MITEK SYSTEMS INC

Regulatory Filings • Feb 13, 2008

10QSB 1 v103266_10qsb.htm

SECURITIES AND EXCHANGE COMMISSION

Washington, DC. 20549

FORM 10-QSB

(Mark One)

x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended December 31, 2007 or

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission file number 0-15235

Mitek Systems, Inc.

(Exact name of small business issuer as specified in its charter)

Delaware	87-0418827
(State
or other jurisdiction of incorporation
or organization)	(I.R.S.
Employer Identification
No.)

| 8911
Balboa Ave., Suite B, San Diego,
California | 92123 |
| --- | --- |
| (Address
of principal executive
offices) | (Zip
Code) |

Issuer's telephone number (858) 503-7810

(Former name, former address and former fiscal year, if changed since last report)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

There were 16,751,137 shares outstanding of the registrant's Common Stock as of February 4, 2008.

Transitional Small Business Disclosure Format: Yes o No x

MITEK SYSTEMS, INC .

FORM 10-QSB

For the Quarter Ended December 31, 2007

INDEX

			Page
Part
I. Financial Information
Item
1.	Financial
Statements
	a)	Balance
Sheet
		As
of December 31, 2007 (Unaudited) and September 30, 2007	1
	b)	Statements
of Operations
		for
the Three Months Ended December 31, 2007 and 2006
(Unaudited)	2
	c)	Statements
of Cash Flows
		for
the Three Months Ended December 31, 2007 and 2006
(Unaudited)	3
	d)	Notes
to Unaudited Financial Statements	4
Item
2.		Management’s Discussion
and Analysis or Plan of Operation	10
Item
3.		Controls
and Procedures	18
Part
II. Other Information
Item
1.		Legal
Proceedings	18
Item
6.		Exhibits
and Reports on Form 8-K	18
Signature			19

ITEM 1 FINANCIAL INFORMATION

MITEK SYSTEMS, INC.

BALANCE SHEET

| | December
31, 2007 | | | |
| --- | --- | --- | --- | --- |
| | (Unaudited) | | | |
| ASSETS | | | | |
| CURRENT
ASSETS: | | | | |
| Cash
and cash equivalents | $ 1,498,691 | $ | 2,096,282 | |
| Accounts
receivable including related party of $222,166 and $203,466,
respectively, | 879,493 | | 542,009 | |
| net
of allowance of $18,977 in both periods | | | | |
| Inventory,
prepaid expenses and other current assets | 66,343 | | 99,476 | |
| Total
current assets | 2,444,527 | | 2,737,767 | |
| PROPERTY
AND EQUIPMENT-net | 85,624 | | 77,827 | |
| OTHER
ASSETS | 29,465 | | 29,465 | |
| TOTAL
ASSETS | $ 2,559,616 | $ | 2,845,059 | |
| LIABILITIES
AND STOCKHOLDERS' EQUITY | | | | |
| CURRENT
LIABILITIES: | | | | |
| Accounts
payable | $ 196,314 | $ | 120,519 | |
| Accrued
payroll and related taxes | 291,909 | | 249,036 | |
| Deferred
revenue | 332,187 | | 541,010 | |
| Other
accrued liabilities | 43,541 | | 31,510 | |
| Total
current liabilities | 863,951 | | 942,075 | |
| Deferred
rent | 48,577 | | 44,596 | |
| TOTAL
LIABILITIES | 912,528 | | 986,671 | |
| STOCKHOLDERS'
EQUITY: | | | | |
| Preferred
stock, $0.001 par value, 1,000,000 shares
authorized, | | | | |
| none
issued and outstanding | - | | - | |
| Common
stock, $.001 par value; 40,000,000 shares
authorized, | | | | |
| 16,751,137
issued and outstanding | 16,751 | | 16,751 | |
| Additional
paid-in capital | 14,653,194 | | 14,582,894 | |
| Accumulated
deficit | (13,022,857 | ) | (12,741,257 | ) |
| Total
stockholders' equity | 1,647,088 | | 1,858,388 | |
| TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY | $ 2,559,616 | $ | 2,845,059 | |

The accompanying notes form an integral part of these financial statements.

1

MITEK SYSTEMS, INC.

STATEMENTS OF OPERATIONS

(Unaudited)

| | THREE
MONTHS ENDED | | | |
| --- | --- | --- | --- | --- |
| | December
31, | | | |
| | 2007 | | 2006 | |
| NET
SALES | | | | |
| Software
including approximately $227,000 and $24,000 | $ 785,261 | | $ 920,456 | |
| to
a related party, respectively | | | | |
| Professional
Services, education and other including approximately | | | | |
| $9,000
and $86,000 to a related party, respectively | 478,338 | | 518,376 | |
| | 1,263,599 | | 1,438,832 | |
| COSTS
AND EXPENSES: | | | | |
| Cost
of sales-software | 133,087 | | 134,656 | |
| Cost
of sales-professional services, education and other | 41,777 | | 22,106 | |
| Operations | 24,399 | | 21,982 | |
| Selling
and marketing | 345,506 | | 255,019 | |
| Research
and development | 530,887 | | 501,906 | |
| General
and administrative | 472,463 | | 795,814 | |
| Total
costs and expenses | 1,548,119 | | 1,731,483 | |
| OPERATING
LOSS | (284,520 | ) | (292,651 | ) |
| OTHER
INCOME (EXPENSE): | | | | |
| Interest
expense | - | | (5,916 | ) |
| Interest
and other income | 2,920 | | 4,423 | |
| Total
other income (expense) - net | 2,920 | | (1,493 | ) |
| LOSS
BEFORE INCOME TAXES | (281,600 | ) | (294,144 | ) |
| PROVISION
FOR INCOME TAXES | - | | - | |
| NET
LOSS | $ (281,600 | ) | $ (294,144 | ) |
| NET
LOSS PER SHARE - BASIC AND DILUTED | $ (0.02 | ) | $ (0.02 | ) |
| WEIGHTED
AVERAGE NUMBER OF | | | | |
| COMMON
SHARES OUTSTANDING - BASIC AND DILUTED | 16,751,137 | | 16,748,974 | |

The accompanying notes form an integral part of these financial statements.

2

MITEK SYSTEMS, INC.

STATEMENTS OF CASH FLOWS

(Unaudited)

| | THREE
MONTHS ENDED | | | |
| --- | --- | --- | --- | --- |
| | December
31, | | | |
| | 2007 | | 2006 | |
| OPERATING
ACTIVITIES | | | | |
| Net
loss | $ (281,600 | ) | $ (294,144 | ) |
| Adjustments
to reconcile net loss to net cash provided by | | | | |
| (used
in) operating activities: | | | | |
| Depreciation
and amortization | 10,348 | | 11,288 | |
| Provision
(recoveries) for bad debts | - | | (15,000 | ) |
| Stock
based compensation expense | 70,300 | | 44,349 | |
| Changes
in assets and liabilities: | | | | |
| Accounts
receivable | (337,484 | ) | 231,910 | |
| Inventory,
prepaid expenses, and other assets | 33,134 | | 74,549 | |
| Accounts
payable | 75,795 | | 182,553 | |
| Accrued
payroll and related taxes | 42,873 | | (14,374 | ) |
| Deferred
revenue | (208,823 | ) | (135,905 | ) |
| Other
accrued liabilities | 12,031 | | 20,419 | |
| Deferred
rent | 3,981 | | 6,371 | |
| Net
cash provided by (used in) operating activities | (579,445 | ) | 112,016 | |
| INVESTING
ACTIVITIES | | | | |
| Purchases
of property and equipment | (18,146 | ) | - | |
| Net
cash used in investing activities | (18,146 | ) | - | |
| FINANCING
ACTIVITIES | | | | |
| Proceeds
from exercise of stock options | - | | 4,636 | |
| Net
cash provided by financing activities | - | | 4,636 | |
| NET
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (597,591 | ) | 116,652 | |
| CASH
AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 2,096,282 | | 2,331,011 | |
| CASH
AND CASH EQUIVALENTS AT END OF PERIOD | $ 1,498,691 | | $ 2,447,663 | |
| SUPPLEMENTAL
DISCLOSURE OF | | | | |
| CASH
FLOW INFORMATION | | | | |
| Cash
paid for interest | $ - | | $ - | |
| Cash
paid for income taxes | $ - | | $ - | |

The accompanying notes form an integral part of these financial statements.

3

MITEK SYSTEMS, INC.

NOTES TO FINANCIAL STATEMENTS

1. Basis of Presentation

The accompanying balance sheet as of September 30, 2007, which has been derived from audited financial statements, and the unaudited interim financial statements of Mitek Systems, Inc. (the “Company”) have been prepared in accordance with the instructions to Form 10-QSB and, therefore, do not include all information and footnote disclosures that are otherwise required by Regulation S-B and that will normally be made in the Company's Annual Report on Form 10-KSB. Refer to the Company’s financial statements on Form 10-KSB for the year ended September 30, 2007 for additional information. The financial statements do, however, reflect all adjustments (solely of a normal recurring nature) which are, in the opinion of management, necessary for a fair statement of the results of the interim periods presented.

Results for the three months ended December 31, 2007 are not necessarily indicative of results which may be reported for any other interim period or for the year as a whole.

2. Recently Issued Accounting Pronouncements

In September 2006, the FASB issued SFAS No. 157 Fair Value Measurements (“SFAS 157”). SFAS 157 provides a new single authoritative definition of fair value and provides enhanced guidance for measuring the fair value of assets and liabilities and requires additional disclosures related to the extent to which companies measure assets and liabilities at fair value, the information used to measure fair value, and the effect of fair value measurements on earnings. SFAS 157 is effective for fiscal years beginning after November 15, 2007.We are currently assessing the impact, if any, of SFAS 157 on our financial position, results of operation, or cash flows.

In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities — including an amendment of SFAS No. 115, which allows measurement at fair value of eligible financial assets and liabilities that are not otherwise measured at fair value. If the fair value option for an eligible item is elected, unrealized gains and losses for that item shall be reported in current earnings at each subsequent reporting date. SFAS No. 159 also establishes presentation and disclosure requirements designed to draw comparison between the different measurement attributes the company elects for similar types of assets and liabilities. This statement is effective for fiscal years beginning after November 15, 2007. We are in the process of evaluating the application of the fair value option and its effect on our results of operations or financial condition .

In December 2007 the FASB issued SFAS No. 160, Non-controlling Interests in Consolidated Financial Statements . SFAS No. 160 amends Accounting Research Bulletin 51, Consolidated Financial Statements , to establish accounting and reporting standards for the non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. It also clarifies that a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. SFAS No. 160 also changes the way the consolidated income statement is presented by requiring consolidated net income to be reported at amounts that include the amounts attributable to both the parent and the non-controlling interest. It also requires disclosure, on the face of the consolidated statement of income, of the amounts of consolidated net income attributable to the parent and to the non-controlling interest. SFAS No. 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated and requires expanded disclosures in the consolidated financial statements that clearly identify and distinguish between the interests of the parent owners and the interests of the non-controlling owners of a subsidiary. SFAS No. 160 is effective for fiscal periods, and interim periods within those fiscal years, beginning on or after December 15, 2008. The Company is currently assessing the impact of the adoption of SFAS No. 160 and its impact on our financial condition, results of operations or cash flows.

4

In December 2007 the FASB issued SFAS No. 141R, Business Combinations . This Statement replaces SFAS No. 141 and requires an acquirer in a business combination to recognize the assets acquired, the liabilities assumed, including those arising from contractual contingencies, any contingent consideration, and any non-controlling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions specified in the Statement. SFAS No. 141R also requires the acquirer in a business combination achieved in stages (sometimes referred to as a step acquisition) to recognize the identifiable assets and liabilities, as well as the non-controlling interest in the acquiree, at the full amounts of their fair values (or other amounts determined in accordance with SFAS No. 141R). In addition, SFAS No. 141R’s requirement to measure the non-controlling interest in the acquiree at fair value will result in recognizing the goodwill attributable to the non-controlling interest in addition to that attributable to the acquirer. SFAS No. 141R amends SFAS No. 109, to require the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination, or directly in contributed capital, depending on the circumstances. It also amends SFAS No. 142, Goodwill and Other Intangible Assets , to provide guidance on the impairment testing of acquired research and development intangible assets and assets that the acquirer intends not to use. SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently assessing the impact of the adoption of SFAS No. 141R and its impact on our financial condition, results of operations or cash flows.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accounts (“AICPA”) and the SEC did not or are not believed by management to have a material impact on the Company’s present or future financial statements .

3. Accounting for Stock-Based Compensation

Stock Based Benefit Plans

We have stock option plans for executives and key individuals who make significant contributions to Mitek. The exercise price of options granted to those persons owning more than 10% of the total combined voting power of the Company’s stock are not to be less than 110% of the fair market value of the stock as determined on the date of the grant of the options.

The 1996 plan provides for the purchase of up to 2,000,000 shares of common stock through incentive and non-qualified options. Options are granted with an exercise price equal to the fair market value of our stock at the grant date and for a term of not more than ten years. Employees owning in excess of 10% of the outstanding stock are included in the plan on the same terms except that the options must be granted for a term of not more than five years. All the options available under the 1996 plan were granted prior to March of 1999 and no additional options will be granted under this plan.

The 1999 plan provides for the purchase of up to 1,000,000 shares of common stock through incentive and non-qualified options. Incentive stock options are granted with an exercise price equal to the fair market value of our stock at the grant date and for a term of not more than ten years. Non-qualified stock options may be granted with an exercise price not less than 85% of fair market value of our stock at the grant date, and for a term of not more than five years. To date, we have elected to grant non-qualified stock option grants under the 1999 plan with a three year term.

The 2000 plan provides for the purchase of up to 1,000,000 shares of common stock through incentive and non-qualified options. Incentive options must be granted with an exercise price equal to the fair market value of our stock at the grant date and for a term of not more than ten years. Non-qualified stock options may be granted with an exercise price of not less than 85% of fair market value of our stock at the grant date, and for a term of not more than five years. To date, we have elected to grant non-qualified stock option grants under the 2000 plan with a three year term.

The 2002 plan provides for the purchase of up to 1,000,000 shares of common stock through incentive and non-qualified options. Incentive options must be granted with an exercise price equal to the fair market value of our stock at the grant date and for a term of not more than ten years. Non-qualified stock options may be granted with an exercise price of not less than 85% of fair market value of our stock at the grant date, and for a term of not more than five years. To date, we have elected to grant non-qualified stock option grants under the 2002 plan with a three year term.

The 2006 plan provides for the purchase of up to 1,000,000 shares of common stock through incentive and non-qualified options. Incentive options must be granted with an exercise price equal to the fair market value of our stock at the grant date and for a term of not more than ten years. Non-qualified stock options may be granted with an exercise price of not less than 85% of fair market value of our stock at the grant date, and for a term of not more than five years. To date, we have elected to grant non-qualified stock option grants under the 2006 plan with a three year term.

5

Adoption of SFAS 123 (R)

Stock-based compensation expense recognized during the period is based on the value of the portion of share-based payment awards that is ultimately expected to vest during the period. Stock-based compensation expense recognized in the Company’s Statement of Operations for the three month period ended December 31, 2007 included compensation expense for share-based payment awards granted prior to, but not yet vested as of December 31, 2007 based on the grant date fair value estimated in accordance with the provisions of SFAS 123 and compensation expense for the share-based payment awards granted subsequent to September 30, 2006 based on the grant date fair value estimated in accordance with the provisions of SFAS 123(R). As stock-based compensation expense recognized in the Statement of Operations for the first three months of fiscal 2008 is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. SFAS 123(R) 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 rates for the three months ended December 31, 2007 of approximately 14.7% for grants to all employees were based on historical forfeiture experience. The estimated expected life of option grants for the first three month period ended December 31, 2007 was 1.8 years on grants to directors and 6 years on grants to employees. In the Company’s pro forma information required under SFAS 123 for the periods prior to fiscal 2007, the Company accounted for forfeitures as they occurred.

SFAS 123R requires the cash flows resulting from the tax benefits resulting from tax deductions in excess of the compensation cost recognized for those 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 three month period ended December 31, 2007. Prior to the adoption of SFAS 123(R) those benefits would have been reported as operating cash flows had the Company received any tax benefits related to stock option exercises.

The fair value of stock-based awards to employees and directors is calculated using the Black-Scholes option pricing model, even though this model was developed to estimate the fair value of freely tradable, fully transferable options without vesting restrictions, which differ significantly from the Company’s stock options. The Black-Scholes 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.

Valuation and Expense Information under SFAS 123(R)

The value of stock-based compensation is based on the single option valuation approach under SFAS 123R. It is assumed no dividends will be declared. The estimated fair value of stock-based compensation awards to employees is amortized using the straight-line method over the vesting period of the options. The fair value calculations for stock-based compensation awards to employees for the three month periods ended December 31, 2007 and 2006 were based on the following assumptions:

| Risk-free
interest rate | 3.50%
- 3.67 % | 2.25%
- 5.07 % |
| --- | --- | --- |
| Expected
life (years) | 5.3 | 6 |
| Expected
volatility | 94.19 % | 90 % |
| Expected
dividends | None | None |

6

The following table summarizes stock-based compensation expense related to stock options under SFAS 123(R) for the three month periods ended December 31, 2007 and 2006 which was allocated as follows:

| | Three
Months Ended December
31, 2007 | Three
Months Ended December
31, 2006 |
| --- | --- | --- |
| Research
and development | $ 12,225 | $ 11,329 |
| Sales
and marketing | 9,342 | 9,004 |
| General
and administrative | 48,733 | 24,016 |
| Stock-based
compensation expense related to employee stock options included in
operating expenses | $ 70,300 | $ 44,349 |

The following table summarizes vested and unvested options, fair value per share weighted average remaining term and aggregate intrinsic value.

December
31, 2007
Vested	2,420,625	0.57	5.72	6,096
Unvested	1,218,077	0.36	9.64	38,384
Total	3,638,702	0.57	7.03	44,480

As of December 31, 2007, the company had $381,524 of unrecognized compensation expense expected to be recognized over a weighted average period of approximately 1.21 years.

A summary of option activity under the Company’s stock equity plans during the three months ended December 31, 2007 is as follows:

| Outstanding,
September 30, 2007 | 2,510,879 | | Weighted
Average Exercise Price Per Share — $ 0.96 | 6.39 |
| --- | --- | --- | --- | --- |
| Granted: | | | | |
| Board
of Directors | 175,000 | | $ .37 | |
| Executive
Officers | 600,000 | | $ .35 | |
| Employees | 412,000 | | $ .35 | |
| Forfeited | (59,177 | ) | $ .52 | |
| Outstanding,
December 31, 2007 | 3,638,702 | | $ .77 | 7.03 |

7

The following table summarizes significant ranges of outstanding and exercisable options as of December 31, 2007:

| Range
of Exercise
Price — $
0.35- - $ 0.69 | 1,647,111 | 8.22 | Weighted
Average Exercise Price — $ 0.40 | 687,514 | Weighted
Average Exercise Price of Exercisable Options — $ 0.46 | 959,597 |
| --- | --- | --- | --- | --- | --- | --- |
| $
0.72- - $ 0.92 | 1,034,545 | 5.86 | $ 0.79 | 776,065 | $ 0.80 | 258,480 |
| $
1.06- - $ 1.68 | 865,000 | 6.56 | $ 1.13 | 865,000 | $ 1.13 | - |
| $
2.13- - $ 2.68 | 60,525 | 4.04 | $ 2.32 | 60,525 | $ 2.32 | - |
| $
3.25- - $12.37 | 31,521 | 2.28 | $ 6.81 | 31,521 | $ 6.81 | - |
| | 3,638,702 | 7.03 | $ 0.77 | 2,420,625 | $ .94 | 1,218,077 |

The per share weighted average fair value of options granted during the three months ended December 31, 2007 was $0.30.

4. Income Taxes

In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" an interpretation of FASB Statement No. 109 ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in a company's financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Further, FIN 48 gives guidance regarding the recognition of a tax position based on a "more likely than not" recognition threshold; that is, evaluating whether the position is more likely than not of being sustained upon examination by the appropriate taxing authorities, based on the technical merits of the position. On October 1, 2007, the Company adopted FIN 48 and the adoption did not impact the Company's financial condition, results or operations or cash flows.

The Company is subject to taxation in the United States and various state jurisdictions. The Company's tax years for 2002 and forward are subject to examination by the Internal Revenue Service and various state tax authorities.

At October 1, 2007, the Company had net deferred tax assets of approximately $6.25 million. The deferred tax assets are primarily comprised of federal and state net operating loss carryforwards (approximately 83% of the net deferred tax assets at October 1, 2007). Such carryforwards expire between 2007 and 2025. Under the Tax reform Act of 1986, the amount of and the benefit from net operating losses that can be carried forward may be limited in certain circumstances. The Company carries a deferred tax valuation allowance equal to 100% of total net deferred assets. In recording this allowance, management has considered a number of factors, but chiefly, the Company's recent history of sustained operating losses. Management has concluded that a valuation allowance is required for 100% of the total deferred tax assets as it is more likely than not that the deferred tax assets will not be realized.

The Company has not determined the amount of the annual limitation on operating loss carryforwards that can be utilized in a taxable year. Any operating loss carryforwards that will expire prior to utilization as a result of such limitations will be removed from deferred tax assets with a corresponding reduction of the valuation allowance. Based on the 100% valuation allowance on the deferred tax assets, the Company does not anticipate that future changes in the Company's unrecognized tan benefits will impact its effective tax rate.

The Company's policy is to classify interest and penalties related to income tax matters as income tax expense. The Company had no accrual for interest or penalties as of October 1, 2007 or December 31, 2007, and has not recognized interest and/or penalties in the statement of operations for the first three months of 2007.

5. Commitments and Contingencies

Leases - Our office is leased under a non-cancelable operating lease. The lease costs are expensed on a straight-line basis over the lease term. In September 2005, we signed a lease with an initial term of seven years for a property located at 8911 Balboa Avenue, San Diego, California. The lease was effective and binding on the parties as of September 19, 2005; however, the term of the lease began on December 9, 2005, which was the date on which the Landlord achieved substantial completion of certain improvements in accordance with the terms of the Lease (the "Commencement Date"). The lease will be terminable by the Company after the calendar month which is forty-eight (48) full calendar months after the Commencement Date; however, termination will require certain penalties to be paid equal to two months of base rent and all unamortized improvements and commissions. As of the date of this financial statement, the Company does not have any intent to terminate this lease.

8

6. Related Party Transactions

John H. Harland Company (“John Harland”) made an investment in the Company in February and May 2005, as discussed in detail in the Company’s annual 10K-SB filing for the year ended September 30, 2007, found at Note 7 under Related Party Transactions. John Harland acquired a total of 2,142,856 shares of unregistered common stock for an aggregate purchase price of $1,500,000 or $0.70 per share. As part of the acquisition of shares, John Harland received warrants to purchase 321,428 additional shares of common stock at $0.70 per share. This transaction resulted in John H. Harland Company and its subsidiary, Harland Financial Solutions, (collectively “John Harland”) being considered related parties. John Harland is not involved in the management decisions of the Company and does not participate in any board meetings, unless invited.

In the first quarter of fiscal 2008, we realized revenue of approximately $236,000 with Harland Financial Solutions for software licenses and related software maintenance. In the first quarter of fiscal 2007, we realized revenue of approximately $80,000 with John Harland for maintenance on engineering development services. In addition, we realized revenue of approximately $30,000 for software licenses and related software maintenance with Harland Financial Solutions. At December 31, 2007, there was an outstanding receivable balance from Harland Financial Solutions of approximately $222,000.

7. Product Revenues and Sales Concentrations

Product Revenues - During the three months ended December 31, 2007 and 2006, our revenues were derived primarily from the Character Recognition Product line. Below is a summary of the revenues by product lines:

| Revenue | Three
Months Ended December
31 — 2007 | 2006 |
| --- | --- | --- |
| (000’s) | | |
| Recognition
Toolkits | $ 785 | $ 903 |
| Document
and Image Processing Solutions | 0 | 12 |
| Professional
services, Maintenance and other | 479 | 524 |
| Total
Revenue | $ 1,264 | $ 1,439 |

Sales Concentration - The Company sells its products primarily to community depository institutions. For the three months ended December 31, 2007 and 2006, the Company had the following sales concentrations:

Customers
to which
sales were in excess of 10% of total sales
Number
of customers	2	4
Aggregate
percentage of sales	39 %	58 %

Accounts receivable to the customers in which sales were in excess of 10% of total sales was approximately $433,000 as of December 31, 2007. Sales to these customers including related parties during the three months ended December 31, 2007 and 2006 were approximately $488,000 and $824,000, respectively.

9

ITEM 2

MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Management’s Discussion

In addition to historical information, this Management’s Discussion and Analysis (the “MD&A”) contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. As contained herein, the words "expects," "anticipates," "believes," "intends," "will," and similar types of expressions identify forward-looking statements, which are based on information that is currently available to us, speak only as of the date hereof, and are subject to certain risks and uncertainties. To the extent that the MD&A contains forward-looking statements regarding the financial condition, operating results, business prospects or any other aspect of the Company, please be advised that our actual financial condition, operating results and business performance may differ materially from that projected or estimated by us in forward-looking statements. We have attempted to identify certain of the factors that we currently believe may cause actual future experiences and results to differ from our current expectations. The difference may be caused by a variety of factors, including, but not limited, to the following: (i) adverse economic conditions; (ii) decreases in demand for our products and services; (iii) intense competition, including entry of new competitors into our markets; (iv) increased or adverse federal, state and local government regulation; (v) our inability to retain our working capital or otherwise obtain additional capital on terms satisfactory to us; (vi) increased or unexpected expenses; (vii) lower revenues and net income than forecast; (viii) price increases for supplies; (ix) inability to raise prices; (x) the risk of litigation and/or administrative proceedings involving us and our employees; (xi) higher than anticipated labor costs; (xii) adverse publicity or news coverage regarding us; (xiii) inability to successfully carry out marketing and sales plans; (xiv) loss of key executives; (xv) inflationary factors; and (xvii) other specific risks that may be alluded to in this MD&A.

Our strategy for fiscal 2008 is to grow the identified markets for our new products and enhance the functionality and marketability of our image based recognition and forgery detection technologies. In particular, Mitek is determined to expand the installed base of its Recognition Toolkits and leverage existing technology by devising recognition-based applications to detect potential fraud and loss at financial institutions. We also seek to expand the installed base of our Check Forgery detection solutions by entering into reselling relationships with key resellers who will better penetrate the market and provide Mitek entrée into a larger base of community banks.

APPLICATION OF CRITICAL ACCOUNTING POLICIES

Mitek’s financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates by management are affected by management’s application of accounting policies, are subjective and may differ from actual results. Critical accounting policies for Mitek include revenue recognition, allowance for doubtful accounts receivable, fair value of equity instruments and accounting for income taxes.

Revenue Recognition

We enter into contractual arrangements with integrators, resellers and end users that may include licensing of our software products, product support and maintenance services, consulting services, resale of third-party hardware, or various combinations thereof, including the sale of such products or services separately. Our accounting policies regarding the recognition of revenue for these contractual arrangements are fully described in the Notes to the Financial Statements, filed with Form 10K-SB for the year ended September 30, 2007.

We consider many factors when applying generally accepted accounting principles to revenue recognition. These factors include, but are not limited to:

· The actual contractual terms, such as payment terms, delivery dates, and pricing of the various product and service elements of a contract

· Time period over which services are to be performed

· Creditworthiness of the customer

· The complexity of customizations to our software required by service contracts

· The sales channel through which the sale is made (direct, VAR, distributor, etc.)

· Discounts given for each element of a contract

· Any commitments made as to installation or implementation “go live” dates

Each of the relevant factors is analyzed to determine its impact, individually and collectively with other factors, on the revenue to be recognized for any particular contract with a customer. Management is required to make judgments regarding the significance of each factor in applying the revenue recognition standards. Any misjudgment or error by management in its evaluation of the factors and the application of the standards, especially with respect to complex or new types of transactions, could have a material adverse affect on our future revenues and operating results.

10

Accounts Receivable.

We constantly monitor collections from our customers and maintain a provision for estimated credit losses that is based on historical experience and on specific customer collection issues. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. Since our revenue recognition policy requires customers to be deemed creditworthy, our accounts receivable are based on customers whose payment is reasonably assured. Our accounts receivable are derived from sales to a wide variety of customers. We do not believe a change in liquidity of any one customer or our inability to collect from any one customer would have a material adverse impact on our financial position.

Fair Value of Equity Instruments

The valuation of certain items, including valuation of warrants, beneficial conversion feature related to convertible debt and compensation expense related to stock options granted, involve significant estimates with underlying assumptions judgmentally determined. The valuation of warrants and stock options are based upon a Black Scholes valuation model, which involve estimates of stock volatility, expected life of the instruments and other assumptions.

Deferred Income Taxes.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. We maintain a valuation allowance against the deferred tax asset due to uncertainty regarding the future realization based on historical taxable income, projected future taxable income, and the expected timing of the reversals of existing temporary differences. Until such time as we can demonstrate that we will no longer incur losses or if we are unable to generate sufficient future taxable income we could be required to maintain the valuation allowance against our deferred tax assets.

RISK FACTORS

This Quarterly Report on Form 10-QSB contains statements that are forward-looking. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of issues and uncertainties such as those listed below and elsewhere in this report, which, among others, should be considered in evaluating our financial outlook.

Risks Associated With Our Business

Because most of our revenues are from a single type of technology, our product concentration may make us especially vulnerable to market demand and competition from other technologies, which could reduce our sales and revenues and cause us to be unable to continue our business.

We currently derive substantially all of our product revenues from licenses and sales of software products incorporating our character recognition technology. As a result, factors adversely affecting the pricing of or demand for our products and services, such as competition from other products or technologies, any decline in the demand for automated entry of hand printed characters, negative publicity or obsolescence of the software environments in which our products operate could result in lower sales or gross margins and would have a material adverse effect on our business, operating results and financial condition.

Competition in our market may result in pricing pressures, reduced margins or the inability of our products and services to achieve market acceptance.

We compete against numerous other companies which address the character recognition market, many of which have greater financial, technical, marketing and other resources. Other companies could choose to enter our marketplace. We may be unable to compete successfully against our current and potential competitors, which may result in price reductions, reduced margins and the inability to achieve market acceptance for our products. Moreover, from time to time, our competitors or we may announce new products or technologies that have the potential to replace our existing product offerings. There can be no assurance that the announcement of new product offerings will not cause potential customers to defer purchases of our existing products, which could adversely affect our business, operating results and financial condition.

11

We must continue extensive research and development in order to remain competitive. If our products fail to gain market acceptance, our business, operating results and financial condition would be materially adversely affected by the lower sales.

Our ability to compete effectively with our character recognition product line will depend upon our ability to meet changing market conditions and develop enhancements to our products on a timely basis in order to maintain our competitive advantage. Rapidly advancing technology and rapidly changing user preferences characterize the markets for products incorporating character recognition technology. Our continued growth will ultimately depend upon our ability to develop additional technologies and attract strategic alliances for related or separate product lines. There can be no assurance that we will be successful in developing and marketing product enhancements and additional technologies, that we will not experience difficulties that could delay or prevent the successful development, introduction and marketing of these products, or that our new products and product enhancements will adequately meet the requirements of the marketplace, will be of acceptable quality, or will achieve market acceptance.

If our new products fail to gain market acceptance, our business, operating results and financial condition would be materially adversely affected by the lower sales. If we are unable, for technological or other reasons, to develop and introduce products in a timely manner in response to changing market conditions or customer requirements, our business, operating results and financial condition may be materially and adversely affected by lower sales.

Our annual and quarterly results have fluctuated greatly in the past and will likely continue to do so, which may cause substantial fluctuations in our common stock price.

Our quarterly operating results have in the past and may in the future vary significantly depending on factors including the timing of customer projects and purchase orders, new product announcements and releases by us and other companies, gain or loss of significant customers, price discounting of our products, the timing of expenditures, customer product delivery requirements, availability and cost of components or labor and economic conditions generally and in the information technology market specifically. Any unfavorable change in these or other factors could have a material adverse effect on our operating results for a particular quarter or year, which may cause downward pressure on our common stock price. We expect quarterly and annual fluctuations to continue for the foreseeable future.

We may need to raise additional capital to fund continuing operations. If our financing efforts are not successful, we will need to explore alternatives to continue operations, which may include a merger, asset sale, joint venture, loans or further expense reductions. If these measures are not successful, we may be unable to continue our operations.

Our efforts to reduce expenses and generate revenue may not be successful. We have funded our operations in the past by raising capital, selling certain assets and obtaining loans. If our revenues do not increase we will need to raise additional capital through equity or debt financing or through the establishment of other funding facilities in order to keep funding operations.

However, raising capital has been, and will continue to be difficult, and we may not receive sufficient funding. Any future financing that we seek may not be available in amounts or at times when needed, or, even if it is available, may not be on terms acceptable to us. Also, if we raise additional funds by selling equity or equity-based securities, the percentage ownership of our existing stockholders will be reduced and such equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. Any inability to obtain additional cash as needed could have a material adverse effect on our financial position, results of operations and ability to continue in existence.

12

Our historical order flow patterns, which we expect to continue, have caused forecasting difficult for us. If we do not meet our forecasts or analysts’ forecasts for us, the price of our common stock may decline.

Historically, a significant portion of our sales have resulted from shipments during the last few weeks of the quarter from orders received in the last month of the applicable quarter. We do, however, base our expense levels, in significant part, on our expectations of future revenue. As a result, we expect our expense levels to be relatively fixed in the short term. Any concentration of sales at the end of the quarter may limit our ability to plan or adjust operating expenses. Therefore, if anticipated shipments in any quarter do not occur or are delayed, expenditure levels could be disproportionately high as a percentage of sales, and our operating results for that quarter would be adversely affected. As a result, we believe that period-to-period comparisons of our results of operations are not and will not necessarily be meaningful, and you should not rely upon them as an indication of future performance. If our operating results for a quarter are below the expectations of public market analysts and investors, the price of our common stock may be materially adversely affected.

Revenue recognition accounting standards and interpretations may change, causing us to recognize lower revenues.

In October 1997, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) No. 97-2, Software Revenue Recognition . We adopted SOP 97-2, as amended by SOP 98-4 Deferral of the Effective Date of a Provision of SOP 97-2 as of July 1, 1998. In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions. We adopted SOP 98-9 on January 1, 2000. These standards address software revenue recognition matters primarily from a conceptual level and do not include specific implementation guidance. We believe that we are currently in compliance with SOP 97-2 and SOP 98-9. In addition, in December 1999, the Securities and Exchange Commission (SEC) staff issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB 101), which provides further guidance with regard to revenue recognition, presentation and disclosure. We adopted SAB 101 during the fourth quarter of fiscal 2000 which was subsequently superceded by SAB 104.

The accounting profession and the SEC continue to discuss certain provisions of SOP 97-2, SAB 104 and other revenue recognition standards and related interpretations with the objective of providing additional guidance on potential application of the standards and interpretations. These discussions could lead to unanticipated changes in revenue recognition standards and, as a result, in our current revenue accounting practices, which could cause us to recognize lower revenues and lead to a decrease in our stock price.

If our products have product defects, it could damage our reputation, sales, profitability and result in other costs, any of which could adversely affect our operating results which could cause our common stock price to go down.

Our products are extremely complex and are constantly being modified and improved, and as such they may contain undetected defects or errors when first introduced or as new versions are released. As a result, we have in the past and could in the future face loss or delay in recognition of revenues as a result of software errors or defects. In addition, our products are typically intended for use in applications that are critical to a customer's business. As a result, we believe that our customers and potential customers have a greater sensitivity to product defects than the market for software products generally.

There can be no assurance that, despite our testing, errors will not be found in new products or releases after commencement of commercial shipments, resulting in loss of revenues or delay in market acceptance, diversion of development resources, damage to our reputation, adverse litigation, or increased service and warranty costs, any of which would have a material adverse effect upon our business, operating results and financial condition.

Our success and our ability to compete are dependent, in part, upon protection of our proprietary technology. If we are unable to protect our proprietary technology, our revenues and operating results would be materially adversely affected.

We generally rely on trademark, trade secret, copyright and patent law to protect our intellectual property. We may also rely on creative skills of our personnel, new product developments, frequent product enhancements and reliable product maintenance as means of protecting our proprietary technologies. There can be no assurance, however, that such means will be successful in protecting our intellectual property. There can be no assurance that others will not develop technologies that are similar or superior to our technology.

13

The source code for our proprietary software is protected both as a trade secret and as a copyrighted work. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use our products or technology without authorization, or to develop similar technology independently.

We may have difficulty protecting our proprietary technology in countries other than the United States. If we are unable to protect our proprietary technology, our revenues and operating results would be materially adversely affected.

We operate in a number of countries other than the United States. Effective copyright and trade secret protection may be unavailable or limited in certain countries. Moreover, there can be no assurance that the protection provided to our proprietary technology by the laws and courts of foreign nations against piracy and infringement will be substantially similar to the remedies available under United States law. Any of the foregoing considerations could result in a loss or diminution in value of our intellectual property, which could have a material adverse effect on our business, financial condition, and results of operations.

Companies may claim that we infringe their intellectual property or proprietary rights, which could cause us to incur significant expenses or prevent us from selling our products.

We have in the past had companies claim that certain technologies incorporated in our products infringe their patent rights. Although we have resolved the past claims and there are currently no claims of infringement pending against us, there can be no assurance that we will not receive notices in the future from parties asserting that our products infringe, or may infringe, those parties' intellectual property rights. There can be no assurance that licenses to disputed technology or intellectual property rights would be available on reasonable commercial terms, if at all.

Furthermore, we may initiate claims or litigation against parties for infringement of our proprietary rights or to establish the validity of our proprietary rights. Litigation, either as plaintiff or defendant, could result in significant expense to us and divert the efforts of our technical and management personnel from operations, whether or not such litigation is resolved in our favor. In the event of an adverse ruling in any such litigation, we might be required to pay substantial damages, discontinue the use and sale of infringing products, expend significant resources to develop non-infringing technology or obtain licenses to infringing technology. In the event of a successful claim against us and our failure to develop or license a substitute technology, our business, financial condition and results of operations would be materially and adversely affected.

We depend upon our key personnel.

Our future success depends in large part on the continued service of our key technical and management personnel. We do not have employment contracts with, or "key person" life insurance policies on, any of our employees, including Mr. James B. DeBello, our President and Chief Executive Officer, Mr. John M. Thornton, our Chairman and Mr. Tesfaye Hailemichael, our Chief Financial Officer. Loss of services of key employees could have a material adverse effect on our operations and financial condition. We are also dependent on our ability to identify, hire, train, retain and motivate high quality personnel, especially highly skilled engineers involved in the ongoing developments required to refine our technologies and to introduce future applications. The high technology industry is characterized by a high level of employee mobility and aggressive recruiting of skilled personnel.

We cannot assure you that we will be successful in attracting, assimilating and retaining additional qualified personnel in the future. If we were to lose the services of one or more of our key personnel, or if we failed to attract and retain additional qualified personnel, it could materially and adversely affect our customer relationships, competitive position and revenues.

We do not have a current credit facility.

While we believe that our current cash on hand and cash generated from operations, is sufficient to finance our operations for the next twelve months, we can make no assurance that we will not need additional financing during the next twelve months or beyond. Actual sales, expenses, market conditions or other factors which could have a material affect upon us could require us to obtain additional financing. If such financing is not available, or if available, is not on reasonable terms, it could have a material adverse effect upon our results of operations and financial condition.

14

The liability of our officers and directors is limited pursuant to Delaware law.

Pursuant to our Certificate of Incorporation, and as authorized under applicable Delaware Law, our directors and officers are not liable for monetary damages for breach of fiduciary duty, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law or (iv) for any transaction from which the director derived an improper personal benefit.

Risks Related to Our Stock

A few of our stockholders have significant control over our voting stock which may make it difficult to complete some corporate transactions without their support and may prevent a change in control.

As of December 31, 2007, John M. Thornton, who is our Chairman of the Board and his spouse, Director Sally B. Thornton, beneficially owned 2,919,959 shares of common stock including stock options or approximately 17% of our outstanding common stock. Our directors and executive officers as a whole, own approximately 16% of our outstanding common stock, or approximately 31% including outstanding options (vested and unvested) to acquire common stock. John H. Harland Company (“John Harland”) has 2,142,856 shares of common stock or approximately 13% of our outstanding common stock. John Harland also holds 321,428 warrants which may be exercised to acquire 321,428 shares of common stock, thereby increasing the number of shares of common stock held by John Harland to 2,464,284 shares or approximately 15% of our outstanding common stock. Laurus Funds may acquire up to 1,060,000 shares of common stock upon exercise of its warrant or approximately 6% of the outstanding common stock.

The above-described significant stockholders may have considerable influence over the outcome of all matters submitted to our stockholders for approval, including the election of directors. In addition, this ownership could discourage the acquisition of our common stock by potential investors and could have an anti-takeover effect, possibly depressing the trading price of our common stock.

Our common stock is listed on the Over-The-Counter Bulletin Board.

Our common stock is currently listed on the Over-The-Counter Bulletin Board (the “OTCBB”). If our common stock became ineligible to be listed on the OTCBB, it would likely continue to be listed on the "pink sheets." Securities traded on the OTCBB or the "pink sheets" are subject to certain securities regulations. These regulations may limit, in certain circumstances, certain trading activities in our common stock, which could reduce the volume of trading in our common stock or the market price of our common stock. The OTC market and the "pink sheets" also typically exhibit extreme price and volume fluctuations. These broad market factors may materially adversely affect the market price of our common stock, regardless of our actual operating performance. In the past, individual companies whose securities have exhibited periods of volatility in their market price have had securities class action litigation instituted against that company. This type of litigation, if instituted, could result in substantial costs and a diversion of management's attention and resources.

We may issue preferred stock, which could adversely affect the rights of common stock holders.

The Board of Directors is authorized to issue up to 1,000,000 shares of preferred stock and to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. The rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued in the future. The issuance of preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock. We have no current plans to issue shares of preferred stock.

Our common stock price has been volatile. You may not be able to sell your shares of our common stock for an amount equal to or greater than the price at which you acquire your shares of common stock.

The market price of our common stock has been, and is likely to continue to be, highly volatile. Future announcements concerning us or our competitors, quarterly variations in operating results, announcements of technological innovations, the introduction of new products or changes in the product pricing policies of the Company or its competitors, claims of infringement of proprietary rights or other litigation, changes in earnings estimates by analysts or other factors could cause the market price of our common stock to fluctuate substantially. In addition, the stock market has from time-to-time experienced significant price and volume fluctuations that have particularly affected the market prices for the common stocks of technology companies and that have often been unrelated to the operating performance of particular companies. These broad market fluctuations may adversely affect the market price of our common stock. During the fiscal year ended September 30, 2007, our common stock price ranged from $0.49 to $1.55. During the three months ended December 31, 2007, our common stock price ranged from $0.31 to $0.60.

15

Applicable SEC Rules governing the trading of “penny stocks” limit the trading and liquidity of our common stock which may adversely affect the trading price of our common stock.

Our common stock currently trades on the OTC Bulletin Board. Since our common stock continues to trade below $5.00 per share, our common stock is considered a “penny stock” and is subject to SEC rules and regulations that impose limitations upon the manner in which our shares can be publicly traded. These regulations require the delivery, prior to any transaction involving a penny stock, of a disclosure document explaining the penny stock market and the associated risks. Under these regulations, brokers who recommend penny stocks to persons other than established customers or certain accredited investors must make a special written suitability determination for the purchaser and receive the purchaser’s written agreement to a transaction prior to sale. These regulations have the effect of limiting the trading activity of our common stock and reducing the liquidity of an investment in our common stock.

We do not intend to pay dividends in the foreseeable future.

We have never declared or paid a dividend on our common stock. We intend to retain earnings, if any, for use in the operation and expansion of our business and, therefore, do not anticipate paying any dividends in the foreseeable future.

ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

Comparison of Three Months Ended December 31, 2007 and 2006

Net Sales. Net sales for the three month period ended December 31, 2007 were approximately $1,264,000, compared to approximately $1,439,000 for the same period in 2006, a decrease of approximately $175,000, or 12%. The decrease was primarily attributable to decrease in revenue from three of our major customers who made significant purchases in the first quarter of fiscal 2007.

Revenue from Harland Financial Solutions for software licenses and related maintenance was approximately $236,000 for the quarter ended December 31, 2007 compared with approximately $110,000 for the same period in fiscal 2006.

Cost of Sales. Cost of Sales for the three month period ended December 31, 2007 was approximately $175,000 compared to approximately $157,000 for the same period in 2006, an increase of approximately $18,000 or 11%. The dollar increase was primarily attributable to the increase in costs related to engineering services. Stated as a percentage of net sales, cost of sales were 14% compared to 11% for the same period in fiscal 2006. The increase as a percentage of sales was primarily in costs of sales related to engineering services provided to a new customer.

Operations. Operations expenses for the three-month period ended December 31, 2007 were approximately $24,000, compared to $22,000 for the same period in 2006. Stated as a percentage of net sales, operations expenses were 2% for the periods ended December 31, 2007 and 2006.

Selling and Marketing. Selling and marketing expenses include payroll, employee benefits, and other headcount-related costs associated with sales and marketing personnel and advertising, promotions, trade shows, seminars, and other programs. Selling and marketing expenses for the three month period ended December 31, 2007 were approximately $346,000, compared to $255,000 for the same period in 2006, an increase of approximately $91,000 or 36%. Stated as a percentage of net sales, selling and marketing expenses were 27% for the period ended December 31, 2007 compared to 18% for the same period in 2006. The dollar increase in expenses for the three month period is primarily attributable to website design expense and consulting marketing professional services.

16

Research and Development. Research and Development expenses include payroll, employee benefits, consultant expenses and other headcount-related costs associated with product development. These costs are incurred to maintain and enhance existing products. We maintain what we believe to be sufficient staff to maintain our existing product lines, including development of new, more feature-rich versions of our existing product lines, as we determine the demands by the marketplace. We also maintain research personnel, whose efforts are designed to ensure product paths from current technologies to anticipated future generations of products within our area of business.

Research and development expenses for the three month period ended December 31, 2007 were approximately $531,000 compared to approximately $502,000 for the same period in 2006, an increase of approximately $29,000 or 6%. Stated as a percentage of net sales, research and development expenses increased to 42% for the period ended December 31, 2007 compared to 35% for the same period in 2006. The increase in expenses for the three month period ended December 31, 2007 was primarily due to outsourcing of programming and enhancements of existing products. For the three month period ended December 31, 2007, approximately $40,000 compared to none for the same period ended in fiscal 2007, were spent in research and development related to contract development and charged to cost of sales-professional services, education and other.

General and Administrative. General and administrative expenses include payroll, employee benefits, and other headcount-related costs associated with the finance, facilities, and legal and other administrative fees. General and administrative expenses for the three month period ended December 31, 2007 were approximately $472,000 including an increase of $25,000 in stock based compensation expense in the quarter, compared to approximately $796,000 for the same period in 2006, a decrease of approximately 324,000 or 41%. Stated as a percentage of net sales, general and administrative expenses decreased to 37% compared to 55% for the same period in 2006. The decrease in expenses for the three month period is primarily attributable to the costs and expenses incurred in the prior year comparable period relating to the previously planned merger of Parascript, LLC and Mitek which will not be consummated.

Interest and Other Income (Expense) - Net. Interest and other income (expense) for the three-month period ended December 31, 2007 was approximately $3,000 compared to interest and other income (expense) of approximately ($1,000) for the same period in 2006, a change of approximately $4,000. In the three month period ended December 31, 2007, the interest expense was approximately $0 compared to approximately $6,000 for the three month period ended December 31, 2006.

LIQUIDITY AND CAPITAL

At December 31, 2007, the Company had approximately $1,499,000 in cash and cash equivalents as compared to $2,096,000 at September 30, 2007. Accounts receivable totaled approximately $879,000, an increase of approximately $337,000 over the September 30, 2007 balance of approximately $542,000. The increase in accounts receivable was primarily the result of sales generated in the latter part of the quarter.

We financed our cash needs during the three months ended December 31, 2007 and for the same period ended December 31, 2006 primarily from collections of accounts receivable and existing cash and cash equivalents.

Net cash used in operating activities during the three months ended December 31, 2007 was approximately $579,000. The primary use of cash from operating activities was the loss during the three month period of approximately $282,000 and a decrease of deferred revenue of $209,000 offset by an increase of accounts receivable of $337,000, an increase of accounts payable of $76,000, an increase in accrued liabilities of approximately $55,000, a decrease in prepaid expenses and other assets of approximately $33,000, non cash expenses of stock based compensation of approximately $70,000, and depreciation and amortization of fixed assets for approximately $10,000. We used part of the cash provided from operating activities to finance the acquisition of equipment used in our business.

Our working capital and current ratio was approximately $1,581,000 and 2.83, respectively, at December 31, 2007, compared to $1,796,000 and 2.91 at September 30, 2007, and total liabilities to equity ratio was .55 to 1 at December 31, 2007 compared to .53 to 1 at September 30, 2007.

There are no significant capital expenditures planned for the foreseeable future.

17

We evaluate our cash requirements on a quarterly basis. Historically, we have managed our cash requirements principally from cash generated from operations and financing transactions. We believe that we will have sufficient capital to finance our operations for the next twelve months using existing cash and cash equivalents, and cash to be generated from operations.

ITEM 3

CONTROLS AND PROCEDURES

Under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15 as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of December 31, 2007.

There have not been any changes in our internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d - 15(f) under the Exchange Act) during the fiscal quarter ended December 31, 2007 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting

PART II - OTHER INFORMATION

ITEM 1

LEGAL PROCEEDINGS

There are no additional material legal proceedings pending against the Company not previously reported by the Company in Item 3 of its Form 10-KSB for the year ended September 30, 2007, which Item 3 is incorporated herein by reference.

ITEM 6.

EXHIBITS AND REPORTS ON FORM 8-K

a. Exhibits:

The following exhibits are filed herewith :

| Exhibit
Number | Exhibit
Title |
| --- | --- |
| 31.1 | Certification
of Periodic Report by the Chief Executive Officer Pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934 |
| 31.2 | Certification
of Periodic Report by the Chief Financial Officer Pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934 |
| 32.1 | Certification
of Periodic Report by the Chief Executive Officer Pursuant to Section
906
of the Sarbanes Oxley Act of 2002 |
| 32.2 | Certification
of Periodic Report by the Chief Financial Officer Pursuant to Section
906
of the Sarbanes Oxley Act of 2002 |

18

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized .

| | MITEK
SYSTEMS,
INC . |
| --- | --- |
| Date: February
13, 2008 | /s/ James
B.
DeBello |
| | James
B. DeBello, President and Chief
Executive Officer |

| Date: February
13, 2008 |
| --- |
| Tesfaye
Hailemichael |
| Chief Financial
Officer |

19