Intangible assets, net	85,743		—		85,743
Goodwill (iv)	127,992		(829)		127,163
Deferred income tax assets (i)	12,993		564		13,557

Other non-current assets (iv), (vi)	6,959		(431)		6,528
Total assets	$	374,596	$	(572)	$	374,024
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	3,981	$	—	$	3,981
Accrued payroll and related taxes	10,276		—		10,276
Accrued liabilities	4,432		(416)		4,016
Deferred revenue, current portion (ii)	13,220		427		13,647
Lease liabilities, current portion (v)	1,902		191		2,093
Acquisition-related contingent consideration (vi)	4,980		920		5,900
Restructuring accrual	1,807		—		1,807
Income taxes payable	1,332		—		1,332
Other current liabilities (iv), (vi)	1,858		—		1,858
Total current liabilities	43,788		1,122		44,910
Convertible senior notes	126,157		—		126,157

Deferred revenue, non-current portion	1,409		—		1,409
Lease liabilities, non-current portion	4,776		—		4,776
Deferred income tax liabilities, non current portion	19,227		—		19,227
Other non-current liabilities (iv), (vi)	1,923		(90)		1,833
Total liabilities	197,280		1,032		198,312
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, 44,396,263 and 44,168,745 issued and outstanding, as of June 30, 2022 and September 30, 2021, respectively	44		—		44
Additional paid-in capital	211,212		—		211,212
Accumulated other comprehensive income (loss)	(17,856)		—		(17,856)


Accumulated deficit	(16,084)		(1,604)		(17,688)

Total stockholders’ equity	177,316		(1,604)		175,712
Total liabilities and stockholders’ equity	$	374,596	$	(572)	$	374,024

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE (LOSS)

(amounts in thousands except per share data)


	Three Months Ended June 30, 2022
	As Previously Reported		Total Adjustments		As Restated
Revenue
Software and hardware (i), (ii)	$	19,820	$	(305)	$	19,515
Services and other (i), (ii)	19,513		167		19,680
Total revenue	39,333		(138)		39,195
Operating costs and expenses
Cost of revenue—software and hardware	508		—		508
Cost of revenue—services and other (b)	4,073		1,203		5,276
Selling and marketing	11,216		—		11,216
Research and development (b)	9,614		(1,203)		8,411
General and administrative	6,589		2		6,591
Amortization and acquisition-related costs (iv)	3,283		1,210		4,493
Restructuring costs	1,807		—		1,807
Total operating costs and expenses	37,090		1,212		38,302
Operating income	2,243		(1,350)		893
Interest expense	2,077		—		2,077
Other income, net (v)	89		—		89
Income before income taxes	255		(1,350)		(1,095)
Income tax benefit (i), (ii), (iii)	556		324		880
Net income (loss)	$	811	$	(1,026)	$	(215)
Net income (loss) per share—basic	$	0.02	$	(0.02)	$	(0.00)
Net income (loss) per share—diluted	$	0.02	$	(0.02)	$	(0.00)
Shares used in calculating net income (loss) per share—basic	44,669		—		44,669
Shares used in calculating net income (loss) per share—diluted	45,224		—		45,224

Comprehensive (loss)
Net income (loss)	$	811	$	(1,026)	$	(215)
Foreign currency translation adjustment	(13,595)		—		(13,595)
Unrealized (loss) on investments	909		—		909
Comprehensive (loss)	$	(11,875)	$	(1,026)	$	(12,901)

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE (LOSS)

(amounts in thousands except per share data)


	Nine Months Ended June 30, 2022
	As Previously Reported		Total Adjustments		As Restated
Revenue
Software and hardware (i), (ii)	$	54,545	$	(1,435)	$	53,110
Services and other (i), (ii)	51,975		93		52,068
Total revenue	106,520		(1,342)		105,178
Operating costs and expenses
Cost of revenue—software and hardware	1,196		—		1,196
Cost of revenue—services and other (b)	10,051		3,543		13,594
Selling and marketing	28,859		—		28,859
Research and development (b)	25,457		(3,543)		21,914
General and administrative	18,626		2		18,628
Amortization and acquisition-related costs (iv)	9,947		830		10,777
Restructuring costs	1,807		—		1,807
Total operating costs and expenses	95,943		832		96,775
Operating income	10,577		(2,174)		8,403
Interest expense	6,125		—		6,125
Other income (expense), net (v)	(8)		6		(2)
Income before income taxes	4,444		(2,168)		2,276
Income tax benefit (i), (ii), (iii)	504		564		1,068
Net income	$	4,948	$	(1,604)	$	3,344
Net income per share—basic	$	0.11	$	(0.04)	$	0.07
Net income per share—diluted	$	0.11	$	(0.04)	$	0.07
Shares used in calculating net income per share—basic	44,721		—		44,721
Shares used in calculating net income per share—diluted	45,793		—		45,793

Comprehensive (loss)
Net income	$	4,948	$	(1,604)	$	3,344
Foreign currency translation adjustment	(16,724)		—		(16,724)
Unrealized (loss) on investments	(189)		—		(189)
Comprehensive (loss)	$	(11,965)	$	(1,604)	$	(13,569)

MITEK SYSTEMS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in thousands)


	Nine Months Ended June 30, 2022
	As Previously Reported		Total Adjustments		As Restated
Operating activities:
Net income	$	4,948	$	(1,604)	$	3,344
Adjustments to reconcile net income to net cash provided by operating activities:
Stock-based compensation expense	10,117		—		10,117
Amortization of intangible assets	9,176		—		9,176
Depreciation and amortization	1,064		—		1,064
Amortization of investment premiums & other	1,348		—		1,348
Accretion and amortization on debt securities	5,239		—		5,239
Net changes in estimated fair value of acquisition-related contingent consideration (vi)	(2,198)		920		(1,278)
Deferred taxes (i), (ii), (iii)	(1,141)		(564)		(1,705)
Changes in assets and liabilities, net of acquisitions:
Accounts receivable (iii)	(12,298)		65		(12,233)
Contract assets	(1,737)		—		(1,737)
Other assets (iv), (vi)	(1,090)		242		(848)
Accounts payable	1,147		—		1,147
Accrued payroll and related taxes	(2,643)		—		(2,643)
Deferred revenue (i), (ii), (iii)	1,077		840		1,917
Restructuring accrual	1,900		—		1,900
Other liabilities (iv), (vi)	1,104		101		1,205
Net cash provided by operating activities	16,013		—		16,013
Investing activities:
Purchases of investments	(47,818)		—		(47,818)
Sales and maturities of investments	173,198		—		173,198
Acquisitions, net of cash acquired	(126,607)		—		(126,607)
Purchases of property and equipment	(929)		—		(929)
Net cash used in investing activities	(2,156)		—		(2,156)
Financing activities:




Proceeds from the issuance of equity plan common stock	1,162		—		1,162
Repurchases and retirements of common stock	(14,828)		—		(14,828)
Payment of acquisition-related contingent consideration	(6,770)		—		(6,770)
Loans made to non-executive employees	(1,041)		—		(1,041)

Principal payments on other borrowings	(36)		—		(36)
Net cash provided by (used in) financing activities	(21,513)		—		(21,513)
Foreign currency effect on cash and cash equivalents	(1,113)		—		(1,113)
Net increase (decrease) in cash and cash equivalents	(8,769)		—		(8,769)
Cash and cash equivalents at beginning of period	30,312		—		30,312
Cash and cash equivalents at end of period	$	21,543	$	—	$	21,543
Supplemental disclosures of cash flow information:
Issuance of common stock for acquisition-related contingent consideration	$	2,722	$	—	$	2,722
Cash paid for interest	597		—		597
Cash paid for income taxes	819		—		819
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 gain (loss) on available-for-sale investments	(189)		—		(189)