Company Quick10K Filing
Quick10K
Mitek Systems
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$11.85 39 $459
10-Q 2018-12-31 Quarter: 2018-12-31
10-K 2018-09-30 Annual: 2018-09-30
10-Q 2018-06-30 Quarter: 2018-06-30
10-Q 2018-03-31 Quarter: 2018-03-31
10-Q 2017-12-31 Quarter: 2017-12-31
10-K 2017-09-30 Annual: 2017-09-30
10-Q 2017-06-30 Quarter: 2017-06-30
10-Q 2017-03-31 Quarter: 2017-03-31
10-Q 2016-12-31 Quarter: 2016-12-31
10-K 2016-09-30 Annual: 2016-09-30
10-Q 2016-06-30 Quarter: 2016-06-30
10-Q 2016-03-31 Quarter: 2016-03-31
10-Q 2015-12-31 Quarter: 2015-12-31
10-K 2015-09-30 Annual: 2015-09-30
10-Q 2015-06-30 Quarter: 2015-06-30
10-Q 2015-03-31 Quarter: 2015-03-31
10-Q 2014-12-31 Quarter: 2014-12-31
10-K 2014-09-30 Annual: 2014-09-30
10-Q 2014-06-30 Quarter: 2014-06-30
10-Q 2014-03-31 Quarter: 2014-03-31
10-Q 2013-12-31 Quarter: 2013-12-31
8-K 2019-03-06 Shareholder Vote
8-K 2019-01-29 Earnings, Exhibits
8-K 2018-12-21 Other Events
8-K 2018-12-11 Other Events
8-K 2018-12-05 Officers, Exhibits
8-K 2018-11-26 Officers
8-K 2018-11-21 Other Events
8-K 2018-11-20 Other Events
8-K 2018-11-06 Officers, Other Events, Exhibits
8-K 2018-11-05 Other Events, Exhibits
8-K 2018-11-01 Earnings, Exhibits
8-K 2018-10-23 Enter Agreement, Shareholder Rights, Amend Bylaw, Exhibits
8-K 2018-08-27 Officers, Other Events, Exhibits
8-K 2018-07-26 Earnings, Exhibits
8-K 2018-05-23 Enter Agreement, M&A, Sale of Shares, Other Events, Exhibits
8-K 2018-05-01 Earnings, Exhibits
8-K 2018-03-07 Shareholder Vote
8-K 2018-02-27 Officers, Exhibits
8-K 2018-01-25 Earnings, Exhibits
ATR Aptargroup 6,910
PHI PLDT 4,990
ITRI Itron 1,980
ATRO Astronics 1,060
MSBI Midland States Bancorp 649
ICAD iCAD 82
TLF Tandy Leather Factory 50
RMP Rampart Studios 0
MDSV Madison Ventures 0
AIC Aames Investment 0
MITK 2018-12-31
Part I
Item 1. Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 4. Controls and Procedures
Part II
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
EX-31.1 mitk-20181231xexx311.htm
EX-31.2 mitk-20181231xexx312.htm
EX-32.1 mitk-20181231xexx321.htm

Mitek Systems Earnings 2018-12-31

MITK 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Document
10-QFALSEDecember 31, 20182019Q1MITKMITEK SYSTEMS INCAccelerated 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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2018 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission File Number 001-35231
MITEK SYSTEMS, INC. 
(Exact name of registrant as specified in its charter)

Delaware87-0418827
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
600 B Street, Suite 100
San Diego, California
92101 
(Address of Principal Executive Offices)(Zip Code)
(619) 269-6800
(Registrant’s Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No   ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filerAccelerated filer
Non-accelerated filer(Do not check if a smaller reporting company)Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒
There were 38,734,691 shares of the registrant’s common stock outstanding as of January 31, 2019.




MITEK SYSTEMS, INC.
FORM 10-Q
For The Quarterly Period Ended December 31, 2018 
INDEX
 
   
   
   




PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MITEK SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share data)

 December 31, 2018 (Unaudited)September 30, 2018
ASSETS  
Current assets:  
Cash and cash equivalents$10,437 $9,028 
Short-term investments9,248 8,448 
Accounts receivable, net12,831 16,821 
Prepaid expenses2,096 2,278 
Other current assets2,455 1,053 
Total current assets37,067 37,628 
Property and equipment, net4,779 4,665 
Intangible assets, net30,742 32,947 
Goodwill34,058 34,407 
Deferred income tax assets16,716 15,356 
Other non-current assets2,815 2,147 
Total assets$126,177 $127,150 
LIABILITIES AND STOCKHOLDERS’ EQUITY  
Current liabilities:  
Accounts payable$4,507 3,573 
Accrued payroll and related taxes6,202 7,915 
Deferred revenue, current portion4,655 4,792 
Acquisition-related contingent consideration1,823 1,849 
Other current liabilities2,023 2,278 
Total current liabilities19,210 20,407 
Deferred revenue, non-current portion407 485 
Deferred income tax liabilities8,055 8,162 
Other non-current liabilities2,937 2,702 
Total liabilities30,609 31,756 
Stockholders’ equity:    
Preferred stock, $0.001 par value, 1,000,000 shares authorized, none issued and outstanding
  
Common stock, $0.001 par value, 60,000,000 shares authorized, 38,638,816 and 37,961,224 issued and outstanding, as of December 31, 2018 and September 30, 2018, respectively
39 38 
Additional paid-in capital120,199 116,944 
Accumulated other comprehensive loss(1,397)(586)
Accumulated deficit(23,273)(21,002)
Total stockholders’ equity95,568 95,394 
Total liabilities and stockholders’ equity$126,177 $127,150 
 
See accompanying notes to consolidated financial statements.

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MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE LOSS  
(Unaudited)
(amounts in thousands except per share data)
 
 Three Months Ended December 31,
 20182017
Revenue  
Software and hardware$9,995 $7,206 
Service and other7,688 4,930 
Total revenue17,683 12,136 
Operating costs and expenses  
Cost of revenue—software and hardware845 719 
Cost of revenue—service and other
2,033 898 
Selling and marketing7,208 4,775 
Research and development4,488 3,280 
General and administrative5,842 3,517 
Acquisition-related costs and expenses1,827 1,259 
Total operating costs and expenses22,243 14,448 
Operating loss(4,560)(2,312)
Other income, net14 190 
Loss before income taxes(4,546)(2,122)
Income tax benefit (provision)1,355 (3,614)
Net loss$(3,191)(5,736)
Net loss per share—basic and diluted$(0.08)$(0.17)
Shares used in calculating net loss per share—basic and diluted 38,247 34,207 
Other comprehensive loss  
Net loss$(3,191)(5,736)
Foreign currency translation adjustment(824)189 
Unrealized gain (loss) on investments13 (59)
Other comprehensive loss$(4,002)(5,606)
 
See accompanying notes to consolidated financial statements.
2


MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
(amounts in thousands except per share)


Three Months Ended December 31, 2018 
Common Stock
Outstanding
Shares 
Common
Stock 
Additional
Paid-In
Capital 
Accumulated
Deficit 
Accumulated
Other
Comprehensive
Income (Loss) 
Total
Stockholders’
Equity 
Balance, September 30, 201837,961 $38 $116,944 $(21,002)$(586)$95,394 
Exercise of stock options135 — 586 — — 586 
Settlement of restricted stock units543 1 (1)— — — 
Stock-based compensation expense— — 2,670 — — 2,670 
Cumulative-effect adjustment from the adoption of ASU 2014-09
— — — 920 — 920 
Components of other comprehensive loss:
Net loss— — — (3,191)— (3,191)
Currency translation adjustment— — — — (824)(824)
Change in unrealized gain on investments
— — — — 13 13 
Total other comprehensive loss(4,002)
Balance, December 31, 201838,639 $39 $120,199 $(23,273)$(1,397)$95,568 

Three Months Ended December 31, 2017 
Common Stock
Outstanding
Shares 
Common
Stock 
Additional
Paid-In
Capital 
Accumulated
Deficit 
Accumulated
Other
Comprehensive
Income (Loss) 
Total
Stockholders’
Equity 
Balance, September 30, 201733,724 $34 $78,677 $(17,450)$147 $61,408 
Exercise of stock options63 — 137 — — 137 
Settlement of restricted stock units450 — — — —  
Acquisition-related shares issued666 1 5,607 5,608 
Stock-based compensation expense— — 1,889 — — 1,889 
Amortization of closing shares— — 710 — — 710 
Cumulative-effect adjustment from the adoption of ASU 2016-09
— — — 8,255 — 8,255 
Components of other comprehensive loss:
Net loss— — — (5,736)— (5,736)
Currency translation adjustment— — — — 189 189 
Change in unrealized loss on investments
— — — — (59)(59)
Total other comprehensive loss
(5,606)
Balance, December 31, 201734,903 $35 $87,020 $(14,931)$277 $72,401 

See accompanying notes to consolidated financial statements..
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MITEK SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(amounts in thousands)
 
Three Months Ended December 31,
 20182017
Operating activities:  
Net loss$(3,191)$(5,736)
Adjustments to reconcile net loss to net cash provided by operating activities:
  
Stock-based compensation expense2,670 1,889 
Amortization of closing and earnout shares 355 
Amortization of intangible assets1,774 484 
Depreciation and amortization373 91 
Amortization of investment premiums and other(9)(46)
Deferred taxes(1,631)4,417 
Changes in assets and liabilities:  
Accounts receivable3,925 3,065 
Other assets(733)(1,549)
Accounts payable943 307 
Accrued payroll and related taxes(1,809)(1,389)
Deferred revenue(205)(326)
Other liabilities189 1,005 
Net cash provided by operating activities2,296 2,567 
Investing activities:  
Purchases of investments(1,728)(15,391)
Sales and maturities of investments950 9,950 
Acquisitions, net of cash acquired (2,991)
Purchases of property and equipment(508)(216)
Net cash used in investing activities(1,286)(8,648)
Financing activities:  
Proceeds from the issuance of equity plan common stock586 137 
Principal payments on other borrowings(164) 
Net cash provided by financing activities422 137 
Foreign currency effect on cash and cash equivalents(23)(4)
Net increase (decrease) in cash and cash equivalents1,409 (5,948)
Cash and cash equivalents at beginning of period9,028 12,289 
Cash and cash equivalents at end of period$10,437 $6,341 
Supplemental disclosures of cash flow information:  
Cash paid for income taxes$69 $9 
Supplemental disclosures of non-cash investing and financing activities:  
Unrealized holding gain (loss) on available-for-sale investments$13 $(59)
 
See accompanying notes to consolidated financial statements. .. ..
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MITEK SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Mitek Systems, Inc. ("Mitek" or the "Company") is a leading innovator of mobile capture and digital identity verification solutions. Mitek is a software development company with expertise in artificial intelligence and machine learning. The Company is currently serving more than 6,100 financial services organizations and leading marketplace and financial technology ("fintech") brands across the globe. The Company's solutions are embedded in native mobile apps and mobile optimized websites to facilitate better mobile user experiences, fraud detection and reduction, and compliant transactions.
Mitek's Mobile Deposit® solution is used today by millions of consumers in the United States ("U.S."), Canada, the United Kingdom, and Australia for mobile check deposit. Mobile Deposit® is the category leading product that allows individuals and businesses to remotely deposit checks using their camera-equipped smartphone or tablet. The Company's Mobile Deposit® solution has now processed over two billion check deposits. Mitek began selling Mobile Deposit® in the second fiscal quarter of 2008, and received our first patent issued for this product in August 2010.
Mitek’s Mobile Verify™ is an important technology used to verify people’s identities at the point of onboarding via web or mobile device. Scanning an identity document enables an enterprise to identify the person with whom they are conducting business, comply with growing governmental Know Your Customer and Anti-Money Laundering regulatory requirements, and to improve the overall customer experience for digital onboarding. To sure the person submitting the identity document is who they say they are, Mitek's Mobile Verify Face Comparison provides an incremental layer of verification and compares the face on the identity document with the selfie photo of the user. Mitek's Mobile Verify Face Comparison technology uses advanced liveness detection so it cannot be spoofed.
The identification capture process provided by Mitek can also provide prefill of much of the data obtained from the identity document into an application, requiring far fewer key strokes, reducing keying errors, and improving both operational efficiency and the customer experience. Today, the financial services verticals (banks, credit unions, lenders, payments processors, card issuers, fintech companies, etc.) represent the greatest percentage of use of the Company's solutions, but marketplaces, sharing economy, telecommunications, healthcare, travel, and retail sectors are showing accelerated adoption. Similarly, websites that must verify the customer’s age (or other consumer information) prior to selling goods can do so by verifying identity documents. Mitek uses machine learning to constantly improve the product performance of Mobile Verify™ and applies artificial intelligence to increase automation and speed of approvals of identification documents.
The core of the Company's user experience is Mitek MiSnap™, a touch-free automated capture technology which can be incorporated across product lines. It provides a simple and superior user-experience, making transactions on mobile devices fast, accurate, and easy for the consumer while helping organizations drive revenue from the increasingly popular mobile channel.
Mobile Fill™, Mitek's mobile identity capture solution, enables the camera to serve as a keyboard. Using Mobile Fill™, consumers can quickly prefill any form with personal data by simply snapping a picture of their driver's license, credit card, or other similar identity document.
CheckReader, which the Company acquired through the acquisition of A2iA (as defined below), enables financial institutions to automatically extract data from a check image received across all deposit channels – branch, ATM, Remote Deposit Capture, and mobile. Through the automatic recognition of all fields on checks, whether handwritten or machine print, CheckReader speeds the time to deposit for banks and customers and reduces costs formerly incurred before images could be exchanged.
ID_CLOUD™ is a fully automated identity verification solution that can be integrated into a customers’ application to instantly read and validate identity documents. ID_CLOUD™ automated technology enables global enterprises to improve their customer acquisition technology while meeting AML requirements in a safe and cost-effective manner. This solution is available in the cloud, via mobile websites, and desktop applications. Additionally, a version of ID_CLOUD™ is available that works locally on a desktop which is connected to a propriety hardware scanner for reading and validating identity documents.ID_CLOUD™ is a fully automated identity verification solution that can be integrated into a customers’ application to instantly read and validate identity documents. ID_CLOUD™ automated technology enables global enterprises to improve their customer acquisition technology while meeting AML requirements in a safe and cost-effective manner. This solution is available in the cloud, via mobile websites, and desktop applications. Additionally, a version of ID_CLOUD™ is available that works locally on a desktop which is connected to a propriety hardware scanner for reading and validating identity documents.
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The Company markets and sells its products and services worldwide through internal, direct sales teams located in the U.S., Europe, and Latin America as well as through channel partners. The Company's partner sales strategy includes channel partners who are financial services technology providers and identity verification providers. These partners integrate the Company's products into their solutions to meet the needs of their customers.
As of December 31, 2018, the Company has been granted 49 patents and it has an additional 21 patent applications pending.
Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements of the Company as of December 31, 2018 have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X and, accordingly, they do not include all information and footnote disclosures required by accounting principles generally accepted in the U.S. (“GAAP”). The Company believes the footnotes and other disclosures made in the financial statements are adequate for a fair presentation of the results of the interim periods presented. The financial statements include all adjustments (solely of a normal recurring nature) which are, in the opinion of management, necessary to make the information presented not misleading. You should read these financial statements and the accompanying notes in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2018, filed with the U.S. Securities and Exchange Commission on December 14, 2018.
Results for the three months ended December 31, 2018 are not necessarily indicative of results for any other interim period or for a full fiscal year.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Foreign Currency
The Company has foreign subsidiaries that operate and sell products and services in various countries and jurisdictions around the world. As a result, the Company is exposed to foreign currency exchange risks. For those subsidiaries whose functional currency is not the U.S. dollar, assets and liabilities are translated into U.S. dollars at the exchange rate in effect on the balance sheet date and revenues and expenses are translated into U.S. dollars using the average exchange rate over the period.  Resulting currency translation adjustments are recorded in accumulated other comprehensive loss in the consolidated balance sheets. The Company recorded a net loss resulting from foreign exchange translation of $0.8 million for the three months ended December 31, 2018 and a net gain resulting from foreign exchange translation of $0.2 million for the three months ended December 31, 2017.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, deferred taxes, and related disclosure of contingent assets and liabilities. On an ongoing basis, management reviews its estimates based upon currently available information. Actual results could differ materially from those estimates. These estimates include, but are not limited to, assessing the collectability of accounts receivable, estimation of the value of stock-based compensation awards, fair value of assets and liabilities acquired, impairment of goodwill, useful lives of intangible assets, standalone selling price related to revenue recognition, contingent consideration, and income taxes.
Revenue Recognition
The Company recognizes revenue in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, and its related amendments (collectively known as “ASC 606”). ASC 606 outlines a single comprehensive model to use in accounting for revenue arising from contracts with customers. The core principle, involving a five-step process, of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
The Company generates revenue primarily from the delivery of licenses (to both on premise and transactional software as a service ("SaaS") products) and related services, as well as the delivery of hardware and professional services. Revenue is measured based on consideration specified in a contract with a customer. The Company recognizes revenue when it satisfies a
6


performance obligation by transferring control over a product or service to a customer which may be at a point in time or over time. See Note 2 of the consolidated financial statements for additional details.
Net Loss Per Share 
The Company calculates net loss per share in accordance with FASB ASC Topic 260, Earnings per Share. Basic net loss per share is based on the weighted-average number of common shares outstanding during the period. Diluted net loss per share also gives effect to all potentially dilutive securities outstanding during the period, such as restricted stock units (“RSUs”), stock options, and Employee Stock Purchase Plan (“ESPP”) shares, if dilutive. In a period with a net loss position, potentially dilutive securities are not included in the computation of diluted net loss because to do so would be antidilutive, and the number of shares used to calculate basic and diluted net loss is the same.
For the three months ended December 31, 2018 and 2017, the following potentially dilutive common shares were excluded from the calculation of net loss per share, as they would have been antidilutive (amounts in thousands):

 Three Months Ended December 31,
 20182017
Stock options3,033 3,062 
RSUs2,949 2,786 
ESPP common stock equivalents70  
Total potentially dilutive common shares outstanding6,052 5,848 

The calculation of basic and diluted net loss per share is as follows (amounts in thousands, except per share data):
 Three Months Ended December 31,
 20182017
Net loss$(3,191)$(5,736)
Weighted-average shares outstanding—basic38,247 34,207 
Common stock equivalents  
Weighted-average shares outstanding—diluted38,247 34,207 
Net loss per share:
Basic$(0.08)$(0.17)
Diluted$(0.08)$(0.17)
Investments
Investments consist of corporate notes and bonds, commercial paper, and U.S. Treasury securities. The Company classifies investments as available-for-sale at the time of purchase and reevaluates such classification as of each balance sheet date. All investments are recorded at estimated fair value. Unrealized gains and losses for available-for-sale securities are included in accumulated other comprehensive loss, a component of stockholders’ equity. The Company evaluates its investments to assess whether those with unrealized loss positions are other-than-temporarily impaired. Impairments are considered to be other-than-temporary if they are related to deterioration in credit risk or if it is likely that the Company will sell the securities before the recovery of its cost basis. Realized gains and losses and declines in value judged to be other-than-temporary are determined based on the specific identification method and are reported in other income, net in the consolidated statements of operations and other comprehensive loss. No other-than-temporary impairment charges were recognized in the three months ended December 31, 2018 and 2017.
All investments whose 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.
Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the net invoice value and are not interest bearing. The Company considers receivables past due based on the contractual payment terms. Allowances for doubtful accounts are established based on various factors, including credit profiles of the Company’s customers, contractual terms and conditions, historical payments, and current economic trends. The Company reviews its allowances by assessing individual accounts receivable over a specific aging and amount. Accounts receivable are written off on a case-by-case basis, net of any amounts that may be collected. The Company had no write-offs of the allowance for doubtful accounts for the three months ended December 31, 2018 and 2017.
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The Company maintained an allowance for doubtful accounts of $0.4 million and $0.3 million as of December 31, 2018 and September 30, 2018, respectively.
Capitalized Software Development Costs
Costs incurred for the development of software that will be sold, leased, or otherwise marketed are capitalized when technological feasibility has been established. Software development costs consist primarily of compensation of development personnel and related overhead incurred to develop new products and upgrade and enhance the Company’s current products, as well as fees paid to outside consultants. Capitalization of software development costs ceases, and amortization of capitalized software development costs commences when the products are available for general release. For the three months ended December 31, 2018 and 2017, no software development costs were capitalized because the time period and costs incurred between technological feasibility and general release for all software product releases were not material or were not realizable. We had no amortization expense from capitalized software costs during the three months ended December 31, 2018 and 2017.
Costs related to software acquired, developed, or modified solely to meet our internal requirements, with no substantive plans to market such software at the time of development, are capitalized. Costs incurred during the preliminary planning and evaluation stage of the project and during post implementation operational stage are expensed as incurred. Costs incurred during the application development stage of the project are capitalized. The Company defines the design, configuration, and coding process as the application development stage. The Company capitalized $49,000 and $54,000 of costs related to computer software developed for internal use during the three months ended December 31, 2018 and 2017, respectively. The Company had $81,000 in amortization expense from internal use software during the three months ended December 31, 2018 and no amortization expense from internal use software during the three months ended December 31, 2017.
Goodwill and Purchased Intangible Assets
The Company’s goodwill and intangible assets resulted from prior acquisitions. Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested for impairment at least annually or as circumstances indicate that their value may no longer be recoverable. In accordance with ASC Topic 350, Intangibles—Goodwill and Other, the Company reviews its goodwill and indefinite-lived intangible assets for impairment at least annually in its fiscal fourth quarter and more frequently if events or changes in circumstances occur that indicate a potential reduction in the fair value of its reporting unit and/or its indefinite-lived intangible asset below their respective carrying values. Examples of such events or circumstances include: a significant adverse change in legal factors or in the business climate, a significant decline in the Company’s stock price, a significant decline in the Company’s projected revenue or cash flows, an adverse action or assessment by a regulator, unanticipated competition, a loss of key personnel, or the presence of other indicators that would indicate a reduction in the fair value of a reporting unit. No such events or circumstances have occurred since the last impairment assessment was performed.
The Company’s goodwill is considered to be impaired if management determines that the carrying value of the reporting unit to which the goodwill has been assigned exceeds management’s estimate of its fair value. Based on the guidance provided by ASC 350 and ASC Topic 280, Segment Reporting, management has determined that the Company operates in one segment and consists of one reporting unit given the similarities in economic characteristics between its operations and the common nature of its products, services and customers. Because the Company has only one reporting unit, and because the Company is publicly traded, the Company determines the fair value of the reporting unit based on its market capitalization as it believes this represents the best evidence of fair value. In the fourth quarter of fiscal 2018, management completed its annual goodwill impairment test and concluded that the Company’s goodwill was not impaired. The Company’s conclusion that goodwill was not impaired was based on a comparison of its net assets to its market capitalization.
Because the Company determines the fair value of its reporting unit based on its market capitalization, the Company’s future reviews of goodwill for impairment may be impacted by changes in the price of the Company’s common stock, par value $0.001 per share (“Common Stock”). For example, a significant decline in the price of the Common Stock may cause the fair value of its goodwill to fall below its carrying value. Therefore, the Company cannot assure that when it completes its future reviews of goodwill for impairment a material impairment charge will not be recorded.
Intangible assets are amortized over their useful lives. Each period, the Company evaluates the estimated remaining useful life of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. The carrying amounts of these assets are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of these assets may not be recoverable. Recoverability of these assets is measured by comparing the carrying amount of each asset to the future undiscounted cash flows the asset is expected to generate. The carrying amount of such assets is reduced to fair value if the undiscounted cash flows used in the test for recoverability are less than the carrying amount of such assets.
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Income Taxes
The Company accounts for income taxes in accordance with FASB ASC Topic 740, Income Taxes. Deferred tax assets and liabilities arise from temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years.
Management evaluates the available evidence about future taxable income and other possible sources of realization of deferred tax assets. The valuation allowance reduces deferred tax assets to an amount that represents management’s best estimate of the amount of such deferred tax assets that more likely than not will be realized. See Note 7 of the consolidated financial statements for additional details.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company recognizes interest and penalties related to income tax matters in income tax expense. See Note 7 of the consolidated financial statements for additional details.
Stock-Based Compensation
The Company issues RSUs, stock options, performance options, and Senior Executive Long Term Incentive Restricted Stock Units (“Senior Executive Performance RSUs”) as awards to its employees. Additionally, eligible employees may participate in the Company’s ESPP. Employee stock awards are measured at fair value on the date of grant and expense is recognized using the straight-line single-option method in accordance with FASB ASC Topic 718, Compensation-Stock Compensation. Forfeitures are recorded as they occur.
The Company assigns fair value to RSUs based on the closing stock price on the date of grant.
The Company estimates the fair value of stock options and ESPP shares using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires subjective assumptions, including future stock price volatility and expected time to exercise, which greatly affect the calculated values. The expected term of options granted is derived from historical data on employee exercises and post-vesting employment termination behavior. The risk-free rate selected to value any particular grant is based on the U.S. Treasury rate that corresponds to the expected life of the grant effective as of the date of the grant. The expected volatility is based on the historical volatility of the Company’s stock price. These factors could change in the future, affecting the determination of stock-based compensation expense in future periods.
The Company estimates the fair value of Senior Executive Performance RSUs, performance options, and similar awards using the Monte-Carlo simulation. The Monte-Carlo simulation requires subjective assumptions, including the Company’s valuation date stock price, the annual risk-free interest rate, expected volatility, the probability of reaching the performance targets, and a 20-trading-day average stock price.
Other Borrowings
The Company has certain loan agreements with Spanish government agencies which were assumed when the Company acquired ICAR Vision Systems, S.L. ("ICAR"). These agreements have repayment periods of five to twelve years and bear no interest. As of December 31, 2018, $0.6 million was outstanding under these agreements and $0.2 million and $0.4 million is recorded in other current liabilities and other non-current liabilities, respectively, in the consolidated balance sheets. As of September 30, 2018, $0.8 million was outstanding under these agreements and $0.3 million and $0.5 million was recorded in other current liabilities and other non-current liabilities, respectively, in the consolidated balance sheets.
Guarantees
In the ordinary course of business, the Company is not subject to potential obligations under guarantees that fall within the scope of FASB ASC Topic 460, Guarantees (“ASC 460”), except for standard indemnification and warranty provisions that are contained within many of the Company’s customer license and service agreements and certain supplier agreements, and give rise only to the disclosure requirements prescribed by ASC 460. Indemnification and warranty provisions contained within the Company’s customer license and service agreements and certain supplier agreements are generally consistent with those prevalent in the Company’s industry. The Company has not historically incurred significant obligations under customer indemnification or warranty provisions and does not expect to incur significant obligations in the future. Accordingly, the Company does not maintain accruals for potential customer indemnification or warranty-related obligations.
Comprehensive Loss 
Comprehensive loss consists of net loss, unrealized gains and losses on available-for-sale securities, and foreign currency translation adjustments. Included on the consolidated balance sheets is accumulated other comprehensive loss of $1.4 million and $0.6 million at December 31, 2018 and September 30, 2018, respectively.
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Recently Adopted Accounting Pronouncements
In October 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory (“ASU 2016-16”), which eliminates the current prohibition on immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory, with the intent of reducing complexity and diversity in practice. Under ASU 2016-16, entities must recognize the income tax consequences when the transfer occurs rather than deferring recognition. For public entities, ASU 2016-16 is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2017. Entities must apply the guidance on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The Company adopted ASU 2016-16 in the first quarter of 2019, and the adoption did not have a material impact on its consolidated financial statements.
In May 2014, the FASB issued guidance codified in ASC 606, to replace existing revenue recognition rules with a single comprehensive model to use in accounting for revenue arising from contracts with customers. Under ASC 606, revenue is recognized when a customer obtains control of promised goods or services for an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. In addition, ASC 606 requires expanded disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The Company adopted ASC 606 on October 1, 2018 for all contracts that were not completed as of the adoption date using the modified retrospective method and the practical expedient was not applied. The Company recognized the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of accumulated deficit. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods. The Company expects the impact of the adoption of the new revenue standard to be immaterial to our net income on an ongoing basis.
See Note 2 of the consolidated financial statements for additional details on the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
Change in Significant Accounting Policy
Except for the changes below, the Company has consistently applied the accounting policies to all periods presented in its consolidated financial statements. The details of the significant changes and quantitative impact of the changes are disclosed below.
Contract Assets and Liabilities
The Company previously recognized license revenue on term licenses and transactional SaaS revenue on the date payments become due and payable. Under ASC 606, the Company recognizes revenue when control of the license or transactional SaaS service is transferred to the customer. The Company records a contract asset when the revenue is recognized prior to the date payments become due.  
Contract assets that are expected to be paid within one year are recorded in other current assets on the consolidated balance sheets. All other contracts assets are recorded in other non-current assets in the consolidated balance sheet. Contract liabilities consist of deferred revenue. When the performance obligation is expected to be fulfilled within one year, the deferred revenue is recorded in current liabilities in the consolidated balance sheet. When the performance obligation is expected to be fulfilled beyond one year, the deferred revenue is recorded in non-current liabilities in the consolidated balance sheet. The Company reports net contract asset or liability positions on a contract-by-contract basis at the end of each reporting period.
Contract Acquisition Costs
The Company previously recognized commission costs in the period earned if the contract was for one year or less. Under ASC 606, when the commission rate for a customer renewal is not commensurate with the commission rate for a new contract, the commission is capitalized if expected to be recovered. Such costs are capitalized on a contract by contract basis and amortized using a portfolio approach consistent with the pattern of transfer of the good or service to which the asset relates. Contract acquisition costs are recorded in other current and non-current assets in the consolidated balance sheets.
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Impacts on Financial Statements
The following table summarizes the cumulative effect of the changes made to the consolidated balance sheet as of October 1, 2018 due to the adoption of ASC 606 (amounts in thousands):
Balance at September 30, 2018 Adjustments Due to the Adoption of ASC 606 Balance at October 1, 2018 
Assets
Other current assets$1,053 $169 $1,222 
Deferred income tax asset15,356 (267)15,089 
Other non-current assets2,147 507 2,654 
Liabilities
Deferred revenue, current portion4,792 (511)4,281 
Deferred revenue, non-current portion485  485 
Equity
Accumulated deficit$(21,002)$920 $(20,082)

The following tables summarizes the impacts of ASC 606 adoption on the Company's consolidated financial statements as of and for the three months ended December 31, 2018 (amounts in thousands except per share data):
Consolidated Statement of Operations 
Impact of changes in accounting policies 
Three Months Ended December 31, 2018: As reported Adjustments Balances without adoption of ASC 606 
Revenue
Software and hardware$9,995 $(690)$9,305 
Service and other7,688  7,688 
Total revenue17,683 (690)16,993 
Operating expenses 
Selling and marketing $7,208 $11 $7,219 

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Consolidated Balance Sheet 
Impact of changes in accounting policies 
December 31, 2018: As reported Adjustments Balances without adoption of ASC 606 
Assets
Other current assets$2,455 $(772)$1,683 
Deferred income tax asset16,716 424 17,140 
Other non-current assets2,815 (517)2,298 
Liabilities
Deferred revenue, current portion4,655 599 5,254 
Deferred revenue, non-current portion407  407 
Equity
Accumulated deficit$(23,273)$(1,464)$(24,737)

Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-15, Intangibles—Goodwill and Other—Internal-Use Software (ASC 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract ("ASU 2018-15"), which requires hosting arrangements that are service contracts to follow the guidance for internal-use software to determine which implementation costs can be capitalized. ASU 2018-15 is effective either prospectively or retrospectively for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company does not expect the adoption of ASU 2018-15 to have a material impact on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, to eliminate, add, and modify certain disclosure requirements for fair value measurements. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurements. The guidance is effective for annual and interim periods beginning after December 15, 2019, but entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. The Company is currently evaluating how to apply the new guidance.
In February 2018, the FASB issued ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (“ASU 2018-02”). Under previously existing GAAP, the effects of changes in tax rates and laws on deferred tax balances are recorded as a component of income tax expense in the period in which the law was enacted. When deferred tax balances related to items originally recorded in accumulated other comprehensive income are adjusted, certain tax effects become stranded in accumulated other comprehensive income. The amendments in ASU 2018-02 allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act of 2017. The amendments in this ASU also require certain disclosures about stranded tax effects. The guidance is required for fiscal years beginning after December 15, 2018 (our fiscal year 2020), and interim periods within those fiscal years. Early adoption in any period is permitted. The Company does not expect the adoption of ASU 2018-02 to have a material impact on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), which eliminates Step 2 of the goodwill impairment test that had required a hypothetical purchase price allocation. Rather, entities should apply the same impairment assessment to all reporting units and recognize an impairment loss for the amount by which a reporting unit’s carrying amount exceeds its fair value, without exceeding the total amount of goodwill allocated to that reporting unit. Entities will continue to have the option to perform a qualitative assessment for a reporting unit to determine if the quantitative impairment test is necessary. ASU 2017-04 will be effective prospectively for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. The Company does not expect the adoption of ASU 2017-04 to have a material impact on its consolidated financial statements.
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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires entities to use a Current Expected Credit Loss model which is a new impairment model based on expected losses rather than incurred losses. Under this model, an entity would recognize an impairment allowance equal to its current estimate of all contractual cash flows that the entity does not expect to collect from financial assets measured at amortized cost. The entity’s estimate would consider relevant information about past events, current conditions and reasonable and supportable forecasts. ASU 2016-13 is effective for interim and annual reporting periods beginning after December 31, 2019 with early adoption permitted for annual reporting periods beginning after December 31, 2018. The Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which modified lease accounting for both lessees and lessors to increase transparency and comparability by recognizing lease assets and lease liabilities by lessees for those leases classified as operating leases under previous accounting standards and disclosing key information about leasing arrangements. ASU 2016-02 will be effective for the Company beginning in its first quarter of fiscal 2020 and early adoption is permitted. The Company is currently evaluating the timing of its adoption and the impact of adopting the new lease standard on its consolidated financial statements.
No other new accounting pronouncement issued or effective during the three months ended December 31, 2018 had, or is expected to have, a material impact on the Company’s consolidated financial statements.

2. REVENUE RECOGNITION
Nature of Goods and Services 
The following is a description of principal activities from which the Company generates its revenue. Contracts with customers are evaluated on a contract-by-contract basis as contracts may include multiple types of goods and services as described below. 
Software and Hardware
Software and hardware revenue is generated from on premise software license sales, as well as sales of hardware scanner boxes and on premise appliance products. For software license agreements that are distinct, the Company recognizes software license revenue upon delivery and evidence of a contract exists. Hardware revenue is recognized in the period that the hardware is shipped.
Service and Other
Service and other revenue is generated from the sale of transactional SaaS products and services, maintenance associated with the sale of software and hardware, and consulting and professional services. The Company recognizes services and other revenue over the period in which such services are performed. The Company’s model typically includes an up-front fee and a periodic commitment from the customer that commences upon completion of the implementation through the remainder of the customer life. The up-front fee is the initial setup fee, or the implementation fee. The periodic commitment includes, but is not limited to, a fixed periodic fee and / or a transactional fee based on system usage that exceeds committed minimums. If the up-front fee is not distinct, revenue is deferred until the date the customer commences use of the Company’s services, at which point the up-front fee is recognized ratably over the life of the customer arrangement. The Company does not view the signing of the contract or the provision of initial setup services as discrete earnings events that are distinct.
Significant Judgments in Application of the Guidance
The Company uses the following methods, inputs, and assumptions in determining amounts of revenue to recognize:
Identification of Performance Obligations
For contracts that contain multiple performance obligations, which include combinations of software licenses, maintenance, and services, the Company accounts for individual goods or services as a separate performance obligation if they are distinct. The good or service is distinct if the good or service separately identifiable from other items in the arrangement and if a customer can benefit from it on its own or with other resources that are readily available to the customer. If these criteria are not met, the promised goods or services are accounted for as a combined performance obligation.
Determination of Transaction Price
The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring products or services to the customer. The Company includes any fixed charges within its contracts as part of the total transaction price. To the extent that variable consideration is not constrained, the Company includes an estimate of the
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variable amount, as appropriate, within the total transaction price and updates its assumptions over the duration of the contract. As a practical expedient, the Company does not adjust the transaction price for the effects of a significant financing component if, at contract inception, the period between customer payment and the transfer of goods or services is expected to be one year or less.
Assessment of Estimates of Variable Consideration
Many of the Company’s contracts with customers contain some component of variable consideration; however, the constraint will generally not result in a reduction in the estimated transaction price for most forms of variable consideration. The Company may constrain the estimated transaction price in the event of a high degree of uncertainty as to the final consideration amount owed because of an extended length of time over which the fees may be adjusted.
Allocation of Transaction Price
The transaction price, including any discounts, is allocated between separate goods and services in contracts that contain multiple performance obligations based on their relative standalone selling prices. The standalone selling prices are determined based on the prices at which the Company separately sells each good or service. For items that are not sold separately, the Company estimates the standalone selling prices using available information such as market conditions and internally approved pricing guidelines. In instances where there are observable selling prices for professional services and support and maintenance, the Company may apply the residual approach to estimate the standalone selling price of software licenses. In certain situations, primarily transactional SaaS revenue described above, the Company allocates variable consideration to a series of distinct goods or services within a contract. The Company allocates variable payments to one or more, but not all, of the distinct goods or services or to a series of distinct goods or services in a contract when (i) the variable payment relates specifically to the Company’s efforts to transfer the distinct good or service and (ii) the variable payment is for an amount that depicts the amount of consideration to which the Company expects to be entitled in exchange for transferring the promised goods or services to its customer.
Disaggregation of Revenue
The following table presents the Company's revenue disaggregated by major product category (amounts in thousands):
Three Months Ended December 31,
20182017
Major product category
Deposits software and hardware$9,050 $5,147 
Deposits services and other2,820 1,954 
Deposits revenue11,870 7,101 
Identity verification software and hardware945 2,059 
Identity verification services and other4,868 2,976 
Identity verification revenue5,813 5,035 
Total revenue17,683 12,136 

Software and hardware revenue is generated from on premise software license sales, as well as sales of hardware scanner boxes and on premise appliance products. Service and other revenue is generated from the sale of transactional SaaS products and services, maintenance associated with the sale of software and hardware, and consulting and professional services.
Contract Balances
The following table provides information about contract assets and contract liabilities from contracts with customers (amounts in thousands):
December 31, 2018October 1, 2018
Contract assets, current $772 $169 
Contract assets, non-current 507 507 
Contract liabilities, current 4,655 4,792 
Contract liabilities, non-current $407 $485 

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Contract assets, reported within other current and long-term assets in the consolidated balance sheet, primarily result from revenue being recognized when a license is delivered and payments are made over time. Contract liabilities primarily relate to advance consideration received from customers, deferred revenue, for which transfer of control occurs, and therefore revenue is recognized, as services are provided. Contract balances are reported in a net contract asset or liability position on a contract-by-contract basis at the end of each reporting period. The Company recognized $2.3 million of revenue during the three months ended December 31, 2018 that was included in the contract liability balance at the beginning of the period.
Contract Costs
The Company incurs incremental costs to obtain a contract, consisting primarily of sales commissions incurred only if a contract is obtained. Capitalized sales commissions included in other current and non-current assets on the consolidated balance sheets totaled $1.2 million and $1.0 million at December 31, 2018 and October 1, 2018, respectively.
Capitalized contract costs are amortized based on the transfer of goods or services to which the asset relates. The amortization period also considers expected customer lives and whether the asset relates to goods or services transferred under a specific anticipated contract. These costs are included in selling and marketing expenses in the consolidated statement of operations and totaled $0.1 million during the three months ended December 31, 2018. There was no impairment loss recognized during the three months ended December 31, 2018 related to capitalized contract costs.

3. BUSINESS COMBINATIONS
A2iA Group II, S.A.S.
On May 23, 2018, the Company acquired all of the issued and outstanding shares of A2iA Group II, S.A.S. ("A2iA"), a simplified joint stock company formed under the laws of France, pursuant to a share purchase agreement, by and among the Company, each of the holders of outstanding shares of A2iA and Andera Partners, S.C.A., as representative of the sellers (the “A2iA Acquisition”). Upon completion of the A2iA Acquisition, A2iA became a direct wholly owned subsidiary of the Company. The A2iA Acquisition extends Mitek’s global leadership position in both mobile check deposit and digital identity verification and combines the two market leaders in document recognition and processing.
As consideration for the A2iA Acquisition, the Company (i) made a cash payment of $26.8 million, net of cash acquired; (ii) issued 2,514,588 shares, or $21.9 million, of the Company’s Common Stock; and (iii) incurred transaction related liabilities of $0.2 million.
The Company incurred $2.2 million of expense in connection with the A2iA Acquisition primarily related to legal fees, outside service costs, and travel expense, which are included in acquisition-related costs and expenses in the consolidated statements of operations and other comprehensive loss.
On May 23, 2018, the Company deposited $0.7 million of the cash payment and 508,479 shares, or $4.4 million, of Common Stock into an escrow fund to serve as collateral and partial security for certain indemnification rights of the Company. The escrow fund will be maintained for up to 24 months following the completion of the A2iA Acquisition or until such earlier time as the escrow fund is exhausted.
The Company used cash on hand for the cash paid on May 23, 2018.
ICAR Vision Systems, S.L.
On October 16, 2017, Mitek Holding B.V., a company incorporated under the laws of The Netherlands and a wholly owned subsidiary of the Company (“Mitek Holding B.V.”), acquired all of the issued and outstanding shares of ICAR, a company incorporated under the laws of Spain (the “ICAR Acquisition”), and each of its subsidiaries, pursuant to a Share Purchase Agreement (the “Purchase Agreement”), by and among, the Company, Mitek Holding B.V., and each of the shareholders of ICAR (the “Sellers”). Upon completion of the ICAR Acquisition, ICAR became a direct wholly owned subsidiary of Mitek Holding B.V. and an indirect wholly owned subsidiary of the Company. ICAR is a leading provider of consumer identity verification solutions in Spain and Latin America. The ICAR Acquisition strengthens the Company’s position as a global digital identity verification powerhouse in the Consumer Identity and Access Management solutions market.
As consideration for the ICAR Acquisition, the Company: (i) made a cash payment to Sellers of $3.0 million, net of cash acquired and subject to adjustments for transaction expenses, escrow amounts, indebtedness, and working capital adjustments; and (ii) issued to Sellers of 584,291 shares, or $5.6 million, of Common Stock. In addition to the foregoing, the Sellers may be entitled to additional cash consideration upon achievement of certain milestones as follows: (a) subject to achievement of the revenue target for the fourth quarter of calendar 2017, the Company will pay to Sellers up to $1.5 million (the “Q4 Consideration”), which amount shall be deposited (as additional funds) into the escrow fund described below; and (b) subject to achievement of certain revenue and net income targets for ICAR for the twelve-month period ending on September 30, 2018,
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and the twelve-month period ending on September 30, 2019, the Company will pay to Sellers up to $3.8 million in additional cash consideration (the “Earnout Consideration”); provided that if the revenue target set forth in clause (a) is not met, then the Q4 Consideration will instead be added to the Earnout Consideration payable upon (and subject to) achievement of the revenue and net income targets for the twelve-month period ending on September 30, 2018. The Company estimated the fair value of the total Q4 Consideration and Earnout Consideration to be $2.9 million on October 16, 2017, which was determined using a discounted cash flow methodology based on financial forecasts determined by management that included assumptions about revenue growth and discount rates. Each quarter the Company evaluates the estimated fair value of the Earnout Consideration and revises if necessary.  
The Company incurred $0.5 million of expense in connection with the ICAR Acquisition primarily related to legal fees, outside service costs, and travel expense, which are included in acquisition-related costs and expenses in the consolidated statements of operations and other comprehensive loss.
On October 16, 2017, the Company deposited $1.5 million of cash into an escrow fund to serve as collateral and partial security for working capital adjustments and certain indemnification rights. In April 2018, the Q4 Consideration of $1.5 million was deposited into the escrow fund. The escrow fund will be maintained for up to 24 months following the completion of the ICAR Acquisition or until such earlier time as the escrow fund is exhausted. As a result of the achievement of earnout targets during fiscal 2018, the Company paid $1.8 million in January 2019.
The Company used cash on hand for cash paid on October 16, 2017, and under the terms of the Purchase Agreement, the Company has agreed to guarantee the obligations of Mitek Holding B.V. thereunder.
Acquisitions are accounted for using the purchase method of accounting in accordance with ASC Topic 805, Business Combinations. Accordingly, the results of operations of A2iA and ICAR have been included in the accompanying consolidated financial statements since the date of each acquisition. The purchase price for both the A2iA Acquisition and the ICAR Acquisition have been allocated to the tangible and intangible assets acquired and liabilities assumed based upon the respective estimates of fair value as of the date of each acquisition, and are based on assumptions that the Company’s management believes are reasonable given the information currently available. The Company is in the process of completing its valuation of certain intangible assets and the valuation of the acquired deferred income taxes of A2iA. The final allocations of each such purchase price to intangible assets and deferred income taxes may differ materially from the information presented in these unaudited consolidated financial statements.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed during the year ended September 30, 2018 (amounts shown in thousands):
A2iAICARTotal
Current assets$3,929 $2,036 $5,965 
Property, plant, and equipment 307 83 390 
Intangible assets 28,610 6,407 35,017 
Goodwill 24,991 6,936 31,927 
Other non-current assets 1,177 87 1,264 
Current liabilities (2,688)(1,652)(4,340)
Deferred income tax liabilities(7,503)(1,602)(9,105)
Other non-current liabilities (7)(828)(835)
Net assets acquired $48,816 $11,467 $60,283 

The goodwill recognized is due to expected synergies and other factors and is not expected to be deductible for income tax purposes. The Company estimated the fair value of identifiable acquisition-related intangible assets with definite lives primarily based on discounted cash flow projections that will arise from these assets. The Company exercised significant judgment with regard to assumptions used in the determination of fair value such as with respect to discount rates and the determination of the estimated useful lives of the intangible assets. The following table summarizes the estimated fair values and estimated useful lives of intangible assets with definite lives acquired during the year ended September 30, 2018 (amounts shown in thousands, except for years):
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Amortization PeriodAmount assigned
A2iA
Completed technologies7.0 years$13,015 
Customer relationships5.0 years15,360 
Trade names5.0 years235 
Total intangible assets acquired from A2iA$28,610 
ICAR
Completed technologies5.0 years$4,956 
Customer relationships2.0 years1,298 
Trade names3.0 years153 
Total intangible assets acquired from ICAR$6,407 

The following unaudited pro forma financial information is presented as if the acquisitions had taken place at the beginning of the periods presented and should not be taken as representative of the Company’s future consolidated results of operations. The following unaudited pro forma information includes adjustments for the amortization expense related to the identified intangible assets.
The following table summarizes the Company’s unaudited pro forma financial information presented as if the acquisitions occurred on October 1, 2017 (amounts shown in thousands):
Three Months Ended December 31,
 20182017
Pro forma revenue$18,897 $17,321 
Pro forma net loss$(1,980)$(5,975)

4. INVESTMENTS
The following tables summarize investments by type of security as of December 31, 2018 and September 30, 2018, respectively (amounts shown in thousands):
December 31, 2018:Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Market
Value
Available-for-sale securities:    
U.S. Treasury, short-term$3,698 $ $(2)$3,696 
Corporate debt securities, short-term5,561  (9)5,552 
Total$9,259 $ $(11)$9,248 

September 30, 2018:
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair Market
Value
Available-for-sale securities:    
U.S. Treasury, short-term$3,693 $ $(10)$3,683 
Corporate debt securities, short-term4,779  (14)4,765 
Total$8,472 $ $(24)$8,448 

The cost of securities sold is based on the specific identification method. Amortization of premiums, accretion of discounts, interest, dividend income and realized gains and losses are included in investment income.
The Company determines the appropriate designation of investments at the time of purchase and reevaluates such designation as of each balance sheet date. All of the Company’s investments are designated as available-for-sale debt securities. As of December 31, 2018 and September 30, 2018, the Company’s short-term investments have maturity dates of less than one
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year from the balance sheet date and the Company’s long-term investments have maturity dates of greater than one year from the balance sheet date.
Available-for-sale marketable securities are carried at fair value as determined by quoted market prices for identical or similar assets, with unrealized gains and losses, net of taxes, and reported as a separate component of stockholders’ equity. Management reviews the fair value of the portfolio at least monthly and evaluates individual securities with fair value below amortized cost at the balance sheet date. For debt securities, in order to determine whether impairment is other-than-temporary, management must conclude whether the Company intends to sell the impaired security and whether it is more likely than not that the Company will be required to sell the security before recovering its amortized cost basis. If management intends to sell an impaired debt security or it is more likely than not that the Company will be required to sell the security prior to recovering its amortized cost basis, an other-than-temporary impairment is deemed to have occurred. The amount of an other-than-temporary impairment on debt securities related to a credit loss, or securities that management intends to sell before recovery, is recognized in earnings. The amount of an other-than-temporary impairment on debt securities related to other factors is recorded consistent with changes in the fair value of all other available-for-sale securities as a component of stockholders’ equity in other comprehensive income. No other-than-temporary impairment charges were recognized in the three months ended December 31, 2018 and 2017. There were no realized gains or losses from the sale of available-for-sale securities during the three months ended December 31, 2018 and 2017.
Fair Value Measurements and Disclosures
FASB ASC Topic 820, Fair Value Measurements (“ASC 820”) defines fair value, establishes a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined under ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. ASC 820 describes a fair value hierarchy based on the following three levels of inputs that may be used to measure fair value, of which the first two are considered observable and the last, unobservable:
Level 1—Quoted prices in active markets for identical assets or liabilities;
Level 2—Inputs other than Level 1 inputs that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
The following tables represent the fair value hierarchy of the Company’s investments and acquisition-related contingent consideration as of December 31, 2018 and September 30, 2018, respectively (amounts shown in thousands):
December 31, 2018:BalanceQuoted Prices in Active Markets (Level 1)Significant Other Observable Inputs (Level 2)Significant Unobservable Inputs (Level 3)
Assets:
    
Short-term investments:    
U.S. Treasury$3,696 $3,696 $ $ 
Corporate debt securities    
Financial2,246  2,246  
Industrial1,922  1,922  
Commercial paper
Financial1,384  1,384  
Total assets at fair value$9,248 $3,696 $5,552 $ 
Liabilities:
    
Acquisition-related contingent consideration3,007   3,007 
Total liabilities at fair value$3,007 $