Mitek Systems reported a second-quarter loss of $508,000, leaving the company with a working capital deficit and negative shareholder equity.
The manufacturer of laser printers and FAX machines with government-approved security modifications said, however, that it is not in danger of insolvency. "Earnings for the rest of the year will fix that," said Chief Financial Officer Maurice L. Roller, referring to Mitek's working capital deficit of $400,000 and negative shareholder equity of $72,000 as of March 31.
A working capital deficit occurs when a company's current assets, such as cash and inventory, are less than its current liabilities, a condition that calls into question a company's ability to pay its bills. Negative shareholder equity occurs when a company's total liabilities are greater than its total assets.
Roller said Mitek's negative working capital was not as serious as it appeared because the bulk of its $3.8 million in current liabilities consists of a $1.8-million note payable Dec. 31 to the Thornton Trust, an investment entity controlled by principal Mitek shareholder John Thornton.
Thornton last year agreed to convert about $2 million in loans he had made to Mitek to a 53% equity position in the company after Mitek faced similar difficulties in paying its debts, Roller said.
In an interview Wednesday, Thornton indicated that if the company's problems continue, he may extend terms or consider converting the loans to more equity rather than force the company to pay the note. "There is no way I'm going to try to do anything but help the company," Thornton said.
Mitek, which specializes in Tempest security technology, said the second-quarter loss came on revenue of $1,961,000. The performance compares to a loss of $439,000 on revenue of $998,000 over the same three months last year.