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What changed in MITEK SYSTEMS INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MITEK SYSTEMS INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+206 added−209 removedSource: 10-K (2024-03-19) vs 10-K (2023-07-31)

Top changes in MITEK SYSTEMS INC's 2023 10-K

206 paragraphs added · 209 removed · 165 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

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Biggest change(“ID R&D” and such acquisition, the “ID R&D Acquisition”), an award-winning provider of AI-based voice and face biometrics and liveness detection. ID R&D delivers innovative, biometric capabilities that raise the bar on usability and performance. The ID R&D Acquisition helps simplify and secure the entire transaction lifecycle for both businesses and consumers.
Biggest changeID R&D delivers innovative, biometric capabilities that raise the bar on usability and performance.
We believe our primary competitive advantages in this market are: (i) our mobile auto image capture user experience used by millions of consumers; (ii) our patented science; (iii) scalability; and (iv) an architectural software design that allows our products to be more readily modified, improved with added functionality, and configured for new products, thereby allowing our software to be easily upgraded.
We believe our primary competitive advantages in this market are: (i) our mobile auto image capture user experience used by millions of consumers; (ii) our patented data science; (iii) scalability; and (iv) an architectural software design that allows our products to be more readily modified, improved with added functionality, and configured for new products, thereby allowing our software to be easily upgraded.
Market Opportunities, Challenges, and Risks We believe that financial institutions, fintechs, and other companies see our patented solutions as a way to provide a superior digital customer experience to meet growing consumers demands of trust and convenience online and, at the same time, assist them in meeting regulatory requirements.
Market Opportunities, Challenges & Risks We believe that financial institutions, fintechs, and other companies see our patented solutions as a way to provide a superior digital customer experience to meet growing consumer demands of trust and convenience online and, at the same time, assist them in meeting regulatory requirements.
ITEM 1. BUSINESS. Overview Mitek Systems, Inc. (“Mitek,” the “Company,” “we,” “us,” and “our” ) is a leading innovator of mobile image capture and digital identity verification solutions. We are a software development company with expertise in artificial intelligence and machine learning.
ITEM 1. BUSINESS. Overview Mitek Systems, Inc. (“Mitek,” the “Company,” “we,” “us,” and “our” ) is a leading innovator of mobile image capture and digital identity verification solutions. We are a software development company with expertise in computer vision, artificial intelligence and machine learning.
During each of the last few years, sales of licenses to one or more channel partners have comprised a significant part of our revenue each year. This is attributable to the timing of renewals or purchases of licenses and does not represent a dependence on any single channel partner.
During each of the last few years, sales of licenses to one or more channel partners have comprised a significant portion of our revenue each year. This is attributable to the timing of renewals or purchases of licenses and does not represent a dependence on any single channel partner.
If we are unable to protect our intellectual property, or we infringe on the intellectual property rights of a third-party, our operating results could be adversely affected. As of September 30, 2022, the U.S.
If we are unable to protect our intellectual property, or we infringe on the intellectual property rights of a third-party, our operating results could be adversely affected. As of September 30, 2023, the U.S.
These partners integrate our products into their solutions to meet the needs of their customers, typically provisioning Mitek’s services through their respective platforms. Product and Technology Overview Technology During the twelve months ended September 30, 2022, we had one operating segment: the development, sale, and service of our proprietary software solutions related to mobile image capture and identity verification.
These partners integrate our products into their solutions to meet the needs of their customers, typically provisioning Mitek services through their respective platforms. Product and Technology Overview Technology During the twelve months ended September 30, 2023, we had one operating segment: the development, sale, and service of our proprietary software solutions related to mobile image capture and identity verification.
We currently serve more than 7,800 financial services organizations and leading marketplace and financial technology (“fintech”) brands around the globe. Customers count on Mitek to deliver trusted and convenient online experiences, detect and reduce fraud, and document Know Your Customer (“KYC”) and Anti-Money Laundering (“AML”) regulatory compliance.
We currently serve more than 7,900 financial services organizations and leading marketplace and financial technology (“fintech”) brands around the globe. Customers count on Mitek to deliver trusted and convenient online experiences, detect and reduce fraud, and meet Know Your Customer (“KYC”) and Anti-Money Laundering (“AML”) regulatory compliance.
However, we believe our patented mobile image capture and identity verification technology, our growing portfolio of products and geographic coverage for the financial services industry, and our market expertise gives us a distinct competitive advantage. To remain competitive, we must continue to offer products that are attractive to the consumer as well as being secure, accurate, and convenient.
However, we believe our patented mobile image capture and identity verification technology, our growing portfolio of products and coverage for the financial services industry and our market expertise gives us a distinct competitive advantage. To remain competitive, we will continue to offer products that are attractive to the consumer as well as being compliant, accurate, and convenient.
However, in that case, we or another channel partner must establish a relationship with the end-users, which could take time to develop, if it develops at all. We have a growing number of competitors in the mobile image capture and identity verification industry, many of which have greater financial, technical, marketing, and other resources.
However, in that case, we or another channel partner must establish a relationship with the end-users, which could take time to develop. We have a growing number of competitors in the mobile image capture and identity verification industry, many of which have greater financial, technical, marketing, and other resources.
Mobile Deposit® enables individuals and businesses to remotely deposit checks using their camera-equipped smartphone or tablet. Mobile Deposit® is embedded within the financial institutions’ digital banking apps used by consumers and has now processed more than six billion check deposits. Mitek began selling Mobile Deposit® in early 2008 and received its first patent for this product in August 2010.
Mobile Deposit® enables individuals and businesses to remotely deposit checks using their camera-equipped smartphone or tablet. Mobile Deposit® is embedded within the financial institutions’ digital banking apps used by consumers and now processes more than one billion check deposits annually. Mitek began selling Mobile Deposit® in early 2008 and received its first patent for this product in August 2010.
Patent and Trademark Office has issued us 80 patents with expiration dates ranging from 2026 through 2037 and we have filed for 16 additional domestic and international patents. In addition, we generally enter into confidentiality agreements with certain employees.
Patent and Trademark Office has issued us 100 patents with expiration dates ranging from 2026 through 2037 and we have filed for 20 additional domestic and international patents. In addition, we generally enter into confidentiality agreements with certain employees.
Such technology helps to ensure businesses know the true identity of their customers by linking biometric verification with real-time data aggregation across many different sources, including credit bureaus, international sanctions lists, local law-enforcement, and others.
(“HooYu”), a leading KYC technology provider in the United Kingdom. Such technology helps to ensure businesses know the true identity of their customers by linking biometric verification with real-time data aggregation across many different sources, including credit bureaus, international sanctions lists, local law-enforcement, and others.
Our total employee base consists of 327 sales and marketing, professional services, and document review employees, 199 research and development and support employees, and 62 employees in executive, finance, network administration, and other capacities. In addition, we engaged various consultants in the areas of research and development, product development, finance, and marketing during fiscal year 2022.
Our total employee base consists of 329 sales and marketing, professional services, and document review employees, 189 research and development and support employees, and 72 employees in executive, finance, network administration, and other capacities. In addition, we engaged various consultants in the areas of research and development, product development, finance, and marketing during fiscal year 2023.
To help us remain competitive, we intend to further strengthen performance of our portfolio of products through research and development as well as partnering with other technology providers. Competition The market for our products and solutions is intensely competitive, subject to rapid change, and significantly affected by new product introductions and other market activities of industry participants.
To help us remain competitive, we intend to further our investment in research and development as well as partnering with other technology providers. Competition The market for our products and solutions is intensely competitive, subject to rapid change, and significantly affected by the introduction of new products or technologies and other market activities of industry participants.
It provides businesses and financial institutions with access to one authentication solution to deploy throughout the entire transaction cycle, and can provide consumers with a simple, intuitive approach to fighting fraud. In March of 2022, Mitek acquired HooYu Ltd. (“HooYu”), a leading KYC technology provider in the United Kingdom.
The ID R&D Acquisition helps simplify and secure the entire transaction lifecycle for both businesses and consumers, provides businesses and financial institutions with access to one authentication solution to deploy throughout the entire transaction cycle, and can provide consumers with a simple, intuitive approach to fighting fraud. In March of 2022, Mitek acquired HooYu Ltd.
Our principal competition comes from: (i) customer-developed solutions; (ii) companies offering alternative methods of identity verification; and (iii) companies offering competing technologies capable of mobile remote deposit capture or authenticating identity documents and facial photo comparison. It is also possible that we will face competition from new industry participants or alternative technologies.
Our principal competition comes from: (i) customer-developed solutions; (ii) companies offering alternative methods of identity verification; (iii) companies offering competing technologies capable of mobile remote deposit capture or authenticating identity documents and facial photo comparison; and (iv) alternate forms of user authentication, including face and voice recognition.
The team is responsible for maintaining and enhancing the performance, quality, and utility of all of our products. In addition to research and development, our engineering staff provides customer technical support on an as-needed basis.
The team is responsible for maintaining and enhancing the performance, quality, and utility of all of our products. In addition to research and development, our engineering staff provides customer technical support on an as-needed basis. Human Capital Resources As of September 30, 2023, we had 590 employees, 160 in the U.S. and 430 internationally, 573 of which are full time.
Our solutions are embedded in native mobile apps and web browsers to facilitate digital consumer experiences. Mitek’s identity verification and authentication technologies and services make it possible for banks, financial services organizations and the world’s leading marketplace and sharing platforms to verify an individual’s identity during digital transactions, allowing them to reduce risk and meet regulatory requirements.
Mitek’s identity verification and authentication technologies and services make it possible for banks, financial services organizations and the world’s leading marketplace and sharing platforms to verify an individual’s identity during numerous stages of the customer lifecycle, allowing them to reduce risk and meet regulatory requirements. The Company’s advanced mobile deposit system enables secure, fast and convenient deposit services.
Our advanced mobile deposit system enables secure, fast and convenient deposit services. Thousands of organizations use Mitek solutions to optimize the security of mobile check deposits, new account openings and more. In May of 2021, Mitek acquired ID R&D, Inc.
Thousands of organizations use Mitek solutions to optimize the security of mobile check deposits, new account openings and more. In May of 2021, Mitek acquired ID R&D, Inc. (“ID R&D” and such acquisition, the “ID R&D Acquisition”), an award-winning provider of AI-based voice and face biometrics and liveness detection.
Today, Mitek holds more than 80 U.S. patents related to document image capture technology. Mobile Deposit® allows consumers to take photographs of the front and back of a check and then remotely deposit the check with their participating bank by submitting the images electronically.
Mobile Deposit® allows consumers to take photographs of the front and back of a check and then remotely deposit the check all within their financial institution’s mobile banking app.
Removed
We expect research and development expenses during fiscal year 2023 to increase as compared with those incurred in fiscal year 2022 as we continue our new product research and development efforts. Human Capital Resources As of September 30, 2022, we had 588 employees, 170 in the U.S. and 418 internationally, 565 of which are full time.
Added
The Company’s solutions are embedded in native mobile apps and web browsers to facilitate digital consumer experiences.
Added
It is also possible that we will face competition from new industry participants or alternative technologies.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur management will be required to continue to devote significant attention and resources to integrating our business practices and operations with that of ID R&D and HooYu. In particular, the acquisitions of ID R&D and HooYu involve the combination of companies that previously operated independently in different countries.
Biggest changeWe may be unable to successfully integrate our business with the respective businesses of ID R&D, and HooYu and realize the anticipated benefits of the acquisitions. 12 Our management will be required to continue to devote significant attention and resources to integrating our business practices and operations with that of ID R&D and HooYu.
Further, a change in a majority of the Board may, under certain circumstances, result in a change of control under certain employment agreements we have with our executive management and our 2002 Stock Option Plan, 2010 Stock Option Plan, Amended and Restated 2012 Incentive Plan, 2020 Incentive Plan, Director Restricted Stock Unit Plan, and any equity based awards issued thereunder.
Further, a change in a majority of the Board may, under certain circumstances, result in a change of control under certain employment agreements we have with our executive management and our 2002 Stock Option Plan, 2010 Stock Option Plan, Amended and Restated 2012 Incentive Plan, Amended and Restated 2020 Incentive Plan, Director Restricted Stock Unit Plan, and any equity based awards issued thereunder.
Under the Indemnification Agreement, each director is entitled to be indemnified against all expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of such director in connection with any claims, proceedings or other actions brought against such director as a result of the director’s service to us, provided that the director: (i) acted in good faith; (ii) reasonably believed the action was in our best interest; and (iii) in criminal proceedings, reasonably believed the 19 conduct was not unlawful.
Under the Indemnification Agreement, each director is entitled to be indemnified against all expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by or on behalf of such director in connection with any claims, proceedings or other actions brought against such director as a result of the director’s service to us, provided that the director: (i) acted 19 in good faith; (ii) reasonably believed the action was in our best interest; and (iii) in criminal proceedings, reasonably believed the conduct was not unlawful.
Potential difficulties we may encounter as part of the integration process include, but are not limited to, the following: 12 • complexities associated with managing our business and the respective businesses of ID R&D and HooYu following the completion of the acquisition, including the challenge of integrating complex systems, technology, networks, and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies; • integrating the workforces of the companies while maintaining focus on providing consistent, high quality customer service; and • potential unknown liabilities and unforeseen increased expenses or delays associated with the acquisitions, including costs to integrate the companies that may exceed anticipated costs.
Potential difficulties we may encounter as part of the integration process include, but are not limited to, the following: • complexities associated with managing our business and the respective businesses of ID R&D and HooYu following the completion of the acquisition, including the challenge of integrating complex systems, technology, networks, and other assets of each of the companies in a seamless manner that minimizes any adverse impact on customers, suppliers, employees, and other constituencies; • integrating the workforces of the companies while maintaining focus on providing consistent, high quality customer service; and • potential unknown liabilities and unforeseen increased expenses or delays associated with the acquisitions, including costs to integrate the companies that may exceed anticipated costs.
If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected and we could become subject to litigation or investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
If we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected and we could become subject to litigation or investigations by the stock exchange on which 22 our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
On May 12, 2023, we were notified by Nasdaq that we were not in compliance with the Nasdaq requirement that a company shall timely file all required period financial reports with the SEC as a result of our failure to file our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 (the “Q2 Form 10-Q”) and our then-continuing delinquency to file our Form 10-K and Q1 Form 10-Q.
On May 12, 2023, we were notified by Nasdaq that we were not in compliance with the Nasdaq requirement that a company shall timely file all required period financial reports with the SEC as a result of our failure to file our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2023 (the “Q2 Form 10-Q”) and our then-continuing delinquency to file our FY’22 Form 10-K and Q1 Form 10-Q.
In addition, if we experience customer dissatisfaction with customers in the future, we may find it more difficult to increase use of our solutions within our existing customer base and it may be more difficult to attract new customers, or we may be required to grant credits or refunds, any of which could negatively impact our operating results and materially harm our business.
In addition, if we experience customer dissatisfaction with customers in the future, we may find it more difficult to increase use of our solutions within 17 our existing customer base and it may be more difficult to attract new customers, or we may be required to grant credits or refunds, any of which could negatively impact our operating results and materially harm our business.
On February 16, 2023, we were notified by Nasdaq that we were not in compliance with the Listing Rule as a result of our failure to file our Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2022 (the “Q1 Form 10-Q”) and our then-continuing delinquency to file our Form 10-K.
On February 16, 2023, we were notified by Nasdaq that we were not in compliance with the Listing Rule as a result of our failure to file our Quarterly Report on Form 10-Q for the quarterly period ended December 31, 2022 (the “Q1 Form 10-Q”) and our then-continuing delinquency to file our FY’22 Form 10-K.
General Risk Factors 22 If we are unable to retain and recruit qualified personnel, or if any of our key executives or key employees discontinues his or her employment with us, it may have a material adverse effect on our business. We are highly dependent on the key members of our management team and other key technical personnel.
General Risk Factors If we are unable to retain and recruit qualified personnel, or if any of our key executives or key employees discontinues his or her employment with us, it may have a material adverse effect on our business. We are highly dependent on the key members of our management team and other key technical personnel.
Our Board may not be able to identify or complete any suitable strategic alternatives, and announcements regarding any such strategic alternatives could have an impact on our operations or stock price. • Future sales of our common stock by our insiders may cause our stock price to decline. • A potential proxy contest for the election of directors at our annual meeting could result in potential operational disruption, divert our resources, and could potentially result in adverse consequences under certain of our agreements. • Our corporate documents and the Delaware General Corporation Law (the “DGCL”) contain provisions that could discourage, delay, or prevent a change in control of our company, prevent attempts to replace or remove current management, and reduce the market price of our stock. • Our restated certificate of incorporation and second amended and restated bylaws provide for indemnification of officers and directors at our expense and limits their liability, which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers and/or directors. • The market price of our common stock has been volatile and your investment in our stock could suffer a decline in value. • Because we do not intend to pay cash dividends, our stockholders will benefit from an investment in our common stock only if our stock price appreciates in value. • As a result of our failure to timely file our Annual Report on Form 10-K for year ended September 30, 2022, and our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2022 and March 31, 2023, we are currently ineligible to file new short form registration statements on Form S-3 or to have resale registration statements declared effective in a timely manner, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all. • Our second amended and restated bylaws provide that a state or federal court located within in the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. • If we are unable to retain and recruit qualified personnel, or if any of our key executives or key employees discontinues his or her employment with us, it may have a material adverse effect on our business. • Legislation and governmental regulations enacted in the U.S. and other countries that apply to us or to our customers may require us to change our current products and services and/or result in additional expenses, which could adversely affect our business and results of operations. • Future sales of our common stock could cause the market price of our common stock to decline. • If financial or industry analysts do not publish research or reports about our business, or if they issue negative or misleading evaluations of our stock, our stock price and trading volume could decline. • We have identified material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired. • Natural disasters or other catastrophic events may disrupt our business. 7 Risk Factors The following risk factors and other information included in this Form 10-K should be carefully considered.
Our Board may not be able to identify or complete any suitable strategic alternatives, and announcements regarding any such strategic alternatives could have an impact on our operations or stock price. • Future sales of our common stock by our insiders may cause our stock price to decline. • A potential proxy contest for the election of directors at our annual meeting could result in potential operational disruption, divert our resources, and could potentially result in adverse consequences under certain of our agreements. • Our corporate documents and the Delaware General Corporation Law (the “DGCL”) contain provisions that could discourage, delay, or prevent a change in control of our company, prevent attempts to replace or remove current management, and reduce the market price of our stock. • Our restated certificate of incorporation and third amended and restated bylaws provide for indemnification of officers and directors at our expense and limits their liability, which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers and/or directors. • The market price of our common stock has been volatile and your investment in our stock could suffer a decline in value. • Because we do not intend to pay cash dividends, our stockholders will benefit from an investment in our common stock only if our stock price appreciates in value. • As a result of our failure to timely file this Annual Report on Form 10-K for year ended September 30, 2023, and our Quarterly Report on Form 10-Q for the quarter ended December 31, 2023, we are currently ineligible to file new short form registration statements on Form S-3 or to have resale registration statements declared effective in a timely manner, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all. • Our third amended and restated bylaws provide that a state or federal court located within in the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees. • If we are unable to retain and recruit qualified personnel, or if any of our key executives or key employees discontinues his or her employment with us, it may have a material adverse effect on our business. • Legislation and governmental regulations enacted in the U.S. and other countries that apply to us or to our customers may require us to change our current products and services and/or result in additional expenses, which could adversely affect our business and results of operations. • Future sales of our common stock could cause the market price of our common stock to decline. • If financial or industry analysts do not publish research or reports about our business, or if they issue negative or misleading evaluations of our stock, our stock price and trading volume could decline. • We have identified material weaknesses in our internal control over financial reporting, and if our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired. • Natural disasters or other catastrophic events may disrupt our business. 7 Risk Factors The following risk factors and other information included in this Form 10-K should be carefully considered.
On March 13, 2023, USAA moved for leave to file a First Amended Complaint, adding an additional allegation of patent infringement of U.S. Patent No. 11,544,944 (“the ’944 Patent”). On April 4, 2023, Truist sent another indemnification demand to the Company requesting indemnification related to the First Amended Complaint.
On March 13, 2023, USAA moved for leave to file a First Amended Complaint, adding an additional allegation of patent infringement of U.S. Patent No. 11,544,944 (“the ’944 Patent”). On April 4, 2023, Truist sent another indemnification demand to the Company requesting indemnification related to the lawsuit.
These fluctuations may result in volatility in our results of operations, have an adverse effect on the market price of our common stock, or both. 13 We face risks related to the storage of our customers’ and their end users’ confidential and proprietary information. Our products may not provide absolute security.
These fluctuations may result in volatility in our results of operations, have an adverse effect on the market price of our common stock, or both. We face risks related to the storage of our customers’ and their end users’ confidential and proprietary information. Our products may not provide absolute security.
If we determine to engage in a strategic transaction, we cannot predict the impact that such strategic transaction might 18 have on our operations or stock price. We do not intend to provide updates or make further comments regarding the evaluation of strategic alternatives, unless otherwise required by law.
If we determine to engage in a strategic transaction, we cannot predict the impact that such strategic transaction might have on our operations or stock price. We do not intend to provide updates or make further comments regarding the evaluation of strategic alternatives, unless otherwise required by law.
If we cannot adequately protect our intellectual property rights in these foreign countries, our competitors may be able to compete 10 more effectively against us, which could adversely affect our competitive position, as well as our business, financial condition, and results of operations.
If we cannot adequately protect our intellectual property rights in these foreign countries, our competitors may be able to compete more effectively against us, which could adversely affect our competitive position, as well as our business, financial condition, and results of operations.
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 final month of the applicable quarter.
If we do not meet our forecasts or analysts’ forecasts for us, the price of our common stock may decline. 11 Historically, a significant portion of our sales have resulted from shipments during the last few weeks of the quarter from orders received in the final month of the applicable quarter.
The requests for POP review were denied in March 2023; the requests for rehearing were denied in March and April 2023. 9 On August 16, 2021, USAA filed suit against BBVA USA (“BBVA”) in the Eastern District of Texas alleging infringement of the same patents at issue in the PNC Lawsuits.
The requests for POP review and for rehearing were denied in March 2023. 9 On August 16, 2021, USAA filed suit against BBVA USA (“BBVA”) in the Eastern District of Texas alleging infringement of the same patents at issue in the PNC Lawsuits.
If we were to lose a channel partner relationship, we do not believe such a loss would adversely affect our operations because either we or another channel partner could sell our products to the end-users that had purchased products from the channel partner we lost.
If we were to lose a channel partner relationship, we do not believe such a loss would adversely affect our operations because either we or another channel 13 partner could sell our products to the end-users that had purchased products from the channel partner we lost.
Pursuant to our restated certificate of incorporation and second amended and restated bylaws and as authorized under applicable Delaware law, our directors and officers are not liable for monetary damages for breaches of fiduciary duties, except for liability (i) for any breach of the director’s duty of loyalty to the Company 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 DGCL; or (iv) for any transaction from which the director derived an improper personal benefit.
Pursuant to our restated certificate of incorporation and third amended and restated bylaws and as authorized under applicable Delaware law, our directors and officers are not liable for monetary damages for breaches of fiduciary duties, except for liability (i) for any breach of the director’s duty of loyalty to the Company 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 DGCL; or (iv) for any transaction from which the director derived an improper personal benefit.
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 11 quarter would be adversely affected.
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.
Our second amended and restated bylaws provide that, unless we consent to an alternative forum, a state or federal court located within the state of Delaware will be the sole and exclusive forum for: (a) any derivative action or proceeding brought on our behalf; (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (c) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (d) any action asserting a claim governed by the internal affairs doctrine.
Our third amended and restated bylaws provide that, unless we consent to an alternative forum, a state or federal court located within the state of Delaware will be the sole and exclusive forum for: (a) any derivative action or proceeding brought on our behalf; (b) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee to us or our stockholders, (c) any action asserting a claim arising pursuant to any provision of the Delaware General Corporation Law, or (d) any action asserting a claim governed by the internal affairs doctrine.
We currently have no agreements or commitments to engage in any specific strategic transactions, and we cannot assure you that any future explorations of various strategic alternatives will result in any specific action or transaction.
We currently have no agreements or commitments to engage in any specific strategic transactions, and we cannot assure you that any future explorations of various strategic alternatives will result in any specific action or 18 transaction.
If one or more of the analysts who cover us were to adversely change their recommendation regarding our stock, or provide more favorable relative recommendations about our competitors, our stock price could decline.
If one or more of the analysts who cover us were to adversely change their recommendation regarding our stock, or provide more favorable relative 23 recommendations about our competitors, our stock price could decline.
The costs of operating in The Netherlands, Spain, France, and other European markets are subject to the effects of exchange fluctuations of the Euro and British pound sterling against the U.S. dollar.
The costs of operating in The Netherlands, Spain, France, and other European markets are subject to the effects of exchange fluctuations of the Euro and British pound sterling 15 against the U.S. dollar.
On December 16, 2022, we were notified by Nasdaq that we were not in compliance with the Listing Rule as a result of our failure to file our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the “Form 10-K”). We submitted an initial plan of compliance to Nasdaq on February 9, 2023.
On December 16, 2022, we were notified by Nasdaq that we were not in compliance with the Listing Rule as a result of our failure to file our Annual Report on Form 10-K for the fiscal year ended September 30, 2022 (the “FY’22 Form 10-K”). We submitted an initial plan of compliance to Nasdaq on February 9, 2023.
Our second amended and restated bylaws provide that a state or federal court located within in the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Our third amended and restated bylaws provide that a state or federal court located within in the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.
Provisions in our restated certificate of incorporation and second amended and restated bylaws may discourage, delay, or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our restated certificate of incorporation authorizes our Board to issue up to one million shares of “blank check” preferred stock.
Provisions in our restated certificate of incorporation and third amended and restated bylaws may discourage, delay, or prevent a merger or acquisition involving us that our stockholders may consider favorable. For example, our restated certificate of incorporation authorizes our Board to issue up to one million shares of “blank check” preferred stock.
Our restated certificate of incorporation and second amended and restated bylaws provide for indemnification of officers and directors at our expense and limits their liability, which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers and/or directors.
Our restated certificate of incorporation and third amended and restated bylaws provide for indemnification of officers and directors at our expense and limits their liability, which may result in a major cost to us and hurt the interests of our stockholders because corporate resources may be expended for the benefit of officers and/or directors.
On March 15, 2023, we received an exception from Nasdaq allowing us until June 12, 2023 (the “Compliance Deadline”), or 180 days from the initial due date of the Form 10-K, to regain compliance by filing the Form 10-K and Q1 Form 10-Q.
On March 15, 2023, we received an exception from Nasdaq allowing us until June 12, 2023 (the 21 “Compliance Deadline”), or 180 days from the initial due date of the FY’22 Form 10-K, to regain compliance by filing the FY’22 Form 10-K and Q1 Form 10-Q.
For the same reasons discussed above in connection with the PNC Lawsuits, the Company does not believe it is obligated to indemnify NCR Corporation or end-users of NCR Corporation resulting from the patent infringement allegations by USAA. On October 7, 2022, Truist filed a motion to transfer venue to the Western District of North Carolina, which was denied.
For the same reasons discussed above in connection with the PNC Lawsuits, the Company does not believe it is obligated to indemnify NCR Corporation or end-users of NCR Corporation resulting from the patent infringement allegations by USAA. On October 7, 2022, Truist filed a motion to transfer venue to the Western District of North Carolina.
On March 1, 2023, we submitted to Nasdaq an update to our previously submitted 21 plan of compliance.
On March 1, 2023, we submitted to Nasdaq an update to our previously submitted plan of compliance.
We submitted a plan to regain compliance on October 12, 2022 and on October 18, 2022, the Company received an exception of 180 days from the date the filing was due to regain compliance. On October 28, 2022, the Company filed its Quarterly Report on Form 10-Q for the period ended June 30, 2022 and regained compliance.
We submitted a plan to regain compliance on October 12, 2022 and on October 18, 2022, we received an exception of 180 days from the date the filing was due to regain compliance. On October 28, 2022, we filed our Quarterly Report on Form 10-Q for the period ended June 30, 2022 and regained compliance.
In the course of preparing our financial statements for fiscal 2022 and 2021, we identified material weaknesses in our internal control over financial reporting.
In the course of preparing our financial statements for fiscal 2023 and 2022, we identified material weaknesses in our internal control over financial reporting.
As a result of our failure to timely file our Annual Report on Form 10-K for year ended September 30, 2022, and our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2022 and March 31, 2023, we are currently ineligible to file new short form registration statements on Form S-3 or to have resale registration statements declared effective in a timely manner, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.
As a result of our failure to timely file this Annual Report on Form 10-K for year ended September 30, 2023, and our Quarterly Report on Form 10-Q for the quarter ended December 31, 2023, we are currently ineligible to file new short form registration statements on Form S-3 or to have resale registration statements declared effective in a timely manner, which may impair our ability to raise capital on terms favorable to us, in a timely manner or at all.
The ability to register securities for resale may also be limited as a result of the loss of Form S-3 eligibility. 20 As a result of our failure to timely file our Annual Report on Form 10-K for year ended September 30, 2022, and our Quarterly Reports on Form 10-Q for the quarters ended December 31, 2022 and March 31, 2023, we are currently ineligible to file new short form registration statements on Form S-3 .
The ability to register securities for resale may also be limited as a result of the loss of Form S-3 eligibility. 20 As a result of our failure to timely file this Annual Report on Form 10-K for year ended September 30, 2023, and our Quarterly Report on Form 10-Q for the quarter ended December 31, 2023, we are currently ineligible to file new short form registration statements on Form S-3.
The risks inherent in global operations include: • lack of familiarity with, and unexpected changes in, foreign laws and legal standards, including employment laws and privacy laws, which may vary widely across the countries in which we sell our products; • increased expense to comply with U.S. laws that apply to foreign corporations, including the Foreign Corrupt Practices Act (the “FCPA”); • compliance with, and potentially adverse tax consequences of foreign tax regimes; • fluctuations in currency exchange rates, currency exchange controls, price controls, and limitations on repatriation of earnings; • local economic conditions; • increased expense related to localization of products and development of foreign language marketing and sales materials; • longer accounts receivable payment cycles and difficulty in collecting accounts receivable in foreign countries; • increased financial accounting and reporting burdens and complexities; • restrictive employment regulations; • difficulties and increased expense in implementing corporate policies and controls; • international intellectual property laws, which may be more restrictive or may offer lower levels of protection than U.S. law; • compliance with differing and changing local laws and regulations in multiple international locations, including regional data privacy laws, as well as compliance with U.S. laws and regulations where applicable in these international locations; and • limitations on our ability to enforce legal rights and remedies. 14 If we are unable to successfully manage these and other risks associated with managing and expanding our international business, the risks could have a material adverse effect on our business, results of operations, or financial condition.
The risks inherent in global operations include: • lack of familiarity with, and unexpected changes in, foreign laws and legal standards, including employment laws and privacy laws, which may vary widely across the countries in which we sell our products; • increased expense to comply with U.S. laws that apply to foreign corporations, including the Foreign Corrupt Practices Act (the “FCPA”); • compliance with, and potentially adverse tax consequences of foreign tax regimes; • fluctuations in currency exchange rates, currency exchange controls, price controls, and limitations on repatriation of earnings; • local economic conditions; • increased expense related to localization of products and development of foreign language marketing and sales materials; • longer accounts receivable payment cycles and difficulty in collecting accounts receivable in foreign countries; • increased financial accounting and reporting burdens and complexities; • restrictive employment regulations; • difficulties and increased expense in implementing corporate policies and controls; • international intellectual property laws, which may be more restrictive or may offer lower levels of protection than U.S. law; 14 • compliance with differing and changing local laws and regulations in multiple international locations, including regional data privacy laws, as well as compliance with U.S. laws and regulations where applicable in these international locations; and • limitations on our ability to enforce legal rights and remedies.
As this Form 10-K and our delinquent Form 10-Qs were not filed by the Compliance Deadline, on June 13, 2023 , we received a Staff Delisting Determination from the Listing Qualifications Department of The Nasdaq Stock Market, LLC notifying us that the Nasdaq Listing Qualifications Department (the “Staff”) has initiated a process to delist our securities from Nasdaq as a result of us not being in compliance with the Listing Rule.
As our FY’22 Form 10-K and our Q1 Form 10-Q and Q2 Form 10-Q were not filed by the Compliance Deadline, on June 13, 2023, we received a Staff Delisting Determination from the Listing Qualifications Department of The Nasdaq Stock Market, LLC notifying us that the Nasdaq Listing Qualifications Department (the “Staff”) has initiated a process to delist our securities from Nasdaq as a result of us not being in compliance with the Listing Rule.
The court held another hearing on USAA’s motion to dismiss the Company’s declaratory judgment action on jurisdictional grounds, and once again granted USAA’s motion to dismiss on February 23, 2023. The Company timely filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit.
The court held another hearing on USAA’s motion to dismiss the Company’s declaratory judgment action on jurisdictional grounds, and once again granted USAA’s motion to dismiss on February 23, 2023. The Company timely filed a notice of appeal to the U.S. Court of Appeals for the Federal Circuit. The appeal is fully briefed, and the Company is awaiting oral argument.
As of September 30, 2022, we had 1,477,769 shares of common stock available for issuance pursuant to future grants of equity awards under our existing equity compensation plans, which may limit our ability to provide equity incentive awards to existing and future employees.
As of September 30, 2023, we had 1,425,042 shares of common stock available for issuance pursuant to future grants of equity awards under our existing equity compensation plans, which may limit our ability to provide equity incentive awards to existing and future employees.
Final written decisions are expected in mid-2024. Furthermore, we may initiate other claims or litigation against parties for infringement of our intellectual property rights or to establish the validity of our intellectual property rights. Litigation, either as plaintiff or defendant, could result in significant expense to us, whether or not such litigation is resolved in our favor.
Furthermore, we may initiate other claims or litigation against parties for infringement of our intellectual property rights or to establish the validity of our intellectual property rights. Litigation, either as plaintiff or defendant, could result in significant expense to us, whether or not such litigation is resolved in our favor.
The market price of our common stock has experienced significant price and volume fluctuations. For example, during the three year period ended September 30, 2022, the closing price of our common stock ranged from $5.56 to $23.03.
The market price of our common stock has experienced significant price and volume fluctuations. For example, during the three year period ended September 30, 2023, the closing price of our common stock ranged from $8.45 to $23.03.
We may continue to incur significant losses for the foreseeable future which may limit our ability to fund our operations and we may not generate income from operations in the future. As of September 30, 2022, September 30, 2021, and September 30, 2020, we had an accumulated deficit of $18.0 million, $6.1 million, and $14.0 million, respectively.
We may continue to incur significant losses for the foreseeable future which may limit our ability to fund our operations and we may not generate income from operations in the future. As of September 30, 2023, September 30, 2022, and September 30, 2021, we had an accumulated deficit of $9 million, $17 million, and $6 million, respectively.
Further, operating in international markets requires significant management attention and financial resources. Due to the additional uncertainties and risks of doing business in foreign jurisdictions, international acquisitions tend to entail risks and require additional oversight and management attention that are typically not attendant to acquisitions made within the U.S.
Due to the additional uncertainties and risks of doing business in foreign jurisdictions, international acquisitions tend to entail risks and require additional oversight and management attention that are typically not attendant to acquisitions made within the U.S.
Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses. 15 Our business is subject to laws, rules, regulations, and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), Sarbanes-Oxley, and various other new regulations promulgated by the SEC and rules promulgated by the national securities exchanges.
Our business is subject to laws, rules, regulations, and standards relating to corporate governance and public disclosure, including the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”), Sarbanes-Oxley, and various other new regulations promulgated by the SEC and rules promulgated by the national securities exchanges.
These factors include, without limitation: • changes in the demand for our products and services; • loss of key customers or contracts; • the introduction of competitive software; • the failure to gain market acceptance of our new and existing products; • the failure to successfully and cost effectively develop, introduce and market new products, services and product enhancements in a timely manner; and • the timing of recognition of revenue.
These factors include, without limitation: • changes in the demand for our products and services; • loss of key customers or contracts; • the introduction of competitive software; • the failure to gain market acceptance of our new and existing products; • the failure to successfully and cost effectively develop, introduce and market new products, services and product enhancements in a timely manner; and • the timing of recognition of revenue. 16 In addition, we incur significant legal, accounting, and other expenses related to being a public company.
As of the date of the filing of this Form 10-K, we have not yet filed our Form 10-Qs for the quarterly periods ended December 31, 2022 and March 31, 2023.
As of the date of the filing of this Form 10-K, we have not yet filed our Form 10-Q for the quarterly period ended December 31, 2023.
Our Bylaws also provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and consented to this choice of forum provision.
Our Bylaws also provide that any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of and consented to this choice of forum provision. The foregoing choice of forum provision is not intended to apply to any actions brought under the Securities Act or the Exchange Act.
While the Company’s IPR petitions were mentioned in the complaint, the Company was not named as a defendant or mentioned in connection with any alleged infringement. BBVA then sent the Company an indemnification demand on September 7, 2021. For the same reasons discussed above in connection with PNC, the Company does not believe it is obligated to indemnify BBVA.
While the Company’s IPR petitions were mentioned in the complaint, the Company was not named as a defendant or mentioned in connection with any alleged infringement. BBVA then sent the Company an indemnification demand on September 7, 2021.
Therefore, increases or decreases in the value of the U.S. dollar against other major currencies will affect our net revenues, net income (loss), and the value of balance sheet items denoted in foreign currencies, and can adversely affect our operating results.
Therefore, increases or decreases in the value of the U.S. dollar against other major currencies will affect our net revenues, net income (loss), and the value of balance sheet items denoted in foreign currencies, and can adversely affect our operating results. Compliance with changing regulations concerning corporate governance and public disclosure may result in additional expenses.
However, such agreements may not be enforceable or may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements or in the event that our competitors discover or independently develop similar or identical designs or other proprietary information.
However, such agreements may not be enforceable or may not provide meaningful protection for our proprietary information in the event of unauthorized use or disclosure or other breaches of the agreements or in the event that our competitors discover or independently develop similar or identical designs or other proprietary information. 10 In addition, we rely on the use of registered and common law trademarks with respect to the brand names of some of our products.
An “ownership change” could limit our ability to utilize our net operating loss and tax credit carryforwards, which could result in our payment of income taxes earlier than if we were able to fully utilize our net operating loss and tax credit carryforwards. 16 Federal and state tax laws impose restrictions on the utilization of net operating loss (“NOL”) and tax credit carryforwards in the event of an “ownership change” as defined by Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”).
Federal and state tax laws impose restrictions on the utilization of net operating loss (“NOL”) and tax credit carryforwards in the event of an “ownership change” as defined by Section 382 of the Internal Revenue Code of 1986, as amended (“Section 382”).
The laws are not consistent, and compliance in the event of a widespread data breach is costly. Further, states are constantly adopting new laws or amending existing laws, requiring attention to frequently changing regulatory requirements.
The laws are not consistent, and compliance in the event of a widespread data breach is costly. Further, states are constantly adopting new laws or amending existing laws, requiring attention to frequently changing regulatory requirements. For example, California enacted the California Consumer Privacy Act (the “CCPA”) on June 28, 2018, which went into effect on January 1, 2020.
In addition, we incur significant legal, accounting, and other expenses related to being a public company. As a result of these expenditures, we will have to generate and sustain increased revenue to achieve and maintain future profitability.
As a result of these expenditures, we will have to generate and sustain increased revenue to achieve and maintain future profitability.
Evolving domestic and international data privacy regulations may restrict our ability, and that of our customers, to solicit, collect, process, disclose and use personal information or may increase the costs of doing so, which could harm our business. 17 Federal, state and foreign governments and supervising authorities have enacted, and may in the future enact, laws and regulations concerning the solicitation, collection, processing, disclosure or use of consumers' personal information, including sensitive information such as biometric data.
Federal, state and foreign governments and supervising authorities have enacted, and may in the future enact, laws and regulations concerning the solicitation, collection, processing, disclosure or use of consumers' personal information, including sensitive information such as biometric data.
In October and November of 2022, Truist filed a petition for IPR with the U.S. Patent & Trademark Office challenging the validity of the ’090 Patent, the ’432 Patent, and the ’753 Patent. The Patent Office instituted the petitions directed to the ’090 and ’753 Patents, but denied institution of the petition directed to the ’432 patent.
Patent & Trademark Office challenging the validity of the ’090 Patent, the ’432 Patent, and the ’753 Patent. The Patent Office instituted the petitions directed to the ’090 and ’753 Patents, but denied institution of the petition directed to the ’432 Patent. In view of the settlement between USAA and Truist, the IPRs were withdrawn.
Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time. We may be unable to successfully integrate our business with the respective businesses of ID R&D, and HooYu and realize the anticipated benefits of the acquisitions.
Moreover, many of the expenses that will be incurred, by their nature, are difficult to estimate accurately at the present time.
Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S.
Common law trademarks provide less protection than registered trademarks. Loss of rights in our trademarks could adversely affect our business, financial condition, and results of operations. Furthermore, the laws of foreign countries may not protect our intellectual property rights to the same extent as the laws of the U.S.
Removed
In addition, we rely on the use of registered and common law trademarks with respect to the brand names of some of our products. Common law trademarks provide less protection than registered trademarks. Loss of rights in our trademarks could adversely affect our business, financial condition, and results of operations.
Added
For the same reasons discussed above in connection with PNC Bank and PNC Lawsuits, the Company does not believe it is obligated to indemnify BBVA. On June 6, 2022, the Court granted the parties’ request to administratively close the case and stay all deadlines in view of the pending appeal in the PNC Lawsuits.
Removed
For example, California enacted the California Consumer Privacy Act (the “CCPA”) on June 28, 2018, which went into effect on January 1, 2020 and has been dubbed the first “GDPR-like” law (referring to the EU's General Data Protection Regulation, described below) in the United States.
Added
The motion was denied on April 8, 2023. On December 30, 2022, Truist filed a motion for leave to file counterclaims against USAA alleging patent infringement of U.S. Patent Nos. 7,336,813; 7,519,214; 8,136,721; and 9,760,797, which was granted on April 8, 2023.
Removed
The California Privacy Rights Act (the “CPRA”) was approved by California voters in the November 3, 2020 election, and created additional obligations relating to consumer data beginning on January 1, 2022, with implementing regulations expected on or before July 1, 2022, and enforcement beginning July 1, 2023.
Added
On October 6, 2023, the parties filed a Notice of Settlement and Joint Motion and Stipulation of Dismissal. All claims and causes of actions between the parties were dismissed with prejudice on October 10, 2023 in view of the settlement. In October and November of 2022, Truist filed a petition for IPR with the U.S.
Removed
Aspects of the CCPA and the CPRA (referred to collectively as “the California Legislation”), and their interpretation and enforcement, remain uncertain.
Added
In particular, the acquisitions of ID R&D and HooYu involve the combination of companies that previously operated independently in different countries.
Removed
For example, Virginia recently passed its Consumer Data Protection Act, which went into effect on January 1, 2023, and Colorado recently passed the Colorado Privacy Act, which will go into effect on July, 2023, and both of which differ from the California Legislation. Additional U.S. states have enacted, or are considering, similar data privacy laws.
Added
If we are unable to successfully manage these and other risks associated with managing and expanding our international business, the risks could have a material adverse effect on our business, results of operations, or financial condition. Further, operating in international markets requires significant management attention and financial resources.
Removed
The foregoing choice of forum provision is not intended to apply to any actions brought under the Securities Act of 1933, as amended, or the Securities Act, or the Securities Exchange Act of 1934, as amended, or the Exchange Act.
Added
An “ownership change” could limit our ability to utilize our net operating loss and tax credit carryforwards, which could result in our payment of income taxes earlier than if we were able to fully utilize our net operating loss and tax credit carryforwards.
Removed
The notice was issued because we had not filed our Form 10-K, Q1 Form 10-Q and Q2 Form 10-Q in a timely manner and did not meet the terms of the exception by the Compliance Deadline. On June 20, 2023 we submitted our request for a hearing before an independent Nasdaq Hearings Panel (the “Panel”) .
Added
Evolving domestic and international data privacy regulations may restrict our ability, and that of our customers, to solicit, collect, process, disclose and use personal information or may increase the costs of doing so, which could harm our business.
Added
The California Privacy Rights Act (the “CPRA”) revised and expanded the CCPA, adding additional data protection obligations on covered businesses, including additional consumer rights processes, limitations on data uses, new audit requirements for higher risk data, and opt outs for certain uses of sensitive data.
Added
It also created a new California data protection agency authorized to issue substantive regulations and could result in increased privacy and information security enforcement. The CPRA was in full effect as of January 1, 2023. Similar laws passed in Virginia, Colorado, Connecticut, and Utah took effect in 2023.
Added
Additionally, Delaware, Indiana, Iowa, Montana, Oregon, Tennessee and Texas have adopted privacy laws, which take effect from July 1, 2024 through 2026. Additional U.S. states have enacted, or are considering, similar data privacy laws.
Added
On August 10, 2023, we presented our plan to regain compliance with the Listing Rule to the Nasdaq Hearings Panel (the “Panel”).
Added
Subsequently, on August 14, 2023, we were notified by Nasdaq that we were not in compliance with the Listing Rule as a result of our failure to file our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2023 (the “Q3 Form 10-Q”).
Added
On August 16, 2023, we received a decision from the Panel granting our request for continued listing on the Nasdaq Capital Market, subject to us demonstrating compliance with the Listing Rule on or before October 13, 2023, and certain other conditions.
Added
We filed the FY’22 Form 10-K on July 31, 2023, the Q1 Form 10-Q on September 6, 2023, and the Q2 Form 10-Q on September 29, 2023. On October 9, 2023, we notified the Panel that we determined it was necessary to seek an extension to file the Q3 Form 10-Q.
Added
On October 12, 2023, we were notified that the Panel had granted our request for the extension, providing us until November 3, 2023 to file the Q3 Form 10-Q. We filed the Q3 Form 10-Q on October 26, 2023.
Added
By letter dated November 6, 2023, the Panel notified us that we had regained compliance with the Listing Rule and that the Panel determined to monitor our compliance with the Listing Rule through November 6, 2024, in accordance with Nasdaq Listing Rule 5815(d)(4)(B) (the “Panel Monitor”).
Added
On December 18, 2023, we were notified by Nasdaq that we were not in compliance with the Listing Rule as a result of our failure to file our Annual Report on Form 10-K for the fiscal year ended September 30, 2023 and as we are subject to the Panel Monitor, the Staff promptly issued a delisting determination.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES. 23 Our principal executive offices, as well as our research and development facility, are located in approximately 29,000 square feet of office space in San Diego, California and the term of the lease continues through June 30, 2024.
Biggest changeITEM 2. PROPERTIES. Our principal executive offices are located in approximately 29,000 square feet of office space in San Diego, California and the term of the lease continues through June 30, 2024.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs of June 30, 2023, there were 236 stockholders of record of our common stock and an undetermined number of beneficial owners. Dividends We have not paid any cash dividends on our common stock. We currently intend to retain earnings for use in our business and do not anticipate paying cash dividends in the foreseeable future.
Biggest changeAs of March 12, 2024, there were 226 stockholders of record of our common stock and an undetermined number of beneficial owners. Dividends We have not paid any cash dividends on our common stock. We currently intend to retain earnings for use in our business and do not anticipate paying cash dividends in the foreseeable future.
The following graph and table compare the cumulative total stockholder return data for our common stock from September 30, 2017 through September 30, 2022 to the cumulative return over such period of (i) a broad market index, the Nasdaq Composite Index and (ii) an industry index, the Nasdaq-100 Technology Sector Index.
The following graph and table compare the cumulative total stockholder return data for our common stock from September 30, 2018 through September 30, 2023 to the cumulative return over such period of (i) a broad market index, the Nasdaq Composite Index and (ii) an industry index, the Nasdaq-100 Technology Sector Index.
The graph and table assume that $100 was invested in our common stock at $9.50 per share on September 30, 2017, and in each of the referenced indices, and assumes reinvestment of all dividends. The stock price performance on the following graph and table is not necessarily indicative of future stock price performance.
The graph and table assume that $100 was invested in our common stock at $7.05 per share on September 30, 2018, and in each of the referenced indices, and assumes reinvestment of all dividends. The stock price performance on the following graph and table is not necessarily indicative of future stock price performance.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Common Stock Our common stock, $0.001 par value, is traded on the Nasdaq Capital Market under the ticker symbol “MITK.” The closing sales price of our common stock on June 30, 2023 was $10.84.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. Common Stock Our common stock, $0.001 par value, is traded on the Nasdaq Capital Market under the ticker symbol “MITK.” The closing sales price of our common stock on March 12, 2024 was $11.86.
Removed
Comparison of 5 Year Cumulative Total Return Among Mitek Systems, Inc., the Nasdaq Composite Index and the Nasdaq-100 Technology Sector Index The graph above reflects the following values: 2017 2018 2019 2020 2021 2022 MITK $ 114.60 $ 85.04 $ 116.41 $ 153.68 $ 223.16 $ 110.49 Nasdaq Composite $ 122.29 $ 151.47 $ 150.59 $ 210.23 $ 272.00 $ 199.09 Nasdaq-100 Technology Sector Index $ 133.80 $ 155.88 $ 171.95 $ 230.69 $ 310.14 $ 206.26 25 ITEM 6. [RESERVED] 26
Added
Comparison of 5 Year Cumulative Total Return Among Mitek Systems, Inc., the Nasdaq Composite Index and the Nasdaq-100 Technology Sector Index The graph above reflects the following values: 2018 2019 2020 2021 2022 2023 MITK $ 100.00 $ 136.88 $ 180.71 $ 262.41 $ 129.93 $ 152.06 Nasdaq Composite $ 100.00 $ 99.42 $ 138.79 $ 179.57 $ 131.43 $ 164.29 Nasdaq-100 Technology Sector Index $ 100.00 $ 110.31 $ 147.99 $ 198.97 $ 132.32 $ 183.54 Unregistered Sales of Securities 25 On February 14, 2023, we sold 71,135 shares of our Common Stock to officers and employees of the Company and our subsidiaries pursuant to our Employee Stock Purchase Plan (“ESPP”) in a transaction exempt from registration under the Securities Act in reliance on Regulation S thereunder, Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder.
Added
The shares were sold at $8.39 per share, which was equal to 85% of the fair market value of a share of the Common Stock on the exercise date, totaling $596,823 in proceeds.
Added
On August 15, 2023, we sold 49,760 shares of our Common Stock to officers and employees of the Company and our subsidiaries pursuant to our ESPP in a transaction exempt from registration under Securities Act in reliance on Regulation S thereunder, Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder.
Added
The shares were sold at $8.288 per share, which was equal to 85% of the fair market value of a share of the Common Stock on the offering date, totaling $412,411 in proceeds. ITEM 6. [RESERVED] 26

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeItem 6. [Reserved] 26 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 37 Item 8. Financial Statements and Supplementary Data 37 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 37 Item 9A. Controls and Procedures 38 Item 9B.
Biggest changeItem 6. [Reserved] 26 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 27 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 36 Item 8. Financial Statements and Supplementary Data 36 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 36 Item 9A. Controls and Procedures 37 Item 9B.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

76 edited+15 added−34 removed49 unchanged
Biggest changeOur effective tax rate for fiscal year 2022 was lower than the U.S. federal statutory rate of 21% due to excess tax benefits resulting from the exercise of stock options and vesting of restricted stock awards, the impact of foreign and state taxes, the impact of certain permanent items on its tax provision, and the impact of federal and state research and development credits on its tax provision. 29 Results of Operations Comparison of the Twelve Months Ended September 30, 2021 and 2020 The following table summarizes certain aspects of our results of operations for the twelve months ended September 30, 2021 compared to the twelve months ended September 30, 2020 ( in thousands, except percentages ): Twelve Months Ended September 30, Percentage of Total Revenue Increase (Decrease) 2021 2020 2021 2020 $ % Revenue Software and hardware $ 60,069 $ 54,152 50 % 53 % 5,917 11 % Services and other 59,728 47,158 50 % 47 % 12,570 27 % Total revenue $ 119,797 $ 101,310 100 % 100 % 18,487 18 % Cost of revenue 14,540 13,192 12 % 13 % 1,348 10 % Selling and marketing 32,497 27,646 27 % 27 % 4,851 18 % Research and development 28,042 22,859 23 % 23 % 5,183 23 % General and administrative 22,490 22,284 19 % 22 % 206 1 % Amortization and acquisition-related costs 8,951 6,575 7 % 6 % 2,376 36 % Restructuring costs — (114) — % — % 114 (100) % Interest expense 5,129 — 4 % — % 5,129 100 % Other income, net 654 541 1 % 1 % 113 21 % Income tax provision (824) (1,595) (1) % (2) % 771 (48) % Revenue Total revenue increased $18.5 million, or 18%, to $119.8 million in 2021 compared to $101.3 million in 2020.
Biggest changeResults of Operations Comparison of the Twelve Months Ended September 30, 2023 and 2022 The following table summarizes certain aspects of our results of operations for the twelve months ended September 30, 2023 compared to the twelve months ended September 30, 2022 ( in thousands, except percentages ): Twelve Months Ended September 30, Percentage of Total Revenue Increase (Decrease) 2023 2022 2023 2022 $ % Revenue Software and hardware $ 88,374 $ 72,928 51 % 50 % 15,446 21 % Services and other 84,178 71,876 49 % 50 % 12,302 17 % Total revenue $ 172,552 $ 144,804 100 % 100 % 27,748 19 % Cost of revenue 22,951 20,008 13 % 14 % 2,943 15 % Selling and marketing 40,551 38,841 24 % 27 % 1,710 4 % Research and development 28,988 30,192 17 % 21 % (1,204) (4) % General and administrative 43,338 26,591 25 % 18 % 16,747 63 % Amortization and acquisition-related costs 19,046 15,172 11 % 10 % 3,874 26 % Restructuring costs 2,114 1,800 1 % 1 % 314 17 % Interest expense 9,063 8,232 5 % 6 % 831 10 % Other income (expense), net 3,840 (366) 2 % — % 4,206 1,149 % Income tax benefit (provision) (2,314) 92 (1) % — % (2,406) (2,615) % Net income 8,027 3,694 5 % 3 % 4,333 117 % Revenue Total revenue increased $27.7 million, or 19%, to $172.6 million in 2023 compared to $144.8 million in 2022.
The increase in research and development expenses is primarily due to higher personnel-related costs resulting from our increased headcount of $3.6 million and higher travel and related expenses of $0.2 million, partially offset by lower third-party contractor and other expenses of $1.7 million in 2022 compared to 2021.
The increase in research and development expenses is primarily due to higher personnel-related costs resulting from our increased headcount of $3.6 million and higher travel and related expenses of $0.2 million, partially offset by lower third-party contractor and other expenses of $1.6 million in 2022 compared to 2021.
The net proceeds from the 2026 Notes offering were approximately $149.7 million, after deducting the Initial Purchasers’ discounts and commissions and the Company’s estimated offering expenses related to the offering. The 2026 Notes will mature on February 1, 2026, unless earlier redeemed, repurchased or converted.
The net proceeds from this offering were approximately $149.7 million, after deducting the Initial Purchasers’ discounts and commissions and the Company’s estimated offering expenses related to the offering. The 2026 Notes will mature on February 1, 2026, unless earlier redeemed, repurchased or converted.
Selling and Marketing Expenses Selling and marketing expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with sales and marketing personnel. Selling and marketing expenses also include non-billable costs of professional services personnel, advertising expenses, product promotion costs, trade shows, and other brand awareness programs.
Selling and Marketing Expenses Selling and marketing expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with sales, marketing, and product management personnel. Selling and marketing expenses also include non-billable costs of professional services personnel, advertising expenses, product promotion costs, trade shows, and other brand awareness programs.
The 2026 Notes are senior unsecured obligations of the Company. The 2026 Notes were issued pursuant to an Indenture, dated February 5, 2021 (the 32 “Indenture”), between the Company and UMB Bank, National Association, as trustee.
The 2026 Notes are senior unsecured obligations of the Company. The 2026 Notes were issued pursuant to an Indenture, dated February 5, 2021 (the “Indenture”), between the Company and UMB Bank, National Association, as trustee.
The increase in selling and marketing expense is primarily due to higher personnel-related costs resulting from our increased headcount of $4.0 million, higher product promotion costs of $1.7 million, and higher travel and related expenses of $0.6 million in 2022 compared to 2021. 28 Research and Development Expenses Research and development expenses include payroll, employee benefits, stock-based compensation, third-party contractor expenses, and other headcount-related costs associated with software engineering and mobile image capture science.
The increase in selling and marketing expense is primarily due to higher personnel-related costs resulting from our increased headcount of $4.0 million, higher product promotion costs of $1.7 million, and higher travel and related expenses of $0.6 million in 2022 compared to 2021. 30 Research and Development Expenses Research and development expenses include payroll, employee benefits, stock-based compensation, third-party contractor expenses, and other headcount-related costs associated with software engineering and mobile image capture science.
The Notes Hedge was entered into with Bank of America, N.A., Jefferies International Limited and Goldman Sachs & Co.
The Notes Hedge was entered into with Bank of America, N.A., Jefferies 33 International Limited and Goldman Sachs & Co.
Based on our current operating plan, we believe the current cash and cash equivalent balance and cash expected to be generated from operations will be adequate to satisfy our working capital needs for the next twelve months from the date these consolidated financial statements are filed.
Based on our current operating plan, we believe the current cash and cash equivalent balance and cash expected to be generated from operations will be adequate to satisfy our working capital needs for at least the next twelve months from the date these consolidated financial statements are filed.
The evaluations are based upon a number of factors, including 36 changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits, and effective settlement of audit issues.
The evaluations are based upon a number of factors, including 35 changes in facts or circumstances, changes in tax law, correspondence with tax authorities during the course of audits, and effective settlement of audit issues.
Software and hardware revenue increased $12.4 million, or 21%, to $72.5 million in 2022 compared to $60.1 million in 2021. This increase is primarily due to an increase in sales of our Mobile Deposit®, CheckReader™, and IDLive® software products. The increase was partially offset by a decrease in revenue from our ID_CLOUD ™ software and hardware products .
Software and hardware revenue increased $12.9 million, or 21%, to $72.9 million in 2022 compared to $60.1 million in 2021. This increase is primarily due to an increase in sales of our Mobile Deposit®, CheckReader™, and IDLive® software products. The increase was partially offset by a decrease in revenue from our ID_CLOUD ™ software and hardware products .
In addition, we had 16 patent applications outstanding as of September 30, 2022. Acquisition of HooYu Ltd On March 23, 2022, the Company completed the acquisition of HooYu (the “HooYu Acquisition”) pursuant to the Purchase Agreement (the “Purchase Agreement”) dated March 23, 2022, by and among the Company and certain selling parties identified in the Purchase Agreement.
In addition, we had 20 patent applications outstanding as of September 30, 2023. Acquisition of HooYu Ltd On March 23, 2022, the Company completed the acquisition of HooYu (the “HooYu Acquisition”) pursuant to the Purchase Agreement (the “Purchase Agreement”) dated March 23, 2022, by and among the Company and certain selling parties identified in the Purchase Agreement.
These partners integrate our products into their solutions to meet the needs of their customers, typically provisioning Mitek’s services through their respective platforms.
These partners integrate our products into their solutions to meet the needs of their customers, typically provisioning Mitek services through their respective platforms.
Interest Expense Interest expense includes the amortization of debt discount and issuance costs and coupon interest incurred associated with our 2026 Notes (as defined below). Interest expense was $8.2 million in 2022 and consisted of $7.0 million of amortization of debt discount and issuance costs and $1.2 million of coupon interest incurred.
Interest Expense Interest expense includes the amortization of debt discount and issuance costs and coupon interest incurred associated with our 2026 Notes. Interest expense was $8.2 million in 2022 and consisted of $7.0 million of amortization of debt discount and issuance costs and $1.2 million of coupon interest incurred.
We are a software development company with expertise in artificial intelligence and machine learning. We currently serve more than 7,800 financial services organizations and leading marketplace and financial technology (“fintech”) brands around the globe.
We are a software development company with expertise in computer vision, artificial intelligence and machine learning. We currently serve more than 7,900 financial services organizations and leading marketplace and financial technology (“fintech”) brands around the globe.
Customers count on Mitek to deliver trusted and convenient online experiences, detect and reduce fraud, and document Know Your Customer (“KYC”) and Anti-Money Laundering (“AML”) regulatory compliance. Our solutions are embedded in native mobile apps and web browsers to facilitate digital consumer experiences.
Customers count on Mitek to deliver trusted and convenient online experiences, detect and reduce fraud, and meet Know Your Customer (“KYC”) and Anti-Money Laundering (“AML”) regulatory compliance. The Company’s solutions are embedded in native mobile apps and web browsers to facilitate digital consumer experiences.
Other than the lease for our office space in San Diego, California, we do not believe that the leases for our offices are material lease obligations. Other Liquidity Matters On September 30, 2022, we had investments of $68.9 million, designated as available-for-sale debt securities, which consisted of U.S.
Other than the lease for our office space in San Diego, California, we do not believe that the leases for our offices are material lease obligations. Other Liquidity Matters On September 30, 2023, we had investments of $76.0 million, designated as available-for-sale debt securities, which consisted of U.S.
The decrease in cash used in investing activities during fiscal 2022 compared to fiscal 2021 was primarily due to an increase in net sales and maturities of investments of $282.1 million partially offset by an increase in cash paid for acquisitions, net of cash acquired of $115.4 million, related to the HooYu Acquisition.
The decrease in cash used in investing activities during fiscal 2022 compared to fiscal 2021 was primarily due to an increase in net sales and maturities of investments of $282.1 million partially offset by an increase in cash paid for acquisitions, net of cash acquired of $110.1 million.
As a result, the 2026 Notes began to accrue additional special interest of 0.25% per annum of the outstanding principal of the 2026 Notes for the 90 days after the Date of Noncompliance and 0.50% per annum of the outstanding principal of the 2026 Notes for the 91st through 180th day after the Date of Noncompliance.
As a result of not being in compliance, the 2026 Notes began to accrue additional special interest of 0.25% of the outstanding principal of the 2026 Notes for the 90 days after the Date of Noncompliance and 0.50% of the outstanding principal of the 2026 Notes for the 91st through 180th day after the Date of Noncompliance.
All securities for which maturity or sale is expected within one year are classified as “current” on the consolidated balance sheets. All other securities are classified as “long-term” on the consolidated balance sheets. At September 30, 2022, we had $58.3 million of our available-for-sale securities classified as current and $10.6 million of our available-for-sale securities classified as long-term.
All securities for which maturity or sale is expected within one year are classified as “current” on the consolidated balance sheets. All other securities are classified as “long-term” on the consolidated balance sheets. At September 30, 2023, we had $74.7 million of our available-for-sale securities classified as current and $1.3 million of our available-for-sale securities classified as long-term.
Such technology helps to ensure businesses know the true identity of their customers by linking biometric verification with real-time data aggregation across many different sources, including credit bureaus, international sanctions lists, local law-enforcement, and others.
(“HooYu”), a leading KYC technology provider in the United Kingdom. Such technology helps to ensure businesses know the true identity of their customers by linking biometric verification with real-time data aggregation across many different sources, including credit bureaus, international sanctions lists, local law-enforcement, and others.
The overall increase in general and administrative expenses was partially offset by decreased intellectual property litigation costs of $2.2 million in 2022 compared to 2021. Amortization and Acquisition-Related Costs Amortization and acquisition-related costs include amortization of intangible assets, expenses recorded due to changes in the fair value of contingent consideration, and other costs associated with acquisitions.
The overall increase in general and administrative expenses was partially offset by decreased personnel-related costs of $0.2 million in 2023 compared to 2022. Amortization and Acquisition-Related Costs Amortization and acquisition-related costs include amortization of intangible assets, adjustments recorded due to changes in the fair value of contingent consideration, and other costs associated with acquisitions.
Mitek’s identity verification and authentication technologies and services make it possible for banks, financial services organizations and the world’s leading marketplace and sharing platforms to verify an individual’s identity during digital transactions, allowing them to reduce risk and meet regulatory requirements. Our advanced mobile deposit system enables secure, fast and convenient deposit services.
Mitek’s identity verification and authentication technologies and services make it possible for banks, financial services organizations and the world’s leading marketplace and sharing platforms to verify an individual’s identity during numerous stages of the customer lifecycle, allowing them to reduce risk and meet regulatory requirements. The Company’s advanced mobile deposit system enables secure, fast and convenient deposit services.
The increase in amortization and acquisition-related costs is primarily due to amortization of intangibles associated with the HooYu Acquisition and the ID R&D Acquisition of $7.1 million and expenses associated with the HooYu Acquisition of $2.9 million in 2022 compared to 2021.
As a percentage of revenue, amortization and acquisition-related costs increased to 11% in 2022 from 7% in 2021. The increase in amortization and acquisition-related costs is primarily due to amortization of intangibles associated with the HooYu Acquisition and the ID R&D Acquisition of $7.1 million and expenses associated with the HooYu Acquisition of $2.9 million in 2022 compared to 2021.
Income Tax Benefit (Provision) The income tax benefit for 2022 was $0.3 million which yielded an effective tax rate of negative 11% compared to an income tax provision of $0.8 million which yielded an effective tax rate of 9% in 2021. The income tax benefit for 2022 is primarily due to our positive net income for the year.
Income Tax Benefit (Provision) The income tax provision for 2023 was $2.3 million which yielded an effective tax rate of 22% compared to an income tax benefit of $0.1 million which yielded an effective tax rate of negative 3% in 2022. The income tax provision for 2023 is primarily due to our positive net income for the year.
Services and other revenue increased $11.7 million, or 20%, to $71.4 million in 2022 compared to $59.7 million in 2021.
Services and other revenue increased $12.1 million, or 20%, to $71.9 million in 2022 compared to $59.7 million in 2021.
The decrease in cash provided by operating activities during fiscal 2022 compared to fiscal 2021 was primarily due to an increase in accounts receivable of $10.0 million and a decrease in the estimated fair value of acquisition-related contingent consideration of $2.4 million, partially offset by an increase in restructuring expenses of $1.0 million and the amortization of investment premiums and other of $0.4 million.
The decrease in cash provided by operating activities during fiscal 2022 compared to fiscal 2021 was primarily due to an increase in accounts receivable of $18.2 million, partially offset by a decrease in accrued payroll and related taxes of $1.4 million and increases in restructuring expenses of $1.0 million and the amortization of investment premiums and other of $0.4 million.
Cash Flows from Investing Activities Net cash used in investing activities was $3.5 million during fiscal 2022, which consisted primarily of net cash paid in connection with the HooYu Acquisition of $127.9 million and capital expenditures of $1.1 million, partially offset by net sales and maturities of investments of $125.5 million.
Net cash provided by investing activities was $1.7 million during fiscal 2022, which consisted primarily of net cash paid in connection with the HooYu Acquisition of $122.7 million and capital expenditures of $1.1 million, offset by net sales and maturities of investments of $125.5 million.
Net cash provided by operating activities during fiscal 2022 was $26.4 million and resulted primarily from net income of $3.0 million, net non-cash charges of $31.8 million, and unfavorable changes in operating assets and liabilities of $8.5 million.
Net cash provided by operating activities during fiscal 2023 was $31.6 million and resulted primarily from net income of $8.0 million, net non-cash charges of $32.6 million, and unfavorable changes in operating assets and liabilities of $9.0 million.
Cash Flows from Financing Activities Net cash used in financing activities was $21.1 million during fiscal 2022, which consisted of $15.2 million in repurchases and retirements of our Common Stock and $7.7 million in payments of acquisition-related contingent consideration, partially offset by net proceeds from the issuance of Common Stock under the 2020 Plan of $1.7 million.
The increase in cash provided by financing activities during fiscal 2023 compared to fiscal 2022 was primarily due to the expiration of the share repurchase program in June 2022 of $15.2 million and the payment of acquisition-related consideration of $7.7 million in fiscal 2022. 32 Net cash used in financing activities was $21.1 million during fiscal 2022, which consisted of $15.2 million in repurchases and retirements of our Common Stock and $7.7 million in payments of acquisition-related contingent consideration, partially offset by net proceeds from the issuance of Common Stock under the 2020 Plan of $1.7 million.
The valuation of performance options, Senior Executive Long Term Incentive Restricted Stock Units, and similar awards are based upon the Monte-Carlo simulation, which involves estimates of our stock price, expected volatility, and the probability of reaching the performance targets.
The valuation of performance options, Senior Executive Long Term Incentive Restricted Stock Units, and similar awards are based upon the Monte-Carlo simulation, which involves estimates of our stock price, expected volatility, and the probability of reaching the performance targets. Accounting for Income Taxes We estimate income taxes based on the various jurisdictions where we conduct business.
In summary, our cash flows from continuing operations were as follows ( dollars in thousands ): 31 Twelve Months Ended September 30, 2022 2021 2020 Cash provided by operating activities $ 26,351 $ 37,341 $ 24,122 Cash used by investing activities (3,530) (170,488) (24,706) Cash (used) provided by financing activities (21,143) 143,680 3,403 Cash Flows from Operating Activities Cash flows related to operating activities are dependent on net income, adjustments to net income and changes in working capital.
In summary, our cash flows from continuing operations were as follows ( dollars in thousands ): Twelve Months Ended September 30, 2023 2022 2021 Cash provided by operating activities $ 31,586 $ 21,119 $ 37,341 Cash (used) provided by investing activities (6,784) 1,700 (170,488) Cash (used) provided by financing activities 1,701 (21,143) 143,680 Cash Flows from Operating Activities Cash flows related to operating activities are dependent on net income, non-cash adjustments to net income and changes in working capital.
As of July 31, 2023, the 2026 Notes were not convertible, therefore, we had not purchased any shares under the Notes Hedge and the Warrant Transactions had not been exercised and remain outstanding.
As of March 19, 2024, the 2026 Notes were not convertible, therefore, we had not purchased any shares under the Notes Hedge and the Warrant Transactions had not been exercised and remain outstanding. See Note 9.
The decrease in cash and cash equivalents and investments is primarily due to acquisitions, net of cash acquired of $127.9 million, partially offset by net proceeds from the issuance of our common stock, par value $0.001 per share (“Common Stock”) under the Mitek Systems, Inc. 2020 Incentive Plan (the “2020 Plan”) of $1.7 million.
The increase in cash and cash equivalents and investments is primarily due to cash flows from operations of $31.6 million and net proceeds from the issuance of our common stock, par value $0.001 per share (“Common Stock”) under the Mitek Systems, Inc. Amended and Restated 2020 Incentive Plan (the “2020 Plan”) of $1.7 million.
As consideration for the HooYu Acquisition, the Company paid aggregate consideration in the amount of $129.1 million (the “Closing Consideration”), as such amount may be adjusted for transaction expenses and indebtedness.
As consideration for the HooYu Acquisition, the Company paid aggregate consideration in the amount of $129.1 million (the “Closing Consideration”), as such amount may be adjusted for transaction expenses and indebtedness. 27 Market Opportunities, Challenges, & Risks See Item 1: “Business” for details regarding additional market opportunities, challenges and risks.
Fiscal Year 2022 Highlights • Revenues for the twelve months ended September 30, 2022 were $143.9 million, an increase of 20% compared to revenues of $119.8 million for the twelve months ended September 30, 2021. • Net income was $3.0 million, or $0.07 per diluted share, for the twelve months ended September 30, 2022, compared to a net income of $8.0 million, or $0.18 per diluted share, for the twelve months ended September 30, 2021. • Cash provided by operating activities was $26.4 million for the twelve months ended September 30, 2022, compared to $37.3 million for the twelve months ended September 30, 2021. • During fiscal 2022 the total number of financial institutions licensing our technology continued to exceed 7,800. • We added new patents to our portfolio during fiscal year 2022, bringing our total number of issued patents to 80 as of September 30, 2022.
Fiscal Year 2023 Highlights • Revenues for the twelve months ended September 30, 2023 were $172.6 million, an increase of 19% compared to revenues of $144.8 million for the twelve months ended September 30, 2022. • Net income was $8.0 million, or $0.17 per diluted share, for the twelve months ended September 30, 2023, compared to a net income of $3.7 million, or $0.08 per diluted share, for the twelve months ended September 30, 2022. • Cash provided by operating activities was $31.6 million for the twelve months ended September 30, 2023, compared to $21.1 million for the twelve months ended September 30, 2022. • During fiscal 2023 the total number of financial institutions licensing our technology continued to exceed 7,900. • We added new patents to our portfolio during fiscal year 2023, bringing our total number of issued patents to 100 as of September 30, 2023.
The increase in cash used in financing activities during fiscal 2022 compared to fiscal 2021 was primarily due to the net proceeds from the issuance of the 2026 Notes in fiscal 2021 of $149.7 million and repurchases and retirements of our Common Stock of $15.2 million during fiscal 2022.
The increase in cash used in financing activities during fiscal 2022 compared to fiscal 2021 was primarily due to the net proceeds from the issuance of the 2026 Notes in fiscal 2021 of $149.7 million and repurchases and retirements of our Common Stock of $15.2 million during fiscal 2022. 0.75% Convertible Senior Notes due 2026 In February 2021, the Company issued $155.3 million aggregate principal amount of the 2026 Notes (including the Additional Notes, as defined below).
It provides businesses and financial institutions with access to one authentication solution to deploy throughout the entire transaction cycle, and can provide consumers with a simple, intuitive approach to fighting fraud. In March of 2022, Mitek acquired HooYu Ltd. (“HooYu”), a leading KYC technology provider in the United Kingdom.
The ID R&D Acquisition helps simplify and secure the entire transaction lifecycle for both businesses and consumers, provides businesses and financial institutions with access to one authentication solution to deploy throughout the entire transaction cycle, and can provide consumers with a simple, intuitive approach to fighting fraud. In March of 2022, Mitek acquired HooYu Ltd.
Accounting for Income Taxes We estimate income taxes based on the various jurisdictions where we conduct business. Significant judgment is required in determining our worldwide income tax provision. 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.
Significant judgment is required in determining our worldwide income tax provision. 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. These differences result in deferred tax assets and liabilities, which are reflected in our balance sheets.
Actual results could vary from those estimates under different assumptions or conditions. We believe the following critical accounting estimates affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
We believe the following critical accounting estimates affect the more significant judgments and estimates used in the preparation of our consolidated financial statements.
Market Opportunities, Challenges, & Risks See Item 1: “Business” for details regarding additional market opportunities, challenges and risks. 27 Results of Operations Comparison of the Twelve Months Ended September 30, 2022 and 2021 The following table summarizes certain aspects of our results of operations for the twelve months ended September 30, 2022 compared to the twelve months ended September 30, 2021 ( in thousands, except percentages ): Twelve Months Ended September 30, Percentage of Total Revenue Increase (Decrease) 2022 2021 2022 2021 $ % Revenue Software and hardware $ 72,494 $ 60,069 50 % 50 % 12,425 21 % Services and other 71,449 59,728 50 % 50 % 11,721 20 % Total revenue $ 143,943 $ 119,797 100 % 100 % 24,146 20 % Cost of revenue 20,008 14,540 14 % 12 % 5,468 38 % Selling and marketing 38,841 32,497 27 % 27 % 6,344 20 % Research and development 30,192 28,042 21 % 23 % 2,150 8 % General and administrative 26,591 22,490 18 % 19 % 4,101 18 % Amortization and acquisition-related costs 15,172 8,951 11 % 7 % 6,221 70 % Restructuring costs 1,800 — 1 % — % 1,800 100 % Interest expense 8,232 5,129 6 % 4 % 3,103 60 % Other income (expense), net (370) 654 — % 1 % (1,024) (157) % Income tax benefit (provision) 295 (824) — % (1) % 1,119 (136) % Revenue Total revenue increased $24.1 million, or 20%, to $143.9 million in 2022 compared to $119.8 million in 2021.
Our effective tax rate for fiscal year 2023 was higher than the U.S. federal statutory rate of 21% due to the impact of non deductible expenses and of foreign and state taxes on our tax provision. 29 Results of Operations Comparison of the Twelve Months Ended September 30, 2022 and 2021 The following table summarizes certain aspects of our results of operations for the twelve months ended September 30, 2022 compared to the twelve months ended September 30, 2021 ( in thousands, except percentages ): Twelve Months Ended September 30, Percentage of Total Revenue Increase (Decrease) 2022 2021 2022 2021 $ % Revenue Software and hardware $ 72,928 $ 60,069 50 % 50 % 12,859 21 % Services and other 71,876 59,728 50 % 50 % 12,148 20 % Total revenue $ 144,804 $ 119,797 100 % 100 % 25,007 21 % Cost of revenue 20,008 14,540 14 % 12 % 5,468 38 % Selling and marketing 38,841 32,497 27 % 27 % 6,344 20 % Research and development 30,192 28,042 21 % 23 % 2,150 8 % General and administrative 26,591 22,490 18 % 19 % 4,101 18 % Amortization and acquisition-related costs 15,172 8,951 10 % 7 % 6,221 70 % Restructuring costs 1,800 — 1 % — % 1,800 100 % Interest expense 8,232 5,129 6 % 4 % 3,103 60 % Other income (expense), net (366) 654 — % 1 % (1,020) (156) % Income tax benefit (provision) 92 (824) — % (1) % 916 (111) % Net income 3,694 7,978 3 % 7 % (4,284) (54) % Revenue Total revenue increased $25.0 million, or 21%, to $144.8 million in 2022 compared to $119.8 million in 2021.
Amortization and acquisition-related costs increased $6.2 million, or 70%, to $15.2 million in 2022 compared to $9.0 million in 2021. As a percentage of revenue, amortization and acquisition-related costs increased to 11% in 2022 from 7% in 2021.
Amortization and acquisition-related costs increased $3.8 million, or 26%, to $19.0 million in 2023 compared to $15.2 million in 2022. As a percentage of revenue, amortization and acquisition-related costs were consistent at 11% in 2023 and 2022.
These differences result in deferred tax assets and liabilities, which are reflected in our balance sheets. We then assess the likelihood that deferred tax assets will be realized. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized.
We then assess the likelihood that deferred tax assets will be realized. A valuation allowance is recorded when it is more likely than not that some of the deferred tax assets will not be realized. When a valuation allowance is established or increased, we record a corresponding tax expense in our statements of operations.
Net cash provided by operating activities during fiscal 2020 was $24.1 million and resulted primarily from net income of $7.8 million adjusted for net non-cash charges of $19.6 million partially offset by unfavorable changes in operating assets and liabilities of $3.3 million.
These increases were partially offset by a decrease in deferred revenue in fiscal 2023. Net cash provided by operating activities during fiscal 2022 was $21.1 million and resulted primarily from net income of $3.7 million, net non-cash charges of $26.7 million, and unfavorable changes in operating assets and liabilities of $9.3 million.
ID R&D delivers innovative, biometric capabilities that raise the bar on usability and performance. The ID R&D Acquisition helps simplify and secure the entire transaction lifecycle for both businesses and consumers.
ID R&D delivers innovative, biometric capabilities that raise the bar on usability and performance.
The overall increase in general and administrative expenses was partially offset by decreased intellectual property litigation costs of $2.2 million in 2021 compared to 2020. Amortization and Acquisition-Related Costs Amortization and acquisition-related costs include amortization of intangible assets, expenses recorded due to changes in the fair value of contingent consideration, and other costs associated with acquisitions.
Amortization and Acquisition-Related Costs Amortization and acquisition-related costs include amortization of intangible assets, expenses recorded due to changes in the fair value of contingent consideration, and other costs associated with acquisitions. Amortization and acquisition-related costs increased $6.2 million, or 70%, to $15.2 million in 2022 compared to $9.0 million in 2021.
At September 30, 2021, we had $149.1 million of our available-for-sale securities classified as current and $48.1 million of our available-for-sale securities classified as long-term. We had working capital (current assets less current liabilities) of $88.6 million at September 30, 2022 compared to $164.8 million at September 30, 2021.
At September 30, 2022, we had $58.3 million of our available-for-sale securities classified as current and $10.6 million of our available-for-sale securities classified as long-term. We had working capital of $138.5 million at September 30, 2023 compared to $89.4 million at September 30, 2022.
When a valuation allowance is established or increased, we record a corresponding tax expense in our statements of operations. We review the need for a valuation allowance each interim period to reflect uncertainties about whether we will be able to utilize deferred tax assets before they expire.
We review the need for a valuation allowance each interim period to reflect uncertainties about whether we will be able to utilize deferred tax assets before they expire. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized.
The increase in research and development expenses is primarily due to higher personnel-related costs and third-party contractor expenses in 2021 compared to 2020. General and Administrative Expenses General and administrative expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with finance, legal, administration and information technology functions, as well as third-party legal, accounting, and other administrative costs.
General and Administrative Expenses General and administrative expenses include payroll, employee benefits, stock-based compensation, and other headcount-related costs associated with finance, legal, administration and information technology functions, as well as third-party legal, accounting, and other administrative costs. General and administrative expenses increased $16.7 million, or 63%, to $43.3 million in 2023 compared to $26.6 million in 2022.
This increase is primarily due to strong growth in Mobile Verify® transactional SaaS revenue of $10.1 million, or 36%, in 2021 compared to 2020, as well as an increase in maintenance revenue associated with Mobile Deposit® software sales and hosted mobile deposit transactional revenue.
This increase is primarily due to strong growth in SaaS revenue as a result of the HooYu Acquisition, and to a lesser extent an increase in maintenance revenue associated with Mobile Deposit® software sales and transactional revenue in 2023 compared to 2022.
Cost of Revenue Cost of revenue includes personnel costs related to billable services and software support, direct costs associated with our hardware products, and hosting costs. Cost of revenue increased $1.3 million, or 10%, to $14.5 million in 2021 compared to $13.2 million in 2020.
Cost of Revenue Cost of revenue includes personnel costs related to billable services and software support, direct costs associated with our hardware products, hosting costs, and the costs of royalties for third party products embedded in our products. Cost of revenue increased $2.9 million, or 15%, to $23.0 million in 2023 compared to $20.0 million in 2022.
The increase in sales and marketing expense is primarily due to higher personnel-related costs resulting from our increased headcount of $5.2 million and higher product promotion costs of $0.2 million in 2021 compared to 2020.
The increase in selling and marketing expense is primarily due to higher product promotion and other costs of $1.2 million, higher travel and related expenses of 28 $0.4 million, and higher personnel-related costs of $0.1 million in 2023 compared to 2022.
Net cash used in investing activities was $24.7 million during fiscal 2020, which consisted primarily of net purchases of investments of $23.9 million and capital expenditures of $0.8 million.
Cash Flows from Investing Activities Net cash used in investing activities was $6.8 million during fiscal 2023, which consisted primarily of net cash paid in connection with the HooYu Acquisition of $0.3 million and capital expenditures of $1.0 million, and net purchases of investments of $5.5 million.
We will continue to assess the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may exist. Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required.
Any adjustment to the net deferred tax asset valuation allowance would be recorded in the income statement for the period that the adjustment is determined to be required. We recognize and measure benefits for uncertain tax positions using a two-step approach.
As of January 13, 2023 ("Date of Noncompliance"), the Company was not in compliance with certain of the covenants in the Indenture as a result of the Company not timely filing reports with the SEC.
As of February 15, 2024, the Company was not in compliance with certain covenants in the Indenture as a result of not timely filing its Form 10-Q for the quarter ended December 31, 2023 with the SEC.
The overall increase in selling and marketing expense was partially offset by a decrease in travel and related expenses of $0.5 million as a result of the COVID-19 pandemic. 30 Research and Development Expenses Research and development expenses include payroll, employee benefits, stock-based compensation, third-party contractor expenses, and other headcount-related costs associated with software engineering and mobile image capture science.
Research and Development Expenses Research and development expenses include payroll, employee benefits, stock-based compensation, third-party contractor expenses, and other headcount-related costs associated with software engineering and mobile image capture science. Research and development expenses decreased $1.2 million, or less than 1%, to $29.0 million in 2023 compared to $30.2 million in 2022.
The increase in general and administrative expenses is primarily due to higher personnel-related costs resulting from our increased headcount of $1.6 million, higher executive transition costs of $0.4 million, and higher third-party professional fees of $0.4 million in 2021 compared to 2020.
The increase in general and administrative expenses is primarily due to higher third-party and professional fees of $7.3 million, audit and accounting fees of $5.9 million, software and IT costs of $1.8 million, legal costs of $0.8 million, executive transition costs of $0.7 million, and allowance for uncollectible receivables of $0.4 million in 2023 compared to 2022.
Net cash provided by financing activities was $3.4 million during fiscal 2020, which consisted of proceeds from the issuance of equity plan Common Stock of $4.8 million and net proceeds from other borrowings of $0.1 million, partially offset by repurchases and retirements of Common Stock of $1.0 million and payment of acquisition-related contingent consideration of $0.5 million.
Cash Flows from Financing Activities Net cash provided by financing activities was $1.7 million during fiscal 2023, which primarily consisted of net proceeds from the issuance of Common Stock under the 2020 Plan of $1.7 million.
Selling and marketing expenses increased $4.9 million, or 18%, to $32.5 million in 2021 compared to $27.6 million in 2020. As a percentage of revenue, selling and marketing expenses were consistent at 27% in 2021 and in 2020.
Selling and marketing expenses increased $1.7 million, or 4%, to $40.6 million in 2023 compared to $38.8 million in 2022. As a percentage of revenue, selling and marketing expenses decreased to 24% in 2023 from 27% in 2022.
The increase in cash used in investing activities during fiscal 2021 compared to fiscal 2020 was primarily due to an increase in net purchases of investments of $132.6 million and an increase in cash paid for acquisitions, net of cash acquired of $12.5 million related to the ID R&D Acquisition.
The decrease in cash used in investing activities during fiscal 2023 compared to fiscal 2022 was primarily due to a decrease in net sales and maturities of investments of $131.0 million partially offset by a decrease in cash paid for acquisitions, net of cash acquired of $122.4 million, related to the HooYu Acquisition.
The Company made purchases of $0.2 million, or 10,555 shares, during fiscal 2021 at an average price of $17.99 per share. The Company made purchases of $14.8 million, or approximately 886,204 shares during fiscal 2022 at an average price of $16.73 per share.
The share repurchase program was completed during the second quarter of fiscal 2022 and as such the Company made no purchase during the twelve months ended September 30, 2023. The Company made purchases of $14.8 million, or approximately 886,204 shares, during twelve months ended September 30, 2022 at an average price of $16.73 per share and subsequently retired the shares.
These assumptions are subjective in nature and may significantly affect our results of operations. 35 Fair Value of Equity Instruments The valuation of certain items, including compensation expense related to equity awards granted, involves significant estimates based on underlying assumptions made by management.
Significant judgment may be required to determine standalone selling prices for each performance obligation and whether it depicts the amount we expect to receive in exchange for the related good or service. Fair Value of Equity Instruments The valuation of certain items, including compensation expense related to equity awards granted, involves significant estimates based on underlying assumptions made by management.
Income Tax Provision The income tax provision for 2021 was $0.8 million compared to an income tax provision of $1.6 million in 2020. The income tax provision for 2021 is primarily due to our positive net income for the year.
Income Tax Benefit (Provision) The income tax benefit for 2022 was $0.1 million which yielded an effective tax rate of negative 3% compared to an income tax provision of $0.8 million which yielded an effective tax rate of 9% in 2021.
Software and hardware revenue increased $5.9 million, or 11%, to $60.1 million in 2021 compared to $54.2 million in 2020. This increase is primarily due to an increase in sales of our Mobile Deposit®, ID_CLOUD ™, CheckReader™, and IDLive® Face software products. The increase was partially offset by a decrease in revenue from our identity verification hardware products .
The increase was partially offset by a decrease in revenue from our CheckReader™ and legacy identify verification software and hardware products of $1.8 million . Services and other revenue increased $12.3 million, or 17%, to $84.2 million in 2023 compared to $71.9 million in 2022 .
Restructuring costs were negative $0.1 million in 2020 due to a reversal of costs accrued for the restructuring plan implemented in June 2019. Interest Expense Interest expense includes the amortization of debt discount and issuance costs and coupon interest incurred associated with our 2026 Notes.
Interest Expense Interest expense includes the amortization of debt discount and issuance costs and coupon and special interest accrued on our 0.75% convertible senior notes due 2026 (the “2026 Notes”). Interest expense was $9.1 million in 2023 and consisted of $7.6 million of amortization of debt discount and issuance costs and $1.6 million of interest incurred.
Other Income, Net Other income, net includes interest income net of amortization and net realized gains or losses on our marketable securities portfolio, foreign currency transactional gains or losses, and the change in fair value of our convertible senior notes hedge and embedded conversion derivative.
Interest expense was $8.2 million in 2022 and consisted of $7.0 million of amortization of debt discount and issuance costs and $1.2 million of interest incurred. Other Income (Expense), Net Other income (expense), net includes interest income net of amortization and net realized gains or losses on our marketable securities portfolio, and foreign currency transactional gains or losses.
See Note 9 of the accompanying notes to the consolidated financial statements included in this Form 10-K for more information relating to the Notes Hedge and Warrant Transactions.
“Convertible Senior Notes” of the notes to the consolidated financial statements included in this Form 10-K for more information relating to the Notes Hedge and Warrant Transactions. Share Repurchase Program On June 15, 2021, the Board authorized and approved a share repurchase program for up to $15 million of the currently outstanding shares of our Common Stock.
General and administrative expenses increased $0.2 million, or 1%, to $22.5 million in 2021 compared to $22.3 million in 2020. As a percentage of revenue, general and administrative expenses decreased to 19% in 2021 from 22% in 2020.
As a percentage of revenue, general and administrative expenses increased to 25% in 2023 from 18% in 2022.
Our effective tax rate for fiscal year 2021 was lower than the U.S. federal statutory rate of 21% due to changes in our deferred tax benefit of $1.6 million related to excess tax benefits from the exercise of stock options and the vesting of restricted stock awards.
Our effective tax rate for fiscal year 2022 was lower than the U.S. federal statutory rate of 21% due to excess tax benefits resulting from the exercise of stock options and vesting of restricted stock awards, the impact of foreign and state taxes, the impact of certain permanent items on its tax provision, and the impact of federal and state research and development credits on our tax provision. 31 Liquidity and Capital Resources Cash generated from operations has historically been our primary source of liquidity to fund operations and investments to grow our business.
The increase in amortization and acquisition-related costs is primarily due to expenses associated with the acquisition of ID R&D in 2021 as compared to 2020. Restructuring Costs Restructuring costs consist of employee severance obligations and other related costs. There were no restructuring costs in 2021.
The increase in amortization and acquisition-related costs is primarily due to amortization of intangibles associated with the HooYu Acquisition of $5.3 million and an increase in the fair value of the contingent consideration liability associated with the ID R&D Acquisition of $3.4 million in 2023 compared to 2022.
The increase in cost of revenue is primarily due to an increase in variable personnel, hosting, and royalty costs associated with a higher volume of Mobile Verify® transactions processed during 2021 compared to 2020. The increase was partially offset by decreased costs of our identity verification hardware products due to lower hardware revenues .
As a percentage of revenue, cost of revenue decreased to 13% in 2023 from 14% in 2022. The increase in cost of revenue is primarily due to an increase in variable personnel, hosting, and royalty costs associated with the HooYu Acquisition.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. We will continue to assess the need for a valuation allowance on the deferred tax asset by evaluating both positive and negative evidence that may exist.
These estimates and assumptions are based on historical experience and on various other factors that are believed to be reasonable under the circumstances, and form the basis for making management’s most difficult, subjective, or complex judgments, often as a result of the need to make estimates about the effects of matters that are 34 inherently uncertain.
We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.
On September 30, 2022, we had $101.0 million in cash and cash equivalents and investments compared to $227.4 million on September 30, 2021, a decrease of $126.5 million, or 56%.
Our current sources of liquidity include available cash balances and proceeds from the issuance of the 2026 Notes. On September 30, 2023, we had $134.9 million in cash and cash equivalents and investments compared to $101.0 million on September 30, 2022, an increase of $33.9 million, or 34%.
Critical Accounting Estimates Our financial statements and accompanying notes are prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”). Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, stockholders’ equity, revenue, and expenses and related disclosure of contingent assets and liabilities. Management regularly evaluates its estimates and assumptions.
Critical Accounting Estimates Our discussion and analysis of our financial conditions and results of operations are based on our consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the U.S.
The increase in cash provided by operating activities during fiscal 2021 compared to fiscal 2020 was primarily due to an increase in contract assets of $7.8 million, $4.4 million of accretion and amortization related to the 2026 Notes which were issued in fiscal 2021, and an increase in amortization of intangibles expense of $1.1 million due to the ID R&D Acquisition.
The increase in cash provided by operating activities during fiscal 2023 compared to fiscal 2022 was primarily due to an increase in cash from collection of receivables of $23.3 million year over year due to improvements in our collections process, and an increase in other liabilities of $1.7 million.
Other income, net increased $0.1 million, to a net income of $0.7 million in 2021 compared to a net income of $0.5 million in 2020, primarily due to higher foreign currency exchange transactional gains in 2021 compared to 2020.
Other income (expense), net increased $4.2 million, to net income of $3.8 million in 2023 compared to net expense of $0.4 million in 2022, primarily due to higher interest income net of amortization of $2.5 million, a favorable outcome in the Instacart Lawsuit (as defined below) of $1.4 million, and higher realized gains on the sale of marketable securities of $0.3 million in 2023 compared to 2022.
Removed
Services and other revenue increased $12.6 million, or 27%, to $59.7 million in 2021 compared to $47.2 million in 2020.
Added
Software and hardware revenue increased $15.4 million, or 21%, to $88.4 million in 2023 compared to $72.9 million in 2022. This increase is primarily due to an increase in sales of our Mobile Deposit® and IDLive® software products of $17.3 million.
Removed
Research and development expenses increased $5.2 million, or 23%, to $28.0 million in 2021 compared to $22.9 million in 2020. As a percentage of revenue, research and development expenses were consistent at 23% in 2021 and in 2020.
Added
The increase in sales of our Mobile Deposit® product is primarily the result of an existing customer having entered into a significant multiyear Mobile Deposit® contract and the license revenue associated with the full contract term being recognized in the first quarter of fiscal 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeOur results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro. Translation adjustments resulting from translating the functional currency financial statements into U.S. dollar equivalents are reported separately in the consolidated statements of operations and other comprehensive income (loss).
Biggest changeTranslation adjustments resulting from translating the functional currency financial statements into U.S. dollar equivalents are reported separately in the consolidated statements of operations and other comprehensive income (loss). Inflation We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last three fiscal years.
To achieve this objective, we maintain our investment portfolio of cash equivalents and marketable securities in a variety of securities, including corporate debt securities, commercial paper and certificates of deposit. We have not used derivative financial instruments in our investment portfolio, and none of our investments are held for trading or speculative purposes.
To achieve this objective, we maintain our investment portfolio of cash equivalents and marketable securities in a variety of securities, including corporate debt securities, commercial paper, certificates of deposit, and asset-backed securities. We have not used derivative financial instruments in our investment portfolio, and none of our investments are held for trading or speculative purposes.
While changes in market interest rates may affect the fair value of our investment portfolio, any gains or losses will not be recognized in our results of operations until the investment is sold or if the reduction in fair value was determined to be an other-than-temporary impairment.
While changes in market interest rates may affect the fair value of our investment portfolio, any gains or losses will not be recognized in our results of operations until and unless the investment is sold or if the reduction in fair value was determined to be an other-than-temporary impairment.
As of September 30, 2022, our marketable securities had remaining maturities between one and twenty-five months and a fair market value of $68.9 million, representing 19% of our total assets.
As of September 30, 2023, our marketable securities had remaining maturities between approximately one and 13 months and a fair market value of $76.0 million, representing 19% of our total assets.
Foreign Currency Risk As a result of past acquisitions, we have operations in France, the Netherlands, and Spain that are exposed to fluctuations in the foreign currency exchange rate between the U.S. dollar, the Euro, the Ruble, and the British pound sterling. The functional currency of our French, Dutch, and Spanish operations is the Euro.
Foreign Currency Risk We have operations in the United Kingdom, France, the Netherlands, and Spain that are exposed to fluctuations in the foreign currency exchange rate between the U.S. dollar, the Euro, the Ruble, and the British pound sterling.
Inflation We do not believe that inflation had a material effect on our business, financial condition or results of operations in the last three fiscal years. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases.
If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, financial condition and results of operations.
Removed
Our inability or failure to do so could harm our business, financial condition and results of operations.
Added
The functional currency of our French, Dutch, and Spanish operations is the Euro and the functional currency of our United Kingdom operations is the British pound sterling. Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, particularly changes in the Euro.

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