Mitek Systems Inc (MITK) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the Q4 2010 Mitek Systems earnings and fiscal 2010 conference call. My name is Keith, and I will be your operator for today. (Operator Instructions). As a reminder, today's conference is being recorded for replay purposes. I would now like to turn the conference over to Mr. Josh Roach. Please proceed, sir.

Thank you, and welcome to the Mitek Systems' quarterly conference call to discuss operational results for the fourth quarter and year-end results for our 2010 fiscal year, ending September 30.

This conference call may contain forward-looking statements. These statements relate to future events or future financial performance, including statements regarding future acceptance and use of our products and technology. Such statements are subject to risks and uncertainties. In some cases you can identify forward-looking statements by terminology such as may, will, should, expect, plan, anticipate, believe, feel, estimate, predict, potential or continue, the negative of such terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.

Factors that could cause actual results to differ from those contained in the forward-looking statements include but are not limited to the general conditions of the domestic and global economy; our ability to continue to develop, produce and introduce innovative new products in a timely manner; our ability to identify and execute successfully cost control initiatives without adversely affecting sales; the performance of new products and continued acceptance of current products; uncertainties associated with intellectual property protection or our products; and other risks identified from time to time in our filings made with the US Securities and Exchange Commission. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results. Moreover we assume no responsibility for the accuracy or completeness of such forward-looking statements and undertake no obligation to update any of these forward-looking statements.

This call is also being broadcast live over the web, and will be available for replay through February 1, 2011, and on the Investors section of our website at www.miteksystems.com.

Now I would like to turn the call over to James DeBello, President and CEO of Mitek.

Well, thanks, Josh, and welcome, everyone. And thanks for joining us on today's call to discuss our performance during our fiscal fourth quarter and 2010 fiscal year.

Mitek has emerged today as a leader in financial document capture using smartphones. Not only are we seeing what we believe to be an inflection point in the adoption of our flagship Mobile Deposit application, but we continue to transform the market for document capture with our recently launched Mobile Photo Bill Pay product. We are seeing an unprecedented level of interest in our products and are happy to partner with PayPal to bring mobile check capture to the market. According to independent research firm Mercatus, more than 1.5 billion check deposits a year will originate from mobile phones by 2014.

Our patented mobile imaging products transform any smartphone into a palm-sized document scanner, almost a scanner in your pocket, with the ability to read data from any document captured by a smartphone's camera. Our strategy is to provide consumers the mobile imaging tools needed to manage their business life in real-time wherever they are. Using Mitek mobile apps, smartphone users can now deposit checks, pay bills, save receipts, and even fax documents while on the road or sitting at a desk, eliminating trips to the bank, post office and even the file cabinet. By simply taking a picture of any document, Mitek does the rest. We correct image distortion, we extract relevant data, and we route the images to their desired location for processing at their bank.

Mitek is enjoying broad acceptance because our products truly bring usefulness and convenience to everyday lives. We are very pleased to report a profit in the fourth quarter, strong growth during the year, and an unqualified audit opinion of our financial statements from our independent public accounting firm. But before I get into our numbers, I would like to provide a context of why we are excited about the mobile imaging market.

As a background to those of you who are following Mitek for the first time, Mitek has provided financial institutions with advanced imaging in analytics software for over 20 years. Traditionally our software is deployed in the back office to read data from imaged checks and other financial documents like receipts and bills. It is currently being used by all leading financial organizations in the US, including the top five banks, to help process more than 10 billion checks and documents annually. When I joined Mitek, I knew Mitek had a tremendous vault of very advanced imaging technology, and we began to look for a market where our technology could emerge from the back office and impact the everyday lives of millions of people.

The inflection point for us was the convergence of smartphone cameras, mobile Internet and payments. As a result, we think the biggest opportunity by far for our shareholders is to enable the smartphone camera to manage everyday financial tasks. By combining our core technology with our new mobile imaging inventions, we have transformed this Company. Think of it this way; among the 100 million households and 28 million businesses in America, over 150 billion bills are paid annually and 25 billion checks are written. Imagine being able to deposit a check or pay a bill with the convenience of your cell phone camera. Well, you can with Mitek.

Mobile imaging is also a global opportunity among heavily penetrated mobile markets in Europe and Asia in which advanced cell phone features, including 10 megapixel cameras, are a fixture of daily life. When all is said and done, we believe this represents a $1 billion market opportunity.

The mobile world is now business ready and so is Mitek. We are just beginning to commercialize our mobile apps. Our flagship model, Mobile Deposit, gives smartphone users an accurate, secure and easy way to deposit checks simply by snapping photos of their check with the cameras on their mobile devices. Largely through our leadership, we have created an entirely new banking industry product category named Mobile Remote Deposit Capture, or Mobile RDC for short, which allows you to deposit checks from your cell phone. Our newest product announced just last month is Mobile Photo Bill Pay, and that allows anyone to use their smartphone camera to point, shoot and pay any bill or invoice without writing a check.

The underlying market trends we see are just phenomenal. Morgan Stanley predicts that in two years more smartphones will be shipped than the shipments of all laptops and desktop PCs combined. And adoption of mobile banking is emerging as one of the most rapidly adopted banking services, eclipsing the rate of growth of online banking. Banks are now touting mobile banking as the most convenient way to access your financial information. According to independent research firm TowerGroup, the mobile banking customer is the most profitable customer segment for banks. And as a result, 52 of the nation's top banks by asset size offer mobile banking services today, up from half as many just last year. And today there are nearly 15 million mobile banking users, expected to grow to 100 million mobile banking users by 2014 by some industry analysts.

Our mobile bank apps help the banks differentiate themselves by incorporating Mobile Deposit, Mobile Photo Bill Pay and other advanced imaging capabilities into their mobile banking services. According to a recent study reported in American Banker magazine just last week, nearly half of the nation's top banks that have deployed a mobile banking service are extending those applications with Mobile RDC.

Consumers view Mobile RDC as a convenient alternative to depositing a check at a branch or ATM, with over 50% of mobile banking users finding Mobile RDC a highly desirable feature. USAA was the first bank to launch a mobile banking application with check deposit using Mitek's imaging technology. As the 30th largest bank in the nation, their customer base has deposited over $1 billion of checks in only a year since launch.

Even online payments provider PayPal has joined the fray, acknowledging that as customers move their lives to the cell phone, it can't limit itself to the desktop. It recently launched a PayPal app incorporating Mitek's Mobile Deposit that allows you to add money to your PayPal account by just taking a cell phone photo of a physical check. And PayPal says it is seeing early signs of mobile success in an area where it makes check cashing more convenient. This unit of eBay says it handled $100,000 in checks from its mobile customers in roughly a day and a half after it kicked off its mobile check cashing service, and roughly a few weeks later PayPal had processed over $1 million worth of checks.

Mitek is not in a leadership position because we woke up one day and said let's build some mobile apps. We truly have some significant competitive advantages that we have invested in over the years. First, experience. We have a 10 year investment in core imaging and analytic science and have been working with banks for well over a decade. This is a unique technology skill not easily understood and mastered, and we have established our technology within the industry as the gold standard.

Second, intellectual property. We have six patents and eight more pending, and were recently awarded a patent for Mobile Deposit during the fourth quarter. Entitled systems from mobile image capture and processing of checks, the claims cover, among other things, capturing an image of a financial document such as a check, using a camera in a smartphone or other mobile device and transmitting the image to a bank for deposit into a customer's account.

And third, channel distribution. We have the advantage of time to market momentum that has allowed us to establish relationships with all of the leading system integrators and technology providers who provide check processing, bill payment and other core systems to the nation's 20,000 financial institutions. This list includes partnerships with venerable leaders such as Fiserv, FIS, NCR, Jack Henry Associates, Warsaw Financial, BankServe, JMB Software, RDM, and nimble entrepreneurial companies like Cache Financial, Bluepoint, and Secure Payment Systems. In addition, the Company has partnered with all the leading mobile banking platform providers, including mFoundry, ClairMail, Kony, and Monetize America, who count among their customers the top banks and credit unions in the country. In a recent article, a manager at Fiserv says its phone is ringing off the hook with interest in Mobile RDC, which reflects just some of the excitement we are seeing.

Our three-phase product strategy capitalizes on the camera for data input. The first phase of our strategy is to leverage our core mobile imaging technology to extend our lead in the financial vertical, particularly among mobile banking users. The second phase of our strategy is to gain a foothold in new verticals in which we can apply our core mobile imaging platform to capturing data from a variety of other documents and forms, such as bill of ladings, insurance policies, and even medical documents. And lastly, the third phase of our strategy is to launch our mobile imaging cloud service for third-party developers. Our revenue model is based on subscriber license fees or transaction fees that are recurring. We expect our revenue to scale with a broad adoption of our products.

Now I would like to review our financials. Net sales for the fourth quarter of fiscal 2010 were $1.6 million, compared with $804,000 in the same quarter of last year, an increase of 100%. Gross margin for the fourth quarter of fiscal 2010 was 87%, compared with 81% for the same quarter last year, reflecting a change of product mix from sales of the Company.

Net income for the fourth quarter at fiscal 2010 was $180,000 or $0.01 per basic and diluted share, compared with a net loss of $328,000 or $0.02 per basic and diluted share for the same fiscal quarter last year. For the fiscal year, net sales were $5.1 million, compared with $3.6 million in the same period last year, an increase of 42% year over year. Gross margin for fiscal 2010 was 81%, compared to 82% for fiscal 2009.

Net loss for fiscal 2010 was $682,000 or $0.04 per basic and diluted share, compared with a net loss of $1.3 million or $0.08 for basic and diluted shares for the prior fiscal year 2009. Now, the fiscal 2010 net loss includes noncash expenses totaling $700,000, comprised of $406,000 of noncash stock-based compensation expense and another $295,000 of noncash interest expense on convertible debentures.

The Company ended fiscal year 2010 with cash and cash equivalence of $1.3 million, compared with $674,000 at the end of fiscal year 2009. As of September 30, 2010, the end of our fiscal year, the Company had working capital of approximately $1.4 million and stockholders' equity of $1 million, compared with negative working capital of approximately $280,000 and stockholders' equity of only $126,000 at the end of fiscal year 2009, just one year ago. Subsequent to the end of the fiscal year, the Company closed a private equity financing totaling $750,000 on October 1, 2010, putting our current cash balance at $2.1 million today. This raise allowed us to receive an unqualified audit opinion.

With those comments concluded, I would like to at this point end my comments and answer your questions. Operator?

(Operator Instructions). Your first question is from the line of Bud Leedom with California Equity Research. Please proceed.

Hi, Jim. Congratulations on a very solid quarter there.

Thank you, Bud.

Just a couple of questions. First off, can you discuss any specifics on the bank channel for Mobile Deposit, and how you see this opportunity rolling out in 2011?

I can, Bud, and this is an interesting question. The -- Mitek has been investing in developing our mobile imaging technology now for the past several years. And this is a new domain of technology that layers on top of our core imaging technology that we've invested in for the past decade. So this is a very sophisticated technology, and we have created a new domain. It has been imperative that we create a channel of distribution to distribute and market this product. And we've done that successfully in 2010 just ended. In fact, we landed OEM agreements with all of the major system integrators in the market who supply technology to banks and other financial institutions. So we think that is a major accomplishment and that's a defensive barrier, as companies have selected Mitek to provide their Mobile RDC.

But it goes beyond that, Bud, and I think this is the interesting thing about this market. This is not just about banking. We are seeing interest for our mobile imaging products from other types of institutions. Besides banks, we are seeing interest from brokerages and payment companies like PayPal. And furthermore, we see the market expanding not only nationally, but globally as our mobile imaging solutions can provide tremendous benefit to other industries. And I alluded to that earlier in my comments, that we see it going beyond financial services into other verticals; field services, field operations, insurance, medical, and a host of other types of applications that can benefit from the ability to use your camera on your mobile device to image, capture a document, and extract important actionable data.

Okay, great. And I guess maybe just to expound upon that, obviously you are signed up with all the major VARs there, and there has been a lot of press out there. I know Fiserv was talking about some of the opportunities that they are seeing, characterizing it as very significant. Can you maybe get into some of the -- maybe it is hard to talk about specific customers, but just really the feedback that you are receiving from your major VARs in terms of their conversations with potential customers?

Well, Fiserv -- it is interesting. I mentioned earlier that one of their managers said that their phone is ringing off the hook in a recent interview that he was quoted in a bank technology news article. And Fiserv being the gorilla in the industry, it really sets the pace, but working in that industry with equal visibility and penetration of the market would be companies like FIS, which is the combined Metavante and Fidelity information systems company; NCR; and as I mentioned, Jack Henry, Warsaw and a host of others. What we're seeing is an unprecedented level of excitement. It is just unbelievable to us the level of enthusiasm and the number of calls and inquiries we receive at Mitek.

And of course we push those inquiries primarily to our channel partners. We rely on our two-tier distribution channel to scale Mitek. It is an efficient way for a technology vendor like us to build our business. But not only Fiserv, but all of our partners are reporting a tremendous surge of interest in planning for roll-outs of Mobile Deposit. And although we don't control the timing of these deals, again because it is Fiserv. FIS and the others who are pursuing the business, we know that their pipelines are growing because we interact with our partners on a regular basis.

And interestingly enough, First Annapolis Consulting recently reported that over half of the banks offering mobile banking services have plans to launch Mobile RDC. And so that's consistent with the data that we received from Mercatus that says over half of all mobile banking users find Mobile Deposit highly desirable. So we really think there is a pent-up demand for what we have created, and we expect to see additional commercial launches this year, in 2011, our new fiscal, and beyond.

Okay. So do you expect to see this translate into something rather near term? And again, I know you don't control how these are relayed to the public, but this is a very near term opportunity then in terms of these customers actually rolling out?

We truly expect to be announcing some material new customers in the near future. And we expect that Mitek will do that as well as many of our partners.

Great. Okay. And then just lastly, I see you closed on the $750,000 financing after the end of the quarter, which I presume was to wipe out the going concern. Are you still looking to raise additional funds, or was that just kind of a one-time deal there?

Bud, we actually had a specific strategy in mind when raising the $750,000, and that was to eliminate the qualified opinion that is legacy. We accomplished that goal, and we believe now that we have sufficient cash to finance the Company's growth as-is today, and we are not looking for additional financing at this moment.

Great. Well, thanks again, and again, congratulations on the quarter.

Thank you.

Your next question is from the line of Novid Rassouli with LD Micro. Please proceed.

Congratulations on the strong quarter, Jim.

Thanks, Novid.

Just had a few questions for you. I want to see -- on the improving gross margins for Q4, what attributed to that?

We see that the product mix is migrating more towards mobile as the primary element of our sales revenue. And traditionally Mitek has been providing our core recognition technology to the back office of banks and other financial institutions for the last decade. Those carry a higher cost of sales and as the -- we migrate more towards a mix dominated by mobile, we see our cost of sales going down and therefore an increased gross margin.

And are you breaking off the revenues at all as far as what percentage is coming from the newer products versus the back office?

I appreciate the question, and I think that is an interesting one. We do not break it out. We do not intend to do it at this stage, nor are we providing guidance at this point, Novid, in our growth. We are an emerging growth company. I think it is reflected with our stock price moving up the scale at a rapid pace and our revenues improving. We see that continuing, but we are at the nascent stage of this market at this point. So what we have done to build our revenue is to establish strong partnerships with OEM partners and providers. They have placed initial orders with us. We have seen that move through the channel into new customers, and those customers are currently either launched or beginning to get launched this quarter or next.

Great. And the last question is, with the revenues again, are you guys stating how much of it is recurring? Or any color there?

Well, the color I can provide you is that we have transformed the Company's revenue and economic model dramatically. And this is part of my task as well. When I came into Mitek, it was traditionally enterprise lumpy sales that were unpredictable. The model that we've created in and around our mobile imaging technology is one that is scalable and more predictable. This will help us manage the Company and also help you understand the Company as we continue to grow.

That model is built on revenue from subscriptions -- these are subscribers who deploy our products, the end user -- on either an annual basis or sometimes longer terms, depending on the economics of the deal. And secondly, the other model which we offer is based on transactions of deposits, number of deposits. Obviously, for competitive reasons, we can't reveal what those numbers or ranges are, but we feel that is a scalable model. Much like you see in the mobile industry, when you buy an annual subscription or a plan, that's a very predictable revenue stream that your carrier is getting. We want to replicate that with how we are building our revenue stream here at Mitek. That revenue stream is beginning to kick in, although we will probably see it fully kicked in in the new calendar year after we sell through into the channel and see a greater proliferation of commercial launches. And that's the stage we are at now, is commercializing this technology. We are just beginning that.

Great. Thank you very much, Jim. Again, congratulations.

Thank you.

Your next question is from the line of George Sutton with Craig-Hallum Capital Group. Please proceed.

Good morning, guys. This is Jason filling in for George.

I'm sorry, I missed the name.

Jason.

Jason. Hi, Jason.

Hi. Say, Jim, if you were able to give a best guess, I was just wondering which market is ultimately the larger opportunity, the Bill Pay or the Mobile Deposit? And then also wondering if the buyers, or I guess the partners are the same in both of those products?

Great question. Let me give you my answer. Today we look at Mobile Deposit as the flagship product for Mitek. It has established partners who are actively in the market, marketing and selling and signing deals. We are very excited about that. We think that is a sizable market that is primarily focused on domestic check deposits. As you may know, Jason, the US market is the largest check deposit market in the world by orders of magnitude, followed by France, believe it or not, followed by India, believe it or not, but the sprinkling of checks in different markets as well. We think that is an exciting market, and we are seeing rapid adoption. There is a real wow factor, a sizzle to Mobile Check Deposit, and we have seen that from the very beginning.

When I speak at conferences, I will ask people in the audience how many of you would go home if you forgot your wallet? And very few people raised their hand. But if I asked them how many would go home to retrieve your cell phone if you forgot it, everybody's hands shoots up. Cell phones and particularly smartphones are becoming central to our lives. Being able to take care of points of pain. Everyday annoyances, like depositing a check, really facilitates the interest in our product. It really solves a point of pain. So we think that market is sizable and one in which we have a dominant lead as the leader in mobile RDC. Plus our patent further supports our unique market position.

But to answer your question directly about Mobile Photo Bill Pay, that market is global. And by definition, that market has the potential of being even bigger than Mobile Deposit. There are 150 billion bills being paid by businesses and households in America alone, and that would multiply worldwide. So we believe Photo Bill Pay is a phenomenon that could be adopted in the EU and in countries within Asia, and so have broad acceptance that way. We have seen a surge of interest in Mobile Photo Bill Pay immediately after announcing it just a month ago, and we are already in serious dialogue with several leading institutions who want to sign on as first-to-market providers. So we do believe that Mobile Photo Bill Pay could potentially offer a bigger market opportunity.

But, Jason, let me just amplify one last step, because we don't stop there. There are other products we have in mind within the financial vertical that could again add utility and ease and convenience to consumers by virtue of snapping a photo of a document with their cell phone camera. But it goes beyond those consumers into a broader market in different industries, and we are beginning just to dip our toe in the water here as it relates to other vertical markets which could also see added utility by snapping document photos using their mobile camera on their smartphone. And so we see that easily as being something that could be launched and adopted within 2011, and that would be a category I call Mobile Document Capture, not restricted only to financial documents, but more broadly associated with all types of documents servicing different types of vertical needs.

Okay, that's great. And then one quick follow-up if I can. What percentage of the top 20 banks do you expect would deploy this smartphone image deposit technology?

Today over half of the top 100 banks have mobile banking services. That's 2x what it was a year ago. We expect that to be ubiquitous in short order. And once you order -- offer mobile banking services, a major part of what banks do is depository functions. So it is natural to assume that it is ubiquitous among the top 100 banks, or the top 20 banks as you phrased, for mobile banking services. We would expect all of them to deploy Mobile RDC, and we would expect that that would be Mitek's product.

Okay, great. Thank you.

Your next question is from the line of Mike Wallace with White Pine Capital. Please proceed. Mr. Wallace, your line is open.

I got a follow-up here on Novid's question. Last year revenues of $800,000 I don't think included any of the new business, is that right?

Last year's revenue was $3.6 million and --

No, just in the quarter.

Oh, the prior quarter. The quarter had very little. In fact, probably a de minimis amount of mobile revenue. That third quarter -- are you referring to third quarter, Mike?

Yes, the third quarter of --

Fiscal 2010?

Yes, of 2010. I'm sorry, 2009, last year's fourth quarter.

Oh, alright. Mike, let me just stop, and let's retrace that. So (multiple speakers) --

Last year's fourth quarter of $800,000 just was pretty much -- $804,000 was pretty much just the traditional business, right?

Correct.

And if I remember correctly, the trends of revenues in that business were sort of flattish, up or down a little bit --

That's correct.

-- quarter to quarter, but nothing --

Yes, and I would characterize that business, Mike, for everyone else's benefit, as our core products that we sell to the back office for profit improvement. Those are recognition tool kits primarily.

Yes. And I don't suspect that trends have changed much?

Mike, as it relates to the core business, you are correct. Now, what we expect going forward was there may be some pull through on the core products as people adopt mobile. They may be linked. The customer base is the same largely, the integrators and obviously the banks. So there may be some lift, although we are not predicting that.

Okay. So -- that's good to know. And then in terms of how the margin structure of the model evolves, gross margin is now up almost to 90%. I've got to think that the mobile margins are north of that on a gross basis. You've got how many employees are at the firm now?

We've reported a little over 20.

20 people, and you added a marketing -- you added Drew Hyatt here this quarter.

Correct.

Any plans to add some additional people?

Yes, Mike, we actually are looking at that for our 2011 fiscal plan, and we see the opportunity now blossoming. We need to jump on the opportunity ahead of us. We are getting more calls than we can handle, therefore we need to add more in the sales and marketing function appropriately, and obviously, to support our customers, more in the client services arena. So those are the two areas we're focused on. We feel very confident with the strength of our engineering and scientific teams. We are comprised of a host of Ph.D. scientists and very sophisticated advanced degree engineers that have created this architecture that is very, very scalable and has very high accuracy rates.

Okay. So the R&D and the G&A lines will stay relatively stable in that sort of 300 to 350 a quarter basis and roughly around $0.5 million on the R&D line?

Yes, relatively stable is the right way to characterize that, Mike. We are not a CapEx business, for obvious reasons. We are a software developer. So really our added expenses would be head count. And we are very conservative in that regard. I think we have done a good job from our control function to manage our cash and to reduce expenses appropriately, but still create a larger than life image in the market place. We had an industry analyst come up to us and say, you know, you guys project a much bigger image and have a much bigger impact than your actual size. Just last week we were front page of American Banker magazine. So Mitek really has created a brand in and around our leadership in mobile imaging.

So when you kind of look at the incremental revenues coming on now that you're crossed over the break even point, I've got to think the margins on those are going to be in that 75% on the op line? Somewhere in that range. I'm just kind of just ballparking it. If you are doing 90% sort of on the gross, and then you're going reinvest something like 15% or something into the sales and marketing functions, the rest stay pretty stable, is that sort of ballparking? I'm kind of just trying to get a feel for it.

Mike, I think that characterizes it fairly well. Again, we will add only the best people we can find. That will be the only added cost. We are providing some services on a hosted basis. Again, that's an emerging element of our business. And so really we don't have any other costs other than the personnel that we attract to this Company. And by the way, when the Company is doing well, it is easier to attract better people.

(laughter) Yes, I'm sure it is. The people probably lead revenues, right? A little bit? Or do you think they will be coincidental in the sense that you will hire some people in anticipation of the revenues, or the revenues build and the sales force gets kind of overwhelmed and there are so many opportunities you bring in more people, and so it is more coincidental, is it?

Well, there are two ways to answer that question. One is focus. And we have been maniacally focused on financial service applications in mobile space, obviously, with Mobile Deposit. Our goal this year past has been into the red zone, and out of the red zone into the end zone. And so that really has been a focus. We have diversified the product line with Mobile Photo Bill Pay. That is sold into the existing channel that we have already established largely, and so really your question speaks of focus and also speaks of time lag. The sales cycle is what it is in the financial services industry, no mystery. Banks are very diligent in how they evaluate technologies. We have been through a lot of diligence with regard to Mobile Deposit and have passed with flying colors.

So we believe very strongly in the efficacy of the technology, its security and scalability, but as you said and you are correct, once you add a person, it does take time to obviously build that pipeline, particularly as we attack new verticals. And that's part of our intent, is to diversify the business more broadly because we have demand that we see for our application in mobile imaging across other industries. But please don't be mistaken. Our primary focus is to drive Mobile Deposit to dominance, followed by Mobile Photo Bill Pay. And you will see a lot of activity in this fiscal year beginning October 1 about those two products.

And just to -- you mentioned the numbers, but how much was stock comp as a noncash charge for the quarter again?

Let me give you the precise number.

Yes. I know it will be in the 10-Q, but I (multiple speakers) --

I have it for the entire year.

Okay, that's fine. The year is fine. And then maybe you could give me the quarterly one.

In the noncash expenses, let me see, $406,000 of noncash stock based expense for the year. Keep in mind our loss was $682,000. Our noncash expenses were $700,000.

And again the --?

Go ahead, please?

I was just saying, what was the convertible debt noncash amortization expense?

Yes. That sum was $295,000 for the year. We accrue on the order of $92,000 quarterly in a Paid In Kind, a PIK interest, Mike, and so we expect that that will continue through the convertible note unless that convertible note changes. And that could change through conversion into equity.

Right. And then -- so this is good. So very good incremental flow-through margins from here as we go forward?

Yes.

It looks like a lot of the growth year over year has been in the new products and the new initiatives, which are very good. And lastly as you are talking to people now, Jim, what are you finding as the largest hurdles that -- or concerns people have on rolling this product out, the deposit product out? At this point -- I think a while back it was security and various other issues, maybe just a lack of understanding of how it really works and the potential that fraud could be involved with trying to deposit the check a couple of different times and that sort of thing. So what are you finding today as some of the biggest hurdles that (multiple speakers) could prevent a more rapid roll-out?

You know, Mike, we constantly have our finger on the pulse of the market, and we truly believe that the scales have been tipped in our favor as we enter this new fiscal year, as we begin to commercialize it. Consider the environment in which we have passed over the past year and a half as it relates to the banking industry, and the challenges the banking industry has faced, particularly as it regards risk management to other types of instruments, mortgages and the rest. So banks have been ultra cautious historically and acutely in the past year and a half. Fortunately a lot of those issues have been worked through, and we have been through a series of very significant security tests and scalability challenges and have passed all of them. So we honestly believe we have put the architecture, the security, the risk mitigation issues behind us as it relates to Mobile RDC.

Mechanically now we are at the stage of adoption and commercial roll out. So fundamentally our integration process is quite efficient. What we provide to our customers through our partners is middleware in a downloadable application, all fairly quickly able to be integrated into existing infrastructure at banks. And so we see now banks accelerating their time-to-market activity as it relates to scheduling, integrating and launching. And understand in big organizations, that doesn't just mean the IT guys down in the basement. That means the marketing people creating the campaigns, and a host of other silos within these large organizations that have to coordinate and align. And that is why some of the time frame elapses, and it takes longer than we would like. But certainly, as we look at the market, it is moving pretty darn quickly. And it doesn't hurt to have customers like PayPal and others launch to help spur the interest and adoption our products.

And what is the fully diluted share count with, assuming convert of --

We're a hair over 25 million on a fully diluted basis, including warrants, options and converts to debentures.

Good. Well, it's been a good year for you, Jim, and we look forward to a very good -- another good 2011 and launch point from here. So, thank you.

I thank you, Mike. I mean, we've got our fighting helmets on right now. We are very excited here, a highly motivated, energized group of professionals here at the Company, and we are on fire. So we're going to keep up the pressure.

Okay, thanks. That's all I've got for now. Thank you.

Thanks, Mike.

(Operator Instructions). Your next question is from the line of [David Michael Jenkin], a private investor. Please proceed.

Good morning, guys. Question, just looking at the domestic USA, just looking at the banking side, what dollar amount is able -- are you able to actually capture if you were to have 100% of the US market, your size dollar amount?

David, a very good question, and a fair question with regard to the size of the domestic check market. Let me try to characterize that for you. It is common knowledge that within the industry that 30 billion checks are written annually, and that number is probably still within 25 billion to 30 billion on an annual basis in the US market. To go beyond our shores, the French market, approximately 4 billion checks annually, and India, about 1 billion to 2 billion checks annually. That characterizes the top three in the world. You have checks in Mexico, you have checks in Brazil, and other ancillary markets, not a major consequence.

No, I understand that from your question -- from your answer prior to that. What I want to lean on is what percent -- or what dollar amount can you capture to your bottom -- to your top line of the domestic US just in the banking if you had 100% penetration?

Well, 100% penetration means that all of the top banks are deploying Mitek. Now we are currently engaged in discussions at one level or another with all of the top banks in the US who are interested in deploying Mobile RDC. Again, Remote Deposit Capture, the ability to remotely deposit a check.

Understood.

Now, there is an independent report you may want to read from the Mercatus Research Group in Boston, separately from the Javelin Research Group in San Francisco, that has looked at this market. Mercatus has opined that 1.5 billion checks could be diverted into the Mobile RDC channel. We think that is a fairly conservative number potentially, particularly as you look at these trends of usage of wireless data, the mobile Internet and smartphone growth. So we look at that as a baseline number.

What you would have to do in your research is take look at potentially what we could gain from each of those checks per item. Naturally for competitive reasons we don't reveal that pricing structure, and we don't know our wholesale partners' pricing structure. But you can imagine the size and scope of this market is virtually unlimited compared to the relative size of our Company today.

No, I am actually having a hard time, and you are correct, I could equate if you were to give me a bottom line as to how much you would receive per check, but I can't and I know you don't want to share that. So if you were to take a wild guess, in the United States if you were to capture 100% of the deposit in the banking through the phone, what dollar amount do you feel Mitek could capture to the top line for next year?

Well, David, you are asking a question that no one, unless they had a perfect crystal ball, could answer. But let me characterize it this way. We truly believe the combined opportunity exceeds $1 billion in total addressable market worldwide. If you take a factor of 25% or 30%, you can reflect that into revenues that could be approaching a $200 million, $300 million or more in annual revenue over time. That's the kind of market opportunity that we are looking at right now.

Okay. Let me address it another way. I'm not sure if I heard any time, like forward, what do you believe your top line growth will be for next year?

David, we have an operating plan. We are achieving our operating plan, and at some times in the past we have exceeded that operating plan, and we expect we are on track to achieve our plan this year. We are very confident and very excited about that. We do not as a matter of course provide guidance to the market. We are too early stage, the market is at its nascent stage, and we are beginning for the first time now to commercialize the investment we have made in developing this unique domain of mobile imaging technology. So for us to predict that would be disingenuous and not right. So for that reason I am going to defer and say please keep following us every quarter, I'm glad you are an investor, and I am glad you are benefiting by being a shareholder, and we expect that benefit to continue.

The -- your Investor Relations lady, Sue, I called her probably 15 times. I never get phone calls back. The Investor Relation person you had prior to that has told me that they are not willing, they are under a gag order to discuss your Company in any form or fashion. Now I'm not sure what's going on, but the conversation I just had with you has been very -- just non-informative, just talk over talk over talk over as to how large the market is, but you are not telling me in any form or fashion as to what dollar amount your Company is going to be able to capture on the top line in any form or fashion. And I can go through from Apple to Motorola to Cisco, and they will give you guidance as to where they believe growth could be in a 4%, 5%, 10%, but you are not willing to do any of that. It makes me somewhat suspicious.

Well, David, I hope you are not suspicious. Let me answer a couple of your questions. First of all, the people you mentioned are Public Relations folks. They are not our Investor Relations folks. The Investor Relations person is the person you are talking to right now. We don't hire an Investor Relations firm. We haven't hired one, because we think we'd rather keep a direct communication link open to our key stakeholders.

Number two is that you mentioned Cisco, you mentioned Motorola and other blue-chip Fortune 500 companies. We are not quite there yet. We hope to aspire to get there, but we're not quite there yet. So it is very difficult for us to provide guidance, and we haven't done that to keep the level playing field in the market. And I hope that you will continue to follow us and benefit by being a shareholder, and we expect based on our performance that you will benefit. So I thank you for your questions, but perhaps it is time now to move on to the next inquiry.

Your next question is from the line of [Jim Hinely], a shareholder. Please proceed.

Good morning, Jim. Congratulations to you and your colleagues for bringing Mitek to a, I think, a very exciting point, and certainly a company with an exciting story. My question relates to maybe a bit down the road beyond the financial institutions that you are targeting now with the Remote Deposit and also the Remote Bill Pay. Where do you see Mobile Receipt falling into your strategic matrix? I mean, I know I am one of probably millions of people flying around grabbing receipts all over the place, bringing them back, dropping them on my secretary's desk. She is scrambling through them all, trying to figure -- pasting them to 8.5" x 11" pieces of paper and sending them to the accounts payable group, and then I get reimbursed. Where do you see you guys in that domain, or is that an area that just is so far down the line it is way premature?

It is not premature. And you know what, I love your story, Jim, about trying to cut-and-paste your expense reports, or having your secretary do that. We created that product because we wanted here at the Company an efficient way to file our expense reports on time. And we are doing that now using Mobile Receipt. And Mobile Receipt was launched about six months ago. We process well over a quarter million receipts on behalf of customers in 51 different countries.

Now, just let me rephrase that. 51 different countries there [is] a consumer, a purchaser of Mobile Receipt from the Apple Store. The extent of our distribution right now is only through the Apple Store. So we look at -- and our Mobile Receipt product is a very functional product, but with a low marketing dollar associated with it. It really is there as a demonstration application that shows the power of mobile imaging as it relates to these everyday financial tasks that have points of pain for people like yourself, Jim, and our -- and me.

Now would that be -- you mentioned, I think, Jim, earlier in your -- either your prepared remarks or answering another gentleman's question -- about a hosted environment. Maybe I missed that, but I thought I heard that.

Yes, you did, and that is correct. We do host the functionality for Mobile Receipt within Mitek.

So would that be something in theory -- I work for a Fortune 500 company -- would that be something in theory that a company could in essence off-load or outsource to you, or is that just taking it a step way too far within the context of your business model?

It really is a thought we have and one we're executing on as we are beginning to become exposed to the enterprise market. Now we're not set up to sell directly to enterprise, the Fortune 500 companies, one of which you're associated with; but through partners, we can penetrate the enterprise environment. And who are those partners? We see a variety of companies offering expense management tools to the enterprise. People like Oracle, companies like SAP, and very focused companies like Concur. But none of them have the mobile imaging capacity to snap a photo and be able to extract data from that receipt for an automatic expense generation. We do.

It's natural for us to think that we can take the experience we have in our Mobile Receipt product -- it's a business-to-consumer sales cycle now -- and transform that and migrate that to a B2B environment. And really, we look at Mobile Receipt as a demonstration product on behalf of enterprises who say, gee, you can do that. That's terrific. What if we apply that to our particular needs?

I go up all the time to Apple to meet with the folks at Coopertina, and we get them excited all the time. And they say, gee, when I get back from my international trip, I've got to cut-and-paste my expenses, I've got to do all the conversion -- the currency conversion by myself, or my administrator does. Wouldn't it be nice to use a product like Mobile Receipt integrated into the enterprise? And, Jim, I think you're dead on. That's exactly the vision we see as we apply our mobile imaging technology to other verticals and other points of pain.

Well, thanks for you comments, and good luck.

Thank you.

Gentlemen, there are no other questions today.

Well, I want to thank everyone for joining us today. We had a very nice dialogue, great Q&A session. We're very pleased with our results and very excited about what we're seeing as an unprecedented level of interest in our products. So thank you for your interest in Mitek. Look forward to talking to you in 90 days. Good-bye.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Everyone have a great day.