Statements contained in this Report on Form 10-Q, other than statements or characterizations of historical fact, are forward-looking statements. These ~~“forward-looking statements”~~“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 in this Form 10-Q and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc.These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions, including, but not limited to, the impact of the ~~COVID – 19~~coronavirus pandemic and related public health measures that may affect our financial results; business operations and the business of our customers, suppliers and partners; our ability to retain and upgrade current ~~customers,~~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 profitability, our liability for any unauthorized access to our data or our ~~users’~~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; the ability to maintain our listing on the NASDAQ Capital Market; or our ability to maintain an effective system of internal controls as well as other risks described in our 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. Bridgeline Digital, Inc. assumes no obligation to, and does not currently intend to, update any such forward-looking statements, except as required by applicable law. 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, 2020, and in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

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

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

CONDENSED CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’~~STOCKHOLDERS’ EQUITY

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

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.

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 (“U.S. GAAP”), and with the instructions to Form ~~10-Q~~10-Q and Regulation ~~S-X,~~S-X, and in the opinion of the Company’s management these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for their fair presentation. The operating results for the three and nine months ended ~~December 31, 2020~~ June 30, 2021, are not necessarily indicative of the results to be expected for the year ending September 30, 2021. The accompanying September 30, 2020 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 U.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~~10-K for the year ended September 30, 2020, as filed with the U.S. Securities and Exchange Commission (“SEC”) on December 23, 2020.

911

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

~~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 income.

Intangibles – Goodwill and Other - Internal-Use Software

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. ~~2018-15,~~2018-15, which addresses a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. The effective date of this new standard for the Company was October 1, 2020. Under the new standard, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. As of October 1, 2020, the Company did not have significant implementation costs incurred in a cloud computing arrangement that is a service contract and therefore upon adoption the impact of the new standard on its consolidated financial statements and related disclosures was not material. All future implementation costs in such arrangements will be capitalized and amortized over the life of the arrangement, which may have a material impact in those future periods if such costs are material.

Fair Value

In August 2018, the FASB issued ASU ~~2018-13,~~No.2018-13, Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which changes the fair value measurement disclosure requirements of Accounting Standards Codification (“ASC”) 820. The effective date of this new standard for the Company was October 1, 2020. As the adoption of this standard was limited to revised disclosures, the impact of the new standard on its consolidated financial statements was not material.

Accounting Pronouncements Pending Adoption

Financial Instruments – Credit Losses

In June 2016, the FASB issued ASU No. ~~2016-13,~~2016-13, Financial ~~Instruments - Credit~~Instruments-Credit Losses (Topic ~~326)~~326), 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 ~~2016-13~~2016-13 is effective for smaller reporting companies for annual reporting periods beginning after December 15, 2022, including interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact of the new standard on its consolidated financial statements and related disclosures.

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

3. Accounts Receivable

Accounts receivable consist of the following:

As of
June 30, 2021

As of
September 30, 2020

Accounts receivable
$ 1,351 $ 698
Allowance for doubtful accounts
(26
)
(33
)
Accounts receivable, net
$ 1,325 $ 665
As of June 30, 2021, one customer represented approximately 16% of accounts receivable. As of September 30, 2020, three customers represented approximately 15%, 14% and 10% of accounts receivable. For the three and nine months ended June 30, 2021, no customers exceeded 10% of the Company’s total revenues. For the three and nine months ended June 30, 2020, one customer represented approximately 11% and 12%, respectively, of the Company’s total revenue.

10
12

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 consist of the following:~~

As of
December 31,
2020

As of
September 30,
2020

Accounts receivable
$ 904 $ 698
Allowance for doubtful accounts
(41
)
(33
)
Accounts receivable, net
$ 863 $ 665
As of December 31, 2020, two customers represented approximately 34%, and 20% of accounts receivable. As of September 30, 2020, three customers represented approximately 15%, 14% and 10% of accounts receivable. For the three months ended December 31, 2020, and 2019, one customer represented approximately 12% of the Company’s total revenue.

4.Fair Value Measurement and Fair Value of Financial Instruments
The Company’s ~~other~~ financial instruments consist principally of accounts receivable, accounts payable, warrant liabilities and long-term debt ~~and warrant liabilities.~~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, 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 believes the ~~recorded values for~~carrying value of its accounts receivable and accounts payable ~~and short-term debt~~ approximate ~~current~~ fair ~~values~~value as of ~~December 31, 2020~~ June 30, 2021 and September 30, 2020, ~~because of~~due to their short-term ~~nature and durations.~~
11
~~BRIDGELINE DIGITAL, INC.~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except share and per share data)~~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 period. The fair value of the Company’s warrant liabilities are valued utilizing Level 3 inputs. Warrant liabilities are valued using a Monte Carlo option-pricing model, which takes into consideration the volatilities of comparable public companies, due to the relatively low trading volume of the Company’s common stock. The Monte Carlo option-pricing model uses certain assumptions, including expected life and annual volatility. The range and weighted average volatilities of comparable public companies utilized was ~~27.1%~~27.5% - ~~74.4%~~70.7% and ~~44.8%~~57.8%, respectively, as of ~~December 31, 2020,~~ June 30, 2021, and 26.2% - 70.7% and 43.5%, respectively, as of September 30, 2020. The volatility utilized in the Monte Carlo option-pricing model was determined by weighing 60% to the Company-specific volatility and 40% on comparable public companies. The significant inputs and assumptions utilized were as follows:

As of
December 31, 2020

As of
September 30, 2020

As of June 30, 2021 As of September 30, 2020 At inception

Montage
Capital

Series C
Preferred

Montage
Capital

Series C
Preferred

Montage
Capital

Series C
Preferred

Series D
Preferred

Montage
Capital

Series C
Preferred

Series D
Preferred

Volatility
87.5
%
88.2
%
84
%
84.1
%
87.3
%
92.0 % 86.5
%
84
%
84.1
%
86.3 %
Risk-free rate
0.34
%
0.20
%
0.28
%
0.20
%
0.70
%
0.50 % 0.90
%
0.28
%
0.20
%
0.90 %
Stock price
$ 2.58 $ 2.58 $ 1.86 $ 1.86 $ 4.30 $ 4.30 $ 4.30 $ 1.86 $ 1.86 $ 2.50

The Company recognized gains/(losses) of ($~~1,441)~~4,161) and ~~$1,101~~($1,843) for the three months ended ~~December 31, 2020~~ June 30, 2021 and ~~2019, respectively.~~2020, respectively, and ($6,020) and $1,078 for the nine months ended June 30, 2021 and 2020, respectively, related to the change in fair value of warrant liabilities. The changes in fair value of warrant liabilities for the three and nine months ended June 30, 2021, were due to changes in inputs, ~~to the Monte Carlo option-pricing model,~~ primarily an increase in stock price and the risk-free rate, to the Monte Carlo option-pricing model. The changes in fair value of warrant liabilities for the three and nine months ended ~~December 31,~~June 30, 2020, were due to changes in inputs, primarily an increase and ~~a decrease~~decline, respectively, in stock price ~~for~~and the ~~three months ended December 31, 2019.~~
~~Assets and liabilities of~~risk-free rate, to the ~~Company measured at fair value on a recurring basis as of December 31, 2020 and September 30, 2020, are as follows:~~Monte Carlo option-pricing model.

As of December 31, 2020

Level 1

Level 2

Level 3

Total

Liabilities:

Warrant liability - Montage
$ - $ - $ 27 $ 27
Warrant liability - Series A, B and C
- - 3,900 3,900
Total Liabilities
$ - $ - $ 3,927 $ 3,927

As of September 30, 2020

Level 1

Level 2

Level 3

Total

Liabilities:

Warrant liability - Montage
$ - $ - $ 26 $ 26
Warrant liability - Series A, B and C
- - 2,460 2,460
Total Liabilities
$ - $ - $ 2,486 $ 2,486
~~The following table provides a rollforward of the fair value, as determined by Level 3 inputs, of the warrant liabilities:~~

Three Months
Ended
December 31,
2020

Balance at beginning of period, October 1, 2020
$ 2,486
Additions
-
Exercises
-
Adjustment to fair value
1,441
Balance at end of period, December 31, 2020
$ 3,927
1213

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

Assets and liabilities of the Company measured at fair value on a recurring basis as of June 30, 2021 and September 30, 2020, are as follows:

As of June 30, 2021

Level 1

Level 2

Level 3

Total

Liabilities:

Warrant liability - Montage
$ 0 $ 0 $ 13 $ 13
Warrant liability - Series A and C
0 0 6,225 6,225
Warrant liability – Series D
0 0 2,585 2,585
Total Liabilities
$ 0 $ 0 $ 8,823 $ 8,823

As of September 30, 2020

Level 1

Level 2

Level 3

Total

Liabilities:

Warrant liability - Montage
$ 0 $ 0 $ 26 $ 26
Warrant liability - Series A, B and C
0 0 2,460 2,460
Total Liabilities
$ 0 $ 0 $ 2,486 $ 2,486
The following table provides a rollforward of the fair value, as determined by Level 3 inputs, of the warrant liabilities:

Nine months
ended June 30,
2021

Balance at beginning of period, October 1, 2020
$ 2,486
Additions
0
Exercises
0
Adjustment to fair value
1,441
Balance at end of period, December 31, 2020
$ 3,927
Additions
0
Exercises
(140 )
Adjustment to fair value
418
Balance at end of period, March 31, 2021
$ 4,205
Additions
1,319
Exercises or payments
(862 )
Adjustment to fair value
4,161
Balance at end of period, June 30, 2021
$ 8,823

5.Intangible Assets

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

As of
June 30, 2021

As of
September 30, 2020

Domain and trade names
$ 745 $ 10
Customer related
5,730 1,500
Technology
1,684 1,107
Balance at end of period
$ 8,159 $ 2,617

As of
December 31,
2020

As of
September 30,
2020

Domain and trade names
$ 10 $ 10
Customer related
1,364 1,500
Technology
1,025 1,107
Balance at end of period
$ 2,399 $ 2,617
14

BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Total amortization expense related to intangible assets was ~~$218~~$285 and ~~$237~~$207 related to intangible assets for the three months ended ~~December 31, 2020~~ June 30, 2021 and ~~2019,~~2020, respectively, and $726 and $678 for the nine months ended June 30, 2021 and 2020, respectively, and is reflected in ~~operating~~Operating expenses on the Condensed Consolidated Statements of Operations. The estimated amortization expense for fiscal year 2021 (remaining), 2022,2023,2024,2025 and ~~2025~~thereafter is ~~$645, $764, $684, $297,~~$397, $1,494, $1,415, $1,032, $748, and ~~$9,~~$3,073 respectively.

6.Accrued Liabilities

Accrued liabilities consist of the following:

As of
December 31,
2020

As of
September 30,
2020

As of
June 30,
2021

As of
September 30,
2020

Compensation and benefits
$ 313 $ 368 $ 447 $ 368
Professional fees
28 29 59 29
Taxes
261 46 80 46
Insurance
126 - 16 0
Other
203 156 152 156
Balance at end of period
$ 931 $ 599 $ 754 $ 599

7.   ~~Paycheck Protection Program~~Long-term Debt

On March 1, 2021, the Company assumed the outstanding long-term debt obligations of an acquired business and issued a seller note to one of the selling shareholders (see Note 15). The assumed debt obligations and seller note are denominated in Euros.
Long-term debt consisted of the following:

As of June 30,
2021

Vendor loan payable (“Vendor loan”), accruing interest at 4.0% per annum. Principal and interest are payable in two lump-sum installments and the loan matures on February 1, 2023.
$ 724
Term loan payable, accruing interest at fixed rates ranging between .99% to 1.5% per annum, payable in monthly or quarterly payments of interest and principal and matures on October 10, 2022.
497
Term loan payable, accruing interest at 1.3% per annum, payable in quarterly installments and matures on April 30, 2027.
470
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 5 installments and matures on January 1, 2026.
352
Total debt
2,043
Less current portion:
(755 )
Long-term debt, net of current portion
$ 1,288
15
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
At June 30, 2021, future maturities of long-term debt are as follows:
Fiscal year:
2021 (remaining)
$ 119
2022
636
2023
461
2024
166
2025
166
Thereafter
495
Total commitments
$ 2,043
8.Paycheck Protection Program
On April 17, 2020, Bridgeline Digital, Inc. entered into a loan with BNB Bank as the lender in an aggregate principal amount of $1,048 (“PPP Loan”) pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”). The PPP Loan is evidenced by a promissory note (“Note”). Subject to the terms of the Note, the PPP Loan bears interest at a fixed rate of one percent ~~(1%~~(1%) per annum, with the firstsix months of interest deferred, has an initial term of two years, and is unsecured and guaranteed by the U.S. Small Business Administration (“SBA”). Payments are deferred for at least the firstsix months and payable in 18 equal consecutive monthly installments of principal and interest commencing upon expiration of the deferral period of the PPP Loan Date. ~~During the three months ended December 31, 2020, interest expense was approximately $1 related to the PPP Loan.~~ The Company may apply to the lender for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent obligations, and covered utility payments incurred by the Company during the twenty-four week period beginning on April 21, 2020, calculated in accordance with the terms of the CARES Act. The Note provides for prepayment and customary events of default, including, among other things, cross-defaults on any other loan with the lender. The PPP Loan may be accelerated upon the occurrence of an event of default.

U.S. GAAP does not contain authoritative accounting standards for forgivable loans provided by governmental entities to a for-profit entity. Absent authoritative accounting standards, interpretative guidance issued and commonly applied by financial statement preparers allows for the selection of accounting policies amongst acceptable alternatives. Based on facts and circumstances outlined below, the Company determined it most appropriate to account for the PPP Loan proceeds as an in-substance government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance. Under the provisions of IAS 20, “a forgivable loan from government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.” IAS 20 does not define “reasonable assurance”; however, based on certain interpretations, it is analogous to “probable” as defined in FASB ASC ~~450-20-20~~450-20-20 under U.S. GAAP, which is the definition the Company has applied to its expectations of PPP Loan forgiveness. Under IAS 20, government grants are recognized in earnings on a systematic basis over the periods in which the Company recognizes costs for which the grant is intended to compensate (i.e., qualified expenses). Further, IAS 20 permits for the recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses. The Company has elected to recognize government grant income separately within other income to present a clearer distinction in its consolidated financial statements between its operating income and the amount of net income resulting from the PPP Loan and subsequent expected forgiveness. The Company believes this presentation method promotes greater comparability amongst all periods presented.

13
~~BRIDGELINE DIGITAL, INC.~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except share and per share data)~~
The Company ~~has performed initial calculations~~applied for ~~the~~full PPP Loan forgiveness ~~according to the terms~~ on March 29, 2021 and conditions of the SBA’s Loan Forgiveness Application (Revised January 8, 2021) and, based on such calculations, expects that the PPP Loan will be forgiven in full, based on usage of related proceeds, over a period less than 24 weeks. In addition, the Company has determined it is probable the Company will meet all the conditions of the PPP Loan forgiveness. However, there can be no assurances that the Company will ultimately meet the conditions for forgiveness of the loan or that the Company will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.
The Company plans to submit the PPP Loan forgiveness application in the near term. In accordance with the terms and conditions under the Payroll Protection Program Flexibility Act of 2020 (the “Flexibility Act”), the lender has 60 days from receipt of the completed application to issue a decision to the SBA. If the lender determines that the borrower is entitled to forgiveness, in whole or in part, of the amount applied for under the statute and applicable regulations, the lender must request paymentreceived approval from the SBA at the time the lender issues its decision to the SBA. The SBA will, subject to any SBA review of the loan or loan application, remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, not later than 90 days after the lender issues its decision to the SBA. The amount the Company borrowed is within the “safe-harbor” limitations of the SBA. Although the Company believes it is probable that the PPP Loan will be forgiven, the Company cannot provide any objective assurance that it will obtain forgiveness in ~~whole or in part.~~
~~Pursuant to the Flexibility Act, the Company’s PPP Loan agreement will be amended in the event that no amount or less than all of the PPP Loan is forgiven. In addition, starting in~~ August 2021, the Company will be required to make principal and interest payments, or an adjustment amount based on the loan amendment over the remaining term of the PPP Loan until such time the loan is fully settled. 2021. The Company classifies unexpended loan proceeds on the accompanying consolidated balance sheets as a current or noncurrent liability based on the contractual maturities of the underlying loan agreement. During the ~~three months ended December 31, 2020,~~first quarter of fiscal 2021, the remaining loan proceeds were expended on qualified expenses and as a result, the Company recognized $88 as government grant income. As of September 30, 2020, unexpended loan proceeds of $88 were classified as a current liability.
16
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

~~8.   Stockholders’ Equity~~9.Restructuring and Acquisition Related Expenses
Acquisition Related Expenses
In connection with the acquisition of businesses completed during the fiscal 2021second and third quarters (see Note 15), the Company incurred acquisition expenses of $568 during the three months ended June 30, 2021 and $862 during the nine months ended June 30, 2021, which are included in Restructuring and acquisition related expenses in the Condensed Consolidated Statements of Operations. There were no acquisition related expenses incurred during the three and nine months ended June 30, 2020.
Restructuring Activities
During the three and nine months ended June 30, 2020, the Company recognized $1 thousand and $373 thousand, respectively, related to a reduction in force in its U.S. and Canada operations aimed at improving efficiencies by combining functions, certain responsibilities and eliminating redundancies, which resulted in a reduction of 15 positions. During the three and nine months ended June 30, 2020, the Company paid $1 related to this reduction in force. There were 0 restructuring related expenses incurred during the three and nine months ended June 30, 2021.
10.Stockholders’ Equity
Series A Convertible Preferred Stock

The Company 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 option of the holder at any time, into such number of shares of common stock (“Conversion Shares”) equal (i) to 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.

On December 31, 2019 ~~(the~~(the “Amendment Date”), the Company filed a First Amended and Restated Certificate of Designations of the Series A Convertible Preferred Stock (the “Series A Amendment”) with the Secretary of State for the State of Delaware, which amended and restated the Series A Preferred Stock, as more particularly set forth below:

Conversion Price: Reduces the conversion price from $812.50 per share to $1.75 per share, subject to adjustment in the event of stock splits or stock dividends.

Mandatory Conversion: The Company has the right, in its sole discretion, to require the holders to convert shares of the Series A Preferred Stock into Conversion Shares if (i) the Company’s common stock has closed at or above $2.28 ($32.50 prior to the Series A Amendment) for fifteen ~~(ten~~ (ten prior to the Series A Amendment) 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.

~~Company’s~~Company’s Redemption Option: The Company may redeem all or a portion of the outstanding shares of Series A Preferred Stock, at its option, provided that the Company provide ten business days’ prior written notice of its intent to redeem the Series A Preferred Stock to the holder and in cash at a price per share of Series A Preferred Stock equal to 100% of the Stated Value of such shares of Series A Preferred Stock plus all accrued and unpaid dividends. Notwithstanding, the holder may convert its Series A Preferred Stock prior to the exercise of the Company’s redemption option.

Dividends: Each outstanding share of Series A Preferred Stock is entitled to receive cumulative dividends, payable quarterly in arrears, at a rate of 5% per annum for the firsteighteen months commencing on January 1, 2020 after which time the dividend rate will increase to 12% per annum (the dividend rate was 12% per annum prior to the Series A Amendment). Dividends are payable in cash or, at the election of the Company, by delivery of additional shares (“PIK Shares”) of Series A Preferred Stock, subject to a cap of 64,000 PIK Shares, in the aggregate. Any accrued but unpaid dividends on the shares of Preferred Stock to be converted shall also be converted into common stock at the conversion price.

17
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
In the event of any liquidation, dissolution, or winding up of the Company, the holders of shares of Series A 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 Series A Preferred Stock shall vote with the ~~Common Stock~~common stock on an as-converted basis.

14
~~BRIDGELINE DIGITAL, INC.~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except share and per share data)~~
Prior to fiscal 2019, the Company had issued 64,000 shares of Series A Preferred Stock as PIK Shares to the Series A preferred shareholders, which is the maximum amount of cumulative PIK Shares authorized. Therefore, all future dividend payments will be cash dividends.

The Company determined that the Series A Amendment represented an extinguishment for accounting purposes. In making this determination, the Company considered the significance of the contractual terms added and revisions to existing contractual terms, including, but not limited to, the significant change in the conversion price and the addition of the Company’s redemption option. These additions and revisions to existing contractual terms were considered to be qualitatively significant. The extinguishment of equity-classified convertible preferred stock is recognized as a deemed dividend measured as the difference between ~~(1)~~(1) the fair value of the consideration transferred; that is, the Series A Preferred Stock, as amended, and ~~(2)~~(2) the carrying value of the Series A Preferred Stock. At the Amendment Date, the fair value of the Series A Preferred Stock, as amended, was approximately $2,629 and its carrying value was approximately $315, resulting in a deemed dividend of $2,314 recognized as an increase to accumulated deficit and an increase to additional paid-in capital, which was included as a component of net loss applicable to common ~~shareholders.~~ shareholders during the nine months ended June 30, 2020. The estimated Amendment Date fair value of the Series A Preferred Stock was determined using the present value of probability weighted scenario analysis based on the per share publicly traded closing stock price of the Company’s common stock.
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 ~~Purchaser~~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 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, 2020,~~ June 30, 2021, the Company had 350 shares of Series C Preferred Stock ~~outstanding.~~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.
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 filed the Certificate of Designation of Preferences, Rights and Limitations of the Series D Convertible Preferred Stock, with the Secretary of State for the State of Delaware, designating 4,200 shares of the Company’s preferred stock as Series D Preferred. The terms and conditions set forth in the Certificate of Designation are summarized below:
18
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Stated Value: Each share of Series D Preferred Stock has a stated value of $1,000 per share.
Dividends: Commencing six months after the issuance date and terminating upon receipt of Stockholder Approval, as discussed below, Series D Preferred holders are entitled to receive cumulative dividends at a rate of 9% per annum of the stated value per share. The Company will pay dividends, if accrued, on the last day of each calendar quarter with respect to the Series D Preferred Stock held by a holder during such calendar quarter.
Voting: Shares of Series D Preferred Stock have no general voting rights. However, as long as any shares of Series D Preferred Stock are outstanding, the Company may not, without the affirmative vote of the holders of a majority of the then outstanding shares of Series D Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series D Preferred Stock or alter or amend the Certificate of Designation, (ii) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series D Preferred Stock, (iii) increase the number of authorized shares of Series D Preferred, or (iv) enter into any agreement with respect to any of the foregoing.
Liquidation Preference: Prior to Stockholder Approval, upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary , the holders of Series D Preferred Stock will be entitled to receive out of the Company’s assets an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under the Certificate of Designation, before any distribution or payment is made to the holders of any other securities and if the Company’s assets will be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of Series D Preferred Stock will be ratably distributed among such holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
After Stockholder Approval, the Series D Preferred Stock will have 0 liquidation preference.
Conversion: Each share of Series D Preferred Stock is convertible, at any time after the issuance date at the option of the holder thereof, into that number of shares of common stock determined by dividing the stated value by the conversion price which is $2.28 (subject to adjustment for the effect of stock dividends, stock splits, recapitalizations and the like); provided, however, that holders of the Series D Preferred Stock may not convert any of their Series D Preferred Stock into conversion shares unless and until the Stockholder Approval Date. In addition, holders of Series D Preferred Stock are 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. Series D Preferred Stock issued in Private Placement, subject to Stockholder Approval, is convertible into an aggregate of 1,184,211 shares of common stock.
Stockholder Approval - The Company’s common stock is listed on the Nasdaq Capital Market, and, as such, its 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 15) 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 15) 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 must first obtain stockholder approval of these issuances. The Company has determined that such prohibition does not represent an inability for the Company to satisfy its obligation to deliver shares upon conversion, as the holders’ conversion option itself is contingent upon Stockholder Approval. On June 29, 2021, the Company filed with the SEC, a Preliminary Proxy Statement included in which, among other matters, is the proposal to obtain Stockholder Approval regarding these issuances in its Annual Meeting of stockholders to be held on August 19, 2021. The Company determined that the Series D Preferred Stock should be classified as permanent equity.
The Series D Preferred Stock contains 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 contains 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 approximately $1.3 million. At June 30, 2021, the Company has not yet recognized the impact of the beneficial conversion feature due to holder conversion restrictions. The holder conversion restriction will be resolved upon Stockholder Approval, at which time the beneficial conversion feature will be immediately exercisable, at the option of the holder, and the Company will recognize full accretion of the beneficial conversion feature as a deemed dividend paid to the Series D Preferred Stock. Such deemed dividend shall be included as a component of net loss attributable to common stockholders in the period it is recognized.
19
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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 features 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. The Series D Warrants are required to be subsequently remeasured at fair value each reporting period with changes in fair value recognized in period earnings (see Note 4).
As the common stock in 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 $4.3 million were allocated $1,030 to the Series D Preferred Warrants based on their issuance-date fair value, $1,915 to common stock and $1,323 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.
Registration Rights
The registration rights agreement, entered into in connection with the Series D Preferred Stock Units Private Placement, requires the Company to file with the SEC a registration statement no later than 15 days after the Closing Date (issuance date) registering for resale the maximum number of common shares issuable upon conversion of the Series D Preferred Shares and the exercise of the Series D Warrants. Such registration rights agreement requires the Company to use commercially reasonable best efforts to have the registration statement declared effective by the SEC, as soon as practicable, but in no event later than the effectiveness deadline of 60 days after the closing date (or in the event of a full review by the SEC the effectiveness deadline will be 90 days after the closing date). If such registration statement is not effective by the contractually agreed upon date or such registration statement effectiveness is not maintained, then, the Company is required to make payments on account of liquidated damages to the investors of 2% of their Series D Preferred Stock Units subscription amount on the date of such events, and on each monthly anniversary thereafter until the effectiveness is cured.
Pursuant to the terms of the registration rights agreement, the Company on May 28, 2021, filed a registration statement on Form S-3 with the SEC to register the common shares issuable upon the conversion of the Series D Preferred Shares and the exercise of the Series D Warrants. As of the date of issuance of these consolidated financial statements, the registration statement has not been declared effective by the SEC resulting in an event of default under the registration rights agreement. The Company has negotiated with the holders of these instruments to waive any payment of liquidated damages that would have been owed under this arrangement if the registration statement is declared effective on or before August 19, 2021.
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.
20
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 the Offering, and Taglich Brothers, Inc. acted as co-placement agent for the Offering (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 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.

At the Market Offering

On August 17, 2020, the Company entered into an arrangement with an investment banking firm (the “Manager”) to sell up to $4,796,090 of shares of the Company’s common stock with a par value of $0.001 (the “ATM Offering”). Pursuant to the ATM Offering, shares may be sold on a daily basis, commencing no earlier than August 17, 2020, at a gross sales price equal to the market price for shares of the Company’s common stock on the NASDAQ Capital Market at the time of sale of such shares. The Manager has no obligation to purchase shares of the Company’s common stock and is only obligated to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell shares of the Company’s common stock. Accordingly, there can be no assurances that the Manager will be successful in selling any portion of the shares available for sale under the ATM Offering. The Company shall pay to the Manager a placement fee of 2.5% of the gross sales price of shares sold. The ATM Offering shall remain in effect until the earlier of August 17, 2021, or upon written notice of termination by either the Company or the Manager. On December 18, 2020, the Company delivered written notice to Roth Capital Partners that it was suspending all offers and sales under the ~~At the Market Offering Agreement (the “Suspension Period”),~~Suspension Period, during which time the Company will not make any sales of Placement Shares. Other than the suspension of the ATM Offering, the At the Market Offering Agreement remains in full force and effect during the Suspension Period.

The Company currently intends to use the net proceeds from the sale of shares pursuant to the ATM Offering for working capital and general corporate purposes. As of ~~December 31, 2020,~~ June 30, 2021, there have been no0 shares of common stock sold under the ATM ~~offering.~~Offering.

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, 2020,~~ June 30, 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~~“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. In November 2019, the Company increased the number of common shares available for issuance under the 2016 Plan from 10,000 shares to 800,000 shares. There were no revisions to exercise prices, terms or any other underlying provisions of existing stock options outstanding. As of ~~December 31, 2020,~~ June 30, 2021, there were ~~583,289~~651,455 options outstanding and ~~216,711~~148,545 shares available for future issuance under the 2016 Plan.

15
~~BRIDGELINE DIGITAL, INC.~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except share and per share data)~~
Compensation Expense
Compensation expense is generally recognized on a graded accelerated basis over the vesting period of grants. Compensation expense is recorded in the Condensed 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 and nine months ended ~~December 31, 2020~~ June 30, 2021 and ~~2019,~~2020, compensation expense related to share-based payments was as follows:

Three Months Ended
December 31,

Three Months Ended
June 30,

Nine Months Ended
June 30,

2020

2019

2021

2020

2021

2020

Cost of revenue
$ 6 $ 2 $ 6 $ 7 $ 18 $ 14
Operating expenses
45 28 37 46 115 119
$ 51 $ 30 $ 43 $ 53 $ 133 $ 133

As of ~~December 31, 2020,~~ June 30, 2021, the Company had approximately ~~$274~~$316 of unrecognized compensation costs related to unvested options, which is expected to be recognized over a weighted-average period of ~~1.9~~2.0 years.

21
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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 public and private placement ~~fund raising~~fundraising 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.

Montage Warrant - As additional consideration for a prior loan arrangement which was paid in full in a prior period not presented, the Company issued to Montage Capital an ~~eight-year~~eight-year warrant (the “~~Montage Warrant~~”“Montage Warrant”) to purchase the Company’s common stock at a price equal to $132.50 per share. The Montage Warrant contains an equity buy-out provision upon the earlier of ~~(1)~~(1) dissolution or liquidation of the Company, ~~(2)~~(2) any sale or distribution of all or substantially all of the assets of the Company, or ~~(3)~~(3) a “Change in Control” as defined within the meaning of Section ~~13(d)~~13(d) and ~~14(d)(2)~~14(d)(2) of the Securities Exchange Act of 1934. Montage Capital has the right to receive an equity buy-out of $250. If the equity buy-out is exercised, the Montage Warrant will be surrendered to the Company for cancellation. As of ~~December 31, 2020,~~ June 30, 2021, the number of shares issuable upon exercise of the Montage Warrants were 1,327 shares.

Series A, B and C Preferred Warrants - In March 2019, in connection with the issuance of the Company’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;~~$4; (ii) Series B Warrants with an initial term of 24 months and an exercise price of ~~$4;~~$4; 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 to purchase shares of the Company’s common stock to the ~~placement agents.~~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 election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. During the three and nine months ended June 30, 2021, 328,750 Series A Warrants were exercised, 2,556,875 Series B Warrants expired unexercised and 6,945 and 55,557, respectively, Series C Warrants were exercised.

As of ~~December 31, 2020,~~ June 30, 2021, the number of shares issuable upon exercise of the (i) Series A Warrants were ~~2,556,875~~2,228,125 shares; (ii) ~~Series B Warrants were 2,556,875 shares; (iii)~~ Series C Warrants were ~~69,295~~13,738 shares; and ~~(iv)~~(iii) the placement agent warrants issued in connection with the Series C Preferred Stock were 127,848 shares.

Series D Preferred Warrants - The Units 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 on May 14, 2021 have an initial exercise date of November 14, 2021, with a term of five and half of years which ends on November 16, 2026. Series D Preferred Warrants have an exercise price of $2.51.
In addition, pursuant to the May 2021 Offerings the Company issued to the Placement Agents warrants to purchase an aggregate of 179,536 shares of common stock. The Placement Agents Warrants issued on May 14, 2021 have an initial exercise date of November 14, 2021, with a term of five years which ends on May 12, 2026. The Placement Agent Warrants have an exercise price of $2.85.
The Company may not effect, and a holder will not be entitled to, convert the Series D Preferred Stock or exercise any May 2021 Offering 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 election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. As of June 30, 2021, 0 Series D Warrants have been exercised and the aggregate number of shares issuable upon exercise was 592,106 and 179,536 shares for investors and placement agents, respectively.
The Montage Warrants, Series C Preferred Warrants, ~~and~~ the placement agent warrants issued in connection with the Series C Preferred Stock, and the Series D Warrants were all determined to be derivative liabilities and are subject to remeasurement each reporting period ~~(See~~(see Note 4)4).

16
22

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

Total warrants outstanding as ~~December 31, 2020,~~ of June 30, 2021, were as follows:

Issue

Issue

Type

Date

Shares

Price

Expiration

Date

Shares

Price

Expiration
Placement Agent

5/17/2016

1,736

$
187.50

5/17/2021
Placement Agent

5/11/2016

1,067

$
187.50

5/11/2021
Placement Agent

7/15/2016

880

$
230.00

7/15/2021

7/15/2016
880 $ 230.00
7/15/2021
Investors

11/9/2016

4,271

$
175.00

5/9/2022

11/9/2016
4,271 $ 175.00
5/9/2022
Director/Shareholder

12/31/2016

120

$
1,000.00

12/31/2021

12/31/2016
120 $ 1,000.00
12/31/2021
Financing (Montage)

10/10/2017

1,327

$
132.50

10/10/2025

10/10/2017
1,327 $ 132.50
10/10/2025
Director/Shareholder

12/31/2017

120

$
1,000.00

12/31/2021

12/31/2017
120 $ 1,000.00
12/31/2021
Investors

10/19/2018

3,120

$
25.00

10/19/2023

10/19/2018
3,120 $ 25.00
10/19/2023
Placement Agent

10/16/2018

10,000

$
31.25

10/16/2023

10/16/2018
10,000 $ 31.25
10/16/2023
Investors

3/12/2019

159,236

$
4.00

10/19/2023

3/12/2019
162,345 $ 4.00
10/19/2023
Investors

3/12/2019

2,556,875

$
4.00

9/12/2024

3/12/2019
2,228,125 $ 4.00
9/12/2024
Investors

3/12/2019

2,556,875

$
4.00

9/12/2021

3/12/2019
13,738 $ 0.05
9/12/2024
Placement Agent

3/12/2019
127,848 $ 4.00
9/12/2024
Placement Agent

2/4/2021
58,169 $ 3.88
2/4/2026
Investors

3/12/2019

69,295

$
0.05

9/12/2024

5/14/2021
592,106 $ 2.51
11/16/2026
Placement Agent

3/12/2019

127,848

$
4.00

9/12/2024

5/14/2021
179,536 $ 2.85
5/12/2026
Total

5,492,770

3,381,705
Summary of Option and Warrant Activity and Outstanding Shares

During the three and nine months ended June 30, 2021, the Company granted options to purchase 95,500 shares at an exercise price of $2.51, which vest ratably over a three-year period commencing on June 1, 2021. All such options granted expire ten years from the date of grant.
During the three months ended December 31, 2019, the Company granted options to purchase 681,353 shares at an exercise price of $1.40, of which (a) 70,000 shares vest on November 20, 2020 and the remainder vest ratably over a ~~three-year~~three-year period commencing November 20, 2019, and (b) 1,000 shares at an exercise price of $1.61 which vest ratably over a ~~three-year~~three-year period commencing on December 2, 2019. All such options granted expire ten years from the date of grant. ~~There were no 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~~nine months ended ~~December 31,~~ June 30, 2021 and 2020, are as follows:

June 30,

2021

2020

Weighted-average fair value per share option
$ 0.96 $ 1.80 $ 0.96
Expected life (in years)
6.0 6.0 6.0
Volatility
76.29
%
81.49
%
76.29
%
Risk-free interest rate
1.61
%
1.04
%
1.61
%
Dividend yield
0.0
%
0.0
%
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~~0 since the Company does not currently pay cash dividends on its common stock and does not anticipate doing so in the foreseeable future.

17
23

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

A summary of combined stock option and warrant activity for the ~~three~~nine months ended ~~December 31, 2020, is~~June 30, 2021, are as follows:

Stock Options

Stock Warrants

Stock Options

Stock Warrants

Weighted

Weighted

Weighted

Weighted

Average

Average

Average

Average

Exercise

Exercise

Exercise

Exercise

Options

Price

Warrants

Price

Options

Price

Warrants

Price

Outstanding, October 1, 2020

613,201

$
4.76

5,492,890

$
4.37

613,201 $ 4.76 5,495,999 $ 4.37
Granted

-

-

-

-

95,500 2.51 829,811 2.68
Exercised

-

-

-

-

(27,333
)
1.40 (384,307
)
3.43
Forfeited/Exchanged

(26,666
)

1.40

-

-

(26,447
)
2.34 (120 ) 1,000
Expired

-

-

(120
)

1,000

(220
)
470.77 (2,559,678
)
4.20
Outstanding, December 31, 2020

586,535

$
4.92

5,492,770

$
4.35

Options vested and exercisable, December 31, 2020

233,699

$
10.11

Outstanding, June 30, 2021
654,701 $ 4.46 3,381,705 $ 4.16
Options vested and exercisable, June 30, 2021
223,786 $ 9.84

As of ~~December 31, 2020,~~ June 30, 2021, the aggregate intrinsic value of options outstanding and exercisable was ~~$674~~$1,765 and ~~$268,~~$629, respectively, and the weighted average remaining contractual term was ~~8.8~~8.6 and ~~8.7~~8.3 years, respectively.

9.   11.Net ~~Loss~~Income (Loss) Per Share Attributable to Common Shareholders
The Company presents basic and diluted earnings per share information for its common stock. The Series D Preferred Stock was considered participating securities, which means the security may participate in undistributed earnings with common stock. The holders of the Series D Preferred Stock are entitled to share in dividends, on an as-converted basis, if the holders of common stock were to receive dividends, other than dividends in the form of common stock. The Company is required to use the two-class method when computing earnings per share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. In determining the amount of net earnings to allocate to common stockholders, earnings are allocated to both common and participating securities based on their respective weighted-average shares outstanding for the period. Securities are deemed not to be participating in losses if there is no obligation to fund such losses. The Series D Preferred Stock does not participate in losses, and as a result, the Company does not allocate losses to these securities in periods of loss. Diluted earnings per share for the common stock is computed using the more dilutive of the two-class method or the “if-converted” and treasury stock methods.

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

For the three and nine months ended ~~December 31, 2020~~ June 30, 2021 and ~~2019,~~2020, diluted net loss per share was the same as basic net loss per share, as the effects of all the Company’s potential common stock equivalents ~~are~~were anti-dilutive as the Company reported a net loss applicable to common shareholders for the periods and the impact of in-the-money warrants was also anti-dilutive. Potential common stock equivalents excluded include the ~~Series A Convertible Preferred Stock, Series C~~Company’s Convertible Preferred Stock, stock options and warrants (see Note 8)10) and 216,590 contingently issuable shares associated with an acquired business (see Note 15).
24
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)

~~10.~~  12.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.

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

Three Months Ended
December 31,

Revenues:

2020

2019

United States
$ 2,286 $ 2,405
International
550 427
$ 2,836 $ 2,832
18
~~BRIDGELINE DIGITAL, INC.~~
~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(in thousands, except share and per share data)~~

Three Months Ended
June 30,

Nine Months Ended
June 30,

Revenues:

2021

2020

2021

2020

United States
$ 1,978 $ 2,171 $ 6,495 $ 6,828
International
1,467 461 2,660 1,374
$ 3,445 $ 2,632 $ 9,155 $ 8,202

The Company’s revenue by type is as follows:

Three Months Ended
December 31,

Three Months Ended
June 30,

Nine Months Ended
June 30,

Revenues:

2020

2019

2021

2020

2021

2020

Digital Engagement Services
$ 837 $ 1,096
Digital engagement services

$
821

$
713

$
2,543

$
2,708

Subscription
331 350
2,330

1,591

5,713

4,498

Perpetual Licenses
1,359 1,044
Perpetual licenses
0
-

5
0
-

13

Maintenance
92 85
93

92

268

259

Hosting
217 257
201

231

631

724

$ 2,836 $ 2,832
$
3,445

$
2,632

$
9,155

$
8,202

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~~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. As of ~~December 31, 2020,~~ June 30, 2021, approximately ~~$25~~$22 of revenue is expected to be recognized from remaining performance obligations for contracts with original performance obligations that exceed one year. The Company expects to recognize revenue on approximately 99% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.

The following table summarizes the classification and net change in deferred revenue as of and for the ~~three~~nine months ended ~~December 31, 2020:~~June 30, 2021:

Deferred Revenue

Deferred Revenue

Current

Long Term

Current

Long Term

Balance as of October 1, 2020
$ 1,511 $ 15 $ 1,511 $ 15
Increase (decrease)
228 10
Increase
228 10
Balance as of December 31, 2020
$ 1,739 $ 25 $ 1,739 $ 25
Decrease
(73
)
(3
)
Balance as of March 31, 2021
$ 1,666 $ 22
Increase
1,130 0
Balance as of June 30, 2021
$ 2,796 $ 22

1925

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

~~11.~~  13.Income Taxes

~~Income tax benefit/expense was ($6)~~During the three and ~~$3 for the three~~nine months ended ~~December 31, 2020~~ June 30, 2021 and ~~2019, respectively.~~ 2020, the Company recognized an income tax expense (benefit) as follows:

Three Months Ended
June 30,

Nine Months Ended
June 30,

2021

2020

2021

2020

Income tax expense
$ 5 $ 6 $ 6 $ 9
Change in valuation allowance
(1,181
)
0 (1,181
)
0
Net income tax expense (benefit)
$ (1,176
)
$ 6 $ (1,175
)
$ 9
Income tax expense consists of ~~the~~ estimated liability for federal and state income taxes owed by the Company.  Net operating loss carryforwards are estimated to be sufficient to offset any potential taxable income for all periods presented. As of June 30, 2021, and September 30, 2020, the Company had a full valuation allowance on its net deferred tax assets.
The acquisition of Hawk Search, Inc. (see Note 15) resulted in the recognition of deferred tax liabilities of approximately $1,181, related to intangible assets. Prior to the business combination, the Company had a full valuation allowance on its net deferred tax assets. The deferred tax liabilities generated from the business combination netted against the Company’s pre-existing deferred tax assets. Consequently, the impact of such resulted in the release of $1,181 of the pre-existing valuation allowance against the deferred tax assets and corresponding deferred tax benefit recognized during the three and nine months ended June 30, 2021.

~~12.~~  14.�� Leases

The Company leases facilities in the United States for its corporate and regional field offices. During the ~~three~~nine months ended ~~December 31, 2020,~~ June 30, 2021, the Company iswas also a lessee/sublessor for certain office locations.

Determination of ~~whether~~Whether a Contract Contains a Lease
We determine if an arrangement is a lease at inception or 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.

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~~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.

26
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Significant Assumptions and Judgements
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 ~~(a)~~(1) the classification as either an operating or finance lease, ~~(2)~~(2) measurement of lease liabilities and ROU assets and ~~(3)~~(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
June 30, Nine Months Ended
June 30,

2021

2020

2021
2020
Condensed Consolidated Statement of Operations:

Operating lease cost
$ 27 $ 62 $ 74 $ 247
Variable lease cost
14 46 41 141
Less: Sublease income, net
(25
)
(18 ) (76 ) (73 )
Total
$ 16 $ 90 $ 39 $ 315
Cash paid for amounts included in the measurement of lease liabilities was $170 for the nine months ended June 30, 2021, which all represents operating cash flows from operating leases. As of June 30, 2021, the weighted average remaining lease term was 3.4 years and the weighted average discount rate was 7.0%.
At June 30, 2021, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year, which have commenced, were as follows:

Payments
Operating
Leases

Receipts
Subleases

Net Leases

Fiscal year:

2021 (remaining)
$ 58 $ 25 $ 33
2022
185 101 84
2023
173 101 72
2024
116 34 82
2025
71 0 71
Thereafter
7 0 7
Total lease commitments
$ 610 $ 261 $ 349
Less: Amount representing interest
(78
)

Present value of lease liabilities
$ 532
Less: current portion
(176
)

Operating lease liabilities, net of current portion
$ 356
At September 30, 2020, 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:

2021

$
96

$
101

$
(5
)
2022

82

101

(19
)
2023

85

101

(16
)
2024

87

36

51

2025

88
0
-

88

Total lease commitments

$
438

$
339

$
99

2027
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
15.Acquisitions
Woorank Acquisition
On March 1, 2021, the Company, pursuant to a Share Purchase Agreement (the “Purchase Agreement”), acquired all of the issued and outstanding shares of Woorank, an entity located in Belgium. The Company accounted for the Woorank transaction as a business combination in accordance with 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 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. Under certain conditions, up to € 600 thousand (approximately $723 thousand) of the purchase price is payable, at the Company’s discretion, in shares of the Company’s common stock, par value $0.001 per share (“common stock”), at a price per share equal to the greater of (i) the closing price of the Company’s common stock on the date of issuance or (ii) $3.38. On the closing date, the Company issued 29,433 shares of its common stock for a portion of the purchase price. At June 30, 2021, € 550 thousand of the remaining purchase price and related earn-out may be settled, at the Company’s option, in shares of the Company’s common stock.
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 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 common stock issued as part of consideration transferred was determined based on the acquisition date closing market price of the Company’s common stock. 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 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 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, Inc., an Illinois corporation (“Hawk Search”). 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 December 31, 2022.
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 be 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 10) which occurred in close proximity to the acquisition date. As more fully described in Note 10, the Series D Preferred Stock contains an embedded beneficial conversion feature. The intrinsic value of $724 was calculated as of the acquisition date. At June 30, 2021, the Company has not recognized the impact of the beneficial conversion feature due to holder conversion restrictions. 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.
28

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

The ~~components~~acquisition date fair value of ~~net lease costs~~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
426 2,000 2,426
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)
1,617 2,190 3,807
Total consideration paid
$ 2,779 $ 9,920 $ 12,699
The preliminary acquisition date fair value of assets acquired and liabilities assumed was as follows:

Woorank

Hawk Search

Total

Assets acquired:

Cash
$ 627 $ 100 $ 727
Non-cash current assets
351 780 1,131
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
2,864 7,540 10,404
Total assets acquired
5,525 13,010 18,535

Liabilities assumed:

Current liabilities
198 1,909 2,107
Assumed debt obligations
2,145 0 2,145
Deferred tax liabilities
403 1,181 1,584
Total liabilities assumed
2,746 3,090 5,836

Total consideration paid
$ 2,779 $ 9,920 $ 12,699
The average useful lives of the identifiable intangible assets acquired were as follows:

Three Months
Ended
December 31,
2020

Condensed Consolidated Statement of Operations:

Operating lease cost
$ 18
Variable lease cost
14
Less: Sublease income, net
(25
)
Total
$ 7

Woorank

Hawk Search

(in years)

Acquired software
5 5
Customer relationships
8 10
Domain and trade names
12 15

~~Cash paid for amounts included in~~Total revenue from the ~~measurement of lease liabilities~~Woorank and Hawk Search acquisitions was ~~$58~~$456 and $467, respectively, for the three months ended ~~December 31, 2020, all of which represents operating cash flows~~June 30, 2021, and $609 and $467, respectively, for the nine months ended June 30, 2021. Total earnings from ~~operating leases. As of December 31, 2020,~~ the ~~weighted average remaining lease term was 3.9 years~~acquisition is impracticable to disclose as the operations were merged with existing operations and ~~the weighted average discount rate was 7.0%.~~
~~At December 31, 2020, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year~~certain costs were ~~as follows:~~not accounted for separately.

Operating
Leases

Receipts
Subleases

Net Leases

Fiscal year:

2020 (remaining)
$ 142 $ 76 $ 66
2021
169 101 68
2022
173 101 72
2023
115 34 81
2024
84 - 84
Total lease commitments
$ 683 $ 312 $ 371
Less: Amount representing interest
(90
)

Present value of lease liabilities
$ 593
Less: current portion
(163
)

Operating lease liabilities, net of current portion
$ 430
~~At September 30, 2020, 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:

2021
$ 96 $ 101 $ (5
)
2022
82 101 (19
)
2023
85 101 (16
)
2025
87 36 51
2025
88 - 88
Total lease commitments
$ 438 $ 339 $ 99
2129

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

Pro Forma Information (Unaudited)
The following is the unaudited pro forma information assuming the acquisitions occurred on October 1, 2019:
Three Months Ended
June 30, Nine Months Ended
June 30,

2021

2020

2021
2020

(in thousands, except per share data)

Revenue
$ 4,553 $ 4,448 $ 13,456 $ 13,439

Net income (loss) applicable to common shareholders - basic
(3,417 ) (1,553 ) (5,525 ) (3,575 )
Net income (loss) applicable to common shareholders - diluted
(3,417 ) (1,553 ) (5,525 ) (3,575 )

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

Basic
$ (0.58 ) $ (0.40 ) $ (1.08 ) $ (1.10 )
Diluted
$ (0.58 ) $ (0.40 ) $ (1.08 ) $ (1.10 )

Weighted average common shares outstanding - basic
5,939,021 3,876,677 5,117,586 3,264,734
Weighted average common shares outstanding - diluted
5,939,021 3,876,677 5,117,586 3,264,734

~~13.~~  16.Related Party Transactions

In November 2018, the Company engaged Taglich Brothers, Inc., on a non-exclusive basis, to perform advisory and investment banking services to identify possible acquisition target possibilities. Michael Taglich, a director and shareholder of the Company, is the President and Chairman of Taglich Brothers, Inc. Fees for the services were $8 per month for three months and $5 thereafter, cancellable at any time. Taglich Brothers, Inc. could also earn a success fee ranging from $200 for a revenue target acquisition of under $5$5 million up to $1 million for an acquisition target over ~~$200~~$200 million.
In connection with the February and May 2021 Offerings (see Note 10), Taglich Brothers, Inc. received warrants to purchase 82,945 shares of the Company’s common stock with a weighted average exercise price of $3.21 and weighted average term of 5.0 years.

~~14.~~  17.Legal Proceedings

The Company is subject to ordinary routine litigation and claims incidental to its business. As of ~~December 31, 2020,~~ June 30, 2021, the Company was not engaged with any material legal proceedings.

~~15.~~18. Subsequent Events

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, ~~other than~~except as already disclosed ~~below.~~
~~Woorank Acquisition~~
~~On February 3, 2021, the Company entered into a Share Purchase Agreement (the “Purchase Agreement”) with Woorank SRL (“Woorank”), an entity located~~ in Belgium, to acquire all of the issued and outstanding shares of Woorank for an unconditional purchase price of approximately €3.3 million (the “Purchase Price”), which consists of (1) approximately €1.4 million paid to the sellers at closing, (2) approximately €1.9 million in assumed debt obligations, and (3) $80,000 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. Approximately €1.2 million of the debt to be assumed by the Company will be current debt with payment due within one year and has a weighted average interest rate of approximately 2.25%. The Purchase Agreement also provides for adjustments to the Purchase Price in the event of the achievement of certain revenue targets, as well as an additional earn-out provision for the achievement of certain operational goals. The consummation of the acquisition~~is conditioned upon certain customary closing conditions, as well as certain lenders of Woorank consenting to the acquisition.~~
Under certain conditions, up to approximately €0.6 million of the Purchase Price is payable, at the Company’s discretion, in shares of the Company’s common stock, par value $0.001 per share, at a price per share equal to the greater of (i) the closing price of the Company’s common stock on the date of issuance or (ii) $3.38, the Minimum Price (as defined in the Nasdaq Listing Rule 5635(d)) of the Company’s common stock on February 1, 2021.
~~The initial accounting for the transaction is incomplete at the date~~ these financial statements are available to be issued, as the information necessary to complete such evaluation is in the process of being obtained and more thoroughly evaluated. The Company has not yet determined fair value of the acquired assets and liabilities to be acquired nor the present value or probabilities of contingent consideration to be transferred. Accordingly, such disclosures cannot be made. statements.
~~During the three months ended December 31, 2020, the Company incurred $210 of acquisition-related costs.~~
~~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 U.S. Securities and Exchange Commission 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 $2.4 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 (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 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 Common Stock purchase warrants to purchase an aggregate of 8% of the Shares sold placed by the Placement Agents (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.~~

2230

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

All statements included in this section, other than statements or characterizations of historical fact, are forward-looking statements. These ~~“forward~~“forward looking ~~statements”~~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 are not guarantees of future results and are subject to risks, uncertainties and assumptions, including, but not limited to, the impact of the ~~COVID – 19~~coronavirus 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 profitability; our liability for any unauthorized access to our data or our ~~users’~~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; the ability to maintain our listing on the NASDAQ Capital Market; or our ability to maintain an effective system of internal controls as well as other risks described in our 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, 2020 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 unaudited condensed consolidated financial statements and related notes prepared in accordance with United States generally accepted accounting ~~principles~~principles.
Overview

Bridgeline Digital Inc., The Digital Engagement Company, helps customers maximize the performance of their full digital experience from websites and intranets to eCommerce experiences. Bridgeline’s Unbound platform integrates Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics (Insights) with the goal of assisting marketers to deliver digital experiences that attract, engage, nurture, and convert their customers across all channels. Bridgeline offers a core accelerator framework for rapidly implementing digital experiences on the Bridgeline Unbound platform, which provides customers with cost-effective solutions in addition to velocity to market.

Bridgeline’s Unbound platform combined with its professional services assists customers in digital business transformation, driving lead generation, increasing revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs. The Bridgeline Unbound platform bridges the gaps between Web Content Management, eCommerce, eMarketing, and social and web analytics by providing all of these components in one unified and deeply integrated platform.

Our Unbound Franchise product empowers large franchises, healthcare networks, associations/chapters and other multi-unit organizations to manage a large hierarchy of digital properties at scale. The platform provides an easy-to-use administrative console that enables corporate marketing to provide consistency in branding and messaging while providing flexible publishing capabilities at the local-market level. The platform empowers brand networks to unify, manage, scale and optimize a hierarchy of web properties and marketing campaigns on a global, national and local level.

The Unbound platform is delivered through a cloud-based software as a service (“SaaS”) multi-tenant business model, whose flexible architecture provides customers with state of the art deployment providing maintenance, daily technical operation and support; or via a traditional perpetual licensing business model, in which the software resides on a dedicated server in either the customer’s facility or hosted by Bridgeline via a cloud-based hosted services model.

OrchestraCMS, delivered through a cloud-based SaaS, is the only content and digital experience platform built 100% native on Salesforce and helps customers create compelling digital experiences 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, delivered through a cloud-based SaaS, is a commerce-oriented site search product that provides for Natural Language Processing with artificial intelligence to present very relevant search results based on long-tail keyword searches in seven languages.

2331

Woorank SRL (“Woorank”) is a leading SEO (“Search Engine Optimization”) audit and digital marketing tool that can look at a customer’s site through Google’s eyes and generate an instant audit of the site’s technical, on-page and off-page SEO. Woorank’s clear, actionable insights not only help companies increase their search ranking and website traffic, but also improve audience engagement, conversion, and customer retention rates.
Hawk Search, Inc. (“Hawk Search) is a robust, feature-rich next-generation search, recommendation, and personalization platform, 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 the ultimate search experience and accurate results from federated data sources. Whether a small or enterprise level B2C, B2B commerce business or content publishers, the Hawk Search feature set complements business objectives.
Locations

The Company’s corporate office is located in Woburn, Massachusetts.  The Company maintains regional field offices serving the following geographical locations: Boston, ~~MA;~~Massachusetts; Woodbury, New ~~York, NY;~~York; Chicago, Illinois; Raleigh, North Carolina; Ontario, Canada; and ~~Ontario, Canada.~~Brussels, Belgium. The Company has ~~two~~three wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd. located in Bangalore, India, ~~and~~ Bridgeline Digital Canada, Inc. located in Ontario, ~~Canada.~~Canada, Bridgeline Digital Belgium BV located in Brussels, Belgium.

Customer Information

For the three and nine months ended ~~December 31,~~June 30, 2021, no customers exceeded 10% of the Company’s total revenue. For the three and nine months ended June 30, 2020, ~~and 2019,~~ one customer represented approximately 11% and 12%, of the Company’s total ~~revenue.~~revenue, respectively.

Results of Operations for the Three and Nine Months Ended ~~December 31, 2020~~June 30, 2021 compared to the Three and Nine Months Ended ~~December 31, 2019~~June 30, 2020

Total revenue for ~~each of~~ the three months ended ~~December 31, 2020~~June 30, 2021 was approximately $3.4 million and ~~2019, was $2.8 million.~~approximately $2.6 million for the three months ended June 30, 2020. We had a net loss of ~~$1.2~~approximately $3.6 million and approximately $1.7 million for the three months ended ~~December 31,~~June 30, 2021 and 2020, ~~and net income of $136 thousand for the three months ended December 31, 2019.~~respectively. Included in the net loss for the three months ended ~~December 31,~~June 30, 2021 and 2020, was a loss of ~~$1.4~~approximately $4.2 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.  Included in the net loss for the three months ended December 31, 2019, was a gain of $1.1$1.8 million, respectively, as a result of the change in fair value of certain warrant liabilities. ~~On December 31, 2019,~~Basic and diluted net loss per share attributable to common shareholders was ($0.61) for the three months ended June 30, 2021 and ($0.44) for the three months ended June 30, 2020.
Total revenue for the nine months ended June 30, 2021 was approximately $9.2 million and approximately $8.2 million for the nine months ended June 30, 2020. We had a net loss of approximately $5.3 million for the nine months ended June 30, 2021, and $742 thousand for the nine months ended June 30, 2020. Included in the net loss for the nine months ended June 30, 2021 and 2020, was a gain (loss) of approximately ($6.0) million and $1.1 million, respectively, as a result of the change in fair value of certain warrant liabilities. During the nine months ended June 30, 2020, the Company amended its Series A Convertible Preferred Stock, resulting in a deemed dividend of approximately $2.3 million charged against net income to arrive at net loss applicable to common shareholders for purposes of calculating earnings per share. Basic and diluted net loss per share attributable to common shareholders was ($~~0.26)~~1.04) for the ~~three~~nine months ended ~~December 31, 2020~~June 30, 2021 and ($~~0.81)~~0.97) for the ~~three~~nine months ended ~~December 31, 2019.~~June 30, 2020.

2432

(in thousands)

Three Months Ended
December 31,

$
%

2020

2019

Change

Change

Revenue

Digital engagement services
$ 837 $ 1,096 $ (259
)
(24
%)
% of total net revenue
30
%
39
%

Subscription and perpetual licenses
1,999 1,736 263 15
%
% of total net revenue
70
%
61
%

Total net revenue
2,836 2,832 4 0
%

Cost of revenue

Digital engagement services
374 568 (194
)
(34
%)
% of digital engagement services revenue
45
%
52
%

Subscription and perpetual licenses
583 790 (207
)
(26
%)
% of subscription and perpetual revenue
29
%
46
%

Total cost of revenue
957 1,358 (401
)
(30
%)
Gross profit
1,879 1,474 405 27
%
Gross profit margin
66
%
52
%

Operating expenses

Sales and marketing
444 1,032 (588
)
(57
%)
% of total revenue
16
%
36
%

General and administrative
465 751 (286
)
(38
%)
% of total revenue
16
%
27
%

Research and development
349 390 (41
)
(11
%)
% of total revenue
12
%
14
%

Depreciation and amortization
232 258 (26
)
(10
%)
% of total revenue
8
%
9
%

Restructuring and acquisition-related expenses
210 5 205 4,100
%
% of total revenue
7
%
0
%

Total operating expenses
1,700 2,436 (736
)
(30
%)

Income (Loss) from operations
179 (962
)
1,141 (119
%)
Interest expense, net
6 - 6 100
%
Government grant income
88 - 88 100
%
Change in fair value of warrant liabilities
(1,441
)
1,101 (2,542
)
(231
%)
Income (loss) before income taxes
(1,168
)
139 (1,307
)
(940
%)
Provision for (benefit from) income taxes
(6
)
3 (9
)
(300
%)

Net income/(loss)
$ (1,162
)
$ 136 $ (1,298
)
(954
%)

Non-GAAP Measure:

Adjusted EBITDA
$ 672 $ (669
)
$ 1,341 (200
%)
25
(in thousands)

Three Months Ended
June 30,

Nine Months Ended
June 30,

$
%
$
%

Revenue

2021

2020

Change

Change

2021

2020

Change

Change

Digital engagement services
$ 821 $ 713 $ 108 15 % $ 2,543 $ 2,708 (165 ) (6
%)
% of total net revenue
24
%
27
%
28
%
33
%

Subscription and perpetual licenses
2,624 1,919 705 37 % 6,612 5,494 1,118 20 %
% of total net revenue
76
%
73
%
72
%
67
%

Total net revenue
3,445 2,632 813 31 % 9,155 8,202 953 12 %

Cost of revenue

Digital engagement services
449 395 54 14 % 1,297 1,432 (135
)
(9
%)
% of digital engagement services revenue
55
%
55
%
51
%
53
%

Subscription and perpetual licenses
744 684 60 9 % 1,919 2,190 (271
)
(12
%)
% of subscription and perpetual revenue
28
%
36
%
29
%
40
%

Total cost of revenue
1,193 1,079 114 11 % 3,216 3,622 (406
)
(11 %)
Gross profit
2,252 1,553 699 45 % 5,939 4,580 1,359 30 %
Gross profit margin
65
%
59
%
65
%
56
%

Operating expenses

Sales and marketing
760 312 448 144 % 1,729 2,130 (401
)
(19
%)
% of total revenue
22
%
12
%
19
%
26
%

General and administrative
608 464 144 31 % 1,681 1,936 (255
)
(13
%)
% of total revenue
18
%
18
%
18
%
24
%

Research and development
625 402 223 55 % 1,453 1,218 235 19 %
% of total revenue
18
%
15
%
16
%
15
%

Depreciation and amortization
306 224 82 37 % 777 731 46 6 %
% of total revenue
9
%
9
%
8
%
9
%

Restructuring and acquisition related expenses
568 1 567 56,700 % 862 373 489 131 %
% of total revenue
16
%
0
%
9
%
5
%

Total operating expenses
2,867 1,403 1,464 104 % 6,502 6,388 114 2 %

Income (loss) from operations
(615
)
150 (765
)
(510
%)
(563
)
(1,808
)
1,245 (69
%)
Interest expense and other, net
(9
)
(2
)
(7
)
350 % (7
)
(3
)
(4
)
133 %
Government grant income
- - - 0 % 88 - 88 100 %
Change in fair value of warrant liabilities
(4,161
)
(1,843
)
(2,318
)
126 % (6,020
)
1,078 (7,098
)
(658
%)
Loss before income taxes
(4,785
)
(1,695
)
(3,090
)
182 % (6,502
)
(733
)
(5,769
)
787 %
Provision for (benefit from) income taxes
(1,176
)
6 (1,182
)
(19,700
%)
(1,175
)
9 (1,184
)
(13,156
%)
Net loss
$ (3,609
)
$ (1,701
)
$ (1,908
)
112 % $ (5,327
)
$ (742
)
$ (4,585 ) 618 %
Non-GAAP Measure:

Adjusted EBITDA
$ 302 $ 428 $ (126
)
(29 %) $ 1,209 $ (571
)
$ 1,780 (312 %)

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 implementation and retainer related services. In total, revenue from digital engagement services ~~decreased $259~~increased $108 thousand, or ~~24%~~15%, to ~~$837~~$821 thousand for the three months ended ~~December 31, 2020~~June 30, 2021, compared to ~~$1.1 million~~$713 thousand for the three months ended ~~December 31, 2019.~~June 30, 2020, and decreased $165 thousand, or 6%, to $2.5 million for the nine months ended June 30, 2021 compared to $2.7 million for the nine months ended June 30, 2020. The ~~decrease~~increase for the three months ended June 30, 2021 compared to the prior period iswas primarily due to aadditional revenue recognized from acquisitions of businesses during fiscal 2021. The decrease for the nine months ended June 30, 2021 compared to the prior period was primarily due to decreases in new service engagements. Digital engagement services revenue as a percentage of total revenue decreased to ~~30%~~24% from ~~39%~~27% for the three months ended ~~December 31, 2020~~June 30, 2021 compared to the three months ended ~~December 31, 2019.~~June 30, 2020, and decreased to 28% from 33% for the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020. The decrease as a percentage of total revenue is attributable to increases in revenues generated from subscription and perpetual licenses during the three and nine months ended ~~December 31, 2020.~~June 30, 2021.
33
Subscription and Perpetual Licenses

Revenue from subscription (SaaS) and perpetual licenses increased ~~$263~~$705 thousand, or ~~15%~~37%, to ~~$2.0~~$2.6 million for the three months ended ~~December 31, 2020~~June 30, 2021 compared to ~~$1.7~~$1.9 million for the three months ended ~~December 31, 2019.~~June 30, 2020, and increased $1.1 million, or 20%, to $6.6 million for the nine months ended June 30, 2021 compared to $5.5 million for the nine months ended June 30, 2020. The increase for the three and nine months ended June 30, 2021 compared to the prior period is primarily due to significant multi-year license ~~revenues realized~~renewals across our diverse portfolio of Fortune 500 companies and the inclusion of revenue of $923 and $1,076, respectively, from ~~our two acquisitions completed in~~ the Company’s fiscal ~~2019 second quarter, partially offset by cancelled SaaS subscriptions for legacy customers.~~2021 acquisitions. Subscription and perpetual license revenue as a percentage of total revenue increased to ~~70%~~76% from ~~61%~~73% for the three months ended ~~December 31, 2020~~June 30, 2021 compared to the three months ended ~~December 31, 2019.~~June 30, 2020, and increased to 72% from 67% for the nine months ended June 30, 2021 compared to the nine months ended June 30, 2020. The increase as a percentage of total revenue for the three months ended June 30, 2021 is primarily attributable to the additional increase in subscription and perpetual licenses during the period compared to digital services revenue and for the nine months ended June 30, 2021 is primarily attributable to the overall decreases in digital engagement services revenue.

~~Cost~~Costs of Revenue

Total cost of revenue ~~decreased $401~~increased $114 thousand, or ~~30%~~11%, to ~~$957 thousand for the three months ended December 31, 2020 compared to $1.4~~$1.2 million for the three months ended ~~December 31, 2019.~~June 30, 2021 compared to $1.1 million for the three months ended June 30, 2020, and decreased $406 thousand, or 11%, to $3.2 million for the nine months ended June 30, 2021 compared to $3.6 million for the nine months ended June 30, 2020. The gross profit margin increased to ~~66%~~65% for the three months ended ~~December 31, 2020~~June 30, 2021 compared to ~~52%~~59% for the three months ended ~~December 31, 2019.~~June 30, 2020 and increased to 65% for the nine months ended June 30, 2021 compared to 56% for the nine months ended June 30, 2020. The increase in the gross profit margin for the three and nine months ended ~~December 31, 2020~~June 30, 2021 compared to the prior period is primarily attributable to decreases in headcount and the use of third-party consultants and increases in the proportion of license revenue, which are generally associated with higher margins, to digital engagement service revenue.

Cost of Digital Engagement Services

Cost of digital engagement services ~~decreased $194~~increased $54 thousand, or ~~34%~~14%, to ~~$374~~$449 thousand for the three months ended ~~December 31, 2020~~June 30, 2021 compared to ~~$568~~$395 thousand for the three months ended ~~December 31, 2019.~~June 30, 2020 and decreased $135 thousand, or 9%, to $1.3 million for the nine months ended June 30, 2021 compared to $1.4 million for the nine months ended June 30, 2020. The ~~decrease~~increase for the three months ended June 30, 2021 compared to the prior period is primarily due to athe allocation of support team and third-party subcontractor costs and additional costs related to the fiscal 2021 business acquisitions. The decrease ~~in headcount.~~for the nine months ended June 30, 2021 compared to the prior period is primarily due to allocation of support team and third-party subcontractor costs. The cost of digital engagement services as a percentage of digital engagement services revenue ~~decreased to 45%~~remained consistent at 55% for the three months ended ~~December 31,~~June 30, 2021 and 2020 and decreased to 51% for the nine months ended June 30, 2021 compared to ~~52%~~53% for the ~~three~~nine months ended ~~December 31, 2019.~~June 30, 2020. The decrease as a percentage of revenues for the nine months ended June 30, 2021 compared to the prior period is primarily due to the ~~decline~~overall decreases in digital engagement services ~~revenue, as more fully described above.~~revenue.

Cost of Subscription and Perpetual License

Cost of subscription and perpetual licenses ~~decreased $207~~increased $60 thousand, or ~~26%~~9%, to ~~$583~~$744 thousand for the three months ended ~~December 31, 2020~~June 30, 2021 compared to ~~$790~~$684 thousand for the three months ended ~~December 31, 2019.~~June 30, 2020, and decreased $271 thousand, or 12%, to $1.9 million for the nine months ended June 30, 2021 compared to $2.2 million for the nine months ended June 30, 2020. The ~~cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue decreased to 29%~~increase for the three months ended ~~December 31, 2020~~June 30, 2021 compared to ~~46%~~the prior period is primarily due to the allocation of support team and third-party subcontractor costs and additional costs related to the fiscal 2021 business acquisitions. The decrease for the ~~three~~nine months ended ~~December 31, 2019. These decreases are attributable~~June 30, 2021 compared to the prior period is primarily due to a reduction within our fixed costs to operate our cloud-based hosting model with Amazon Web Services and variable internal support costs. The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue decreased to 28% for the three months ended June 30, 2021 compared to 36% for the three months ended June 30, 2020, and decreased to 29% for the nine months ended June 30, 2021 compared to 40% for the nine months ended June 30, 2020. The decrease as a percentage of revenues for the nine months ended June 30, 2021 compared to the prior period is primarily due to the overall increases in subscription and perpetual license revenue.
26

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expenses ~~decreased $588~~increased $448 thousand, or ~~57%~~144%, to ~~$444~~$760 thousand for the three months ended ~~December 31, 2020~~June 30, 2021 compared to ~~$1.0 million~~$312 thousand for the three months ended ~~December 31, 2019.~~June 30, 2020, and decreased $401 thousand, or 19%, to $1.7 million for the nine months ended June 30, 2021 compared to $2.1 million for the nine months ended June 30, 2020.  Sales and marketing expenses represented ~~16%~~22% and ~~36%~~12% of total revenue for the three months ended ~~December 31,~~June 30, 2021 and 2020, respectively, and ~~2019,~~19% and 26% of total revenue for the nine months ended June 30, 2021 and 2020, respectively. The increase for the three months ended June 30, 2021 compared to the prior period is attributable to the allocation of third-party subcontractor costs and additional costs related to the fiscal 2021 business acquisitions. The decrease ~~in expense was due~~for the nine months ended June 30, 2021 compared to the prior period is attributable to a decrease in headcount ~~and travel related expenses.~~as well as decreased commission expenses incurred.
34

General and Administrative Expenses

General and administrative expenses ~~decreased $286~~increased $144 thousand, or ~~38%~~31%, to ~~$465~~$608 thousand for the three months ended ~~December 31, 2020~~June 30, 2021 compared to ~~$751~~$464 thousand for the three months ended ~~December 31, 2019.~~June 30, 2020 and decreased $255 thousand, or 13%, to $1.7 million for the nine months ended June 30, 2021 compared to $1.9 million for the nine months ended June 30, 2020.  General and administrative expenses represented ~~16%~~18% of total revenue for each of the three months ended June 30, 2021 and ~~27%~~2020, and 18% and 24% of total revenue for the nine months ended June 30, 2021 and 2020, respectively. The increase for the three months ended ~~December 31, 2020~~June 30, 2021 compared to the prior period was primarily due to the allocation of third-party subcontractor costs and ~~2019, respectively.~~additional costs related to the fiscal 2021 business acquisitions. The decrease ~~in expense~~for the nine months ended June 30, 2021 compared to the prior period was primarily due to a decrease in ~~headcount and personnel expenses.~~headcount.

Research and Development

Research and development expense ~~decreased $41~~increased $223 thousand, or ~~11%~~55%, to ~~$349~~$625 thousand for the three months ended ~~December 31, 2020~~June 30, 2021 compared to ~~$390~~$402 thousand for the three months ended ~~December 31, 2019.~~June 30, 2020, and increased $235 thousand, or 19%, to $1.5 million for the nine months ended June 30, 2021 compared to $1.2 million for the nine months ended June 30, 2020. Research and development expenses represented ~~12%~~18% and ~~14%~~15% of total revenue for the three months ended ~~December 31,~~June 30, 2021 and 2020, respectively, and ~~2019,~~16% and 15% of total revenue for the nine months ended June 30, 2021 and 2020, respectively. The ~~decrease as a percentage of revenues~~increase for the three and nine months ended June 30, 2021 compared to the prior period is primarily ~~due~~attributable to the ~~decline in digital engagement services revenue, as more fully described above.~~allocation of support team and third-party subcontractor costs and additional costs related to the fiscal 2021 business acquisitions.

Depreciation and Amortization

Depreciation and amortization expense ~~decreased $26~~increased $82 thousand, or ~~10%~~37%, to ~~$232~~$306 thousand for the three months ended ~~December 31, 2020~~June 30, 2021 compared to ~~$258~~$224 thousand for the three months ended ~~December 31, 2019.~~June 30, 2020, and increased $46 thousand, or 6%, to $777 thousand for the nine months ended June 30, 2021 compared to $731 thousand for the nine months ended June 30, 2020. The ~~decrease~~increase for the three and nine months ended June 30, 2021 is primarily due to an increase of amortization of intangible assets resulting from acquisitions. ~~Amortization expense was $220 thousand~~Depreciation and ~~$237 thousand~~amortization represented 9% of total revenue for each of the three months ended ~~December 31,~~June 30, 2021 and 2020, and ~~2019, respectively. Depreciation and amortization represented~~ 8% and 9% of total revenue for the ~~three~~nine months ended ~~December 31,~~June 30, 2021 and 2020, ~~and 2019, respectively.~~   respectively,

Restructuring and ~~Acquisition-Related~~Acquisition Related Expenses
In connection with the acquisition of businesses completed during the fiscal 2021 second and third quarters, the Company incurred acquisition expenses of $568 during the three months ended June 30, 2021 and $862 during the nine months ended June 30, 2021.

During the three and nine months ended ~~December 31,~~June 30, 2020, the Company ~~incurred acquisition-related expenses~~recognized $1 thousand and $373 thousand, respectively, related to ~~the acquisition~~a reduction in force in its U.S. and Canada operations aimed at improving efficiencies by combining functions, certain responsibilities and eliminating redundancies, which resulted in a reduction of Woorank, which occurred in February 2021 of $210 thousand and represented 7% of total revenue for the three months ended December 31, 2020. No acquisition-related expenses were incurred during the three months ended December 31, 2019. 15 positions.

Net ~~Income/(Loss)~~Loss

~~Income/(Loss)~~Income (loss) from Operations

The income (loss) from operations was ~~$179~~($615) thousand for the three months ended ~~December 31,~~June 30, 2021 compared to $150 thousand for the three months ended June 30, 2020, and a loss of $563 thousand for the nine months ended June 30, 2021 compared to a loss of ~~($1.0)~~$1.8 million for the nine months ended June 30, 2020. Operating expenses increased $1.5 million, or 104%, to $2.9 million for the three months ended ~~December 31, 2019. Operating expenses decreased $783 thousand, or 32%,~~June 30, 2021 compared to ~~$1.7~~$1.4 million for the three months ended ~~December 31,~~June 30, 2020, ~~compared~~and increased $114 thousand, or 2%, to ~~$2.5~~$6.5 million for the ~~three~~nine months ended ~~December 31, 2019.~~June 30, 2021 compared to $6.4 million for the nine months ended June 30, 2020. The ~~decreases~~increases for the three and nine months ended ~~December 31, 2020 are~~June 30, 2021 compared to the prior period were primarily due to ~~a decrease~~additional costs related to the acquisition of businesses in ~~headcount and a reduction within our fixed costs to operate our cloud-based hosting model with Amazon Web Services and variable internal support costs.~~fiscal 2021.
27

Other Income (Expense), net
~~In the three months ended December 31, 2020, we recorded~~The Company recognized a loss related to the change in fair value of ~~certain~~ warrant liabilities of ~~$1.4~~$4.2 million for the three months ended June 30, 2021 compared to $1.8 million for the three months ended June 30, 2020, and a loss of $6.0 million for the nine months ended June 30, 2021 compared to a gain of $1.1 million ~~thousand~~ for the ~~three~~nine months ended ~~December 31, 2019.~~June 30, 2020.
35
During the ~~three months ended December 31, 2020,~~first quarter of fiscal 2021, 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.~~period, in which the Company received approval of full forgiveness from the SBA in August 2021. As of ~~December 31, 2020,~~the first quarter of fiscal 2021, the Company expended all loan proceeds on qualified ~~expense~~expenses incurred during the period. The Company ~~plans to submit the~~applied for full PPP ~~loan~~Loan forgiveness ~~application in the near term.~~on March 29, 2021. Although the Company believes it is probable that the PPP ~~loan~~Loan will be forgiven, the Company cannot provide any objective assurance that it will obtain forgiveness in whole or in part.
Income Taxes

The provision for (benefit from) income ~~tax expense~~taxes was ($6)1.2) million for the three and nine months ended June 30, 2021 and $6 thousand and $3$9 thousand for the three and nine months ended ~~December 31,~~June 30, 2020, ~~and 2019,~~ respectively. Income tax expense ~~represents the~~consists of estimated liability for federal and state income taxes ~~owed.  We have net~~owed by the Company.  Net operating loss carryforwards ~~and other deferred tax benefits that~~ are ~~available~~estimated to be sufficient to offset any potential taxable ~~income.~~income for all periods presented. As of June 30, 2021, and September 30, 2020, the Company had a full valuation allowance on its net deferred tax assets.
The acquisition of Hawk Search, Inc. resulted in the recognition of deferred tax liabilities of approximately $1,181, related to intangible assets. Prior to the business combination, the Company had a full valuation allowance on its net deferred tax assets. The deferred tax liabilities generated from the business combination netted against the Company’s pre-existing deferred tax assets. Consequently, the impact of such resulted in the release of $1,181 of the pre-existing valuation allowance against the deferred tax assets and corresponding deferred tax benefit recognized during the three and nine months ended June 30, 2021.

Adjusted EBITDA

We also measure our performance based on a non-GAAP (“Generally Accepted Accounting Principles”) measurement of earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, impairment of goodwill and intangible assets, non-cash warrant related expenses, change in fair value of derivative instruments 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 ~~provides~~provide a tool for evaluating our ongoing operations.

Adjusted EBITDA, however, is not a measure of operating performance under ~~U.S.~~U.S, GAAP and should not be considered as an alternative or substitute for ~~U.S.~~U.S, GAAP profitability measures such as (i) income (loss) from operations and net income (loss), or (ii) cash flows from operating, investing and financing activities, both as determined in accordance with ~~U.S.~~U.S, GAAP. Adjusted EBITDA as an operating performance measure has material limitations since 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 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 ~~loss~~income (loss) includes the financial statement impact of these items and is the most directly comparable ~~U.S.~~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.~~U.S, GAAP.
28

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

Three Months Ended
December 31,

Three Months Ended
June 30,

Nine Months Ended
June 30,

2020

2019

2021

2020

2021

2020

Net income (loss)
$ (1,162
)
$ 136
Net loss
$ (3,609
)
$ (1,701
)
$ (5,327
)
$ (742
)
Provision for (benefit from) income tax
(6
)
3 (1,176
)
6 (1,175
)
9
Interest expense and other, net
(6
)
-
Interest expense, net
9 2 7 3
Government grant income
(88
)
- - (88
)
-
Change in fair value of warrants
1,441 (1,101
)
4,161 1,843 6,020 (1,078
)
Amortization of intangible assets
218 237 285 208 726 678
Depreciation
12 16 14 12 38 40
Restructuring and acquisition related charges
210 5 568 1 862 373
Other amortization
2 5 7 4 13 13
Stock-based compensation
51 30 43 53 133 133
Adjusted EBITDA
$ 672 $ (669
)
$ 302 $ 428 $ 1,209 $ (571
)
36

Adjusted EBITDA increased year over year, which is primarily attributable to increases in revenues and cost control measures.

Liquidity and Capital Resources

Cash Flows

Operating Activities

Cash provided by (used in) operating activities was ~~$451~~$338 thousand for the ~~three~~nine months ended ~~December 31, 2020~~June 30, 2021 compared to ~~cash provided by operating activities of $110~~($227) thousand for the ~~three~~nine months ended ~~December 31, 2019.~~June 30, 2020. The change in cash provided by operating activities compared to the prior period was primarily due to ~~a decrease~~an increase in ~~loss from operations~~net income (loss) after consideration of non-cash items partially offset by decreases in accounts receivables and increases in ~~deferred revenue~~accounts payable and ~~accounts payable.~~accrued liabilities.

Investing Activities

Cash used in investing activities was ~~$41 thousand~~$4.4 million for the ~~three~~nine months ended ~~December 31, 2020~~June 30, 2021, which primarily related to net cash paid for the purchase of businesses during the second and wethird fiscal quarters of 2021. We did not have any cash flows from investing activities ~~during~~for the ~~three~~nine months ended ~~December 31, 2019.~~June 30, 2020.

Financing Activities

~~We did not have any cash flows from~~Cash provided by financing activities was $8.0 million for the nine months ended June 30, 2021 compared to $1.0 million for the nine months ended June 30, 2020. Cash provided by financing activities for the ~~three~~nine months ended ~~December 31,~~June 30, 2021 was primarily attributable to cash proceeds of approximately $8.5 million related to the issuance of common stock, Series D convertible preferred stock and stock and warrant exercises partially offset by re-payments of long-term debt assumed in connection with the acquisition of a business. Cash provided by financing activities for the nine months ended June 30, 2020 ~~and 2019.~~was attributable to the proceeds received under the Paycheck Protection Program.
29

Capital Resources and Liquidity Outlook

In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a ~~pandemic, and we~~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 ~~revenues,~~revenue, profitability and financial position is uncertain at this time.

In July 2021, the Company received approximately $7.4 million in cash relating the issuance of 1,850,630 shares of its common stock upon exercise of Series A Warrants, originally issued in March 2019, with an exercise price of $4 per share.
On ~~April 17, 2020,~~May 14, 2021, the Company offered and sold, in a registered direct offering, a total of 1,060,000 shares of its common stock at a price of $2.28 per share. On the same day, the Company entered into securities purchase agreements with certain institutional investors in connection with a ~~loan with~~private placement of 2,700 shares of newly designated Series D Convertible Preferred Stock at a price of $1,000 per share and warrants to purchase up to an aggregate ~~principal amount~~ of ~~$1,047,500, pursuant~~592,105 shares of common stock at an exercise price of $2.51 per share. The aggregate proceeds, net of cash paid for certain fees due to placement agents and transaction related expenses, of these two transactions that occurred on the ~~PPP. The Company has performed initial calculations for PPP loan forgiveness according to~~same day was $4.6 million. Beginning on the ~~terms and conditions~~six-month anniversary of the ~~U.S. Small Business Administration’s (the “SBA”) Loan Forgiveness Application (Revised January 8, 2021) and, based on such calculations, expects that~~original issuance date, the ~~PPP loan will be forgiven in full based on usage~~Series D Convertible Preferred Stockholders are entitled to receive cumulative dividends at the annual rate per share of ~~related proceeds over~~Preferred Stock as a ~~period less than 24 weeks. In addition, the Company determined it is probable the Company will meet all the conditions~~percentage of the ~~PPP loan forgiveness. However, there can be no assurances that~~stated value per share of 9% on the ~~Company will ultimately meet the conditions for forgiveness~~last day of the loan or that the Company will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part. As of December 31, 2020, the Company expended all loan proceeds on qualified expenses incurred during the period. The Company plans to submit the PPP loan forgiveness application in the near term.each calendar quarter.

On February 3,4, 2021, the Company ~~entered into~~offered and sold a ~~Share Purchase Agreement (the “Purchase Agreement”) with Woorank SRL (“Woorank”), an entity located in Belgium, to acquire all~~total of ~~the issued and outstanding~~880,000 shares of Woorank for an unconditional purchase price of approximately €3.3 million (the “Purchase Price”), which consists of (1) approximately €1.4 million paid to the sellers at closing, (2) approximately €1.9 million in assumed debt obligations, and (3) $80,000 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. Approximately €1.2 million of the debt to be assumed by the Company will be current debt with payment due within one year and has a weighted average interest rate of approximately 2.25%. The Purchase Agreement also provides for adjustments to the Purchase Price in the event of the achievement of certain revenue targets, as well as an additional earn-out provision for the achievement of certain operational goals. The consummation of the acquisition~~is conditioned upon certain customary closing conditions, as well as certain lenders of Woorank consenting to the acquisition.~~
~~Under certain conditions, up to approximately €0.6 million of the Purchase Price is payable, at the Company’s discretion, in shares of the Company’s~~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 ~~equal~~in a registered direct offering. The aggregate proceeds from this transaction, net of certain fees due to placement agents and transaction expenses, was approximately $2.5 million.
In connection with an acquisition of a business completed during the ~~greater~~2021 fiscal year third quarter, the Company recognized an obligation for a deferred payment representing a portion of ~~(i)~~ the ~~closing~~purchase price of ~~the Company’s common stock~~$2.0 million payable on ~~the date~~or before December 31, 2021 and contingent earn-out payments of ~~issuance or (ii) $3.38, the Minimum Price (as defined~~$2.2 million which are payable, no later than December 31, 2022, in the ~~Nasdaq Listing Rule 5635(d))~~event of achievement of certain revenue targets and operational goals.
37

In connection with an acquisition of a business completed during the 2021 fiscal year second quarter, the Company (1) assumed the outstanding long-term debt obligations of $2.1 million of the ~~Company’s common stock on February 1, 2021.~~acquiree of which $755 thousand is payable over the next twelve months, (2) issued a seller note of $352 thousand to one of the selling shareholders payable over a five-year period, (3) deferred a portion of the purchase price of $487 thousand which is expected to be paid within the next twelve months, and (4) recognized contingent earn-out payments of $1.6 million which are payable in the event of achievement of certain revenue targets and operational goals.
In prior years, the Company incurred operating losses and used cash to fund operations, develop new products, and build infrastructure. During its 2020 fiscal year, the Company executed an operating plan that reduced operating expenses that have not yet been realized for a full twelve-month period. The Company is continuing to maintain tight control over discretionary spending for the 2021 fiscal year. The Company believes it has sufficient revenue and working capital to support future growth.

On August 17, 2020, the Company entered into an arrangement with an investment banking firm to sell up to $4,796,090 of shares of the Company’s common stock, $0.001 par value. Refer to Note 810 under the caption, At the Market Offering, for a detailed description of this capital raising activity. There are no obligations for the sale or purchase of the Company’s common stock pursuant to this offering. Accordingly, there can be no assurances that the Company or investment banking firm will be successful in selling any portion of the shares available for sale pursuant to this offering. On December 18, 2020, the Company delivered written notice to Roth Capital Partners that it was suspending all offers and sales under the At the Market Offering Agreement (the “Suspension Period”), during which time the Company will not make any sales of Placement Shares. No other definitive agreements for additional financing are in place as of the issuance date of this Form 10-Q, and there can be no assurances that additional sources of financing could be obtained on terms that are favorable or acceptable to the Company and that revenue growth and improvement in cash flows can be achieved. No adjustments have been made to the accompanying consolidated financial statements as a result of this uncertainty.

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 aggregate proceeds from this transactions, net of certain fees due to placement agents and transaction expenses, was approximately $2.4 million. The Company currently intends to use the net proceeds from the sale of shares pursuant to the Offering for general corporate purposes, including general working capital.
In prior years, the Company incurred operating losses and used cash to fund operations, develop new products, and build infrastructure. During its 2020 fiscal year, the Company executed an operating plan that reduced operating expenses and has resulted in three consecutive quarters of operating income. The Company is continuing to maintain tight control over discretionary spending for the 2021 fiscal year. While the Company believes that it has sufficient revenue and working capital to support future growth no assurances can be made that the Company will not need additional financing to ensure its operations are adequately funded.
30
Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons, other than our operating leases and 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 referred to as structured finance or special purpose entities, which would have been established for 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.

Commitments and Contingencies

The Company leases its facilities in the United States and Canada. ~~We currently have no future commitments that extend past fiscal 2025.~~ The following summarizes our cash contractual obligations and commitments by maturity as of ~~December 31, 2020:~~June 30, 2021:
(in thousands)

Payment obligations by year

FY21

FY22

FY23

FY24

FY25

Total

FY21
(remaining)

FY22

FY23

FY24

FY25

Thereafter

Total

Operating leases
$ 142 $ 169 $ 173 $ 115 $ 84 $ 683 $ 58 $ 185 $ 173 $ 116 $ 71 $ 7 $ 610
Sublease income
(25
)
(101
)
(101
)
(34
)
- - (261
)
Net cash contractual obligations
$ 33 $ 84 $ 72 $ 82 $ 71 $ 7 $ 349

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 (“U.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 23, 2020.

The preparation of financial statements in accordance U.S. GAAP requires us to make estimates 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.

38

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 ~~implementation costs incurred in a cloud computing arrangement;~~cost of computer software to be sold, leased or otherwise marketed;

●
Accounting for goodwill and other intangible assets;

●
Accounting for Paycheck Protection Program; and

●
Accounting for stock-based compensation.
●
~~Accounting for stock-based compensation.~~
31

Revenue Recognition

The Company derives its revenue from two sources: (i) Software Licenses, which are comprised of subscription fees ("SaaS"), perpetual software licenses, and maintenance for post-customer support (“PCS”) on perpetual licenses and (ii) Digital Engagement Services, which are professional services to implement our products such as web development, digital strategy, information architecture and usability engineering, search. Customers who license the software on a subscription basis, which can be described as “Software as a Service” or “SaaS”, do not take possession of the software.

Revenue is recognized when control of these services is transferred to the Company’s customers, in an amount that reflects the consideration 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 amount it expects to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company’s subscription service arrangements are non-cancelable and do not contain refund-type provisions. Revenue is reported net of applicable sales and use tax.

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

•
Identify the customer contract;
•
Identify performance obligations that are distinct;

•
~~Identify performance obligations that are distinct;~~Determine the transaction price;

•
~~Determine~~Allocate the transaction ~~price;~~price to the distinct performance obligations; and

•
~~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.

39

Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement

In accordance with Accounting Standards Codification (“ASC”) 350-40, ~~Customer’s~~Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, we capitalize implementation costs incurred in a cloud computing arrangement that is a service contract and amortize those costs over the term of the arrangement.
32

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. The purpose of an impairment test is to identify any potential impairment by comparing the carrying value of a reporting unit including goodwill to its fair value. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.

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 impairment testing that have a 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.

Accounting for Stock-Based Compensation

At ~~December 31, 2020,~~June 30, 2021, we maintained two stock-based compensation plans, one of which has expired but still contains vested and unvested stock options. The two plans are more fully described in Note 1213 to the Consolidated Financial Statements of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 23, 2020.

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

We recognize stock-based compensation expense for share-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~~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.

40

Accounting for Paycheck Protection Program

U.S. GAAP does not contain authoritative accounting standards for forgivable loans provided by governmental entities to a for-profit entity. Absent authoritative accounting standards, interpretative guidance issued and commonly applied by financial statement preparers allows for the selection of accounting policies amongst acceptable alternatives. Based on the facts and circumstances, the Company determined it most appropriate to account for the PPP Loan proceeds as an in-substance government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance. Under the provisions of IAS 20, “a forgivable loan from government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.” IAS 20 does not define “reasonable assurance”; however, based on certain interpretations, it is analogous to “probable” as defined in FASB ASC 450-20-20 under U.S. GAAP, which is the definition the Company has applied to its expectations of PPP Loan forgiveness. Under IAS 20, government grants are recognized in earnings on a systematic basis over the periods in which the Company recognizes costs for which the grant is intended to compensate (i.e., qualified expenses). Further, IAS 20 permits for the recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses. The Company has elected to recognize government grant income separately within other income to present a clearer distinction in its consolidated financial statements between its operating income and the amount of net income resulting from the PPP Loan and subsequent expected forgiveness. The Company believes this presentation method promotes greater comparability amongst all periods presented.
Item 3.
~~Item 3.~~        Qualitative and Quantitative Disclosures About Market Risk.

Not required.

33
Item 4.
Controls and Procedures.

~~Item 4.          Controls and Procedures.~~
Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of ~~December 31, 2020.~~June 30, 2021.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter 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.

34

PART II – OTHER INFORMATION

Item1.
~~Item 1.~~        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 23, 2020.

Item2.
~~Item 2.~~          Unregistered Sales of Equity Securities and Use of Proceeds.

There were no sales of unregistered equity securities in the ~~three~~nine months ended ~~December 31, 2020.~~June 30, 2021.

35
Item 6.
~~Item 6.~~          Exhibits.

Exhibit No.
Description of Document
1.1
Underwriting Agreement (incorporated by reference to Exhibit 1.1 to our Form 8-K filed on October 19, 2018)
3.1
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)
3.3
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)
3.4
Amended and Restated By-laws (incorporated by reference to Exhibit ~~3.1~~3.2 to our current Report on Form 10-Q filed on February 17, 2015)
3.5
Certificate of Designations of the Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on October 19, 2018)
3.6
Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to our current Report on Form 8-K filed on December 14, 2018)
4.1
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)
10.1
Share Purchase Agreement, by and between the Company and Woorank SRL., dated February 2, 2021 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K Filed on February 3, 2021)
10.2
Form of Securities Purchase Agreement, dated February 4, 2021 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K Filed on February 9, 2021)
10.3
Form of Placement Agent Warrant, dated February 4, 2021 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K Filed on February 9, 2021)
10.4
Employment Agreement dated September 13, 2019 between Bridgeline Digital, Inc. and Roger “Ari” Kahn (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K Filed on September 19, 2018)
10.5
First Amendment to Roger “Ari” Kahn’s Employment Agreement dated February 25, 2021 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K Filed on March 2, 2021)
31.1
Certification required by Rule 13a-14(a) or Rule 15d-14(a).
31.2
Certification required by Rule 13a-14(a) or Rule 15d-14(a).
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).

43

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).
~~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*
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
**XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 and 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

3644

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 11,~~August 16, 2021
/s/    Roger Kahn
Date
Roger Kahn
President and Chief Executive Officer
(Principal Executive Officer)
~~February 11,~~August 16, 2021
/s/    Mark G. Downey
Date
Mark G. Downey
Chief Financial Officer
(Principal Financial and Accounting Officer)
~~Mark G. Downey~~
~~Chief Financial Officer~~
~~(Principal Financial and Accounting Officer)~~

3745

Delaware		52-2263942
State or other jurisdiction of incorporation or organization		IRS Employer Identification No.

100 Sylvan Road, Suite G700
Woburn, Massachusetts		01801
(Address of Principal Executive Offices)		(Zip Code)

Title of each class	Trading Symbols(s)	Name of each exchange on which registered
Common Stock, par value $0.001	BLIN	NASDAQ

	December 31, 2020			September 30, 2020			June 30, 2021			September 30, 2020
ASSETS

Current assets:
Cash and cash equivalents	$	1,277		$	861		$	4,768		$	861
Accounts receivable, net		863			665			1,325			665
Prepaid expenses		381			268			389			268
Other current assets		207			111			600			111
Total current assets		2,728			1,905			7,082			1,905
Property and equipment, net		234			238			248			238
Operating lease assets		593			294			533			294
Intangible assets, net		2,399			2,617			8,159			2,617
Goodwill		5,557			5,557			15,961			5,557
Other assets		92			49			80			49
Total assets	$	11,603		$	10,660		$	32,063		$	10,660

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt							$	755		$	0
Current portion of operating lease liabilities	$	163		$	96			176			96
Accounts payable		1,133			1,311			2,169			1,311
Accrued liabilities		931			599			754			599
Paycheck Protection Program Liability (Note 7)		-			88
Deferred revenue		1,739			1,511
Purchase price and contingent consideration payable (Note 15)								6,187			0
Paycheck Protection Program liability (Note 8)								0			88
Deferred revenues								2,796			1,511
Total current liabilities		3,966			3,605			12,837			3,605
Long-term debt, net of current portion								1,288			0
Operating lease liabilities, net of current portion		430			198			356			198
Warrant liabilities		3,927			2,486			8,823			2,486
Other long-term liabilities		25			15			425			15
Total liabilities		8,348			6,304			23,729			6,304

Commitments and contingencies

Stockholders’ equity:
Preferred stock - $0.001 par value; 1,000,000 shares authorized;
Series A Convertible Preferred stock:
264,000 shares authorized; no shares outstanding at June 30, 2021 and September 30, 2020								0			0
Series C Convertible Preferred stock:
11,000 shares authorized; 350 shares issued and outstanding at December 31, 2020 and September 30, 2020		-			-
Series A Convertible Preferred stock:
264,000 shares authorized; no shares outstanding at December 31, 2020 and September 30, 2020		-			-
11,000 shares authorized; 350 shares issued and outstanding at June 30, 2021 and September 30, 2020								0			0
Series D Convertible Preferred stock:
4,200 shares authorized; 4,200 shares issued and outstanding at June 30, 2021 and no shares outstanding at September 30, 2020 (liquidation preference of $4,200 at June 30, 2021)								0			0
Common stock - $0.001 par value; 50,000,000 shares authorized;
4,420,170 shares issued and outstanding at December 31, 2020 and September 30, 2020		4			4
6,801,243 shares at June 30, 2021 and 4,420,170 shares at September 30, 2020, issued and outstanding								7			4
Additional paid-in capital		78,367			78,316			87,663			78,316
Accumulated deficit		(74,745	)		(73,583	)		(78,910	)		(73,583	)
Accumulated other comprehensive loss		(371	)		(381	)		(426	)		(381	)
Total stockholders’ equity		3,255			4,356			8,334			4,356
Total liabilities and stockholders’ equity	$	11,603		$	10,660		$	32,063		$	10,660

	For the Three Months Ended December 31, 2020																			For the Three and Nine Months Ended June 30, 2021
														Accumulated																			Accumulated
	Preferred Stock				Common Stock				Additional					Other			Total			Preferred Stock				Common Stock				Additional					Other			Total
									Paid-in		Accumulated			Comprehensive			Stockholders’											*Paid-in*		*Accumulated*			*Comprehensive*			*Stockholders*’
	Shares		Amount		Shares		Amount		Capital		Deficit			Loss			Equity			*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			350	$	0		4,420,170	$	4	$	78,316	$	(73,583	)	$	(381	)	$	4,356
Stock-based compensation expense										51								51											51								51
Net loss												(1,162	)					(1,162	)												(1,162	)					(1,162	)
Foreign currency translation															10			10																10			10
Balance at December 31, 2020		350	$	-		4,420,170	$	4	$	78,367	$	(74,745	)	$	(371	)	$	3,255			350	$	0		4,420,170	$	4	$	78,367	$	(74,745	)	$	(371	)	$	3,255
Stock-based compensation expense																													39								39
Issuance of common stock – stock options exercised																									13,333				19								19
Issuance of common stock – warrants exercised																									48,612				140								140
Issuance of common stock, net of offering costs																									880,000		1		2,461								2,462
Issuance of stock in connection with acquisition of business																									29,433				99								99
Net loss																															(556	)					(556	)
Foreign currency translation																																		(69	)		(69	)
Balance at March 31, 2021																					350	$	0		5,391,548	$	5	$	81,125	$	(75,301	)	$	(440	)	$	5,389
Stock-based compensation expense																													43								43
Issuance of common stock – stock options exercised																									14,000				20								20
Issuance of common stock – warrants exercised																									335,695		1		2,176								2,177
Issuance of common stock, net of offering costs																									1,060,000		1		1,992								1,993
Issuance of Series D convertible preferred stock, net of offering costs																					2,700								1,377								1,377
Issuance of Series D convertible preferred stock in connection with acquisition of business																					1,500								930								930
Net loss																															(3,609	)					(3,609	)
Foreign currency translation																																		14			14
Balance at June 30, 2021																					4,550	$	0		6,801,243		7	$	87,663	$	(78,910	)	$	(426	)	$	8,334

		Page
Part I	Financial Information

Item 1.	Condensed Consolidated Financial Statements

	Condensed Consolidated Balance Sheets (unaudited) as of ~~December 31, 2020~~June 30, 2021 and September 30, 2020	4


	Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~	5


	Condensed Consolidated Statements of Comprehensive ~~Income/(Loss)~~Loss (unaudited) for the three and nine months ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~	6


	Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~	7


	Condensed Consolidated Statements of Cash Flows (unaudited) for the ~~three~~nine months ended ~~December 31,~~June 30, 2021 and 2020 ~~and 2019~~	89

	Notes to Unaudited Condensed Consolidated Financial Statements	910

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2331

Item 3.	Qualitative and Quantitative Disclosures About Market Risk	3341

Item 4.	Controls and Procedures	3441


PartII	Other Information

Item 1.	Legal Proceedings	3542

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	3542

Item 6.	Exhibits	3643

Signatures		37 45

	Three Months Ended December 31,						Three Months Ended June 30,						Nine Months Ended June 30,
	2020			2019			2021			2020			2021			2020
Net revenue:
Digital engagement services	$	837		$	1,096		$	821		$	713		$	2,543		$	2,708
Subscription and perpetual licenses		1,999			1,736			2,624			1,919			6,612			5,494
Total net revenue		2,836			2,832			3,445			2,632			9,155			8,202
Cost of revenue:
Digital engagement services		374			568			449			395			1,297			1,432
Subscription and perpetual licenses		583			790			744			684			1,919			2,190
Total cost of revenue		957			1,358			1,193			1,079			3,216			3,622
Gross profit		1,879			1,474			2,252			1,553			5,939			4,580
Operating expenses:
Sales and marketing		444			1,032			760			312			1,729			2,130
General and administrative		465			751			608			464			1,681			1,936
Research and development		349			390			625			402			1,453			1,218
Depreciation and amortization		232			258			306			224			777			731
Restructuring and acquisition related expenses		210			5			568			1			862			373
Total operating expenses		1,700			2,436			2,867			1,403			6,502			6,388
Income (loss) from operations		179			(962	)		(615	)		150			(563	)		(1,808	)
Interest expense and other, net		6			-			(9	)		(2	)		(7	)		(3	)
Government grant income (Note 7)		88			-
Government grant income (Note 8)								0			0			88			0
Change in fair value of warrant liabilities		(1,441	)		1,101			(4,161	)		(1,843	)		(6,020	)		1,078
Income (loss) before income taxes		(1,168	)		139
Loss before income taxes								(4,785	)		(1,695	)		(6,502	)		(733	)
Provision for (benefit from) income taxes		(6	)		3			(1,176	)		6			(1,175	)		9
Net income (loss)		(1,162	)		136
Net loss								(3,609	)		(1,701	)		(5,327	)		(742	)
Dividends on convertible preferred stock		-			(79	)		0			0			0			(106	)
Deemed dividend on amendment of Series A convertible preferred stock		-			(2,314	)		0			0			0			(2,314	)
Net loss applicable to common shareholders	$	(1,162	)	$	(2,257	)	$	(3,609	)	$	(1,701	)	$	(5,327	)	$	(3,162	)
Net loss per share attributable to common shareholders:
Basic net loss per share	$	(0.26	)	$	(0.81	)
Diluted net loss per share	$	(0.26	)	$	(0.81	)
Basic							$	(0.61	)	$	(0.44	)	$	(1.04	)	$	(0.97	)
Diluted							$	(0.61	)	$	(0.44	)	$	(1.04	)	$	(0.97	)
Number of weighted average shares outstanding:
Basic		4,420,170			2,798,475			5,939,021			3,876,677			5,117,586			3,264,734
Diluted		4,420,170			2,798,475			5,939,021			3,876,677			5,117,586			3,264,734

	As of June 30, 2021			As of September 30, 2020
Accounts receivable	$	1,351		$	698
Allowance for doubtful accounts		(26	)		(33	)
Accounts receivable, net	$	1,325		$	665

	As of December 31, 2020			As of September 30, 2020
Accounts receivable	$	904		$	698
Allowance for doubtful accounts		(41	)		(33	)
Accounts receivable, net	$	863		$	665

	As of December 31, 2020						As of September 30, 2020									As of June 30, 2021						As of September 30, 2020						At inception
	Montage Capital			Series C Preferred			Montage Capital			Series C Preferred			Montage Capital			Series C Preferred			Series D Preferred			Montage Capital			Series C Preferred				Series D Preferred
Volatility		87.5	%		88.2	%		84	%		84.1	%		87.3	%		92.0	%		86.5	%		84	%		84.1	%			86.3	%
Risk-free rate		0.34	%		0.20	%		0.28	%		0.20	%		0.70	%		0.50	%		0.90	%		0.28	%		0.20	%			0.90	%
Stock price	$	2.58		$	2.58		$	1.86		$	1.86		$	4.30		$	4.30		$	4.30		$	1.86		$	1.86			$	2.50

	As of December 31, 2020
	Level 1		Level 2		Level 3		Total

Liabilities:
Warrant liability - Montage	$	-	$	-	$	27	$	27
Warrant liability - Series A, B and C		-		-		3,900		3,900
Total Liabilities	$	-	$	-	$	3,927	$	3,927

	Three Months Ended December 31, 2020
Balance at beginning of period, October 1, 2020	$	2,486
Additions		-
Exercises		-
Adjustment to fair value		1,441
Balance at end of period, December 31, 2020	$	3,927

	As of June 30, 2021
	Level 1		Level 2		Level 3		Total

Liabilities:
Warrant liability - Montage	$	0	$	0	$	13	$	13
Warrant liability - Series A and C		0		0		6,225		6,225
Warrant liability – Series D		0		0		2,585		2,585
Total Liabilities	$	0	$	0	$	8,823	$	8,823

	Nine months ended June 30, 2021
Balance at beginning of period, October 1, 2020	$	2,486
Additions		0
Exercises		0
Adjustment to fair value		1,441
Balance at end of period, December 31, 2020	$	3,927
Additions		0
Exercises		(140	)
Adjustment to fair value		418
Balance at end of period, March 31, 2021	$	4,205
Additions		1,319
Exercises or payments		(862	)
Adjustment to fair value		4,161
Balance at end of period, June 30, 2021	$	8,823

	As of June 30, 2021		As of September 30, 2020
Domain and trade names	$	745	$	10
Customer related		5,730		1,500
Technology		1,684		1,107
Balance at end of period	$	8,159	$	2,617

	As of December 31, 2020		As of September 30, 2020		As of June 30, 2021		As of September 30, 2020
Compensation and benefits	$	313	$	368	$	447	$	368
Professional fees		28		29		59		29
Taxes		261		46		80		46
Insurance		126		-		16		0
Other		203		156		152		156
Balance at end of period	$	931	$	599	$	754	$	599

	As of June 30, 2021
Vendor loan payable (“Vendor loan”), accruing interest at 4.0% per annum. Principal and interest are payable in two lump-sum installments and the loan matures on February 1, 2023.	$	724
Term loan payable, accruing interest at fixed rates ranging between .99% to 1.5% per annum, payable in monthly or quarterly payments of interest and principal and matures on October 10, 2022.		497
Term loan payable, accruing interest at 1.3% per annum, payable in quarterly installments and matures on April 30, 2027.		470
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 5 installments and matures on January 1, 2026.		352
Total debt		2,043
Less current portion:		(755	)
Long-term debt, net of current portion	$	1,288

Fiscal year:
2021 (remaining)	$	119
2022		636
2023		461
2024		166
2025		166
Thereafter		495
Total commitments	$	2,043

	Issue						Issue
Type	Date	Shares		Price		Expiration	Date	Shares		Price		Expiration
Placement Agent	5/17/2016		1,736	$	187.50	5/17/2021
Placement Agent	5/11/2016		1,067	$	187.50	5/11/2021
Placement Agent	7/15/2016		880	$	230.00	7/15/2021	7/15/2016		880	$	230.00	7/15/2021
Investors	11/9/2016		4,271	$	175.00	5/9/2022	11/9/2016		4,271	$	175.00	5/9/2022
Director/Shareholder	12/31/2016		120	$	1,000.00	12/31/2021	12/31/2016		120	$	1,000.00	12/31/2021
Financing (Montage)	10/10/2017		1,327	$	132.50	10/10/2025	10/10/2017		1,327	$	132.50	10/10/2025
Director/Shareholder	12/31/2017		120	$	1,000.00	12/31/2021	12/31/2017		120	$	1,000.00	12/31/2021
Investors	10/19/2018		3,120	$	25.00	10/19/2023	10/19/2018		3,120	$	25.00	10/19/2023
Placement Agent	10/16/2018		10,000	$	31.25	10/16/2023	10/16/2018		10,000	$	31.25	10/16/2023
Investors	3/12/2019		159,236	$	4.00	10/19/2023	3/12/2019		162,345	$	4.00	10/19/2023
Investors	3/12/2019		2,556,875	$	4.00	9/12/2024	3/12/2019		2,228,125	$	4.00	9/12/2024
Investors	3/12/2019		2,556,875	$	4.00	9/12/2021	3/12/2019		13,738	$	0.05	9/12/2024
Placement Agent							3/12/2019		127,848	$	4.00	9/12/2024
Placement Agent							2/4/2021		58,169	$	3.88	2/4/2026
Investors	3/12/2019		69,295	$	0.05	9/12/2024	5/14/2021		592,106	$	2.51	11/16/2026
Placement Agent	3/12/2019		127,848	$	4.00	9/12/2024	5/14/2021		179,536	$	2.85	5/12/2026
Total			5,492,770						3,381,705

				June 30,
				2021			2020
Weighted-average fair value per share option	$	0.96		$	1.80		$	0.96
Expected life (in years)		6.0			6.0			6.0
Volatility		76.29	%		81.49	%		76.29	%
Risk-free interest rate		1.61	%		1.04	%		1.61	%
Dividend yield		0.0	%		0.0	%		0.0	%

	Stock Options					Stock Warrants					Stock Options					Stock Warrants
				Weighted					Weighted					Weighted					Weighted
				Average					Average					Average					Average
				Exercise					Exercise					Exercise					Exercise
	Options			Price		Warrants			Price		Options			Price		Warrants			Price

Outstanding, October 1, 2020		613,201		$	4.76		5,492,890		$	4.37		613,201		$	4.76		5,495,999		$	4.37
Granted		-			-		-			-		95,500			2.51		829,811			2.68
Exercised		-			-		-			-		(27,333	)		1.40		(384,307	)		3.43
Forfeited/Exchanged		(26,666	)		1.40		-			-		(26,447	)		2.34		(120	)		1,000
Expired		-			-		(120	)		1,000		(220	)		470.77		(2,559,678	)		4.20
Outstanding, December 31, 2020		586,535		$	4.92		5,492,770		$	4.35
Options vested and exercisable, December 31, 2020		233,699		$	10.11
Outstanding, June 30, 2021												654,701		$	4.46		3,381,705		$	4.16
Options vested and exercisable, June 30, 2021												223,786		$	9.84

	Three Months Ended December 31,
Revenues:	2020		2019
United States	$	2,286	$	2,405
International		550		427
	$	2,836	$	2,832

	Deferred Revenue				Deferred Revenue
	Current		Long Term		Current			Long Term
Balance as of October 1, 2020	$	1,511	$	15	$	1,511		$	15
Increase (decrease)		228		10
Increase						228			10
Balance as of December 31, 2020	$	1,739	$	25	$	1,739		$	25
Decrease						(73	)		(3	)
Balance as of March 31, 2021					$	1,666		$	22
Increase						1,130			0
Balance as of June 30, 2021					$	2,796		$	22

	Payments Operating Leases			Receipts Subleases		Net Leases
Fiscal year:
2021 (remaining)	$	58		$	25	$	33
2022		185			101		84
2023		173			101		72
2024		116			34		82
2025		71			0		71
Thereafter		7			0		7
Total lease commitments	$	610		$	261	$	349
Less: Amount representing interest		(78	)
Present value of lease liabilities	$	532
Less: current portion		(176	)
Operating lease liabilities, net of current portion	$	356

	Payments Operating Leases		Receipts Subleases		Net Leases
Fiscal year:
2021	$	96	$	101	$	(5	)
2022		82		101		(19	)
2023		85		101		(16	)
2024		87		36		51
2025		88		0 -		88
Total lease commitments	$	438	$	339	$	99

	Woorank		Hawk Search		Total
Cash paid at or in close proximity to closing	$	285	$	4,800	$	5,085
Future deferred payments		426		2,000		2,426
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)		1,617		2,190		3,807
Total consideration paid	$	2,779	$	9,920	$	12,699

	Three Months Ended December 31, 2020
Condensed Consolidated Statement of Operations:
Operating lease cost	$	18
Variable lease cost		14
Less: Sublease income, net		(25	)
Total	$	7

	Woorank		Hawk Search
	(in years)
Acquired software		5		5
Customer relationships		8		10
Domain and trade names		12		15

	Operating Leases			Receipts Subleases		Net Leases
Fiscal year:
2020 (remaining)	$	142		$	76	$	66
2021		169			101		68
2022		173			101		72
2023		115			34		81
2024		84			-		84
Total lease commitments	$	683		$	312	$	371
Less: Amount representing interest		(90	)
Present value of lease liabilities	$	593
Less: current portion		(163	)
Operating lease liabilities, net of current portion	$	430

(in thousands)	Three Months Ended December 31,
							$			%
	2020			2019			Change			Change
Revenue
Digital engagement services	$	837		$	1,096		$	(259	)		(24	%)
% of total net revenue		30	%		39	%
Subscription and perpetual licenses		1,999			1,736			263			15	%
% of total net revenue		70	%		61	%
Total net revenue		2,836			2,832			4			0	%

Cost of revenue
Digital engagement services		374			568			(194	)		(34	%)
% of digital engagement services revenue		45	%		52	%
Subscription and perpetual licenses		583			790			(207	)		(26	%)
% of subscription and perpetual revenue		29	%		46	%
Total cost of revenue		957			1,358			(401	)		(30	%)
Gross profit		1,879			1,474			405			27	%
Gross profit margin		66	%		52	%

Operating expenses
Sales and marketing		444			1,032			(588	)		(57	%)
% of total revenue		16	%		36	%
General and administrative		465			751			(286	)		(38	%)
% of total revenue		16	%		27	%
Research and development		349			390			(41	)		(11	%)
% of total revenue		12	%		14	%
Depreciation and amortization		232			258			(26	)		(10	%)
% of total revenue		8	%		9	%
Restructuring and acquisition-related expenses		210			5			205			4,100	%
% of total revenue		7	%		0	%
Total operating expenses		1,700			2,436			(736	)		(30	%)


Income (Loss) from operations		179			(962	)		1,141			(119	%)
Interest expense, net		6			-			6			100	%
Government grant income		88			-			88			100	%
Change in fair value of warrant liabilities		(1,441	)		1,101			(2,542	)		(231	%)
Income (loss) before income taxes		(1,168	)		139			(1,307	)		(940	%)
Provision for (benefit from) income taxes		(6	)		3			(9	)		(300	%)

Net income/(loss)	$	(1,162	)	$	136		$	(1,298	)		(954	%)

Non-GAAP Measure:
Adjusted EBITDA	$	672		$	(669	)	$	1,341			(200	%)

(in thousands)

Payment obligations by year	FY21		FY22		FY23		FY24		FY25		Total		FY21 (remaining)			FY22			FY23			FY24			FY25		Thereafter		Total
Operating leases	$	142	$	169	$	173	$	115	$	84	$	683	$	58		$	185		$	173		$	116		$	71	$	7	$	610
Sublease income														(25	)		(101	)		(101	)		(34	)		-		-		(261	)
Net cash contractual obligations													$	33		$	84		$	72		$	82		$	71	$	7	$	349

	●	Accounting for ~~implementation costs incurred in a cloud computing arrangement;~~cost of computer software to be sold, leased or otherwise marketed;

	●	Accounting for stock-based compensation.
	●	~~Accounting for stock-based compensation.~~

	•	Identify the customer contract;
	•	Identify performance obligations that are distinct;
	•	~~Identify performance obligations that are distinct;~~Determine the transaction price;
	•	~~Determine~~Allocate the transaction ~~price;~~price to the distinct performance obligations; and
	•	~~Allocate the transaction price to the distinct performance obligations; and~~
	•	Recognize revenue as the performance obligations are satisfied.


1.1		Underwriting Agreement (incorporated by reference to Exhibit 1.1 to our Form 8-K filed on October 19, 2018)

3.1		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)

3.3		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)

3.4		Amended and Restated By-laws (incorporated by reference to Exhibit ~~3.1~~3.2 to our current Report on Form 10-Q filed on February 17, 2015)

3.5		Certificate of Designations of the Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on October 19, 2018)

3.6		Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to our current Report on Form 8-K filed on December 14, 2018)

4.1		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)

10.1		Share Purchase Agreement, by and between the Company and Woorank SRL., dated February 2, 2021 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K Filed on February 3, 2021)

10.2		Form of Securities Purchase Agreement, dated February 4, 2021 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K Filed on February 9, 2021)

10.3		Form of Placement Agent Warrant, dated February 4, 2021 (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K Filed on February 9, 2021)

10.4		Employment Agreement dated September 13, 2019 between Bridgeline Digital, Inc. and Roger “Ari” Kahn (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K Filed on September 19, 2018)

10.5		First Amendment to Roger “Ari” Kahn’s Employment Agreement dated February 25, 2021 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K Filed on March 2, 2021)

31.1		Certification required by Rule 13a-14(a) or Rule 15d-14(a).

31.2		Certification required by Rule 13a-14(a) or Rule 15d-14(a).

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).