5. STOCKHOLDERS’ EQUITY

Stock-Based Compensation Expense

The following table summarizes stock-based compensation expense related to stock options and RSUs, which was allocated as follows:

	Three Months Ended March 31,				Six Months Ended June 30,
	2016		2015		2016		2015
Cost of Sales	$	10	$	-	$	10	$	-
Sales and marketing		287		192		530		367
Research and development		162		160		342		297
General and administrative		713		519		1,279		1,021
Stock-based compensation expense included in expenses	$	1,172	$	871	$	2,161	$	1,685

The fair value calculations for stock-based compensation awards to employees for the six months ended March 31, 2016 and 2015 were based on the following assumptions:

	Six Months Ended March 31, 2016		Six Months Ended March 31, 2015
Risk-free interest rate	1.43% – 1.75%		1.29% – 1.66%
Expected life (years)		5.90		5.25
Expected volatility		83%		98%
Expected dividends	None		None

The expected life of options granted is derived using assumed exercise rates based on historical exercise patterns and vesting terms, and represents the period of time that options granted are expected to be outstanding. Expected stock price volatility is based upon implied volatility and other factors, including historical volatility. After assessing all available information on either historical volatility, implied volatility, or both, the Company concluded that a combination of both historical and implied volatility provides the best estimate of expected volatility.

As of March 31, 2016, the Company had $8.2 million of unrecognized compensation expense related to outstanding stock options and RSUs expected to be recognized over a weighted-average period of approximately 2.98 years.

2012 Incentive Plan

In January 2012, the Company’s board of directors (the “Board”) adopted the Mitek Systems, Inc. 2012 Incentive Plan (the “2012 Plan”), upon the recommendation of the compensation committee of the Board. On January 27, 2016, the Company’s stockholders approved an amendment to the 2012 Plan that increased the total number of shares of Common Stock reserved for issuance thereunder from 4,000,000 shares to 6,000,000 shares plus that number of shares of Common Stock that would otherwise return to the available pool of unissued shares reserved for awards under its 1999 Stock Option Plan, 2000 Stock Option Plan, 2002 Stock Option Plan, 2006 Stock Option Plan and 2010 Stock Option Plan (collectively, the “Prior Plans”). As of March 31, 2016, (i) stock options to purchase 2,316,380 shares of Common Stock and 1,140,169 RSUs were outstanding under the 2012 Plan, and 2,310,574 shares of Common Stock were reserved for future grants under the 2012 Plan and (ii) stock options to purchase an aggregate of 1,258,990 shares of Common Stock were outstanding under the Prior Plans.

Director Restricted Stock Unit Plan

In January 2011, the Board adopted the Mitek Systems, Inc. Director Restricted Stock Unit Plan, as amended and restated (the “Director Plan”), reserving up to 1,000,000 shares of Common Stock for the issuance of RSUs that may be granted to both employee and non-employee members of the Board. As of March 31, 2016, (i) 644,998 RSUs were outstanding under the Director Plan and (ii) 130,171 shares of Common Stock were reserved for future grants under the Director Plan.

Stock Options

The following table summarizes stock option activity under the Company’s equity plans during the six months ended March 31, 2016:

	Number of Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term (in Years)
Outstanding, September 30, 2015		3,647,705		$	3.70		7.15
Granted		94,500		$	4.43
Exercised		(121,939	)	$	2.57
Cancelled		(44,896	)	$	3.92
Outstanding, March 31, 2016		3,575,370		$	3.76		6.68

The Company recognized $0.3 million and $0.8 million in stock-based compensation expense related to outstanding stock options in the three and six months ended March 31, 2016, respectively. The Company recognized $0.6 million and $1.0 million in stock-based compensation expense related to outstanding stock options in the three and six months ended March 31, 2015, respectively. As of March 31, 2016, the Company had $2.5 million of unrecognized compensation expense related to outstanding stock options expected to be recognized over a weighted-average period of approximately 2.8 years. As of March 31, 2015, the Company had $3.7 million of unrecognized compensation expense related to outstanding stock options expected to be recognized over a weighted average period of approximately 2.8 years.

Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the weighted-average exercise price, multiplied by the number of options outstanding and exercisable. The total intrinsic value of options exercised during the six months ended March 31, 2016 and 2015 was $0.3 million and $4,083 respectively. The per-share weighted-average fair value of options granted during the six months ended March 31, 2016 was $4.43. As of March 31, 2016, there were 3,575,370 options outstanding with a weighted-average remaining contractual term, weighted-average exercise price and aggregate intrinsic value of 6.68, $3.76 and $11.9 million, respectively. As of March 31, 2015, there were 3,710,721 options outstanding with a weighted average remaining contractual term, weighted average exercise price and aggregate intrinsic value of 7.1 years, $3.51 and $2.7 million, respectively.

Restricted Stock Units

The following table summarizes RSU activity under the Company’s equity plans during the six months ended March 31, 2016:

	Number of Shares			Weighted-Average Fair Market Value Per Share
Outstanding, September 30, 2015		802,917		$	4.49
Granted		1,240,000		$	4.32
Settled		(234,496	)	$	4.71
Cancelled		(23,252	)	$	3.76
Outstanding, March 31, 2016		1,785,169		$	4.35

The cost of RSUs is determined using the fair value of Common Stock on the award date, and the compensation expense is recognized ratably over the vesting period. The Company recognized $0.9 million and $1.4 million in stock-based compensation expense related to outstanding RSUs in the three and six months ended March 31, 2016, respectively. The Company recognized $0.3 million and $0.6 million in stock-based compensation expense related to outstanding RSUs in the three and six months ended March 31, 2015, respectively. As of March 31, 2016, the Company had $5.7 million of unrecognized compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of approximately 2.96 years. As of March 31, 2015, the Company had $2.6 million of unrecognized compensation expense related to outstanding RSUs expected to be recognized over a weighted-average period of approximately 2.7 years.

Closing Shares

In connection with the Acquisition, the Company issued to the Sellers 712,790 shares of Common Stock. Vesting of these shares is subject to the continued employment of the founders of IDchecker and occurs over a period of 27 months from the date of issuance. The cost of the Closing Shares is determined using the fair value of Common Stock on the award date, and the stock based compensation is recognized ratably over the vesting period. The Company recognized $0.3 million and $0.6 million in stock based compensation expense related to the Closing Shares for the three and six months ended March 31, 2016. As of March 31, 2016, the Company had $1.8 of unrecognized compensation expense related to Closing Shares expected to be recognized over the remaining service period.

Earnout Shares

In addition to the cash payments made to the Sellers and the issuance of Closing Shares, in each case at the closing of the Acquisition, and subject to the achievement of certain revenue and net income targets for IDchecker for the twelve-month period ending on September 30, 2016, the Company will issue to the Sellers up to an aggregate of $1.0 million in shares of Common Stock. In January 2016, the Company issued 137,306 Paid Earnout Shares for achievement of certain revenue targets for the nine-month period ending on September 30, 2015.

Within 75 days after the last date of the respective earnout period (the “Earnout Determination Date”), the Company shall deliver to the Sellers a written statement of the calculation of the revenue and net income for the applicable earnout period. The number of shares issuable upon achievement of the revenue targets and net income targets, as applicable, will be calculated based on the volume weighted average closing price of the Common Stock over the 10 trading-day period ending on and including the applicable Earnout Determination Date. Earnout Shares issued, if any, shall vest and be eligible for resale such that 12.5% of the Earnout Shares shall vest and be released for resale on the six-month anniversary of the Earnout Determination Date applicable to such Earnout Shares and thereafter, the remaining 87.5% of the applicable Earnout Shares shall vest and be released for resale in equal quarterly installments. Vesting of the Earnout Shares is subject to the continued employment of the founders of IDC NL and occurs over a period of 27 months from the applicable Earnout Determination Date.

The Company calculated the fair value of the Earnout Shares using the Monte-Carlo simulation (using the Company’s valuation date stock price, the annual risk-free interest rate, expected volatility, the probability of reaching the performance targets and a 10 trading day average stock price). This model will be updated and the respective fair value adjusted each reporting period based on the relevant facts and conditions at the reporting date. The Company recognized $0.1 million and $0.2 million in stock based compensation expense related to the Earnout Shares for the three and six months ended March 31, 2016, is recorded within Acquistion-related costs and expenses on the Consolidated Statement of Operations and Other Comprehensive Income