Table of Contents 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,, D.C. 20549

 


Form 10-Q


 (Mark

(Mark One)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended December 31, 20172021

 

OR

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

 

Commission File Number 333-139298


Bridgeline Digital, Inc.

(Exact name of registrant as specified in its charter)


 

Delaware

52-2263942

State or other jurisdiction of incorporation or organization

IRS Employer Identification No.

 

80Blanchard100 Sylvan Road, Suite G700

Woburn, Massachusetts

 

01801

Burlington, Massachusetts(Address of Principal Executive Offices)

 

01803

(Address of Principal Executive Offices)

(Zip Code)

 

(781) 376-5555

(Registrant’sRegistrant’s telephone number, including area code)

(Former name, former address and former address and former fiscal year, if changed since last report)

 

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)files)   ☒  Yes    ☐  No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of large“large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated 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 SectionSection 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 ☒

 

Securities registered pursuant to Section (12)b of the Act:

Title of each class

Trading Symbols(s)

Name of each exchange on which registered

Common Stock, par value $0.001

BLIN

NASDAQ

 

The number of shares of Common Stockcommon stock par value $0.001$0.001 per share, outstanding as of February 10, 20188, 2022 was 4,200,219.10,204,276.

 

1

 

Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended December 31, 2017

Index

Page

Part I

Financial Information

Item 1.

Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets (unaudited) as of December 31, 2017 and September 30, 2017

4

Condensed Consolidated Statements of Operations (unaudited) for the three months ended December 31, 2017 and 2016

5

Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three months ended December 31, 2017 and 2016

6

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended December 31, 2017 and 2016

7

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

21

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

33

Part II

Other Information

Item 1.

Legal Proceedings

34

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

34

Item 6.

Exhibits

35

Signatures36

2

Bridgeline Digital, Inc.

 

Quarterly Report on Form 10-Q

 

For the Quarterly Period ended December 31,, 2017 2021

Index

Page

Part I

Financial Information

Item 1.

Condensed Consolidated Financial Statements

Condensed Consolidated Balance Sheets (unaudited) as of December 31, 2021 and September 30, 2021

4

Condensed Consolidated Statements of Operations (unaudited) for the three months ended December 31, 2021 and 2020

5

Condensed Consolidated Statements of Comprehensive Income/(Loss) (unaudited) for the three months ended December 31, 2021 and 2020

6

Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three months ended December 31, 2021 and 2020

7

Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended December 31, 2021 and 2020

8

Notes to Unaudited Condensed Consolidated Financial Statements

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

33

Item 4.

Controls and Procedures

34

PartII

Other Information

Item 1.

Legal Proceedings

35

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds 

35

Item 6.

Exhibits

36

Signatures

37


Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended December 31, 2021

 

 

Statements contained in this Report on Form 10-Q, thatother than statements or characterizations of historical fact, are not based on historical facts are “forward-looking statements”forward-looking statements. These forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.1995, are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements maycan often be identified by the use of forward-looking terminologywords such as “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intends,” “continue,”"anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or similar terms or variationsnegatives of those terms or the negative of those terms.these words. These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc. Forward-looking statements are merely our current predictions of future events. Investors are cautioned that any suchThese forward-looking statements are inherently uncertain, are not guarantiesguarantees of future performanceresults and involveare subject to risks, uncertainties and uncertainties. Actual results may differ materially from our predictions. Important factors that could cause actual resultsassumptions, including, but not limited to, differ from our predictions include the impact of the weakness inCOVID19 pandemic and related public health measures that may affect our financial results; business operations and the U.S.business of our customers, suppliers and international economies onpartners; our business,ability to retain and upgrade current customers; increasing our inabilityrecurring revenue; our ability to manage our future growth effectively or profitably, fluctuations inattract new customers; our revenue and quarterly results,growth rate; our license renewal rate, the impacthistory of competitionnet loss and our ability to achieve or maintain marginsprofitability, our liability for any unauthorized access to our data or market share, the limited marketour users content, including through privacy and data security breaches; any decline in demand for our common stock,platform or products; changes in the interoperability of our platform across devices, operating systems, and third-party applications that we do no control; competition in our markets; our ability to respond to rapid technological changes, extend our platform, develop new features or products, or gain market acceptance for such new features or products, particularly in light of potential disruptions to the productivity of our employees resulting from remote work; our ability to manage our growth or plan for future growth, and our acquisition of other businesses and the potential of such acquisitions to require significant management attention, disrupt our business, or dilute stockholder value; the volatility of the market price of our common stock, stock; the ability to maintain our listing on the NASDAQ Capital market, the ability to raise capital, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, the security of our software, our dependence on our management team and key personnel, our ability to hire and retain future key personnel,Market; or our ability to maintain an effective system of internal controls.  Although we have sought to identifycontrols as well as other risks described in our filings with the most significant risks to our business, we cannot predict whether, or to what extent, anySecurities and Exchange Commission.Any of such risks may be realized, nor is therecould cause our actual results to differ materially and adversely from those expressed in any assurance that we have identified all possible issues which we might face. We assumeforward-looking statement. Bridgeline Digital, Inc. assumes no obligation to, and does not currently intend to, update ourany such forward-looking statements, to reflect new information or developments. except as required by applicable law. We urge readers toreview carefully the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2017as well as2021, and in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

www.sec.gov.

 

Where we say “we,” “us,” “our,” “Company” or “Bridgeline Digital” we mean Bridgeline Digital, Inc.

 

3

Table of Contents

 

PART IFINANCIAL INFORMATION

Item 1.

Item 1.Condensed Consolidated Financial Statements.

Condensed Consolidated Financial Statements.

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 (in(in thousands, except share and per share data)

(Unaudited) 

  

December 31,

2021

  

September 30,

2021

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $6,356  $8,852 

Accounts receivable, net

  1,262   1,370 

Prepaid expenses and other current assets

  397   196 

Total current assets

  8,015   10,418 

Property and equipment, net

  250   252 

Operating lease assets

  434   481 

Intangible assets, net

  7,354   7,755 

Goodwill

  15,985   15,985 

Other assets

  120   76 

Total assets

 $32,158  $34,967 
         

LIABILITIES AND STOCKHOLDERS EQUITY

        

Current liabilities:

        

Current portion of long-term debt

 $609  $732 

Current portion of operating lease liabilities

  151   161 

Accounts payable

  1,359   974 

Accrued liabilities

  1,061   908 

Current portion of purchase price and contingent consideration payable

  1,045   3,463 

Deferred revenue

  1,793   2,097 

Total current liabilities

  6,018   8,335 

Long-term debt, net of current portion (Note 7)

  1,133   1,197 

Operating lease liabilities, net of current portion

  283   320 

Purchase price and contingent consideration payable, net of current portion

  2,430   2,360 

Warrant liabilities

  1,963   4,404 

Other long-term liabilities

  778   774 

Total liabilities

  12,605   17,390 
         

Commitments and contingencies (Note 13)

          

Stockholders’ equity:

        

Preferred stock - $0.001 par value; 1,000,000 shares authorized;

        

Series C Convertible Preferred stock: 11,000 shares authorized; 350 shares issued and outstanding at December 31, 2021 and September 30, 2021

  0   0 

Series D Convertible Preferred stock: 4,200 shares authorized; no shares outstanding at December 31, 2021 and September 30, 2021

  0   0 

Common stock - $0.001 par value; 50,000,000 shares authorized; 10,204,276 shares issued and outstanding at December 31, 2021, and 10,187,128 shares at September 30, 2021, issued and outstanding

  10   10 

Additional paid-in capital

  100,270   100,207 

Accumulated deficit

  (80,415

)

  (82,287

)

Accumulated other comprehensive loss

  (312

)

  (353

)

Total stockholders’ equity

  19,553   17,577 

Total liabilities and stockholders’ equity

 $32,158  $34,967 

The accompanying notes are an integral part of these condensed consolidated financial statements.


BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

(Unaudited)

 

 

 

December 31,

  

September 30,

 
  

2017

  

2017

 
ASSETS        
         

Current assets:

        

Cash and cash equivalents

 $1,117  $748 

Accounts receivable and unbilled receivables, net

  3,208   3,026 

Prepaid expenses and other current assets

  464   352 

Total current assets

  4,789   4,126 

Property and equipment, net

  181   209 

Intangible assets, net

  191   263 

Goodwill

  12,641   12,641 

Other assets

  303   334 

Total assets

 $18,105  $17,573 
         

LIABILITIES AND STOCKHOLDERS’ EQUITY

        
         

Current liabilities:

        

Accounts payable

 $1,175  $1,241 

Accrued liabilities

  980   920 

Debt, current

  42   - 

Deferred revenue

  1,380   1,466 

Total current liabilities

  3,577   3,627 
         

Debt, net of current portion

  3,142   2,500 

Other long term liabilities

  444   172 

Total liabilities

  7,163   6,299 
         

Commitments and contingencies

        
         

Stockholders’ equity:

        

Preferred stock - $0.001 par value; 1,000,000 shares authorized; 250,927 at December 31, 2017 and 243,536 at September 30, 2017, issued and outstanding (liquidation preference $2,585)

  -   - 

Common stock - $0.001 par value; 50,000,000 shares authorized; 4,200,219 at December 31, 2017 and at September 30, 2017, issued and outstanding

  4   4 

Additional paid-in capital

  66,043   65,869 

Accumulated deficit

  (54,754)  (54,249)

Accumulated other comprehensive loss

  (351)  (350)

Total stockholders’ equity

  10,942   11,274 

Total liabilities and stockholders’ equity

 $18,105  $17,573 
  

Three Months Ended
December 31,

 
  

2021

  

2020

 

Net revenue:

        

Digital engagement services

 $869  $837 

Subscription and perpetual licenses

  3,417   1,999 

Total net revenue

  4,286   2,836 

Cost of revenue:

        

Digital engagement services

  451   374 

Subscription and perpetual licenses

  829   583 

Total cost of revenue

  1,280   957 

Gross profit

  3,006   1,879 

Operating expenses:

        

Sales and marketing

  1,231   444 

General and administrative

  873   465 

Research and development

  859   349 

Depreciation and amortization

  424   232 

Restructuring and acquisition related expenses

  98   210 

Total operating expenses

  3,485   1,700 

Income (loss) from operations

  (479)  179 

Interest (income) expense and other, net

  (87)  94 

Change in fair value of warrant liabilities

  2,441   (1,441

)

Income (loss) before income taxes

  1,875   (1,168

)

Provision for (benefit from) income taxes

  3   (6

)

Net income (loss)

 $1,872  $(1,162

)

Net income (loss) per share attributable to common shareholders:

        

Basic net income (loss) per share

 $0.18  $(0.26

)

Diluted net income (loss) per share

 $0.06  $(0.26

)

Number of weighted average shares outstanding:

        

Basic

  10,189,012   4,420,170 

Diluted

  10,625,617   4,420,170 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4

Table of Contents

 

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONSCOMPREHENSIVE INCOME/(LOSS)

 (in thousands, except share and per share data)(in thousands)

(Unaudited)

 

  

Three Months Ended

 
  

December 31,

 
  

2017

  

2016

 

Net revenue:

        

Digital engagement services

 $2,060  $2,026 

Subscription and perpetual licenses

  1,606   1,725 

Managed service hosting

  303   240 

Total net revenue

  3,969   3,991 

Cost of revenue:

        

Digital engagement services

  1,397   1,128 

Subscription and perpetual licenses

  480   496 

Managed service hosting

  80   71 

Total cost of revenue

  1,957   1,695 

Gross profit

  2,012   2,296 

Operating expenses:

        

Sales and marketing

  1,104   1,294 

General and administrative

  736   791 

Research and development

  407   360 

Depreciation and amortization

  108   185 

Restructuring charges

  -   31 

Total operating expenses

  2,355   2,661 

Loss from operations

  (343)  (365)

Interest and other expense, net

  (86)  (31)

Loss before income taxes

  (429)  (396)

Provision for income taxes

  1   12 

Net loss

  (430)  (408)

Dividends on convertible preferred stock

  (75)  (68)

Net loss applicable to common shareholders

 $(505) $(476)

Net loss per share attributable to common shareholders:

        

Basic and diluted

 $(0.12) $(0.12)

Number of weighted average shares outstanding:

        

Basic and diluted

  4,200,219   4,011,724 
  

Three Months Ended
December 31,

 
  

2021

  

2020

 

Net income (loss)

 $1,872  $(1,162

)

Other comprehensive income:

        

Foreign currency translation adjustment

  41   10 

Comprehensive income (loss)

 $1,913  $(1,152

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5

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BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERSCOMPREHENSIVE EQUITYLOSS

 (in thousands)(in thousands, except share data)

(Unaudited)

 

  

Three Months Ended

 
  

December 31,

 
  

2017

  

2016

 

Net Loss

 $(430) $(408)
         

Other Comprehensive income: Net change in foreign currency translation adjustment

  1   2 

Comprehensive loss

 $(429) $(406)
  

For the Three Months Ended December 31, 2021

 
                          

Accumulated

     
  

Preferred Stock

  

Common Stock

  

Additional

      

Other

  

Total

 
                  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Loss

  

Equity

 

Balance at October 1, 2021

  350  $-   10,187,128  $10  $100,207  $(82,287

)

 $(353

)

 $17,577 

Stock-based compensation expense

                  63           63 

Issuance of common stock –warrants exercised

          17,148                   - 

Net income

                      1,872       1,872 

Foreign currency translation

                          41   41 

Balance at December 31, 2021

  350  $-   10,204,276  $10  $100,270  $(80,415

)

 $(312

)

 $19,553 

  

For the Three Months Ended December 31, 2020

 
                          

Accumulated

     
  

Preferred Stock

  

Common Stock

  

Additional

      

Other

  

Total

 
                  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Loss

  

Equity

 

Balance at October 1, 2020

  350  $-   4,420,170  $4  $78,316  $(73,583

)

 $(381

)

 $4,356 

Stock-based compensation expense

                  51           51 

Net loss

                      (1,162

)

      (1,162

)

Foreign currency translation

                          10   10 

Balance at December 31, 2020

  350  $-   4,420,170  $4  $78,367  $(74,745

)

 $(371

)

 $3,255 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

6

Table of Contents

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (in(in thousands)

(Unaudited)

 

  

Three Months Ended

 
  

December 31,

 
  

2017

  

2016

 

Cash flows from operating activities:

        

Net loss

 $(430) $(408)

Adjustments to reconcile net loss to net cash used in operating activities:

        

Amortization of intangible assets

  72   71 

Depreciation

  36   89 

Other amortization

  16   39 

Debt discount amortization

  22   - 

Stock-based compensation

  125   122 

Changes in operating assets and liabilities

        

Accounts receivable and unbilled receivables

  (182)  (81)

Prepaid expenses and other assets

  (50)  39 

Accounts payable and accrued liabilities

  (37)  (390)

Deferred revenue

  (86)  187 

Other liabilities

  (61)  39 

Total adjustments

  (145)  115 

Net cash used in operating activities

  (575)  (293)

Cash flows used in investing activities:

        

Software development capitalization costs

  -   (21)

Purchase of property and equipment

  (8)  - 

Net cash used in investing activities

  (8)  (21)

Cash flows provided by financing activities:

        
         

Proceeds from issuance of common stock, net of issuance costs

  -   891 

Proceeds from term notes

  953   - 

Borrowing on bank line of credit

  300   355 

Payments on bank line of credit

  (300)  (80)

Contingent acquisition payments

  -   (75)

Principal payments on capital leases

  -   (12)

Net cash provided by financing activities

  953   1,079 

Effect of exchange rate changes on cash and cash equivalents

  (1)  2 

Net increase in cash and cash equivalents

  369   767 

Cash and cash equivalents at beginning of period

  748   661 

Cash and cash equivalents at end of period

 $1,117  $1,428 

Supplemental disclosures of cash flow information:

        

Cash paid for:

        

Interest

 $64  $33 

Income taxes

 $9  $17 

Non cash investing and financing activities:

        

Accrued dividends on convertible preferred stock

 $76  $68 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

Table of Contents
  

Three Months Ended

December 31,

 
  

2021

  

2020

 

Cash flows from operating activities:

        

Net income (loss)

 $1,872  $(1,162

)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

        

Amortization of intangible assets

  401   218 

Depreciation and other amortization

  23   14 

Change in fair value of contingent consideration

  70   0 

Change in fair value of warrant liabilities

  (2,441

)

  1,441 

Stock-based compensation

  63   51 

Government grant income

  0   (88

)

Changes in operating assets and liabilities

        

Accounts receivable

  106   (188

)

Prepaid expenses and other current assets

  (188

)

  (111

)

Other assets

  (5

)

  (110

)

Accounts payable and accrued liabilities

  506   149 

Deferred revenue

  (307)  228 

Other liabilities

  (21

)

  9 

Total adjustments

  (1,793

)

  1,613 

Net cash provided by operating activities

  79   451 

Cash flows from investing activities:

        

Software development capitalization costs

  (46

)

  (30

)

Purchase of property and equipment

  (18

)

  (11

)

Net cash used in investing activities

  (64

)

  (41

)

Cash flows from financing activities:

        

Payments of contingent consideration and deferred cash payable

  (2,423)  0 

Payments of long-term debt

  (81)  0 

Net cash used in financing activities

  (2,504)  0 

Effect of exchange rate changes on cash and cash equivalents

  (7)  6 

Net increase (decrease) in cash and cash equivalents

  (2,496)  416 

Cash and cash equivalents at beginning of period

  8,852   861 

Cash and cash equivalents at end of period

 $6,356  $1,277 
         

Supplemental disclosures of cash flow information:

        

Cash paid for:

        

Interest

 $3  $0 

Income taxes

 $0  $0 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

8

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

1.Description of Business

 

Overview

 

Bridgeline Digital Theis a marketing technology software company that helps companies grow online revenue and share information with customers, partners and employees.

Bridgeline’s Unbound platform is a Digital Engagement Company™, helps customers with their digital experience from websites and intranets to online stores. Bridgeline’s iAPPS® platform integratesExperience Platform that includes Web Content Management, eCommerce, eMarketing, Social Media management, and Web AnalyticsAnalytics.

Bridgeline’s Unbound platform, combined with its professional services, assists customers in driving lead generation, increasing revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs. 

Our Unbound Franchise product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale.

OrchestraCMS is the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners, and employees; uniquely combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals, intranets, websites, applications and services.

Celebros Search is a commerce-oriented site search product that provides for Natural Language Processing with artificial intelligence to present relevant search results based on long-tail keyword searches in seven languages.

Woorank SRL (“Woorank”) is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of the site’s technical, on-page and off-page SEO.  Woorank’s clear, actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.

Hawk Search, Inc. (“Hawk Search”) is a search, recommendation, and personalization application built for marketers, merchandisers and developers that enhances, normalizes and enriches a customer's site search and browse experience. Hawk Search leverages advanced artificial intelligence, machine learning and industry-leading analyzers to deliver digital experiences to its customers. iAPPSds is a platform for large franchise and multi-unit organizations and also integrates Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics.accurate results from federated data sources.

 

The iAPPS platformAll of Bridgeline’s software is deliveredavailable through a cloud-based SaaS (“Softwaresoftware as a Service”service (“SaaS) multi-tenant business model, providing maintenance, daily technical operationwhose flexible architecture provides customers with hosting and support; orsupport.  Additionally, Unbound and Hawk Search are available via a traditional perpetual licensing business model, in which the iAPPS software resides on a dedicated serverinfrastructure in either the customer’s facility, or hostedmanage-hosted by Bridgeline via a cloud-based hosted services model.

 

Bridgeline Digital was incorporated under the laws of the State of Delaware on August 28, 2000.

 

Locations

 

TheThe Company’s corporate office is located in Burlington,Woburn, Massachusetts.  The Company has one wholly-owned subsidiary, Bridgeline Digital Pvt. Ltd. located in Bangalore, India.

Reverse Stock Split

On June 29, 2017, maintains regional field offices serving the Company’s Shareholdersfollowing geographical locations: Boston, Massachusetts; Woodbury, New York; Chicago, Illinois; Raleigh, North Carolina; Ontario, Canada; and the Board of Directors approved a reverse stock split pursuant to which all classes of our issued and outstanding shares of common stock at the close of business on such date were combined and reconstituted into a smaller number of shares of common stock in a ratio of 1 share of common stock for every 5 shares of common stock (“1-for-5 reverse stock split”). The 1-for-5 reverse stock split was effective as of close of business on July 24, 2017 and the Company’s stock began trading on a split-adjusted basis on July 25, 2017.

The reverse stock split reduced the number of shares of the Company’s common stock currently outstanding from approximately 21 million shares to approximately 4.2 million shares. Proportional adjustments have been made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants, restricted stock awards, and stock options, and to the number of shares issued and issuable under the Company’s Stock Incentive Plans. Upon the effectiveness of the 1-for-5 reverse stock split, each five shares of the Company’s issued and outstanding common stock were automatically combined and converted into one issued and outstanding share of common stock, par value $.001. The Company did not issue any fractional shares in connection with the reverse stock split. Instead, fractional share interests were rounded up to the next largest whole share. The reverse stock split does not modify the rights or preferences of the common stock. The number of authorized shares of the Company’s common stock remains at 50 million shares and the par value remains $0.001.

The accompanying condensed consolidated financial statements and footnotes have been retroactively adjusted to reflect the effects of the 1-for-5 reverse stock split.

Liquidity and Management’s PlansBrussels, Belgium.

 

The Company has a Loanfour wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd., located in Bangalore, India; Bridgeline Digital Canada, Inc., located in Ontario, Canada; Hawk Search Inc. located in Illinois, United States; and Security Agreement (“Heritage Agreement”) with Heritage Bank of Commerce (“Heritage Bank”) which has a maturity date of June 15, 2019. The Heritage Agreement currently provides for $2.5 million of revolving credit advances and may be used for acquisitions and working capital purposes. The credit advances may not exceed the monthly borrowing base capacity, which will fluctuate based on monthly accounts receivable balances. The Company may request credit advances if the borrowing capacity is more than the current outstanding loan advance, and must pay down the outstanding loan advance if it exceeds the borrowing capacity. As of December 31, 2017, the Company had an outstanding balance under the Heritage Agreement of $2.5 million.Bridgeline Digital Belgium BV, located in Brussels, Belgium.

 

8

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

On October 10, 2017, the Company entered into a Loan and Security Agreement (the “Montage Loan” or “Loan Agreement”) with Montage Capital II, L.P. (“Montage”). The Montage Loan has a thirty-six (36) month term which expires on October 10, 2020. The Loan Agreement provides for up to $1.5 million of borrowing in the form of a non-revolving term loan which may be used by the Company for working capital purposes. $1 million of borrowing was advanced on the date of closing (the “First Tranche”). An additional $500 thousand of borrowing will be available at the Company’s option in the event that the Company achieves certain financial milestones and is otherwise in compliance with its loan covenants (the “Second Tranche”).

On May 19, 2017, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission in relation to the registration of securities of the Company having an aggregate public offering price of up to $10 million. The determinate number of shares of common stock, preferred stock, warrants, and units of any combination thereof (collectively, the “Securities”) may be offered and sold from time to time, but shall not exceed $10 million in total. There have been no securities sold as of December 31, 2017.

Historically, the Company has had operating losses and working capital deficiencies, but has undertaken a long term cost reduction plan that includes staff reductions and office lease consolidations to compensate for the shortfalls. The Company will continue to follow through with its plan and closely monitor and adjust such expenditures throughout the next twelve months. While there can be no assurance that anticipated sales will be achieved for future periods, the Company’s management believes it  has an appropriate cost structure in place to support the revenues that will be achieved under the Company’s operating plan. Management believes that it is probable that working capital, capital expenditure and debt repayment needs for the next twelve months from the financial statement date of issuance will be met. The cash balance as of December 31, 2017 of $1.1 million as well as collections from accounts receivable will be sufficient to meet the Company’s obligations for a minimum of twelve months from the financial statement issuance date. While not currently included in the Company’s operating plan and forecast, it may raise additional capital or borrow on its credit facility with Heritage Bank and/or advance the second tranche of funds from Montage Capital, if the respective financial milestones are met, in order to fund future operations. The ability to raise funds through these means may be helpful to the Company if the anticipated sales levels are not achieved or it cannot reduce operating expenses to account for any shortfalls.

2.Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

 

9

BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

Unaudited Interim Financial Information

 

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“USU.S. GAAP”), and with the instructions to Form 10-Q and Regulation S-X, and in the opinion of the Company’s management. Thesemanagement, these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for thetheir fair presentation. The operating results for the three months ended December 31, 20172021 are not necessarily indicative of the results to be expected for the year ending September 30, 2018.2022. The accompanying September 30, 20172021 Condensed Consolidated Balance Sheet has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by USU.S. GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended September 30, 2017.2021, filed with the Securities and Exchange Commission (“SEC”) on December 20, 2021.

Reclassifications

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation in the current period financial statements.  These reclassifications had no effect on the previously reported net loss.

Accounting Pronouncements Pending Adoption

 

Subsequent EventsFinancial Instruments

The Company evaluated subsequent events through the date of this filing and concluded there were no material subsequent events requiring adjustment to or disclosure in these interim condensed consolidated financial statements, except as already disclosed in these financial statements.

9

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Recent Accounting PronouncementsCredit Losses

 

Revenue Recognition

In May 2014,June 2016, the Financial Accounting Standards Board (FASB)(“FASB”) issued Accounting StandardsStandard Update (“ASU”) No. 20142016-09,13, Revenue from Contracts with Customers: TopicFinancial Instruments - Credit Losses (Topic 606326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU No. (ASU 20142016-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. ASU 2014-0913 is effective for smaller reporting companies for annual reporting periods beginning after December 15, 2017,2022, including interim periods within those annual reporting periods, within that reporting period. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the Company in the first quarter of fiscal 2019.Companies may adopt ASU 2014-09 using either the retrospective method, under which each prior reporting period is presented under ASU 2014-09,with the option to elect certain permitted practical expedients, or the modified retrospective method, under which a company adopts ASU 2014-09 from the beginning of the year of initial application with no restatement of comparative periods, with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application, with certain additional required disclosures. early adoption permitted. The Company plans to adoptis currently evaluating the standard using the full retrospective method to restate each prior reporting period presented. Additionally, as the Company continues to assess the new standard along with industry trends and additional interpretive guidance, the Company may adjust its implementation plan accordingly.

As the Company is continuing to assess all potential impactsimpact of the new standard it currently believes that the impact will not be significant. A large portion of the Company’s business is for the licensing of Software-as-a-Service (SaaS) term-based software licenses bundled with maintenance and support. Under current GAAP, the revenue attributable to these software licenses is recognized ratably over the term of the arrangement because VSOE does not exist for the undelivered maintenance and support element as it is not sold separately. To apply the revenue standard, a company must first determine whether a contract includes a promise of a license of intellectual property. A separate promise of a license exists when (1) the customer has the contractual right to take possession of the software at any time without significant penalty and (2) the customer can run the software on its own hardware or contract with another party unrelated to the vendor to hoist of the software. Neither of these criteria are met with our current SaaS licensing arrangements, therefore, revenue recognition will continue to be recognized over the period of service. Revenue recognitionconsolidated financial statements and related to our professional services is expected to remain substantially unchanged.

Another significant provision under ASU 2014-09 includes the capitalization and amortization of costs associated with obtaining a contract, such as sales commissions. Currently, the Company expenses sales commissions in the period incurred. Under ASU 2014-09, direct and incremental costs to acquire a contract are capitalized and amortized using a systematic basis over the pattern of transfer of the goods and services to which the asset relates. While we are continuing to assess the impact of this provision of ASU 2014-09, we likely will be required to capitalize incremental costs such as commissions and amortize those costs over the period the capitalized assets are expected to contribute to future cash flows. Due to the complexity of certain of our contracts, the actual accounting treatment required under the new standard for these arrangements may be dependent on contract-specific terms and therefore may vary in some instances.

disclosures.

 

LeasesDebt with Conversion and Other Options and Derivatives and Hedging

In February 2August 2020, 016,the FASB issued ASU No. 20162020-02,06, which is guidance on accountingDebt - Debt with Conversion and Other Options(Subtopic 470-20)and Derivatives and Hedging - Contracts in Entitys Own Equity(Subtopic 815-40):Accounting for leases.Convertible Instruments and Contracts in an Entitys Own Equity. The amendments in ASU No,No. 20162020-0206 requires lessees to recognize most leasessimplify the complexity associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The guidance requires the use of a modified retrospective approach. The Company is evaluating the impact of the guidance on its consolidated financial position, results of operationsfor convertible instruments and related disclosures.

Income Taxes

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending September 30, 2018, including, but not limited to, reducing the U.S. federal corporate tax rate.  The Tax Act reduces the federal corporate tax rate to 21 percentderivative scope exceptions for contracts in the fiscal year ending September 30, 2018.  The reduction of the corporate tax rate will cause the Company to reduce its deferred tax asset to the lower federal base rate and adjust the allowance against the deferred tax asset by the same amount. The Company has not yet determined the impact the rate reduction will have on its gross deferred tax asset and liabilities and offsetting valuation allowance. The Company has a full allowance against the deferred tax asset and as a result there was no impact to income tax expense for the quarter ended December 31, 2017.

The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impact. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending September 30, 2018.

10

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Cash Flows

In August 2016, the FASB issuedan entity’s own equity. ASU 2016No.2020-15,06 which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows, specifically certain cash receipts and cash payments. The standard is effective for public business entities financial statements issued for fiscal years beginning after December 15, 2017,2023, andincluding interim periods within those fiscal years. Early adoption is permitted, provided that allbut no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company is currently evaluating the impact of the amendments are adopted in the same period. The guidance requires application using a retrospective method. Management does not expect the adoption of this Standard to have a material impactnew standard on ourits consolidated cash flows.financial statements and related disclosures.

Business Combinations

 

In November 2016,October 2021, the FASB issued ASU No. 20162021-1808, Business Combinations (Topic 606): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires entities to includethat an entity recognize and measure contract assets and contract liabilities acquired in their casha business combination in accordance with Topic 606 as if it had originated the contracts. Generally, this should result in an acquirer recognizing and cash-equivalent balancesmeasuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. As a result, companies will no longer present transfers between cash and cash equivalents, and restricted cash and restricted cash equivalentsacquiree’s financial statements, if the acquiree prepared financial statements in the statement of cash flows.accordance with U.S. GAAP. The guidanceamendment in this update is effective for annual and interim periodsfiscal years beginning after December 15, 2017.2022, including interim periods within those fiscal years. Early adoption of ASU 2016-18 is permitted, including adoption in an interim period. ManagementThe guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendment in this update. The Company is currently evaluating the adoptionpotential impact of ASU 2016-18this adoption on its consolidated financial statements.

Goodwill

In January 2017, the FASB issued ASU No.2017-04 to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will be applied prospectivelystatements and is effective for annual reporting periods ending December 31, 2020 and thereafter with early adoption permitted. Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

Business Combinations

In January 2017, the FASB issued ASU No.2017-01, which amended the existing FASB Accounting Standards Codification Topic 805 Business Combinations. The standard provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted. Management is currently evaluating the impact of the new guidance on its consolidated financial statements.related disclosures.

 

All other Accounting Standards Updates issued but not yet effective are not expected to have a material effect on the Company’sCompany’s future consolidated financial statements.

 

10

BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

 

 

3. Accounts Receivable and Unbilled Receivables

 

Accounts receivable and unbilled receivables consistsconsist of the following:

 

  

As of

  

As of

 
  

December 31, 2017

  

September 30, 2017

 

Accounts receivable

 $3,090  $3,174 

Unbilled receivables

  204   41 

Subtotal

  3,294   3,215 

Allowance for doubtful accounts

  (86)  (189)

Accounts receivable and unbilled receivables, net

 $3,208  $3,026 
  

As of
December 31,

2021

  

As of
September 30,

2021

 

Accounts receivable

 $1,324  $1,403 

Allowance for doubtful accounts

  (62)  (33

)

Accounts receivable, net

 $1,262  $1,370 

 

For the three months endedAs of December 31, 20172021, and December 31, 2016, one1 customer represented more thanapproximately 23% of accounts receivable. As of September 30, 2021, 2 customers represented approximately 13% and 10% of accounts receivable. For the three months ended December 31, 2017,2021, twono customers representedexceeded 11%10% and 12%of the Company’s total revenue. Forrevenues. During the three months ended December 31, 2016,2020, one1 customer represented approximately 12% of the Company’s total revenue.revenue.

 

11

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

44..   Fair Value Measurement and Fair Value of Financial Instruments

The Company’s otherCompany’s financial instruments consist principally of accounts receivable, accounts payable, warrant liabilities, contingent consideration and debt.long-term debt arrangements. The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, under U.S. GAAP, companies are required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

 

Level 1—Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2—Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

 

Level 3—Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

 

The Company believescarrying value of the recorded values forCompany’s accounts receivable and accounts payable and short term debt approximate current fair values as of December 31, 2017 and September 30, 2017 because of their short-term nature and durations. The carrying value of long term debt also approximates fair value as of December 31, 2017 and September 30, 2017 based upondue to their short-term nature.

The Company’s warrant liabilities are measured at fair value at each reporting period with changes in fair value recognized in earnings during the Company's ability to acquire similar debt at similar maturities. In the three months ended December 31, 2017, the Company recorded a liability associated with a conversion feature embedded in a warrant to purchase common stock issued to Montage Capital.period. The fair value of the Company’s warrant liability will utilize aliabilities are valued utilizing Level 3 input. To determine the value of the warrant liability, the Company usedinputs. Warrant liabilities are valued using a Monte Carlo option-pricing model, which takes into consideration the market valuesvolatilities of comparable public companies, considering among other factors,due to the userelatively low trading volume of multiples of earnings, and adjusted to reflect the restrictions on the ability of our shares to trade in an active market.Company’s common stock. The Monte Carlo option-valuationoption-pricing model also uses certain assumptions, to determine the fair value, including expected life and annual volatility. Such inputs usedThe range and weighted average volatilities of comparable public companies utilized was 28.4% - 58.2% and 55.4%, respectively, as of December 31, 2021, and 28.8% - 66.2% and 55.8%, respectively, as of September 30, 2021. The volatility utilized in the Monte Carlo option-pricing model was determined by weighing 60% to value the warrant liability include an expected life of eight (8) years, annualCompany-specific volatility of 80%,and a risk-free interest rate of 2.24%.40% to comparable public companies.

 

The significant inputs and assumptions utilized were as follows:

  

As of December 31, 2021

  

As of September 30, 2021

 
  

Montage
Capital

  

Series C

Preferred

  

Series D

Preferred

  

Montage

Capital

  

Series C

Preferred

  

Series D Preferred

 

Volatility

  92.5

%

  85.4

%

  88.8

%

  88.7

%

  83.9

%

  85.7

%

Risk-free rate

  1.10

%

  0.90

%

  1.25

%

  0.80

%

  0.50

%

  1.00

%

Stock price

 $2.26  $2.26  $2.26  $4.11  $4.11  $4.11 

11

BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

The Company recognized gains/(losses) of $2,441 and ($1,441) for the three months ended December 31, 2021 and 2020, respectively, related to the change in fair value of the warrant liability was valuedliabilities. The changes in fair value of warrant liabilities were due to changes in inputs to the Monte Carlo option-pricing model, primarily from changes in the stock price.

The Company’s contingent consideration obligations are from arrangements resulting from acquisitions that involve potential future payment of consideration that is contingent upon the achievement of revenue targets and operational goals. Contingent consideration is recognized at its estimated fair value at the loan execution date of acquisition based on the Company’s expected probability of future payment, discounted using a weighted-average cost of capital in accordance with accepted valuation methodologies.

The Company reviews and re-assesses the amountestimated fair value of $341 and will be revaluedcontingent consideration liabilities at the end of each reporting period to fair value. Theand the updated fair value at December 31, 2017 was $338 and is includedcould differ materially from the initial estimates. The Company measures contingent consideration recognized in other long term liabilities in the Condensed Consolidated Balance Sheet. Changes inconnection with acquisitions at fair value are includedon a recurring basis using significant unobservable inputs classified as Level 3 inputs. The Company uses a simulation-based model to estimate the fair value of contingent consideration on the acquisition date and at each reporting period. The simulation model uses certain inputs and assumptions, including revenue projections, an estimate of revenue discount and volatility rate based on comparable public companies’ data, and risk-free rate. Significant increases or decreases to either of these inputs in interest expenseisolation could result in a significantly higher or lower liability with a higher liability limited to the Condensed Statementcontractual maximum of Operationsthe contingent consideration liabilities. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate on the acquisition date and each reporting period and the amount paid will be recorded in the period the change occurs.earnings. The significant inputs and assumptions utilized were as follow as of:

 

  

December 31, 2021

  

September 30, 2021

 

Revenue discount rate

  3.7%  3.5%

Revenue volatility

  7.8%  11.0%

Discount rate

  10.1%  10.5%

 

Assets and liabilities of the Company measured at fair value on a recurring basis as of December 31, 20172021 and September 30, 2021, are as follows:

 

     

As of December 31, 2017

      

As of December 31, 2021

     
 

Level 1

  

Level 2

  

Level 3

  

Total

  

Level 1

  

Level 2

  

Level 3

  

Total

 
                 

Liabilities:

                 

Warrant liability

 $-  $-  $338  $338 

Warrant liabilities:

 

Montage

 $0  $0  $13  $13 

Series A and C

 0  0  805  805 

Series D

  0   0   1,145   1,145 

Total warrant liabilities

 0 0  1,963  1,963 

Contingent consideration obligations

  0   0   3,210   3,210 

Total Liabilities

 $-  $-  $338  $338  $0  $0  $5,173  $5,173 

  

As of September 30, 2021

     
  

Level 1

  

Level 2

  

Level 3

  

Total

 
                 

Liabilities:

                

Warrant liabilities:

                

Montage

 $0  $0  $13  $13 

Series A and C

  0   0   2,026   2,026 

Series D

  0   0   2,365   2,365 

Total warrant liabilities

  0   0   4,404   4,404 

Contingent consideration obligations

  0   0   3,649   3,649 

Total Liabilities

 $0  $0  $8,053  $8,053 

 

12

Table of Contents

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The following table provides a rollforward of the fair value, as determined by Level 3 inputs, of the warrant liability.as follows:

 

  

Contingent

Consideration

Obligations

  

Warrant

Liabilities

 

Balance at beginning of period, October 1, 2021

 $3,649  $4,404 

Additions

  -   - 

Payments or exercises

  (509

)

  - 

Adjustment to fair value

  70   (2,441

)

Balance at end of period, December 31, 2021

 $3,210  $1,963 

 

  

Three Months Ended

December 31,

 
  

2017

 

Balance at beginning of period, October 1, 2017

 $- 

Additions

  341 

Adjustment to fair value

  (3)

Balance at end of period, December 31, 2017

 $338 

55..   Intangible Assets

 

The components of intangible assets, net of accumulated amortization, are as follows:

 

  

As of

  

As of

 
  

December 31, 2017

  

September 30, 2017

 

Domain and trade names

 $10  $10 

Customer related

  125   179 

Non-compete agreements

  56   74 

Balance at end of period

 $191  $263 

  

As of
December 31,

2021

  

As of
September 30,

2021

 

Domain and trade names

 $720  $732 

Customer related

  5,201   5,465 

Technology

  1,433   1,558 

Balance at end of period

 $7,354  $7,755 

 

Total amortization expense was $401 and $218 related to intangible assets for the three months ended December 31, 20172021 and 2016 was $72 and $71,2020, respectively, and is reflected in operating expenses on the Condensed Consolidated Statements of Operations. The estimated amortization expense for fiscal yearsyear 20182022 (remaining) and, 20192023, is $1752024,2025, and $16,2026 and thereafter is $1,093, $1,415, $1,032, $738, $673 and $2,403, respectively.

6.Accrued Liabilities

 

Accrued liabilities consist of the following:

  

As of
December 31,

2021

  

As of
September 30,

2021

 

Compensation and benefits

 $621  $541 

Professional fees

  119   81 

Taxes

  72   84 

Insurance

  134   0 

Other

  115   202 

Balance at end of period

 $1,061  $908 

 

67..   RestructuringLong-term debt

 

Commencing in fiscalOn 2015March 1, 2021, and through fiscal 2017, the Company’s management approved, committed to and initiated plans to restructure and further improve efficiencies by implementing cost reductions in line with expected decreases in revenue. The Company renegotiated several office leases and relocated to smaller space, while also negotiating sub-leases for the original space. In addition, the Company executedassumed the outstanding long-term debt obligations of an acquired business and issued a general work-force reduction and recognized costs for severance and termination benefits. These restructuring charges and accruals require estimates and assumptions, including contractual rental commitments or lease buy-outs for vacated office space and related costs, and estimated sub-lease income. The Company’s sub-lease assumptions include the ratesseller note to be charged to a sub-tenant and the timingone of the sub-lease arrangement. All of the vacated lease space is currently contractually occupied by a new sub-tenant for the remaining life of the lease. In theselling shareholders (see Note second14 quarter of fiscal 2017, the Company initiated a plan to shut down its operations). The assumed debt obligations and seller note are denominated in India. All of these estimates and assumptions will be monitored on a quarterly basis for changes in circumstances with the corresponding adjustments reflected in the Condensed Consolidated Statement of Operations.Euros.

 

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BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Long-term debt consisted of the following:

  

As of
December 31,

2021

  

As of
September 30,

2021

 

Vendor loan payable (“Vendor loan”), accruing interest at 3.0% per annum. Principal and interest are payable in two lump-sum installments and the loan matures on February 1, 2023.

 $676  $718 

Term loan payable, accruing interest at fixed rates ranging between 0.99% to 1.5% per annum, payable in monthly or quarterly payments of interest and principal and matures on October 10, 2022.

  269   362 

Term loan payable, accruing interest at 1.3% per annum, payable in quarterly installments and matures on April 30, 2027.

  453   466 

Seller’s note payable (“Seller’s note”), due to one of the selling shareholders, accruing interest at a fixed rate of 4.0% per annum. The Seller’s note is payable over five installments and matures on January 1, 2026.

  344   383 

Total debt

  1,742   1,929 

Less: current portion

  (609

)

  (732

)

Long-term debt, net of current portion

 $1,133  $1,197 

At December 31, 2021, future maturities of long-term debt are as follows:

Fiscal year:

    

2022 (remaining)

 $609 

2023

  470 

2024

  218 

2025

  218 

2026

  82 

Thereafter

  145 

Total debt

 $1,742 

8.Stockholders Equity

Series A Convertible Preferred Stock

 

The following table summarizesCompany has designated 264,000 shares of its preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”). The shares of Series A Preferred Stock may be converted, at the restructuring activityoption of the holder at any time, into such number of shares of common stock (“Conversion Shares”) equal to (i) the number of shares of Series A Preferred Stock to be converted, multiplied by the stated value of $10.00 (the “Stated Value”) and (ii) divided by the conversion price in effect at the time of conversion. As of December 31, 2021, the Company had no shares of Series A Preferred Stock outstanding.

Series C Convertible Preferred Stock

The Company has designated 11,000 shares of its preferred stock as Series C Convertible Preferred Stock (“Series C Preferred Stock”). The Company may not effect, and a holder will not be entitled to, convert the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. As of December 31, 2021, the Company had 350 shares of Series C Preferred Stock outstanding, which were convertible into an aggregate of 38,889 shares of the Company’s common stock.

Registered Offering of Common Stock and Private Placement of Series D Convertible Preferred Stock (the May 2021 Offerings)

On May 14, 2021, the Company offered and sold a total of 1,060,000 shares of its common stock to certain institutional investors at a public offering price of $2.28 per share in a registered direct offering (“RD Offering”). The RD Offering was registered under the Securities Act of 1933, as amended, pursuant to a prospectus supplement to the Company's currently effective registration statement on Form S-3.

Additionally, on May 14, 2021, the Company entered into securities purchase agreements with certain institutional investors pursuant to which the Company offered and sold a total of 2,700 units (“Units”) at a purchase price of $1,000 per Unit (“Private Placement”). Each Unit consisted of (i) one share of the Company’s newly designated Series D Convertible Preferred Stock (“Series D Preferred Stock”) and (ii) warrants to purchase common stock up to one-half of the shares issuable upon conversion of the Series D Preferred Stock as a part of the Units. In total, the Company issued 2,700 shares of Series D Preferred Stock and warrants to purchase up to 592,106 shares of common stock.

14

BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

Joseph Gunnar & Company, LLC acted as lead placement agent for both the RD Offering and the Private Placement (collectively, the “May 2021 Offerings”) and Taglich Brothers, Inc. acted as co-placement agent for the May 2021 Offerings (the "Placement Agents"). As compensation for their services, the Company paid to the Placement Agents a fee equal to 8% of the aggregate purchase price paid and reimbursed the Placement Agents for certain expenses incurred in connection with the May 2021 Offerings. In addition, the Company issued to the Placement Agents warrants, in substantially the same form as the Series D Preferred Warrants, to purchase an aggregate of 179,536 shares of common stock.

In connection with the Private Placement, the Company has designated 4,200 shares of its preferred stock as Series D Convertible Preferred Stock.  The shares of Series D Preferred Stock may be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series D Preferred Stock to be converted, multiplied by the stated value of $1,000 and (ii) divided by the conversion price in effect at the time of conversion.  Holders of Series D Preferred Stock were prohibited from converting Series D Preferred Stock into conversion shares if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% (or 9.99% upon the election of the holder prior to the issuance of the Series D Preferred Stock) of the total number of shares of common stock then issued and outstanding. At the original issuance date, shares of Series D Preferred Stock issued in Private Placement were convertible into an aggregate of 1,184,211 shares of common stock.

The Company’s common stock is listed on the NASDAQ Capital Market, and, as such, it is subject to the applicable rules of the Nasdaq Stock Market LLC, including Nasdaq Listing Rule 5635(a), which requires stockholder approval in connection with the acquisition of another company (see Note 13) if the Nasdaq-listed company will issue 20% or more of its common stock. For purposes of Nasdaq Listing Rule 5635(a), the issuance of any common stock in the Acquisition (see Note 13) and the May 2021 Offerings would be aggregated together. Thus, to permit the issuance of common stock upon conversion of the Series D Preferred Stock and upon exercise of the warrants issued in the Private Placement, the Company had to obtain stockholder approval of these issuances. Upon issuance, the Company had determined that such prohibition did not represent an inability for the Company to satisfy its obligation to deliver shares upon conversion, as the holders’ conversion option itself was contingent upon Stockholder Approval. On September 16, 2021, the Company obtained Stockholder Approval. The Company determined that the Series D Preferred Stock should be classified as permanent equity.

The Series D Preferred Stock contained an embedded conversion feature that could affect the ultimate settlement of the Series D Preferred Stock. The Company determined that the embedded conversion feature’s economic characteristics and risks were clearly and closely related to the economic characteristics and risks of the Series D Preferred Stock. As a result, the embedded conversion feature was not required to be bifurcated from the Series D Preferred Stock.

The Series D Preferred Stock issued contained a beneficial conversion feature, which arises when a debt or equity security is issued with an embedded conversion option that is deemed beneficial to the investor, that is, in-the-money, at inception, as the conversion option has an effective conversion price that is less than the market price of the underlying stock at the commitment date. An embedded beneficial conversion feature is required to be recognized separately by allocating a portion of the proceeds equal to the intrinsic value, at the commitment date, of the feature to additional paid-in capital. As discussed below, the May 2021 Offerings cash proceeds allocated to the Series D Preferred Stock based on its relative fair value resulted in an effective conversion price of $1.41, which was below the commitment date fair value of the underlying shares of common stock of $2.50, resulting in a beneficial conversion feature measured at $1.3 million. As discussed in Note 14, upon the acquisition of Hawk Search during the third quarter of fiscal 2021, Series D Preferred Stock was issued as part of consideration transferred in which the intrinsic value of the embedded conversion feature was calculated at $724 as of the acquisition date.

During the fourth quarter of fiscal 2021, the Company recognized the impact of the beneficial conversion feature upon Stockholder Approval, as the beneficial conversion feature became immediately exercisable, at the option of the holder. The Company recognized full accretion of the beneficial conversion feature as a deemed dividend of $2.0 million to the Series D Preferred Stock. Such deemed dividend was recognized as an increase to accumulated deficit and an increase to additional paid-in capital and was included as a component of net loss attributable to common stockholders. During the fourth quarter of fiscal 2021, all Series D Preferred Stock was converted to common shares with no remaining Series D Preferred Stock outstanding at December 31, 2021 and September 30, 2021.

As noted above, in connection with the May 2021 Offerings, the Company issued Series D Preferred Warrants and Placement Agents Warrants to purchase up to 592,106 and 179,536 shares of common stock, respectively. The Series D Preferred and Placement Agents Warrants (hereinafter referred to collectively as the “Series D Warrants”) are puttable at the option of the holder in the event of a Fundamental Transaction, as defined in the respective warrant agreements. The put feature requires the Company to pay holders an amount of cash equal to the Black-Scholes Value, as defined in the respective warrant agreements, of the remaining unexercised portion of the Series D Warrants on the date of consummation of such Fundamental Transaction. The Company determined that the Series D Warrants are required to be classified as liabilities measured at fair value at their issuance date and to be subsequently remeasured at fair value each reporting period, with changes in fair value recognized in period earnings (see Note 4).

15

BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

As the common stock in the RD Offering was sold concurrently with the Units sold in the Private Placement, for any common purchasers, inclusive of purchaser affiliated entities, the aggregate proceeds from the May 2021 Offerings were allocated, on an investor-by-investor basis, to the Series D Preferred Warrants based on their fair value and the residual proceeds to the common stock and Series D Preferred Stock based on their relative fair values. Accordingly, the May 2021 Offerings proceeds, net of certain fees due to placement agents, inclusive of the fair value of warrants issued to placement agents, and transaction-related expenses, of approximately $4.3 million were allocated $1.0 million to the Series D Preferred Warrants based on their issuance-date fair value, $1.9 million to common stock and $1.3 million to Series D Preferred Stock based on their respective relative fair values.

The issuance-date fair value of the Series D Warrants issued to placement agents was determined to be incremental cost directly attributable to the May 2021 Offerings and was charged by the Company against proceeds along with other fees paid to the Placement Agents.

Registered Offering and Sale of Common Stock

On February 4, 2021, the Company offered and sold a total of 880,000 shares of its common stock, par value $0.001 per share, to certain institutional and accredited investors at a public offering price of $3.10 per share in a registered direct offering (the “Offering”). The Offering was registered under the Securities Act of 1933, as amended, pursuant to a prospectus supplement to the Company’s currently effective registration statement on Form S-3 (File No.333-239104), which was initially filed with the SEC on June 12, 2020, and was declared effective on June 25, 2020. The Company filed the final prospectus supplement for the Offering on or about February 5, 2021. The Offering closed on February 8, 2021, and resulted in proceeds, net of certain fees due to placement agents and transaction expenses, to the Company of approximately $2.5 million. The net proceeds received by the Company will be used for general corporate purposes, including general working capital.

Joseph Gunnar & Company, LLC acted as lead placement agent for the Offering, and Taglich Brothers, Inc. acted as co-placement agent for the Offering. As compensation for their services, the Company paid to the Placement Agents a fee equal to 8% of the aggregate purchase price paid for shares placed by the Placement Agents at closing and reimbursed the Placement Agents for certain expenses incurred in connection with the Offering. In addition, the Company issued to the Placement Agents warrants to purchase an aggregate of 58,169 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants have a term of five years from the date of issuance and an exercise price of $3.875 per share.

Amended and Restated Stock Incentive Plan

The Company has granted common stock, common stock warrants, and common stock option awards (the “Equity Awards”) to employees, consultants, advisors and former debt holders of the Company and to former owners and employees of acquired companies that have become employees of the Company. The Company’s Amended and Restated Stock Incentive Plan (the “Plan”) provided for the issuance of up to 5,000 shares of common stock. This Plan expired in August 2016. As of December 31, 2021, there were 3,246 options outstanding under the Plan. On April 29, 2016, the stockholders approved a new stock incentive plan, the 2016 Stock Incentive Plan (the “2016 Plan”). The 2016 Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company. As of December 31, 2021, there were 761,368 options outstanding and 14,544 shares available for future issuance under the 2016 Plan.

Compensation Expense

Compensation expense is generally recognized on a graded accelerated basis over the vesting period of grants. Compensation expense is recorded in the consolidated statements of operations with a portion charged to Cost of revenue and a portion to Operating expenses, depending on the employee’s department.

During the three months ended December 31, 2021 and 2012020,7: compensation expense related to share-based payments was as follows:

 

  

Facility Closures

and Other Costs

 

Balance at beginning of period, October 1, 2017

 $176 

Charges to operations

  - 

Cash disbursements

  (67)

Changes in estimates

  - 

Balance at end of period, December 31, 2017

 $109 

The components of the accrued restructuring liabilities is as follows:

  

As of

  

As of

 
  

December 31, 2017

  

September 30, 2017

 

Facilities and related

 $103  $133 

Other

  6   43 

Total

 $109  $176 

As of December 31, 2017,$57 was reflected in Accrued Liabilities and $52 in Other Long Term Liabilities in the Condensed Consolidated Balance Sheet. As of September 30, 2017, $119 is reflected in Accrued Liabilities and $57 is reflected in Other Long Term liabilities in the Condensed Consolidated Balance Sheet.

7.   Debt

Debt at December 31, 2017 and September 30, 2017 consists of the following:

  

As of

  

As of

 
  

December 31, 2017

  

September 30, 2017

 

Line of credit borrowings

 $2,500  $2,500 

Term loan - Montage Capital

  1,000   - 

Subtotal debt

 $3,500  $2,500 

Other (debt discount)

 $(316)  - 

Total debt

 $3,184  $2,500 

Less current portion

 $42  $- 

Long term debt, net of current portion

 $3,142  $2,500 

Heritage Line of Credit

In June 2016, the Company entered into a new Loan and Security Agreement with Heritage Bank of Commerce (“Heritage Agreement” or “Loan Agreement”). The Heritage Agreement had and original a term of 24 months but was amended in 2017 to a maturity date of June 9, 2019. The Company paid an annual commitment fee of 0.4% of the commitment amount in the first year and 0.2% in the second year.  The facility fee is $6 on each anniversary thereafter. Borrowings are secured by all of the Company’s assets and all of the Company’s intellectual property. The Company is required to comply with certain financial and reporting covenants including an Asset Coverage Ratio and an Adjusted EBITDA metric. The Company was in compliance with all financial covenants as of December 31, 2017.

  

Three Months Ended
December 31,

 
  

2021

  

2020

 

Cost of revenue

 $8  $6 

Operating expenses

  55   45 
  $63  $51 

 

14
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Table of Contents

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The Heritage Agreement provides for up to $2.5 million of revolving credit advances which may be used for acquisitions and working capital purposes. Borrowings are limited to the lesser of (i) $2.5 million and (ii) 75% of eligible receivables as defined. The Company can borrow up to $1.0 million in out of formula borrowings for specified periods of time. The borrowings or credit advances may not exceed the monthly borrowing base capacity, which will fluctuate based on monthly accounts receivable balances. The Company may request credit advances if the borrowing capacity is more than the current outstanding loan advance, and must pay down the outstanding loan advance if it exceeds the borrowing capacity.  Borrowings accrue interest at Wall Street Journal Prime Rate plus 1.75%, (currently 6%). As of December 31, 2017,2021, the Company had an outstanding balance under the Loan Agreementapproximately $322 of $2.5 million.unrecognized compensation costs related to unvested options, which is expected to be recognized over a weighted-average period of 1.9 years.

 

A DirectorCommon Stock Warrants

The Company typically issues warrants to individual investors and Shareholderplacement agents to purchase shares of the Company, Michael Taglich, signed an unconditional guaranty (the “Guaranty”) and promise to pay Heritage Bank all indebtedness in an amount not to exceed $1.5 millionCompany’s common stock in connection with the out of formula borrowings. Under the terms of the Guaranty, the Guarantor authorizes Lender, without notice or demandpublic and without affecting its liability hereunder, from time to time to: (a) renew, compromise, extend, accelerate, or otherwise change the time for payment, or otherwise change the terms, of the Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon, or otherwise change the terms of the Indebtedness; (b) receive and hold security for the payment of this Guaranty or any Indebtedness and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security; (c) apply such security and direct the order or manner of sale thereof as Lender in its discretionprivate placement fund raising activities. Warrants may determine; and (d) releasealso be issued to individuals or substitute any Guarantor or any one or more of any endorsers or other guarantors of any of the Indebtedness.

To secure all of Guarantor's obligations hereunder, Guarantor assigns and grants to Lender a security interestcompanies in all moneys, securities, and other property of Guarantor now or hereafter in the possession of Lender, all deposit accounts of Guarantor maintained with Lender, and all proceeds thereof. Upon default or breach of any of Guarantor's obligations to Lender, Lender may apply any deposit account to reduce the Indebtedness, and may foreclose any collateral asexchange for services provided in the Uniform Commercial Code and in any security agreements between Lender and Guarantor.

Amendments – Heritage Bank

An amendment to the Heritage Agreement (“First Amendment”) was executed on August 15, 2016 Company. The warrants are typically exercisable six months after the issue date, expire in five years, and includedcontain a waiver for the Adjusted EBITDA metric for the quarter ended June 30, 2016. The First Amendment also included a decrease in the revolving line of credit from $3.0 million to $2.5 million, the Adjusted EBITDA metric for the quarter ended September 30, 2016, cashless exercise provision and also included a minimum cash requirement of $500 in the Company’s accounts at Heritage, which was waived for the period ended September 30, 2016.

On December 14, 2016, a second amendment to the Heritage Agreement (“Second Amendment”) was executed. The Second Amendment included a minimum cash requirement of $250 in its accounts at Heritage and the Adjusted EBITDA metrics for the first half of fiscal 2017.

On August 10, 2017, the third Amendment was executed (“Third Amendment”). The Third Amendment extended the maturity date of the loan to June 9, 2019.

On October 6, 2017, a fourth amendment to the Heritage Agreement (“Fourth Amendment”) was executed. The Fourth Amendment included a consent to the Company’s incurrence of additional indebtedness from Montage Capital (“Montage”) and the grant of a second position lien to Montage (See Subsequent Events). In addition, Heritage and Montage entered into an Intercreditor Agreement dated October 10, 2017, and acknowledged by the Company.

On November 27,2017, a fifth amendment to the Heritage Agreement (“Fifth Amendment”) was executed. The Fifth Amendment included the Adjusted EBITDA metrics for the second half of fiscal 2017 and the firstsix months of fiscal 2018. Thereafter, the Company and Heritage shall mutually agree upon minimum quarterly Adjusted EBITDA amounts for each fiscal year within thirty days following the beginning of each fiscal year.

15

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)piggyback registration rights.

 

Montage Capital II, L.P. Loan AgreementWarrant

On October 10, 2017, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Montage Capital II, L.P. (“Montage”). The Loan Agreement has a thirty-six (36) month term which expires on October 10, 2020. The Loan Agreement provides for up to $1.5 million of borrowing in the form of a non-revolving term loan which may be used by the Company for working capital purposes. $1 million of borrowing was advanced on the date of closing (the “First Tranche”). An additional $500 thousand of borrowing will be available at the Company’s option in the event that the Company achieves certain financial milestones and is otherwise in compliance with its loan covenants (the “Second Tranche”). Borrowings bear interest at the rate of 12.75% per annum. The Company paid a fee of $47 to Montage at closing. Interest only payments are due and payable during the firstnine months of the Loan. Commencing on July 1, 2018, the Company shall be obligated to make principal payments of $26 per month if only the First Tranche has been received and $39 if the Company has received both the First Tranche and the Second Tranche. All remaining principal and interest shall be due and payable at maturity. Borrowings are secured by a second position lien on all of the Company’s assets including intellectual property and general intangibles. Pursuant to the Loan Agreement, the Company is also required to comply with certain financial covenants.  The Loan is subordinate to the Company’s senior debt facility with Heritage Bank of Commerce (“Heritage”). Heritage consented to the Company’s incurrence of additional indebtedness from Montage and the grant of a second position lien to Montage. In addition, Heritage and Montage entered into an intercreditor agreement dated October 10, 2017, and acknowledged by the Company.

- As additional consideration for the Loan,a prior loan arrangement which was paid in full in a prior period not presented, the Company issued to Montage Capital an eight-year warrant (the “Warrant”“Montage Warrant”) to purchase66,315 shares of the Company’s common stock at a price equal to $2.65132.50 per share which may increase to an aggregate of 100,082 shares of the Company’s common stock in the event thatshare. The Montage advances the Second Tranche. The Warrant contains an equity buy-out provision upon the earlier of (1) dissolution or liquidation of the Company, (2) any sale or distribution of all or substantially all of the assets of the Company, or (3) a “Change in Control” as defined within the meaning of SectionSections 13(d) and 14(d)(2) of the Securities Exchange Act of 1934. Montage shall haveCapital has the right to receive an equity buy-out of either $250 if only the First Tranche has been advanced or $375 if both the First Tranche and the Second Tranche have been advanced.$250. If the equity buy-out is exercised, the Montage Warrant will be surrendered to the Company for cancellation. The fair value

Series A and C Preferred Warrants - In March 2019, in connection with the issuance of the Warrant was initially valued atCompany’s Series C Preferred Stock, the Company issued warrants to purchase the Company’s common stock. These warrants were designated as (i) Series A Warrants with an initial term of 5.5 years and an exercise price of $4.00; (ii) Series B Warrants, which expired unexercised during the Company’s 2021 fiscal year, with an initial term of 24 months and an exercise price of $3414.00; and (iii) Series C Warrants with an initial term of 5.5 years and an exercise price of $0.05 (collectively, hereinafter referred to as the “Series C Preferred Warrants”). The Company also issued warrants with an exercise price of $4.00 to purchase shares of the Company’s common stock to the Placement Agents. The Company may not effect, and a holder will not be entitled to convert, the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the loan execution. The Warrant is classified as a liability with an offsetting entry to debt discounts, which will be amortized over the lifeelection of the Loan Agreement. Total amortizationholder, 9.99%) of the debt discount fornumber of shares of common stock outstanding immediately after giving effect to the exercise. During the three months ended December 31, 20172021, was $25.26,605 Placement Agent Warrants were exercised. 

 

8.   Other Long Term Liabilities

Deferred Rent

In connection with the lease in Massachusetts, the Company made an investment in leasehold improvements at this location of approximately $1.4 million, of which approximately $657 was funded by the landlord. The capitalized leasehold improvements are being amortized over the initial life of the lease. The improvements funded by the landlord are treated as lease incentives. Accordingly, the funding received from the landlord was recorded as a fixed asset addition and a deferred rent liability on the Condensed Consolidated Balance Sheets. As of December 31, 20172021, , $150 was reflected in Accrued Liabilities and $11 is reflected in Other long term liabilities on the Condensed Consolidated Balance Sheet. Asnumber of September 30, 2017, $154 was reflected in Accrued Liabilities and $43 is reflected in Other long term liabilities on the Condensed Consolidated Balance Sheet. The deferred rent liability is being amortized as a reduction of rent expense over the lifeshares issuable upon exercise of the lease.(i) Series A Warrants were 872,625 shares; (ii) Series C Warrants were 13,738 shares; (iii) the Placement Agent Warrants issued in connection with the Series C Preferred Stock were 11,992 shares; and (iv) Investor Warrants were 41,621 shares.

 

Warrant LiabilitySeries D Preferred Warrants -

The warrantUnits sold in Private Placement on May 14, 2021 also consisted of Series D Warrants to purchase up to 592,106 shares of common stock. The Series D Preferred Warrants issued to Montage Capital is included in Other Long Term Liabilities in the Condensed Consolidated Balance Sheet. The fair value of the warrant was valued at the loan executionon May 14, 2021 have an initial exercise date in the amount of $341November 14, 2021, with a term of five and will be revalued at the enda half years which ends on November 16, 2026. Series D Preferred Warrants have an exercise price of each reporting period to fair value. The fair value at December 31, 2017 was $338. Changes in fair value are recorded as expense in the period the change occurs.

9.   Shareholders Equity

Preferred Stock2.51.

 

In addition, pursuant to the October 2014,May 2021 Offerings, the Company sold 200,000issued to the Placement Agents warrants to purchase an aggregate of 179,536 shares of Series A convertible preferred stock (the “Preferred Stock”) atcommon stock. The Placement Agents Warrants issued on May 14, 2021 have an initial exercise date of November 14, 2021, with a purchaseterm of five years which ends on May 12, 2026. The Placement Agent Warrants have an exercise price of $2.85.

The Company $10.00may not per share for gross proceeds ofeffect, and a holder will $2.0not million in a private placement. The shares ofbe entitled to convert, the Series D Preferred Stock or exercise any mayMay 2021 be converted, atOffering Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the option of the holder at any time, into suchaggregate number of shares of common stock (“Conversion Shares”beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) equal (i) toof the number of shares of Preferred Stock to be converted, multiplied by the stated value of $10.00 (the “Stated Value”) and (ii) divided by the conversion price in effect at the time of conversion. The current conversion price is $16.25, and is subject to adjustment in the event of stock splits or stock dividends. Any accrued but unpaid dividends on the shares of Preferred Stock to be converted shall also be converted in common stock atoutstanding immediately after giving effect to the conversion price. A mandatory provision also may provide that the Company will have the right to require the holders to convert shares of Preferred Stock into Conversion Shares if (i) the Company’s common stock has closed at or above $32.50 per share for ten consecutive trading days and (ii) the Conversion Shares are (A) registered for resale on an effective registration statement or (B) may be resold pursuant to Rule 144.exercise. As of December 31, 2017,2021, a total of 1,636 preferred sharesno Series D Warrants have been converted to 1,007exercised and the aggregate number of shares of common stock.issuable upon exercise was 592,106 and 179,536 shares for investors and placement agents, respectively.

 

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BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

InThe Montage Warrants, Series C Preferred Warrants, the event of any liquidation, dissolution, or winding up of the Company, the holders of shares of Preferred Stock will be entitled to receive in preference to the holders of common stock, the amount equal to the stated value per share of Series A Preferred Stock plus declared and unpaid dividends, if any. After such payment has been made, the remaining assets of the Company will be distributed ratably to the holders of common stock.

The Company may pay dividends in cash or Preferred Stock. Effective January 1, 2017, cumulative dividends are payable at a rate of 12% per year, as after two years, any Preferred Stock dividends increase from 6% to 12% per year. If the Company does not pay the dividends in cash, then the Company may pay dividends in any quarter by delivery of additional shares of Preferred Stock (“PIK Election”) up to 64,000 shares cumulatively. If the Company shall make the PIK Election with respect to the dividend payable, it shall deliver a number of shares of Preferred Stock equal to (A) the aggregate dividend payable to such holder as of the end of the quarter divided by (B) the lesser of (x) the then effective Conversion Price or (y) the average VWAP for the five (5) consecutive Trading Days prior to such dividend payment date. The Company shall have the right to force conversion of the Preferred Stock into shares of Common Stock at any time after the Common Stock trades in excess of $32.50 per share. The Preferred Shares shall vote with the Common on an as converted basis.

As of December 31, 2017, the Company hasPlacement Agent Warrants issued52,563 preferred convertible shares (PIK shares) to the preferred shareholders. The Company elected to declare a PIK dividend for the next quarterly payment due January 1, 2018. The total PIK dividend declared for January 1, 2018 is 7,567 preferred stock shares at a dividend rate of 12%.

Stock Incentive Plans

The Company has granted common stock, common stock warrants, and common stock option awards (the “Equity Awards”) to employees, consultants, advisors and debt holders of the Company and to former owners and employees of acquired companies that have become employees of the Company. On April 29, 2016, the stockholders approved a new stock incentive plan, The 2016 Stock Incentive Plan (the “2016 Plan”). The 2016 Plan replaced an older plan that had expired in August 2016. The 2016 Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company. Initially, a total of 500,000 shares of the Company’s Common Stock is reserved for issuance under this new plan. As of December 31, 2017, there were 224,166 options outstanding under this plan and 275,834 shares available for future issuance.

Common Stock Warrants

The Company typically issues warrants to individual investors and placement agents to purchase shares of the Company’s common stock in connection with private placement fund raising activities. Warrants may also be issued to individuals or companies in exchange for services provided for the company. The warrants are typically exercisable six months after the issue date, expire in five years, and contain a cashless exercise provision and piggyback registration rights.

17

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

As of December 31, 2017, the total warrants outstanding were issued as follows: 227,655 warrants were issued to the placement agents in connection with private placements, 311,938 warrants were issued to individual investors in connection with private placements, debt issuances and bank guarantees, and 66,315 warrants were issued to Montage Capital. Certain of the Company’s officers and directors have also been issued warrants. Included in the total warrants outstanding are warrants to purchase 8,600 shares of common stock issued to the Company’s CEO and President, Roger Kahn, in connection with the November 2016 Private Placement, in which he purchased shares of common stock. Also included inSeries C Preferred Stock, and the total warrants outstandingSeries D Warrants were all determined to be derivative liabilities and are warrantssubject to purchaseremeasurement each reporting period (see Note 152,8124 shares of common stock issued to Michael Taglich. Michael Taglich is a member of the Board of Directors and a shareholder. Michael Taglich has been issued warrants in connection with his participation as an investor in private offerings and issuance of loans to the Company. He has also guaranteed $1.5 million in connection with the Company’s out of formula borrowings on its credit facility with Heritage Bank for which he received warrants totaling 80,000. Michael Taglich is also a principal of Taglich Brothers, Inc who have been the placement agents for many of the Company’s private placements.

).

 

Total warrants outstanding as December 31, 20172021, were as follows:

 

Type

 

Issue

Date

 

Shares

  

Price

 

Expiration

Investors

 

11/9/2016

  4,271  $175.00 

5/9/2022

Financing (Montage)

 

10/10/2017

  1,327  $132.50 

10/10/2025

Investors

 

10/19/2018

  3,120  $25.00 

10/19/2023

Placement Agent

 

10/16/2018

  10,000  $31.25 

10/16/2023

Investors

 

3/12/2019

  41,621  $4.00 

10/19/2023

Investors

 

3/12/2019

  872,625  $4.00 

9/12/2024

Investors

 

3/12/2019

  13,738  $0.05 

9/12/2024

Placement Agent

 

3/12/2019

  11,992  $4.00 

9/12/2024

Placement Agent

 

2/4/2021

  31,564  $3.88 

2/4/2026

Investors

 

5/14/2021

  592,106  $2.51 

11/16/2026

Placement Agent

 

5/14/2021

  179,536  $2.85 

5/12/2026

Total

  1,761,900      

 

  

Issue

         

Type

 

Date

 

Shares

  

Price

 

Expiration

            

Investors

 

6/19/2013

  18,400  $31.25 

6/19/2018

Placement Agent

 

6/19/2013

  9,200  $31.25 

6/19/2018

Placement Agent

 

9/30/2013

  6,157  $32.50 

9/30/2018

Placement Agent

 

11/6/2013

  3,078  $32.50 

11/6/2018

Placement Agent

 

3/28/2014

  12,800  $26.25 

3/28/2019

Placement Agent

 

10/28/2014

  12,308  $16.25 

10/28/2019

Director/Shareholder

 

12/31/2014

  12,000  $20.00 

12/31/2019

Director/Shareholder

 

2/12/2015

  12,000  $20.00 

2/12/2020

Director/Shareholder

 

5/12/2015

  12,000  $20.00 

5/12/2020

Director/Shareholder

 

7/21/2015

  32,000  $8.75 

7/21/2018

Director/Shareholder

 

12/31/2015

  6,000  $20.00 

12/31/2020

Placement Agent

 

5/17/2016

  86,778  $3.75 

5/17/2021

Placement Agent

 

5/11/2016

  53,334  $3.75 

5/11/2021

Placement Agent

 

7/15/2016

  44,000  $4.60 

7/15/2021

Investors

 

11/9/2016

  213,538  $3.50 

5/22/2022

Director/Shareholder

 

12/31/2016

  6,000  $20.00 

12/31/2021

Financing

 

10/10/2017

  66,315  $2.65 

10/10/2025

Total

    605,908      

18

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Summary of Option and Warrant Activity and Outstanding Shares

 

  

Stock Options

  

Stock Warrants

 
      

Weighted

      

Weighted

 
      

Average

      

Average

 
      

Exercise

      

Exercise

 
  

Options

  

Price

  

Warrants

  

Price

 
                 

Outstanding, September 30, 2017

  450,646  $7.02   539,593  $8.18 

Granted

  800  $2.92   66,315  $2.65 

Exercised

  -  $-   -   - 

Forfeited or expired

  (1,520) $(4.82)  -   - 

Outstanding, December 31, 2017

  449,926  $7.02   605,908  $7.57 

During the three months ended December 31, 2021, the Company granted options to purchase 5,000 shares at an exercise price of $4.11, which vest ratably over a three-year period commencing on October 1, 2021. There were 0 options granted during the three months ended December 31, 2020.

 

The weighted-average option fair values, as determined using the Black-Scholes option valuation model, and the assumptions used to estimate these values for stock options granted during the three months ended December 31, 2021 are as follows:

Weighted-average fair value per share option

 $2.96 

Expected life (in years)

  6.0 

Volatility

  90.8

%

Risk-free interest rate

  1.1

%

Dividend yield

  0.0

%

The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise based on historical trends of employee turnover. Expected volatility is based on historical daily price changes of the Company’s common stock for a period equal to the expected life. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. The expected dividend yield is zero since the Company does 1not currently pay cash dividends on its common stock and does 0not.   Net Loss Per Share anticipate doing so in the foreseeable future.

 

A summary of combined stock option and warrant activity for the three months ended December 31, 2021, is as follows:

Basic

  

Stock Options

  

Stock Warrants

 
      

Weighted -

      

Weighted -

 
      

Average

      

Average

 
      

Exercise

      

Exercise

 
  

Options

  

Price

  

Warrants

  

Price

 
                 

Outstanding, October 1, 2021

  799,201  $4.66   1,788,745  $4.18 

Granted

  5,000   3.99   -   - 

Exercised

  -   -   (26,605

)

  3.88 

Forfeited/Exchanged

  (21,834

)

  2.46   -   - 

Expired

  (13

)

  837.50   (240

)

  1,000 

Outstanding, December 31, 2021

  782,354  $4.71   1,761,900  $4.05 

Options vested and exercisable, December 31, 2021

  483,417  $6.28         

As of December 31, 2021, the aggregate intrinsic value of options outstanding and diluted net lossexercisable was $457 and $323, respectively, and the weighted-average remaining contractual term was 8.4 and 8.2 years, respectively.
 

18

BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share is computed as follows:data)

9.Net Income (Loss) Per Share Attributable to Common Shareholders

  

Three Months Ended

 

(in thousands, except per share data)

 

December 31,

 
  

2017

  

2016

 

Net loss

 $(430) $(408)

Accrued dividends on convertible preferred stock

  (75)  (68)

Net loss applicable to common shareholders

 $(505) $(476)
         

Weighted average common shares outstanding - basic and diluted

  4,200   4,012 
         

Net loss per share attributable to common shareholders:

        

Basic and diluted

 $(0.12) $(0.12)

 

Basic net lossincome (loss) per share is computed by dividing net loss availableincome (loss) applicable to common shareholders by the weighted average number of common shares outstanding.  Diluted net incomeloss per share attributable to common shareholders is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock options and warrants using the “treasury stock” method and convertible preferred stock using the “treasury stock”“as-if-converted” method. The computation of diluted earnings per share does not include the effect of outstanding stock options, warrants and warrantsconvertible preferred stock that are anti-dilutive.considered anti-dilutive.

Basic and diluted net income (loss) per share is computed as follows:

  

Three Months Ended December 31,

 

(in thousands, except per share data)

 

2021

  

2020

 

Numerator:

        

Net income (loss) - basic earnings per share

 $1,872  $(1,162

)

Effect on dilutive securities:

        

Change in fair value of in-the-money warrant derivative liabilities

  (1,247

)

  0 

Net income (loss) applicable to common shareholders – diluted earnings per share

 $625  $(1,162)
         

Denominator:

        

Weighted-average shares outstanding for basic earnings per share

  10,189,012   4,420,170 

Effect on dilutive securities:

        

Options

  242,699   0 

Warrants

  155,017   0 

Preferred Stock

  38,889   0 

Weighted-average shares outstanding for diluted earnings per share

  10,625,617   4,420,170 
         

Basic net income (loss) per share

 $0.18  $(0.26

)

Diluted net income (loss) per share

 $0.06  $(0.26

)

 

For the three months ended December 31, 2017,2021, allpotential common stock equivalents excluded from the computation of diluted net income per share because their inclusion would have been anti-dilutive included stock options and warrants to purchase shares of the Company’s common stock were considered anti-dilutive, as the options were all valued at less than the current market price. Warrants to purchase 605,908totaling 244,348 and 976,520 shares, of common stock and the Series A convertible preferred stock shares have also been excluded as they are anti-dilutive to the Company’s net loss.respectively.

 

For the three months ended December 31, 2016,2020, diluted net loss per share was the same as basic net loss per share, as the effects of all options to purchase shares of the Company’sCompany’s potential common stock were consideredequivalents are anti-dilutive, as the options were all valued at less thanCompany reported a net loss applicable to common shareholders for the current market price. Warrants to purchase 548,281 sharesperiods and the impact of in-the-money warrants was also anti-dilutive. Potential common stock and the Series A convertible preferred stock shares have also beenequivalents excluded as they are anti-dilutive toinclude the Company’s net loss.Convertible Preferred Stock, stock options and warrants (see Note 8).

10.Revenues and Other Related Items

Disaggregated Revenues

The Company disaggregates revenue from contracts with customers by geography and product grouping, as it believes this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

 

19

Table of Contents

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The Company’s revenue by geography (based on customer address) is as follows:

 

  

Three Months Ended
December 31,

 

Revenues:

 

2021

  

2020

 

United States

 $3,360  $2,286 

International

  926   550 
  $4,286  $2,836 

11.  Income Taxes

The largest concentration within the Company’s international revenue geography is within Canada.

 

Income tax expense was $Long-lived assets located in foreign jurisdictions aggregated approximately $7.2 million and $7.5 million as of 1December 31, 2021 and $September 30, 2021, respectively.

The Company’s revenue by type is as follows:

  

Three Months Ended
December 31,

 

Revenues:

 

2021

  

2020

 

Digital Engagement Services

 $869  $837 

Subscription

  3,079  ��1,690 

Maintenance

  117   92 

Hosting

  221   217 
  $4,286  $2,836 

Deferred Revenue

Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Deferred revenue represents amounts billed for which revenue has not yet been recognized. Deferred revenue that is expected to be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as noncurrent deferred revenue included in Other long-term liabilities.  

The following table summarizes the classification and net change in deferred revenue as of and for the three months ended December 31, 20172021:

  

Deferred Revenue

 
  

Current

  

Long-Term

 

Balance as of October 1, 2021

 $2,097  $418 

Increase (decrease)

  (304

)

  (23)

Balance as of December 31, 2021

 $1,793  $395 

11.Income Taxes

Income tax benefit/expense was $3 and ($6) for the three months ended December 31, 2021 and 2016.2020, respectively. Income tax expense consists of the estimated liability for federal and state income taxes owed by the Company, including the alternative minimum tax.Company.  Net operating loss carry forwardscarryforwards are estimated to be sufficient to offset additionalany potential taxable income for all periods presented.

12.Leases

 

The Company leases facilities in the United States for its corporate and regional field offices. During the three months ended December 31, 2021, the Company was also a lessee/sublessor for certain office locations relating to its restructuring plans commenced in fiscal 2015.

Determination of Whether a Contract Contains a Lease

We determine if an arrangement is a lease at inception, or upon modification of a contract and classify each lease as either an operating or finance lease at commencement. The Company reassesses lease classification subsequent to commencement upon a change to the expected lease term or a modification to the contract. Operating leases represent the Company’s right to use an underlying asset as lessee for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease.

20

BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

A contract contains a lease if the contract conveys the right to control the use of the identified property or equipment, explicitly or implicitly, for a period of time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of and obtain substantially all of the economic benefit from the use of the underlying asset. At commencement, contracts containing a lease are further evaluated for classification as an operating lease or finance lease based on their terms.

ROU Model and Determination of Lease Term

The Company uses the Right-of-Use (“ROU”) model to account for leases, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rates implicit in the Company’s leases are not readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the commencement date and any residual value guarantees, if applicable. The initial ROU asset consists of the initial measurement of the lease liability, adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned. When determining the lease term, the Company includes option periods when it is reasonably certain that those options will be exercised.

Lease Costs

For operating leases, minimum lease payments, including minimum scheduled rent increases, are recognized as operating lease costs on a straight-line basis over the applicable lease terms. Some operating lease arrangements include variable lease costs, including real estate taxes, insurance, common area maintenance or increases in rental costs related to inflation. Such variable payments, other than those dependent upon a market index or rate, are excluded from the measurement of the lease liability and are expensed when the obligation for those payments is incurred.

Significant Assumptions and Judgments

Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, market rents, useful life of the underlying property, discount rate and probable term, all of which can impact (1) the classification as either an operating or finance lease, (2) measurement of lease liabilities and ROU assets and (3) the term over which the ROU asset and leasehold improvements are amortized. The amount of depreciation and amortization, interest and rent expense would vary if different estimates and assumptions were used.

The components of net lease costs were as follows:

  

Three months Ended December 31,

 
  

2021

  

2020

 

Condensed Consolidated Statement of Operations:

        

Operating lease cost

 $54  $18 

Variable lease cost

  14   14 

Less: Sublease income, net

  (25

)

  (25

)

Total

 $43  $7 

Cash paid for amounts included in the measurement of lease liabilities was $47 for the three months ended December 31, 2021, all of which represents operating cash flows from operating leases. As of December 31, 2021, the weighted average remaining lease term was 3.1 years and the weighted average discount rate was 7.0%.

21

BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

At December 31, 2021, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year were as follows:

  

Operating

Leases

  

Receipts
Subleases

  

Net Leases

 

Fiscal year:

            

2022 (remaining)

 $130  $76  $54 

2023

  173   101   72 

2024

  116   34   82 

2025

  69   -   69 

2026

  7   -   7 

Total lease commitments

  495  $211  $284 

Less: Amount representing interest

  (61

)

        

Present value of lease liabilities

  434         

Less: current portion

  (151

)

        

Operating lease liabilities, net of current portion

 $283         

As of December 31, 2021, the Company had no lease commitments that extend past 2026.

At September 30, 2021, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year were as follows:

  

Payments -

Operating

Leases

  

Receipts -
Subleases

  

Net Leases

 

Fiscal year:

            

2022

 $185  $101  $84 

2023

  173   101   72 

2024

  116   34   82 

2025

  69   0   69 

2026

  7   0   7 

Total lease commitments

  550  $236  $314 

13.Commitments and Contingencies

The Company leases certain of its buildings under noncancelable lease agreements. Refer to the Leases footnote (Note 12) of the Notes to the Condensed Financial Statements for additional information.

The Company frequently warrants that the technology solutions it develops for its clients will operate in accordance with the project specifications without defects for a specified warranty period, subject to certain limitations that the Company believes are standard in the industry. In the event that defects are discovered during the warranty period, and none of the limitations apply, the Company is obligated to remedy the defects until the solution that the Company provided operates within the project specifications. The Company is not typically obligated by contract to provide its clients with any refunds of the fees they have paid, although a small number of its contracts provide for the payment of liquidated damages upon default. The Company has purchased insurance policies covering professional errors and omissions, property damage and general liability that reduce its monetary exposure for warranty-related claims and enable it to recover a portion of any future amounts paid.

The Company’s contracts typically provide for testing and client acceptance procedures that are designed to mitigate the likelihood of warranty-related claims, although there can be no assurance that such procedures will be effective for each project.  The Company has not paid any material amounts related to warranties for its solutions.  The Company sometimes commits unanticipated levels of effort to projects to remedy defects covered by its warranties.  The Company’s estimate of its exposure to warranties on contracts is immaterial as of December 31, 2021 and September 30, 2021.

The Company’s agreements with customers generally require the Company to indemnify the customer against claims in which the Company’s products infringe third-party patents, copyrights, or trademarks and indemnify against product liability matters. As of December 31, 2021 and September 30, 2021, the Company has not experienced any losses related to the indemnification obligations and no significant claims with respect thereto were outstanding.  The Company does not provideexpect significant claims related to the indemnification obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.

Litigation

The Company is subject to ordinary routine litigation and claims incidental to its business. As of December 31, 2021, the Company was not engaged with any material legal proceedings.

22

BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

14.Acquisitions

Woorank Acquisition

On March 1, 2021, the Company, pursuant to a Share Purchase Agreement (the “Woorank Purchase Agreement”), acquired all of the issued and outstanding shares of Woorank, an entity located in Belgium. The Company accounted for U.S. income taxesthe Woorank transaction as a business combination in accordance with the Accounting Standard Codification (“ASC”) Topic 805,Business Combinations. The purchase price consisted of (1) cash paid at closing, (2) deferred cash payable in installments post-closing, (3) a seller note issued to one of the selling shareholders, and (4) amounts payable to one selling shareholder as consideration for assistance with certain matters related to the acquisition for a period of one year from the closing date of the acquisition. The Woorank Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets and operational goals, to the selling shareholders pursuant to three separate earn-out provisions. On the closing date, the Company issued 29,433 shares of its common stock for a portion of the purchase price.

The Company accounted for the Woorank transaction as a business combination. The Company determined that the fair value of the gross assets acquired was not concentrated in a single identifiable asset or a group of similar assets. Assets acquired and liabilities assumed have been recognized at their estimated fair values as of the acquisition date. The fair value of common stock issued as part of consideration transferred was determined based on the undistributed earningsacquisition date closing market price of its Indian subsidiary,the Company’s common stock. The estimated fair value of the contingent consideration was determined based on the Company’s expected probability of future payment, discounted using a weighted average cost of capital. The fair value of the contingent consideration is included within Purchase price and contingent consideration payable on the consolidated balance sheets. The fair value of intangible assets was based on valuations using a discounted cash flow model (Level 3 inputs) which requires significant estimates and assumptions, including estimating future revenues and costs. The fair value of debt obligations assumed was based on the interest rates underlying these instruments in relation to the market rates available for similar instruments. The excess of the purchase price over the assets acquired and liabilities assumed was recognized as goodwill. The goodwill is attributable to expected synergies and customer cross-selling opportunities between the Company considers to be a permanent investment.and Woorank.

 

Hawk Search Acquisition

 

On May 28, 2021, the Company, pursuant to a Share Purchase Agreement (the “Hawk Purchase Agreement”), acquired all of the issued and outstanding shares of Hawk Search, an Illinois corporation. The purchase price consisted of (1) an initial cash payment at closing, (2) issuance of 1,500 shares of the Company’s newly designated Series D Preferred Stock, and (3) deferred cash payable on or before December 31, 2021. The Hawk Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets, to the selling shareholders as an additional earn-out, payable no later than January 2023.  

The Company accounted for the Hawk Search transaction as a business combination. The Company determined that the fair value of the gross assets acquired was not concentrated in a single identifiable asset of a group of similar assets. Assets acquired and liabilities assumed have been recognized at their estimated fair values as of the acquisition date. The fair value of Series D Preferred Stock issued as part of consideration transferred was determined based on the price paid by third-party investors in the Private Placement (see Note 8) which occurred in close proximity to the acquisition date. As more fully described in Note 8, the Series D Preferred Stock contains an embedded beneficial conversion feature. The intrinsic value of $724 was calculated as of the acquisition date. The fair value of contingent consideration was determined based on the probability of achievement of the revenue targets and operational goals, which includes estimating future revenues. The fair value of intangible assets was based on valuations using a discounted cash flow model (Level 3 inputs) which requires significant estimates and assumptions, including estimating future revenues and costs. The excess of the purchase price over the assets acquired and liabilities assumed was recognized as goodwill. The goodwill is attributable to expected synergies and customer cross-selling opportunities between the Company and Hawk Search.

The acquisition date fair value of consideration transferred was as follows:

  

Woorank

  

Hawk Search

  

Total

 

Cash paid at or in close proximity to closing

 $285  $4,800  $5,085 

Future deferred payments

  376   2,000   2,376 

Common stock (29,433 shares at $3.38 per share)

  99   0   99 

Series D Convertible Preferred Stock (1,500 shares at $618 per share)

  0   930   930 

Seller’s note

  352   0   352 

Contingent consideration (earn-outs)

  1,289   2,190   3,479 

Total consideration paid

 $2,401  $9,920  $12,321 

The preliminary acquisition date fair value of assets acquired, and liabilities assumed was as follows:

  

Woorank

  

Hawk Search

  

Total

 

Assets acquired:

            

Cash

 $577  $100  $677 

Non-cash current assets

  23   780   803 

Property and equipment

  5   0   5 

Intangible assets:

            

Acquired software

  282   560   842 

Customer relationships

  1,280   3,410   4,690 

Domain and trade names

  116   620   736 

Goodwill

  2,888   7,540   10,428 

Total assets acquired

  5,171   13,010   18,181 

Liabilities assumed:

            

Current liabilities

  208   1,909   2,117 

Assumed debt obligations

  2,159   0   2,159 

Deferred tax liabilities

  403   1,181   1,584 

Total liabilities assumed

  2,770   3,090   5,860 
             

Total consideration paid

 $2,401  $9,920  $12,321 

The average useful lives of the identifiable intangible assets acquired were as follows:

  

Woorank

  

Hawk Search

 
  

(in years)

 

Acquired software

  5   5 

Customer relationships

  8   10 

Domain and trade names

  12   15 

Total earnings from the acquisitions are impracticable to disclose as the operations were merged with existing operations and certain costs were not accounted for separately.

Pro Forma Information (Unaudited)

The following is the unaudited pro forma information assuming the acquisitions occurred on October 1, 2020:

  

Three months ended

December 31,

2020

 
     

(in thousands, except share and per share data)

    
     

Revenue

 $4,471 
     

Net income (loss) attributable to common shareholders - basic

 $(1,687

)

Net income (loss) attributable to common shareholders - diluted

 $(1,687

)

     

Net income (loss) per share attributable to common shareholders:

    

Basic

 $(0.38

)

Diluted

 $(0.38

)

     

Weighted average common shares outstanding - basic

  4,420,170 

Weighted average common shares outstanding - diluted

  4,420,170 

23

BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

Pro forma information for the three months ended December 31, 2021, is not presented as the amounts reported in the Condense Consolidated Statements of Operations include the activities of these acquisitions for the period then ended.

115.2.  Related Party Transactions

 

In October 2013, Mr. Michael Taglich joined the Board of Directors. Michael Taglich is the Chairman and President of Taglich Brothers, Inc. (“Taglich Brothers”), a New York based securities firm.

In November 2018, the Company engaged Taglich Brothers Inc, were the Placement Agents for manyon a non-exclusive basis, to perform advisory and investment banking services to identify possible acquisition target possibilities. Michael Taglich is a director and shareholder of the Company’s private offerings inCompany. Taglich Brothers Inc. could also earn a success fee ranging from $200 for a revenue target acquisition of under 2012,2013,2014, and 2016. They were also the Placement Agent for the Company’s $35 million subordinated debt offering inup to $1 million for an acquisition target over 2013$200 and the Series A Preferred stock sale in 2015. Michael Taglich beneficially owns approximately 22% of Bridgeline stock. Michael Taglich has also guaranteed $1.5 million inmillion.

In connection with the Company’s out of formula borrowings on its credit facility with Heritage Bank. Michael Taglich’s brother, RobertFebruary and May 2021 Offerings (see Note 8), Taglich is a former memberBrothers, Inc. received warrants to purchase 82,945 shares of the Company’s Boardcommon stock with a weighted average exercise price of Directors$3.21 and beneficially owns approximately 8%weighted average term of the Company’s stock.5.0 years.

 

 

 

116.3Subsequent Events.  Legal Proceedings

 

The Company is subjectevaluated subsequent events through the date of this filing and concluded there were no material subsequent events requiring adjustment to ordinary routine litigation and claims incidental to its business. As of December 31, 2017, the Company was not engaged with any material legal proceedings.or disclosure in these interim condensed consolidated financial statements.

 

20
24

Table of Contents
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

 

 

Item 2.   Management’sManagements Discussion and Analysis of Financial Condition and Results of Operations.

 

ThisAll statements included in this section, containsother than statements or characterizations of historical fact, are forward-looking statements. These forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may" "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These statements appear in a number of places and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc. These forward-looking statements that involveare not guarantees of future results and are subject to risks, uncertainties and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors and risksassumptions, including, the impact of the weakness in the U.S. and international economies on our business, our inabilitybut not limited to, manage our future growth effectively or profitably, fluctuations in our revenue and quarterly results, our license renewal rate, the impact of competitionthe COVID19 pandemic and related public health measures on our financial results; business operations and the business of our customers, suppliers and partners; our ability to retain and upgrade current customers; increasing our recurring revenue; our ability to attract new customers; our revenue growth rate; our history of net loss and our ability to achieve or maintain marginsprofitability; our liability for any unauthorized access to our data or market share, the limited marketour users content, including through privacy and data security breaches; any decline in demand for our platform or products; changes in the interoperability of our platform across devices, operating systems, and third-party applications that we do no control; competition in our markets; our ability to respond to rapid technological changes, extend our platform, develop new features or products, or gain market acceptance for such new features or products, particularly in light of potential disruptions to the productivity of our employees resulting from remote work; our ability to manage our growth or plan for future growth, and our acquisition of other businesses and the potential of such acquisitions to require significant management attention, disrupt our business, or dilute stockholder value; the volatility of the market price of our common stock,stock; the ability to maintain our listing on the NASDAQ Capital Market, the volatility of the market price of our common stock, the ability to raise capital, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, the security of our software and response to cyber security risks, our ability to meet our financial obligations and commitments, our dependence on our management team and key personnel, our ability to hire and retain future key personnel,Market; or our ability to maintain an effective system of internal controls or our ability to respond to government regulations. These andas well as other risks are more fully described herein and in our other filings with the Securities and Exchange Commission. Any of such risks could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement. We urge readers to review carefully the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2021, as well as in the other documents that we file with the Securities and Exchange Commission.

 

This section should be read in combination with the accompanying auditedunaudited condensed consolidated financial statements and related notes prepared in accordanceaccordance with United States generally accepted accounting principles.principles.

Overview

 

Bridgeline Digital Theis a marketing technology software company that helps companies grow online revenue and share information with customers, partners and employees.

Bridgeline’s Unbound platform is a Digital Engagement Company™, enables its customers to maximize the performance of their mission critical websites, intranets, and online stores. Bridgeline’s Unbound (iAPPS®) platform deeply integratesExperience Platform that includes Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics to help marketers deliver online experiences that attract, engage and convert their customers across all digital channels. Analytics.

Bridgeline’s iAPPSUnbound platform, combined with its digitalprofessional services, assists customers in maximizing on-linedriving lead generation, increasing revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs. The iAPPSds (“distributed subscription”)

Our Unbound Franchise product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale.

OrchestraCMS is the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners, and employees; uniquely combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals, intranets, websites, applications and services. 

Celebros Search is a platformcommerce-oriented site search product that empowers franchise and large dealer networksprovides for Natural Language Processing with state-of-the-art web engagement management while providing superior oversight of corporate branding. iAPPSds deeply integrates content management, eCommerce, eMarketing and web analytics andartificial intelligence to present relevant search results based on long-tail keyword searches in seven languages.

Woorank SRL (“Woorank”) is a self-service web platformSearch Engine Optimization (“SEO”) audit tool that is offered to each authorized franchise or dealer forgenerates an instant audit of a monthly subscription fee.site’s technical, on-page and off-page SEO.  Woorank’s clear, actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.

 

The iAPPS platformHawk Search, Inc. (“Hawk Search”) is delivereda search, recommendation, and personalization application built for marketers, merchandisers and developers that enhances, normalizes and enriches a customer's site search and browse experience. Hawk Search leverages advanced artificial intelligence, machine learning and industry-leading analyzers to deliver accurate results from federated data sources.

All of Bridgeline’s software is available through a cloud-based SaaS (“Softwaresoftware as a Service”service (“SaaS) multi-tenant business model, whose flexible architecture provides customers with state of the art deployment providing maintenance, daily technical operationhosting and support; orsupport. Additionally, Unbound and Hawk Search are available via a traditional perpetual licensing business model, in which the iAPPS software resides on a dedicated serverinfrastructure in either the customer’s facility, or manage-hosted by Bridgeline via a cloud-based hosted services model.

 

The iAPPS Platform is an award-winning application recognized around the globe. Our teams of Microsoft Gold© certified developers have won over 100 industry related awards. In 2017, our Marketing Automation platform was named a 2017 SIIA CODiE Award finalist in the Best Marketing Solution category. In 2016, CIO Review selected iAPPS as one of the 20 Most Promising Digital Marketing Solution Providers.This followed accolades from the SIIA (Software and Information Industry Association) which recognized iAPPS Content Manager with the 2015 SIIA CODiE Award for Best Web Content Management Platform. Also in 2015, EContent magazine named iAPPS Digital Engagement Platform to its Trendsetting Products list. The list of 75 products and platforms was compiled by EContent’s editorial staff, and selections were based on each offering’s uniqueness and importance to digital publishing, media, and marketing. We were also recognized in 2015 as a strong performer by Forrester Research, Inc in its independence report, “The Forrester Wave ™: Through-Channel Marketing Automation Platforms, Q3 2015.” In recent years, our iAPPS Content Manager and iAPPS Commerce products were selected as finalists for the 2014, 2013, and 2012 CODiE Awards for Best Content Management Solution and Best Electronic Commerce Solution, globally. In 2014 and 2013, Bridgeline Digital won twenty-five Horizon Interactive Awards for outstanding development of web applications and websites. Also in 2013, the Web Marketing Association sponsored Internet Advertising Competition honored Bridgeline Digital with three awards for iAPPS customer websites and B2B Magazine selected Bridgeline Digital as one of the Top Interactive Technology companies in the United States. KMWorld Magazine Editors selected Bridgeline Digital as one of the 100 Companies That Matter in Knowledge Management and also selected iAPPS as a Trend Setting Product in 2013.

25

 

Bridgeline Digital was incorporated under the laws of the State of Delaware on August 28, 2000.

21

 

Locations

 

The Company’sCompany’s corporate office is located in Burlington,Woburn, Massachusetts.  The Company maintains regional field offices serving the following geographical locations: Boston, Massachusetts; Woodbury, New York; Chicago, Illinois; Raleigh, North Carolina; Ontario, Canada; and Brussels, Belgium.

The Company has onefour wholly-owned subsidiary,subsidiaries: Bridgeline Digital Pvt. Ltd., located in Bangalore, India.India; Bridgeline Digital Canada, Inc., located in Ontario, Canada; Hawk Search Inc. located in Illinois, United States; and Bridgeline Digital Belgium BV, located in Brussels, Belgium.

 

Reverse Stock SplitAcquisitions

Bridgeline will continue to evaluate expanding its distribution of Bridgeline Unbound and its interactive development capabilities through acquisitions. We may make additional acquisitions in the foreseeable future. These potential acquisitions will be consistent with our growth strategy by providing Bridgeline with new geographical distribution opportunities, an expanded customer base, an expanded sales force and an expanded developer force. In addition, integrating acquired companies into our existing operations allows us to consolidate the finance, human resources, legal, marketing, and research and development of the acquired businesses with our own internal resources, hence reducing the aggregate of these expenses for the combined businesses and resulting in improved operating results.

 

On June 29, 2017,March 1, 2021, the Company,’s Shareholders and the Board of Directors approved a reverse stock split pursuant to whicha Share Purchase Agreement (the “Woorank Purchase Agreement”), acquired all classes of ourthe issued and outstanding shares of Woorank SRL (“Woorank”), an entity located in Belgium. The total purchase price of approximately $2.4 million consisted of (1) $285 thousand in cash paid at closing or in close proximity to closing, (2) $376 thousand of deferred cash payable in installments post-closing, (3) a $352 thousand seller note issued to one of the selling shareholders, and (4) amounts payable to one selling shareholder as consideration for assistance with certain matters related to the acquisition for a period of one year from the closing date of the acquisition. The Woorank Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets and operational goals, to the selling shareholders pursuant to three separate earn-out provisions.  The acquisition date fair value of contingent consideration was $1.3 million. On the closing date, the Company issued 29,433 shares of its common stock, atwith an aggregate issuance date fair value of $99 thousand, for a portion of the closepurchase price. 

On May 28, 2021, the Company, pursuant to a Share Purchase Agreement (the “Hawk Purchase Agreement”), acquired all of business on such date were combinedthe issued and reconstituted into a smaller number ofoutstanding shares of common stock in a ratio of 1 share of common stock for every 5 shares of common stockHawk Search, Inc., an Illinois corporation (“1-for-5 reverse stock split”Hawk Search”). The 1-for-5 reverse stock split was effective astotal purchase price of closeapproximately $9.9 million consisted of business on July 24, 2017 and the Company’s stock began trading on a split-adjusted basis on July 25, 2017.

The reverse stock split reduced the number(1) $4.8 million initial cash payment at closing, (2) issuance of shares of the Company’s common stock currently outstanding from approximately 21 million shares to approximately 4.2 million shares. Proportional adjustments have been made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants, restricted stock awards, and stock options, and to the number of shares issued and issuable under the Company’s Stock Incentive Plans. Upon the effectiveness of the 1-for-5 reverse stock split, each five1,500 shares of the Company’s issuednewly designated Series D Preferred Stock with an aggregate issuance date fair value of $930 thousand, and outstanding common stock were automatically combined and converted into one issued and outstanding share(3) $2.0 million deferred cash payable on or before December 31, 2021. The Hawk Purchase Agreement also provides for additional consideration, in the event of common stock, par value $.001. The Company did not issue any fractional shares in connection with the reverse stock split. Instead, fractional share interests were rounded upachievement of certain revenue targets, to the next largest whole share.selling shareholders as an additional earn-out, payable no later than January 2023.   The reverse stock split does not modify the rights or preferencesacquisition date fair value of the common stock. The number of authorized shares of the Company’s common stock remains at 50 million shares and the par value remains $0.001. Our consolidated financial statements have been retroactively adjusted to reflect the effects of the 1-for-5 reverse stock split.

contingent consideration was approximately $2.2 million.

 

Customer Information

 

We currently have over 3,000 active customers.For the three months ended December 31, 2017, two2021, no customers represented 11% and 12%exceeded 10% of the Company’s total revenue.revenues. For the three months ended December 31, 2016,2020, one customer represented approximately 12% of the Company’s total revenue.

 

Results of Operations for the Three Months Ended December 31, 20120217compared to the Three Months Ended December 31, 20120206

 

Total net revenue for each of the three months ended December 31, 2021 and 2020, was $4.3 million and $2.8 million, respectively. We had net income of $1.9 million and a net loss of $1.2 million for the three months ended December 31, 20172021 and 2020, respectively. Included in net income for the three months ended December 31, 20162021, was $4.0 million. We had a gain of $2.4 million as a result of the change in the fair value of certain warrant liabilities. Included in the net loss for the three months ended December 31, 2020, was a loss of $1.4 million as a result of the change in fair value of certain warrant liabilities and income of $88 thousand related to government grant income related to the Paycheck Protection Program (“PPP”) loan.   Basic net income (loss) per share attributable to common shareholders was $0.18 and ($430)0.26) for the three months ended December 31, 2021 and 2020, respectively. Diluted net income (loss) per share attributed to common shareholders was $0.06 and ($0.26) for the three months ended December 31, 2021 and 2020, respectively.

26

(in thousands)

 

Three Months Ended
December 31,

         
          

$

  

%

 
  

2021

  

2020

  

Change

  

Change

 

Revenue

                

Digital engagement services

 $869  $837  $32   4

%

% of total revenue

  20

%

  30

%

        

Subscription and perpetual licenses

  3,417   1,999   1,418   71

%

% of total revenue

  80

%

  70

%

        

Total net revenue

  4,286   2,836   1,450   51

%

                 

Cost of revenue

                

Digital engagement services

  451   374   77   21

%

% of digital engagement services revenue

  52

%

  45

%

        

Subscription and perpetual licenses

  829   583   246   42

%

% of subscription and perpetual revenue

  24

%

  29

%

        

Total cost of revenue

  1,280   957   323   34

%

Gross profit

  3,006   1,879   1,127   60

%

Gross profit margin

  70

%

  66

%

        
                 

Operating expenses

                

Sales and marketing

  1,231   444   787   177

%

% of total revenue

  29

%

  16

%

        

General and administrative

  873   465   408   88

%

% of total revenue

  20

%

  16

%

        

Research and development

  859   349   510   146

%

% of total revenue

  20

%

  12

%

        

Depreciation and amortization

  424   232   192   83

%

% of total revenue

  10

%

  8

%

        

Restructuring and acquisition-related expenses

  98   210   (112

)

  (53

%)

% of total revenue

  2

%

  7

%

        

Total operating expenses

  3,485   1,700   1,785   105

%

                 
                 

Income (Loss) from operations

  (479

)

  179   (655

)

  (366

%)

Interest income (expense), net

  (87

)

  6   (93

)

  (1,550

%)

Government grant income

  -   88   (88

)

  (100

%)

Change in fair value of warrant liabilities

  2,441   (1,441

)

  3,882   269

%

Income (loss) before income taxes

  1,875   (1,168

)

  3,046   261

%

Provision for (benefit from) income taxes

  3   (6

)

  9   (150

%)

                 

Net income/(loss)

 $1,872  $(1,162

)

 $3,034   261

%

                 

Non-GAAP Measure:

                

Adjusted EBITDA

 $106  $672  $(566

)

  (84

%)


Revenue

Our revenue is derived from two sources: (i) digital engagement services and (ii) subscription and perpetual licenses.

Digital Engagement Services

Digital engagement services revenue is comprised of Bridgeline Unbound implementation, Hawk Search Inc. and retainer-related services. In total, revenue from digital engagement services increased $32 thousand, or 4%, to $869 thousand for the three months ended December 31, 2017 and ($408)2021 compared to $837 thousand for the three months ended December 31, 2016.  Net loss per share applicable to common shareholders was ($0.12) for the three months ended December 31, 2017 and the three months ended December 31, 2016.

22

  

Three Months

  

Three Months

         
  

Ended

  

Ended

         
  

December 31,

  

December 31,

  $  

%

 
(in thousands) 

2017

  

2016

  

Change

  

Change

 

Revenue

                

Digital engagement services

 $2,060  $2,026  $34   2%

% of total revenue

  52%  51%        

Subscription and perpetual licenses

  1,606   1,725   (119)  (7%)

% of total revenue

  40%  43%        

Managed service hosting

  303   240   63   26%

% of total revenue

  8%  6%        

Total revenue

  3,969   3,991   (22)  (1%)
                 

Cost of revenue

                
                 

Digital engagement services

  1,397   1,128   269   24%

% of digital engagement revenue

  68%  56%        

Subscription and perpetual licenses

  480   496   (16)  (3%)

% of subscription and perpetual licenses revenue

  30%  29%        

Managed service hosting

  80   71   9   13%

% of managed service hosting

  26%  30%        

Total cost of revenue

  1,957   1,695   262   15%

Gross profit

  2,012   2,296   (284)  (12%)

Gross profit margin

  51%  58%        
                 

Operating expenses

                

Sales and marketing

  1,104   1,294   (190)  (15%)

% of total revenue

  28%  32%        

General and administrative

  736   791   (55)  (7%)

% of total revenue

  19%  20%        

Research and development

  407   360   47   13%

% of total revenue

  10%  9%        

Depreciation and amortization

  108   185   (77)  (42%)

% of total revenue

  3%  5%        

Restructuring expenses

  -   31   (31)  (100%)

% of total revenue

  0%  1%        

Total operating expenses

  2,355   2,661   (306)  (11%)

% of total revenue

  59%  67%        
                 

Loss from operations

  (343)  (365)  22   (6%)

Interest and other expense, net

  (86)  (31)  (55)  177%

Loss before income taxes

  (429)  (396)  (33)  8%

Provision for income taxes

  1   12   (11)  (92%)

Net loss

 $(430) $(408) $(22)  5%
                 

Non-GAAP Measure

                

Adjusted EBITDA

 $(94) $10  $(104)  (1,040%)

Revenue

Our revenue is derived from three sources: (i) digital engagement services (ii) subscription and perpetual licenses and (iii) managed service hosting.

23

Digital Engagement Services

Digital engagement services revenue is comprised of iAPPS digital engagement related services and other digital engagement related services generated from non-iAPPS related engagements. In total, revenue from digital engagement services increased $34 thousand, or 2%, for the three months ended December 31, 2017 compared to three months ended December 31, 2016.2020. Digital engagement services revenue as a percentage of total revenue increaseddecreased to 52%20% from 51%30% for the three months ended December 31, 20172021 compared to the three months ended December 31, 2020. The decrease as a percentage of total revenue is attributable to the increase in subscription and perpetual licenses, including additional revenue related to the fiscal 2021 business acquisitions. 

Subscription and Perpetual Licenses

Revenue from subscription (SaaS) and perpetual licenses increased $1.4 million, or 71%, to $3.4 million for the three months ended December 31, 2021 compared to $2.0 million for the three months ended December 31, 2020.  The increase compared to the prior period.period is primarily due to renewals across our diverse portfolio of companies and the inclusion of revenue from the Company’s fiscal 2021 acquisitions. Subscription and perpetual license revenue as a percentage of total revenue increased to 80% from 70% for the three months ended December 31, 2021 compared to the three months ended December 31, 2020. The increase as a percentage of total revenue is attributable to the decreasesadditional increase in subscription and license revenue for the three months ended December 31, 2017 compared to the prior quarter.

Subscription and Perpetual Licenses

Revenue from subscription and perpetual licenses, decreased $119including additional revenue related to the fiscal 2021 business acquisitions.  

Cost of Revenue

Total cost of revenue increased $323 thousand, or 7%34%, to $1.6$1.3 million for the three months ended December 31, 20172021 compared to $1.7 million for the three months ended December 31, 2016.  The decrease for the three months ended December 31, 2017 compared to the prior period is a decline in perpetual licenses as demand for perpetual licenses can vary and we did not sell any perpetual licenses in the three months ended December 31, 2017. Subscription and perpetual license revenue as a percentage of total revenue decreased to 40% for the three months ended December 31, 2017 from 43% compared to the three months ended December 31, 2016. The decrease as a percentage of revenues is attributable to the decreases in iAPPS subscriptions and perpetual licenses.

Managed Service Hosting

Revenue from managed service hosting increased $63 thousand, or 26%, to $303$957 thousand for the three months ended December 31, 2017 compared2020. The gross profit margin increased to $240 thousand70% for the three months ended December 31, 2016. The increase is due2021 compared to new hosting contracts for iAPPs perpetual licenses sold in fiscal 2017. Managed services revenue as a percentage of total revenue increased to 8%66% for the three months ended December 31, 2017 from 6% compared to the three months ended December 31, 2016.2020. The increase as a percentage of revenue is attributable to the increase in iAPPS customer hosting contracts.

Costs of Revenue

Total cost of revenue increased $262 thousand to $2.0 million or 15% for the three months ended December 31, 2017 compared to $1.7 million for the three months ended December 31, 2016. The gross profit margin declined to 51% for the three months ended December 31, 2017 compared to 58% for the three months ended December 31, 2016. The decline in the gross profit margin for the three months ended December 31, 20172021 compared to the three months ended December 31, 2016prior period is primarily attributable to anthe increase in costthe proportion of license revenue, which is generally associated with higher margins, to digital engagement services.service revenue.

 

Cost of Digital Engagement Services

 

Cost of digital engagement services increased $269$77 thousand, or 24%21%, to $1.4 million$451 thousand for the three months ended December 31, 20172021 compared to $1.1 million$374 thousand for the three months ended December 31, 2016.2020. The increase is primarily due to higher personnel and third party-consultant costs, including additional costs related to the fiscal 2021 business acquisitions. The cost of digital engagement services as a percentage of digital engagement services revenue increased to 68% from 56% compared to52% for the three months ended December 31, 2016.2021 compared to 45% for the three months ended December 31, 2020.   The increase as a percentage of revenues compared to the prior period is primarily due to an increase in both internalthe range of services provided, including additional costs and third party subcontractors that were incurred at a lower gross margin in orderrelated to complete a project for a strategic customer.the fiscal 2021 business acquisitions.

Cost of Subscription and Perpetual License

 

Cost of subscription and perpetual licenses decreased $16increased $246 thousand, or 3%42%, to $480$829 thousand for the three months ended December 31, 20172021 compared to $496$583 thousand for the three months ended December 31, 2016.2020. The increase is primarily due to higher personnel and third party-consultant costs, including additional costs related to the fiscal 2021 business acquisitions. The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue increaseddecreased to 30% from 29% compared to the three months ended December 31, 2016. 

Cost of Managed Service Hosting

Cost of managed service hosting increased $9 thousand, or 13%, to $80 thousand24% for the three months ended December 31, 20172021 compared to $71 thousand29% for the three months ended December 31, 2016. The cost of managed services as a percentage of managed services revenue decreased to 26% from 30% compared to the three months ended December 31, 2016. The percentage decrease is2020. These decreases are attributable to the transition of our network operations center from a co-managed facility at Internap to a cloud-based model with Amazon Web Services.overall increases in subscription and perpetual license revenue.

.

24

 

Operating Expenses

 

Sales and Marketing Expenses

 

Sales and marketing expenses decreased $190increased $787 thousand, or 177%, to $1.1 million, or 15%, for the three months ended December 31, 2017 compared to $1.3$1.2 million for the three months ended December 31, 2016.2021 compared to $444 thousand for the three months ended December 31, 2020.  Sales and marketing expenses represented 28%29% and 32%16% of total revenue for the three months ended December 31, 20172021 and 2016,2020, respectively. The decreases for the three months ended December 31, 2017increase compared to the three months ended December 31, 2016prior period is primarily attributable to decreases inhigher personnel costs and additional sales personnel and marketing expenses.costs, including such additional costs related to the fiscal 2021 business acquisitions.

28

 

General and Administrative Expenses

 

GeneralGeneral and administrative expenses decreased $55increased $408 thousand, or 7%88%, to $736$873 thousand for the three months ended December 31, 20172021 compared to $791$465 thousand for the three months ended December 31, 2016.2020.  General and administrative expenses represented 19%20% and 20%16% of total revenue for the three months ended December 31, 20172021 and 2016,2020, respectively. The decreaseincrease in expense was due to decreases in headcount and personnel expenses.additional costs related to the fiscal 2021 business acquisitions.

 

Research and Development

 

Research and development expense increased $47$510 thousand, or 13%,146 %, to $407$859 thousand for the three months ended December 31, 20172021 compared to $360$349 thousand for the three months ended December 31, 2016.2020.  Research and development expenses represented 10%20% and 9%12% of total revenue for the three months ended December 31, 20172021 and 2016,2020, respectively. The increase in researchThese increases compared to the prior period are primarily attributable to personnel and development expense is dueother additional costs related to an increase in compensation expenses.the fiscal 2021 business acquisitions.

 

Depreciation and Amortization

 

Depreciation and amortization expense decreased $77increased $192 thousand, or 42%83%, to $108$424 thousand for the three months ended December 31, 20172021 compared to $185$232 thousand for the three months ended December 31, 2016.  Depreciation and amortization has decreased due to asset retirements related to the termination and closing of offices, as well as reductions in capital expenditures.2020.  Depreciation and amortization represented 3%10% and 5%8% of total revenue for the three months ended December 31, 20172021 and 2016.   2020, respectively. These increases are primarily due to amortization of intangible assets resulting from acquisitions completed during fiscal 2021.

 

Restructuring and Acquisition-Related Expenses

 

CommencingDuring the three months ended December 31, 2021 and 2020, the Company incurred acquisition-related expenses of $98 thousand and $210 thousand, respectively. During the three months ended December 31, 2021, expenses incurred were related to further acquisition integrations. During the three months ended December 31, 2020, expenses incurred were related to the acquisition of Woorank, which occurred in fiscal 2015,February 2021. Acquisition-related expenses represented 2% and 7% of total revenue for the Company’s management approved, committed tothree months ended December 31, 2021 and initiated plans to restructure and further improve efficiencies by implementing cost reductions. As part of these restructuring initiatives, we recorded $312020 respectively.

Income/(loss) from Operations

The income/(loss) from operations was ($479) thousand for the three months ended December 31, 2016.

Net Loss

Loss from operations

The loss from operations was ($343) thousand for three months ended December 31, 2017,2021 compared to a loss of $(365)$179 thousand in the prior period. Operating expenses decreased $306 thousand or 11% for the three months ended December 31, 20172020. Operating expenses increased $1.8 million, or 105%, to $3.5 million for the three months ended December 31, 2021 compared to $1.7 million for the three months ended December 31, 2016. We have made concerted efforts2020. The increases for the three months ended December 31, 2021 compared to bring our operatingthe prior period were primarily due to additional costs related to the acquisition of businesses in fiscal 2021.

Interest expense and other, net; Government grant income; Change in fair value of warrant liabilities

In the three months ended December 31, 2021 and 2020, we recorded a gain/(loss) related to the change in fair value of certain warrant liabilities of $2.4 million and ($1.4) million, respectively.

During the three months ended December 31, 2021 and 2020, interest expense and other net, was ($87) thousand and $6 thousand, respectively and included non-recurring non-operating costs.

During the three months ended December 31, 2020, the Company recognized government grant income of $88 thousand associated with proceeds received under the Paycheck Protection Program deemed probable to be forgiven based on the actual expenditures for qualified expenses during the period. As of December 31, 2020, the Company expended all loan proceeds on qualified expense incurred during the period.  The Company applied for full PPP loan forgiveness on March 29, 2021 and received approval from the Small Business Administration in line with projected revenues.August 2021. During the three months ended December 31. 2020, the remaining loan proceeds were expended on qualified expenses and as a result, the Company recognized $88 thousand as government grant income.

 

Income Taxes

 

The provision for (benefit from) income tax expense was $1$3 thousand and $12($6) thousand for the three months ended December 31, 20172021 and 2016,2020, respectively.  Income tax expense represents the estimated liability for federal and state income taxes owed, including the alternative minimum tax.owed.  We have net operating loss carryforwards and other deferred tax benefits that are available to offset futureany potential taxable income.

 

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Adjusted EBITDA

 

We also measure our performance based on a non-GAAP (“Generally Accepted Accounting Principles”) measurement of earnings before interest, taxes, depreciation, and amortization, and before stock-based compensation expense, and impairment of goodwill and intangible assets, non-cash warrant related expenses, other income and expenses, change in fair value of derivative instruments, change in fair value of contingent consideration, and restructuring and acquisition related charges (“Adjusted EBITDA”).

 

We believe this non-GAAP financial measure of Adjusted EBITDA is useful to management and investors in evaluating our operating performance for the periods presented and provideprovides a tool for evaluating our ongoing operations.

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Adjusted EBITDA, however, is not a measure of operating performance under GAAPaccounting principles generally accepted in the United States of America (“U.S. GAAP”) and should not be considered as an alternative or substitute for U.S. GAAP profitability measures such as (i) income from operations and net income, or (ii) cash flows from operating, investing and financing activities, both as determined in accordance with U.S. GAAP. Adjusted EBITDA as an operating performance measure has material limitations sincebecause it excludes the financial statement impact of income taxes, net interest expense, amortization of intangibles, depreciation, goodwill impairment, restructuring charges, acquisition related expenses, loss on disposal of assets, other amortization, changes in fair value of warrant liabilities, changes in fair value of contingent consideration and stock-based compensation, and therefore does not represent an accurate measure of profitability. As a result, Adjusted EBITDA should be evaluated in conjunction with net income (loss) for a complete analysis of our profitability, as net income (loss) includes the financial statement impact of these items and is the most directly comparable U.S. GAAP operating performance measure to Adjusted EBITDA. Our definition of Adjusted EBITDA may also differ from and therefore may not be comparable with similarly titled measures used by other companies, thereby limiting its usefulness as a comparative measure. Because of the limitations that Adjusted EBITDA has as an analytical tool, investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under U.S. GAAP.

 

The following table reconciles net income (loss) income (which is the most directly comparable U.S. GAAP operating performance measure) to EBITDA, and EBITDA to Adjusted EBITDA (in thousands):

 

  

Three Months Ended

 
  

December 31,

 
  

2017

  

2016

 

Net loss

 $(430) $(408)

Provision for income tax

  1   12 

Interest expense, net

  86   31 

Amortization of intangible assets

  72   71 

Depreciation

  36   89 

Restructuring charges

  -   31 

Other amortization

  16   39 

Stock based compensation

  125   145 

Adjusted EBITDA

 $(94) $10 

  

Three Months Ended
December 31,

 
  

2021

  

2020

 

Net income (loss)

 $1,872  $(1,162

)

Provision for (benefit from) income tax

  3   (6

)

Interest expense and other, net

  87   (6

)

Government grant income

  -   (88

)

Change in fair value of warrants

  (2,441

)

  1,441 

Amortization of intangible assets

  401   218 

Depreciation and other amortization

  23   14 

Restructuring and acquisition related charges

  98   210 

Stock-based compensation

  63   51 

Adjusted EBITDA

 $106  $672 

 

Adjusted EBITDA decreased comparedyear over year, which is primarily attributable to the first quarter of fiscal 2017. However, a decrease in operating expenses of $306 thousand compensatedgain recognized for the decreasechange in the gross profitfair value of $284 thousand.

the warrants and additional costs related to the fiscal 2021 business acquisitions.

 

Liquidity and Capital Resources

 

Cash Flows

 

Operating Activities

 

Cash used inprovided by operating activities was $575$79 thousand for the three months ended December 31, 20172021 compared to cash used inprovided by operating activities of $293$451 thousand for the three months ended December 31, 2016. This increase2020. The change in the use of cash provided by operating activities compared to the prior period was primarily due to an increase in accounts receivablenet income (loss), including the impact of the change in the fair value of the warrant liabilities, and decreaseafter consideration of other non-cash items, increases in accounts payable.receivables and increases in accounts payable and accrued liabilities.

 

Investing Activities

 

Cash used in investing activities was $8$64 thousand for the three months ended December 31, 20172021 compared to $21cash used in investing activities of $41 thousand for the three months ended December 31, 2016.   We do not expect2020. The change in cash used in investing activities compared to expend significant dollars for computerthe prior period was primarily due to additional software capitalization costs incurred and additional purchases of property and equipment or to capitalize any softwaremade in the next twelve months.current quarter.

 

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Financing Activities

 

Cash provided byused in financing activities was $953 thousand for the three months ended December 31, 2017 compared to $1.1$2.5 million for the three months ended December 31, 2016.  Cash provided by2021 related to payments made on liabilities from 2021 acquisitions. We did not have any cash flows from financing activities for the three months ended December 31, 2017 is primarily attributable to a new term loan for gross proceeds of $1.0 million with Montage Capital II, L.P.2020.

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Capital Resources and Liquidity Outlook

 

In March 2020, the firstWorld Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. We expect our operations in all locations to be affected as the virus continues to proliferate. We have adjusted certain aspects of our operations to protect employees and customers while still meeting customers’ needs for vital technology. We will continue to monitor the situation closely and it is possible that we will implement further measures. In light of the uncertainty as to the severity and duration of the pandemic, the impact on our revenue, profitability and financial position is uncertain at this time.

In connection with an acquisition of a business completed during the 2021 fiscal year third quarter (Hawk Search), the Company recognized an obligation for a deferred payment representing a portion of the purchase price of $2.0 million payable, in which $1.9 million was paid during the three months ended December 31, 2021 and the remaining $0.1 million paid during the second fiscal quarter of fiscal 2018, we entered into a Loan2022, and Security Agreement with Montage Capital II, L.P. (“Montage Loan”). The Montage Loan has a thirty-six (36) month termcontingent earn-out payments of $2.4 million which expires on October 10, 2020. The Montage Loan provides for up to $1.5 million of borrowing in the form of a non-revolving term loan which may be used by the Company for working capital purposes. $1 million of borrowing was advanced on the date of closing. An additional $500 thousand of borrowing will be available at the Company’s optionare payable, no later than January 2023, in the event thatof achievement of certain revenue targets and operational goals.

In connection with an acquisition of a business completed during the 2021 fiscal year second quarter (Woorank), the Company achieves(1) assumed the outstanding long-term debt obligations of which approximately $1.8 million remains outstanding at December 31, 2021 with $0.6 million payable over the next twelve months (2) deferred a portion of the purchase price of which approximately $0.2 million remains outstanding at December 31, 2021, which was paid during the second fiscal quarter of 2022, and (3) recognized contingent earn-out payments which approximately $0.8 million remains outstanding at December 31, 2021, which are payable in the next twelve months based upon the achievement of certain financial milestonesrevenue targets and is otherwise in compliance with its loan covenants. The Loan is subordinate to the Company’s senior debt facility with Heritage Bank of Commerce (“Heritage Bank”). We also have a borrowing facility with Heritage Bank from which we can borrow, and this line is subject to financial covenants that must be met.operational goals.

 

We believe that theThe Company has historically incurred operating losses and used cash balance as of December 31, 2017 of $1.1 millionto fund operations as well as collections from accounts receivabledevelop new products. The Company believes that future revenues and cash flows will be sufficientsupplement its working capital and it has an appropriate cost structure to meet the Company’s obligations for a minimum of twelve months from the financial statement issuance date. Our borrowing facility with Heritage Bank is subject to financial covenants that must be met. It is not certain that all or part of this line will be available to us in the future; and other sources of financing may not be available to us in a timely basis if at all, or on terms acceptable to us. If we fail to obtain acceptable funding when needed, we may not have sufficient resources to fund our normal operations, and this would have a material adverse effect on our business.support future revenue growth.

Off-Balance Sheet Arrangements

 

We doAt this time, the Company does not have any off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons, other thanpersons.

Contractual Obligations

We lease all of our office locations. The gross obligations for operating leases and subleases is $495 thousand and $211 thousand, respectively, of which $130 thousand and $76 thousand is expected in the next twelve months.   Debt payments on the Company’s various debt obligations total $1.8 million of which $638 thousand is expected to be paid in the next twelve months. In connection with acquisitions of businesses completed in the Company’s 2021 fiscal year, contingent acquisition payments.

We currently do not have any variable interest entities. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referredconsideration obligations and deferred purchase price obligations total $3.2 million and $0.3 million, respectively, which are expected to as structured finance or special purpose entities, which would have been established forbe paid in the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.next twelve months.

Commitments and Contingencies

As of December 31, 2017, we have no material commitments or contingencies.

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Critical Accounting Policies

Critical Accounting Policies

 

These critical accounting policies and estimates by our management were prepared in accordance with accounting principles generally accepted in the United States of America (“USU.S. GAAP”) and should be read in conjunction with Note 2 Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 21, 2017.20, 2021.

 

The preparation of financial statements in accordance USwith U.S. GAAP requires us to make estimatesestimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly make estimates and assumptions that affect the reported amounts of assets and liabilities. The most significant estimates included in our financial statements are the valuation of accounts receivable and long-term assets, including intangibles, goodwill and deferred tax assets, stock-based compensation, amounts of revenue to be recognized on service contracts in progress, unbilled receivables, and deferred revenue. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

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We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment:

 

 

Revenue recognition;

 

 

Allowance for doubtful accounts;

 

Accounting for cost of computer software to be sold, leased or otherwise marketed;

 

Accounting for goodwill and other intangible assets; and

 

 

Accounting for business combinations; and

Accounting for stock-based compensation.

 

Revenue Recognition

Overview

 

The Company enters into arrangements to sell digital engagement services (professional services) derives its revenue from two sources: (i) Software Licenses, which are comprised of subscription fees (“SaaS”), perpetual software licenses, or combinations thereof.  Revenue is categorized into (i) digital engagement services; (ii) managed service hosting; and (iii) subscriptions and perpetual licenses.

The Company recognizes revenue as required by the Revenue Recognition Topic of the Codification.  Revenue is generally recognized when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) delivery has occurred or the services have been provided to the customer; (3) the amount of fees to be paid by the customer is fixed or determinable; and (4) the collection of the fees is reasonably assured. Billings made or payments received in advance of providing services are deferred until the period these services are provided.

The Company maintains a reseller channel to supplement our direct sales forcemaintenance for our iAPPS platform.  Resellers are generally located in territories where the Company does not have a direct sales force.  Customers generally sign a license agreement directly with us. Revenue frompost-customer support (“PCS”) on perpetual licenses, sold through resellers is recognized upon delivery to the end user as long as evidence of an arrangement exists, collectability is probable, and the fee is fixed and determinable. Revenue for subscription licenses is recognized monthly as the services are delivered.

(ii) Digital Engagement Services,

Digital engagement services include which are professional services primarily related to the Company’simplement our products such as web development, solutions that address specific customer needs such as digital strategy, information architecture and usability engineering, .Net development, rich media development, back end integration, search engine optimization, quality assurance and project management.

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Digital engagement services are contracted for on either a fixed price or time and materials basis.  For its fixed price engagements, after assigning the relative selling price to the elements of the arrangement, the Company applies the proportional performance model (if not subject to contract accounting) to recognize revenue based on cost incurred in relation to total estimated cost at completion. The Company has determined that labor costs are the most appropriate measure to allocate revenue among reporting periods, as they are the primary input when providing application development services. Customers are invoiced monthly or upon the completion of milestones. For milestone based projects, since milestone pricing is based on expected hourly costs and the duration of such engagements is relatively short, this input approach principally mirrors an output approach under the proportional performance model for revenue recognition on such fixed priced engagements.  For time and materials contracts, revenues are recognized as the services are provided.  

Digital engagement services also include retained professional services contracted for on an “on call” basis or for a certain number of hours each month. Such arrangements generally provide for a guaranteed availability of a number of professional services hours each month on a “use it or lose it” basis.   For retained professional services sold on a stand-alone basis the Company recognizes revenue as the services are delivered or over the term of the contractual retainer period. These arrangements do not require formal customer acceptance and do not grant any future right to labor hours contracted for but not used.

Subscriptions and Perpetual Licenses

The Company licenses its software on either a perpetual or subscription basis.search. Customers who license the software on a perpetual basis receive rights to use the software for an indefinite time period and an option to purchase Post-Customer Support (“PCS”).  For arrangements that consist of a perpetual license and PCS, as long as Vendor Specific Objective Evidence (“VSOE”) exists for the PCS, then PCS revenue is recognized ratably on a straight-line basis over the period of performance and the perpetual license is recognized on a residual basis.  Under the residual method, the fair value of the undelivered elements is deferred and the remaining portion of the arrangement fee is allocated to the delivered elements and recognized as revenue, assuming all other revenue recognition criteria have been met.  

Customers may also license the software on a subscription basis, which can be described as “Software as a Service” or “SaaS”.  SaaS is a model of software deployment where an application is hosted as a service provided to customers across the Internet.  Subscription agreements include access to the Company’s software application via an internet connection, the related hosting of the application, and PCS.  Customers receive automatic updates and upgrades, and new releases of the products as soon as they become available. Customers cannot, do not take possession of the software.  Subscription agreements are either annual or month-to-month arrangements that provide for termination for convenience by either party upon 90 days’ notice.  

Revenue is recognized monthly aswhen control of these services is transferred to the services are delivered.  Set up fees paid byCompany’s customers, in connection with subscription services are deferred and recognized ratably overan amount that reflects the longerconsideration the Company expects to be entitled to in exchange for those services. If the consideration promised in a contract includes a variable amount, for example, overage fees, contingent fees or service level penalties, the Company includes an estimate of the life of subscription period or the expected lives of customer relationships. The Company continuesamount it expects to evaluate the length of the amortization period of the set up fees as it gains more experience with customer contract renewals.  

Managed Service Hosting

Managed service hosting includes hosting arrangements that providereceive for the use of certain hardware and infrastructure for those customers who do not wish to host our applications independently.  Hosting agreements are either annual or month-to-month arrangements that provide for termination for convenience by either party generally upon 30-days’ notice.  Revenue is recognized monthly as the hosting services are delivered.   Set up fees paid by customers in connection with managed hosting services are deferred and recognized ratably over the life of the hosting period.

Multiple Element Arrangements

In accounting for multiple element arrangements, the Company follows either ASC Topic 605-985 Revenue Recognition Software or ASC Topic 605-25 Revenue Recognition Multiple Element Arrangements, as applicable. In October 2009, the FASB issued Accounting Standards Update No. 2009-13, Revenue Recognition: Multiple-Deliverable RevenueArrangements (“ASU 2009-13”). ASU 2009-13 provides amendments to certain paragraphs of previously issued ASC Subtopic 605-25 – Revenue Recognition: Multiple-Deliverable Revenue Arrangements. In accordance with ASU 2009-13, each deliverable within a multiple-deliverable revenue arrangement is accounted for as a separate unit of accounting if both of the following criteria are met (1) the delivered item has value to the customer on a standalone basis and (2) for an arrangement that includes a right of return relative to the delivered item, delivery or performance of the delivered item is considered probable and within our control. If the deliverables do not meet the criteria for being a separate unit of accounting then they are combined with a deliverable that does meet that criterion. The accounting guidance also requires that arrangement consideration be allocated at the inception of an arrangement to all deliverables using the relative sellingtotal transaction price method. The accounting guidance also establishes a selling price hierarchy for determining the selling price of a deliverable. The Company determines selling price using VSOE, if it exists; otherwise, it uses Third-party Evidence (“TPE”). If neither VSOE nor TPEis probable that a significant reversal of selling price exists for a unit of accounting, the Company uses Estimated Selling Price (“ESP”).

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VSOE is generally limited to the price at which the Company sells the element in a separate stand-alone transaction. TPE is determined based on the prices charged by our competitors for a similar deliverable when sold separately. It is difficult for us to obtain sufficient information on competitor pricing, so we maycumulative revenue recognized will not be able to substantiate TPE. If the Company cannot establish selling price based on VSOE or TPE then it will use ESP. ESP is derived by considering the selling price for similar services and our ongoing pricing strategies.occur. The selling prices used in allocations of arrangement consideration are analyzed at minimum on an annual basis and more frequently if business necessitates a more timely review. The Company has determined that it has VSOE on its SaaS offerings, certain application development services, managed hosting services, and PCS because it has evidence of these elements sold on a stand-alone basis.

When the Company licenses its software on a perpetual basis in a multiple element arrangement that arrangement typically includes PCS and application development services, we follow the guidance of ASC Topic 605-985.  In assessing the hierarchy of relative selling price for PCS, we have determined that VSOE is established for PCS. VSOE for PCS is based on the price of PCS when sold separately, which has been established via annual renewal rates. Similarly, when the Company licenses its software on a perpetual basis in a multiple element arrangement that also includes managed service hosting (“hosting”), we have determined that VSOE is established for hosting based on the price of the hosting when sold separately, which has been established based on renewal rates of the hosting contract.  Revenue recognition for perpetual licenses sold with application development services are considered on a case by case basis.  The Company has not established VSOE for perpetual licenses or fixed price development services and therefore in accordance with ASC Topic 605-985, when perpetual licenses are sold in multiple element arrangements including application development services where VSOE for the services has not been established, the license revenue is deferred and recognized using contract accounting. The Company has determined that services are not essential to the functionality of the software and it has the ability to make estimates necessary to apply proportional performance model. In those cases where perpetual licenses are sold in a multiple element arrangement that includes application development services where VSOE for the services has been established, the license revenue is recognized under the residual method and the application services are recognized upon delivery.  

In determining VSOE for the digital engagement services element, the separability of the services from the software license and the value of the services when sold on a standalone basis are considered.  The Company also considers the categorization of the services, the timing of when the services contract was signed in relation to the signing of the perpetual license contract and delivery of the software, and whether the services can be performed by others.  The Company has concluded that its application development services are not required for the customer to use the product but, rather enhance the benefits that the software can bring to the customer.  In addition, the services provided do not result in significant customization or modification of the software and are not essential to its functionality, and can also be performed by the customer or a third party.  If an application development services arrangement does qualify for separate accounting, the Company recognizes the perpetual license on a residual basis.  If an application development services arrangement does not qualify for separate accounting, the Company recognizes the perpetual license under the proportional performance model as described above.

When subscription arrangements are sold with application development services, the Company uses its judgment as to whether the application development services qualify as a separate unit of accounting. WhenCompany’s subscription service arrangements involve multiple elements that qualify as separate units of accounting, the Company allocates arrangement consideration in multiple-deliverable arrangements at the inception of an arrangement to all deliverables based on the relative selling price model in accordance with the selling price hierarchy, which includes: (i) VSOE when available; (ii) TPE if VSOE is not available;are non-cancelable and (iii) ESP if neither VSOE or TPE is available. For those subscription arrangements sold with multiple elements whereby the application development services do not qualify as a separate unitcontain refund-type provisions. Revenue is reported net of accounting, the application services revenue is recognized ratably over the subscription period. Subscriptions also include a PCS component,applicable sales and the Company has determined that the two elements cannot be separated and must be recognized as one unit over the applicable service period. Set up fees paid by customers in connection with subscription arrangements are deferred and recognized ratably over the longer of the life of the hosting period or the expected lives of customer relationships, which generally range from two to three years. The Company continues to evaluate the length of the amortization period of the set up fees as it gains more experience with customer contract renewals and our newer product offerings.use tax.

 

Customer Payment TermsThe Company recognizes revenue from contracts with customers using a five-step model, which is described below:

 

Payment terms with customers typically require payment 30 days from invoice date. Payment terms may vary by customer but generally do not exceed 45 days from invoice date.  Invoicing for digital engagement services are either monthly or upon achievement of milestones and payment terms for such billings are within the standard terms described above. Invoicing for subscriptions and hosting are typically issued monthly and are generally due in the month of service. The Company’s subscription and hosting agreements provide for refunds when service is interrupted for an extended period of time and are reserved for in the month in which they occur if necessary.

Our digital engagement services agreements with customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained. In the infrequent instances where customers raise a concern over delivered products or services, we have endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.

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Warranty

Certain arrangements include a warranty period, which is generally 30 days from the completion of work. In hosting arrangements, we provide warranties of up-time reliability. We continue to monitor the conditions that are subject to the warranties to identify if a warranty claim may arise. If we determine that a warranty claim is probable, then any related cost to satisfy the warranty obligation is estimated and accrued. Warranty claims to date have been immaterial.

Reimbursable Expenses

In connection with certain arrangements, reimbursable expenses are incurred and billed to customers and such amounts are recognized as both revenue and cost of revenue.

Identify the customer contract;

Identify performance obligations that are distinct;

Determine the transaction price;

Allocate the transaction price to the distinct performance obligations; and

Recognize revenue as the performance obligations are satisfied.

 

Allowance for Doubtful Accounts

 

We maintain an allowance for doubtful accounts, which represents estimated losses resulting from the inability, failure or refusal of our clients to make required payments.

 

We analyze historical percentages of uncollectible accounts and changes in payment history when evaluating the adequacy of the allowance for doubtful accounts. We use an internal collection effort, which may include our sales and services groups as we deem appropriate. Although we believe that our allowances are adequate, if the financial condition of our clients deteriorates, resulting in an impairment of their ability to make payments, or if we underestimate the allowances required, additional allowances may be necessary, resulting in increased expense in the period in which such determination is made.

Accounting for Cost of Computer Software to be Sold, Leased or Otherwise Marketed

We charge research and development expenditures for technology development to operations as incurred.  However, in accordance with Codification 985-20 Costs of Software to be Sold Leased or Otherwise Marketed, we capitalize certain software development costs subsequent to the establishment of technological feasibility.  Based on our product development process, technological feasibility is established upon completion of a working model. Certain costs incurred between completion of a working model and the point at which the product is ready for general release is capitalized if significant. Once the product is available for general release, the capitalized costs are amortized in cost of sales.

 

Accounting for Goodwill and Intangible Assets

 

Goodwill is tested for impairment annually during the fourth quarter of every year and more frequently if events and circumstances indicate that the asset might be impaired. We assess goodwill atThe purpose of an impairment test is to identify any potential impairment by comparing the consolidated level as one reporting unit. In assessing goodwill for impairment, an entity has the option to assess qualitative factors to determine whether events or circumstances indicate that it is not more likely than not that the faircarrying value of a reporting unit including goodwill to its fair value. An impairment charge is less than its carrying amount. If this isrecognized for the case, then performing the quantitative two-step goodwill impairment test is unnecessary. An entity can choose not to perform a qualitative assessment for any or all of its reporting units, and proceed directly to the use of the two-step impairment test. In assessing qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount we assess relevant events and circumstances that may impact the fair value andby which the carrying amount of a reporting unit. The identification of relevant events and circumstances and how these may impact aexceeds the reporting unit’s fair value or carryingvalue; however, the loss recognized should not exceed the total amount involve significant judgments by management. These judgments include the consideration of macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, events which are specific to Bridgeline and trends in the market price of our common stock. Each factor is assessed to determine whether it impacts the impairment test positively or negatively, and the magnitude of any such impact.

For fiscal 2017, the Company performed the annual assessment of goodwill during the fourth quarter ofallocated to that year and concluded that it was not more likely than not that the fair values of the reporting units were less than their carrying amounts. We used the option to assess qualitative factors to determine whether events or circumstances indicate that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount. We concluded that it was not more likely than not that the fair value of our reporting unit was less than the corresponding carrying amount, and therefore it was not necessary to perform the two-step impairment test. The key qualitative factors that led to our conclusion included the following: (i) access to capital (ii) market acceptance of our products (iii) improvements in financial metrics and (iv) market value of the Company.unit.  

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Factors that could lead to a future impairment include material uncertainties such as operational, economic and competitive factors specific to the key assumptions underlying the fair value estimate we use in our impairmentimpairment testing that have reasonable possibility of changing. This could include a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and a decline in our market value as a result of a significant decline in our stock price.

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Accounting for Business Combinations

The Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. The Company bases the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated growth rates, cash flows and discounts rates and estimated useful lives could result in different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with these acquisitions are expensed as incurred through general and administrative expense on the consolidated statements of operations. In those circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date. The Company re-measures this liability each reporting period and records changes in the fair value through income (loss) before income taxes within the consolidated statements of operations.

 

Accounting for Stock-Based Compensation

 

At December 31, 2017,2021, we maintained two stock-based compensation plans, one of which has expired but still contains vested and unvested stock options andoptions. The two plans are more fully described in Note 1112 to the Consolidated Financial Statements of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 21, 2017.20, 2021.

 

The Company accounts for stock-based compensation awards in accordance with theASC 718 Compensation-StockCompensation - Stock Topic of the Codification.  Share-based payments (to the extent they are compensatory) are recognized in our consolidated statementsConsolidated Statements of operationsOperations based on their fair values. 

 

We recognize stock-based compensation expense for share-basedshare-based payments issued or assumed after October 1, 2006 that are expected to vest on a straight-line basis over the service period of the award, which is generally three years.  We recognize the fair value of the unvested portion of share-based payments granted prior to October 1, 2006 over the remaining service period, net of estimated forfeitures.  In determining whether an award is expected to vest, we use an estimated, forward-looking forfeiture rate based upon our historical forfeiture rate and reduce the expense over the recognition period. Estimated forfeiture rates are updated for actual forfeitures quarterly.  We also consider, each quarter, whether there have been any significant changes in facts and circumstances that would affect our forfeiture rate.  Although we estimate forfeitures based on historical experience, actual forfeitures in the future may differ.  In addition, to the extent our actual forfeitures are different than our estimates, we record a true-up for the difference in the period that the awards vest, and such true-ups could materially affect our operating results.

 

We estimate the fair value of employee stock options using the Black-Scholes-Merton option valuation model.  The fair value of an award is affected by our stock price on the date of grant as well as other assumptions, including the estimated volatility of our stock price over the term of the awards and the estimated period of time that we expect employees to hold their stock options.  The risk-free interest rate assumption we use is based upon United States treasury interest rates appropriate for the expected life of the awards.  We use the historical volatility of our publicly traded options in order to estimate future stock price trends.  In order to determine the estimated period of time that we expect employees to hold their stock options, we use historical trends of employee turnovers.  Our expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The aforementioned inputs entered into the option valuation model we use to fair value our stock awards are subjective estimates and changes to these estimates will cause the fair value of our stock awards and related stock-based compensation expense we record to vary.

 

We record deferred tax assets for stock-based awards that result in deductions on our income tax returns, based on the amount of stock-based compensation recognized and the statutory tax rate in the jurisdiction in which we will receive a tax deduction.   

 

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ItemItem3.       

Qualitative and Quantitative Disclosures About Market Risk.

 

Not required.

 

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Item 4.

Item 4.Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer (Principal Executive Officer) and our Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

 

As of December 31, 2017the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as(as defined in RulesRule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934.1934, as amended (the “Exchange Act”). Based upon thaton this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective in enabling us to record, process, summarize and report information required to be included in our periodic filings with the Securities and Exchange Commission within the required time period.as of December 31, 2021.

 

Changes in Internal Control over Financial Reporting

 

There have beenwere no changes into our internal controlscontrol over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during theour most recent fiscal quarter ended December 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Controls

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

 

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PART II OTHER INFORMATION

 

Item 1. 1.Legal Proceedings.

Legal Proceedings.

 

From time to time we are subject to ordinary routine litigation and claims incidental to our business. We are not currently involved in any legal proceedings that we believe are material beyond those previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 21, 2017.20, 2021.

Item 1A.       Risk Factors.

There have been no material changes to the risk factors described under Item 1A of our Annual Report on Form 10-K for the fiscal year ended September 30, 2021.

Item2.Unregistered Sales of Equity Securities and Use of Proceeds.

There were no sales of unregistered equity securities in the three months ended December 31, 2021.


 

 

Item 2. 6.

Unregistered Sales of Equity Securities and Use of Proceeds.

The following summarizes all sales of our unregistered securities during the quarter ended December 31, 2017. The securities in the below-referenced transactions were (i) issued without registration and (ii) were subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated there under, and in reliance on similar exemptions under applicable state laws as transactions not involving a public offering. Unless stated otherwise, no placement or underwriting fees were paid in connection with these transactions.

Stock Options

During the fiscal quarter ended December 31, 2017, the Company granted 800 stock options under The 2016 Stock Incentive Plan at a weighted average exercise price of $2.92 per share.

The securities were issued exclusively to our directors, executive officers and employees. The issuance of options and the shares of common stock issuable upon the exercise of such options as described above were issued pursuant to written compensatory plans or arrangements with our employees, directors and consultants, in reliance on the exemptions from the registration provisions of the Securities Act set forth in Section 4(2) thereof relative to sales by an issuer not involving any public offering, to the extent an exemption from such registration was required. 

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Item 6.

Exhibits.

 

Exhibit No.

Description of Document

   

3.1(i)

 

Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q filed on May 15, 2013).

   
3.1(ii)

3.2

 

Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated May 4, 2015 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on May 5, 2015)

3.1(iii)Certificate of Designations of the Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on November 4, 2014).

   
3.1(iv)

3.3

 

Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to our current Report on Form 8-K filed on July 24, 2017)

4.1(i)Registration Rights Agreement, dated November 3, 2016, by and between Bridgeline Digital, Inc. and the Investors party thereto (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K Filed on November 4, 2016)
4.1 (ii)Registration Rights Agreement, as amended on June 30, 2017 filed with the Securities and Exchange Commission on May 19, 2017
10.1Loan and Security Agreement between Bridgeline Digital, Inc and Montage Capital II, L.P. dated October 10, 2017 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K Filed on October 13, 2017)
10.2Form of Warrant to Purchase Stock issued to Montage Capital II, L.P. (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K Filed on October 13, 2017)
10.3Intercreditor Agreement between Heritage Bank of Comerce and Montage Capital II, L.P dated October 10, 2017 (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K Filed on October 13, 2017)

10.4

Fifth Amendment to the Loan and Security Amendment between Bridgeline Digital, Inc. and Heritage Bank of Commerce, dated November 27, 2017 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K Filed on November 28, 2017)December 14, 2018).

   
31.1

3.4

 

Certification requiredCertificate of Designations of the Series B Convertible Preferred Stock (incorporated by Rule 13a-14(a) or Rule 15d-14(a)reference to Exhibit 3.1 to our Current Report on Form 8-K filed on October 19, 2018).

   
31.2

3.5

 

Certification requiredAmendment to the Amended and Restated By-laws (incorporated by Rule 13a-14(a) or Rule 15d-14(a)reference to Exhibit 3.1 to our current Report on Form 8-K filed on September 20, 2021).

32.1

Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

32.2

Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

101.INS*XBRL Instance
   
101.SCH* 

3.6

 XBRL Taxonomy Extension Schema

Certificate of Designation of Preferences, Rights and Limitations of the Series D Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on May 14, 2021).

   
101.CAL*

10.1

 XBRL Taxonomy Extension Calculation

Thomas Windhausen’s Employment Agreement, dated November 30, 2021 (incorporated by reference to Exhibit 10.29 to our Annual Report on Form 10-K filed on December 20, 2021).

   
101.DEF*

31.1*

 XBRL Taxonomy Extension Definition

Certification of Chief Executive Officer, pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

   
101.LAB*

31.2*

 XBRL Taxonomy Extension Labels

Certification of Chief Financial Officer, pursuant to Section 302 of Sarbanes-Oxley Act of 2002.

   
101.PRE* 

32.1*

 

Certification of Chief Executive Officer, pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

32.2*

Certification of Chief Financial Officer, pursuant to Section 906 of Sarbanes-Oxley Act of 2002.

101.INS**

Inline XBRL Instance

101.SCH**

Inline XBRL Taxonomy Extension Schema

101.CAL**

Inline XBRL Taxonomy Extension Calculation

101.DEF**

Inline XBRL Taxonomy Extension Definition

101.LAB**

Inline XBRL Taxonomy Extension Labels

101.PRE**

Inline XBRL Taxonomy Extension Presentation

104

Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)

 

*Management compensatory plan

* Filed herewith.

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of sectionsSections 11 andor 12 of the Securities Act of 1933, as amended is deemed not filed for purposes of sectionSection 18 of the Securities Exchange Act of 1934, as amended and otherwise is not subject to liability under these sections.

 

35

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

Bridgeline Digital, Inc.

(Registrant)

February 14, 201810, 2022

/s/    Roger Kahn

Date

Roger Kahn

President and Chief ExecutiveExecutive Officer

(Principal Executive Officer)

   

February 10, 2022

February 14, 2018

/s/    Michael Prinn    Thomas R. Windhausen

Date

Michael PrinnThomas R. Windhausen

ExecutiveVice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

 

36

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