UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
X ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2021
OR
☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission File Number 333-139298
Bridgeline Digital, Inc.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of incorporation or organization
52-2263942
IRS Employer Identification No.
52-2263942
IRS Employer Identification No.
100 Sylvan Road, Suite G700
Woburn, Massachusetts
(Address of Principal Executive Offices)
01801
(Zip Code)
(781) 376-5555
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.001 par value per share
Trading Symbol
BLIN
Name of exchange on which registered
The NASDAQ Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No X
Indicate by check mark if the registrant in not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No X
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (“Exchange
Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit. Yes X No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer smaller reporting company, or emerging growth company. See
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer X
Smaller reporting company X
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial
accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No X
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $13,916,252 based on the closing price of $2.89
of the issuer’s common stock, par value $0.001 per share, as reported by the NASDAQ Stock Market on March 31, 2021.
On December 15, 2021, there were 10,187,128 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
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Forward Looking Statement
All statements included in this Annual Report on Form 10-K, other than statements or characterizations of historical fact, are forward-looking statements. These “forward-
looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, are based on our current expectations, estimates and projections about our
industry, management's beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as
"anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar
expressions, and variations or negatives of these words. These statements appear in a number of places in this Form 10-K 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 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, 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’ 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 herein 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” or “Bridgeline Digital” we mean Bridgeline Digital, Inc.
PART I
Item 1. Business.
Overview
Bridgeline Digital is a marketing technology software company that helps companies grow online revenue and share information with customers, partners and employees.
Bridgeline’s Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics.
Bridgeline’s Unbound platform, combined with its professional services, assists customers in driving lead generation, increasing revenue, improving customer service and loyalty,
enhancing employee knowledge, and reducing operational costs.
Our Unbound Franchise product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale.
OrchestraCMS is the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners,
and employees; uniquely combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals,
intranets, websites, applications and services.
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Celebros Search, is a commerce-oriented site search product that provides for Natural Language Processing with artificial intelligence to present relevant search results based on
long-tail keyword searches in seven languages.
Woorank SRL (“Woorank”) is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of the site’s technical, on-page and off-page SEO. Woorank’s clear,
actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.
Hawk Search, Inc. (“Hawk Search”) is a search, recommendation, and personalization application, built for marketers, merchandisers and developers that enhances, normalizes and
enriches a customer's site search and browse experience. Hawk Search leverages advanced artificial intelligence, machine learning and industry leading analyzers to deliver
accurate results from federated data sources.
All of Bridgeline’s software is available through a cloud-based software as a service (“SaaS”) model, whose flexible architecture provides customers hosting and support.
Additionally, Unbound and Hawk Search are available via a traditional perpetual licensing business model, in which the software resides on a dedicated infrastructure in either the
customer’s facility, or manage-hosted by Bridgeline via a cloud-based hosted services model.
Bridgeline Digital was incorporated under the laws of the State of Delaware on August 28, 2000.
Locations
The Company’s corporate office is located in Woburn, Massachusetts. The Company maintains regional field offices serving the following geographical locations: Boston,
Massachusetts; Woodbury, New York; Chicago, Illinois; Raleigh, North Carolina; Ontario, Canada; and Brussels, Belgium.
The Company has four wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd., located in Bangalore, India; Bridgeline Digital Canada, Inc., located in Ontario, Canada; Hawk Search
Inc. located in Illinois, United States and Bridgeline Digital Belgium BV, located in Brussels, Belgium.
Products and Services
Products
Bridgeline Unbound Platform
Subscription and Perpetual Licenses
Bridgeline Unbound is available as either a SaaS or perpetual license and is reported as subscription and perpetual licenses in the accompanying consolidated financial statements.
The Bridgeline Unbound platform provides a unified common set of shared software modules that are critical to websites, on-line stores, intranets, extranets, and portals. The
Bridgeline Unbound platform empowers companies and developers to create websites, web applications and online stores with advanced business logic, state-of-the-art graphical
user interfaces, and improved quality.
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The Bridgeline Unbound suite of products includes:
●
●
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Bridgeline Unbound Experience Manager is a suite that includes Bridgeline Content Manager, Bridgeline Unbound Marketing, and Bridgeline Unbound Insights that
empowers marketers to easily create personalized customer journeys. Each Unbound implementation incorporates a set of flexible templates and modules to accelerate
implementation speed and reduce costs.
Bridgeline Unbound Content Manager is a Digital Experience Platform (“DXP”) that allows non-technical users to create, edit, and publish content via a browser-
based interface. The advanced, easy-to-use interface allows businesses to keep content and promotions fresh, whether for a public commercial site or a company
intranet. Bridgeline Unbound Content Manager handles the presentation of content based on a sophisticated indexing and security scheme that includes
management of front-end access to online applications. The system provides a library to manage permissions, versions and organization of different content types,
including multimedia files and images with advanced workflows.
Bridgeline Unbound Commerce is an online B2B and B2C Commerce solution that allows users to sell products and services online to both domestic and
international markets. The customizable dashboard provides customers with a real-time overview of the performance of their online stores, including sales trends,
demographics, profit margins, inventory levels, inventory alerts, fulfillment deficiencies, average check out times, potential production issues, and delivery times.
Bridgeline Unbound Commerce also provides backend access to payment and shipping gateways.
●
Bridgeline Unbound Marketing is a Marketing Automation Platform (“MAP”) that helps marketers drive more qualified traffic to their sites through personalized and
highly targeted marketing automation flows. Bridgeline Unbound Marketing's feature set includes end-to-end campaign administration - from drag-and-drop landing
pages with our flexible form builder to behavior-based drip email campaigns, add-on dynamic contact and distribution list management, event-based response
marketing, wizard-driven email campaign creation, and built-in goal tracking tools to measure campaign effectiveness and ROI.
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Bridgeline Unbound Insights provides the ability to manage, measure and optimize web properties by recording detailed events and to subsequently mine data within
a web application for statistical analysis. Through user-definable web reports, Bridgeline Unbound Insights provides deep insight into areas like visitor usage,
content access, age of content, actions taken, event triggers, and reports on both client and server-side events.
Bridgeline Unbound Social is a social media management solution that empowers customers to easily set up customized watch lists tailored by social network, topic,
or author to monitor relevant conversations happening on social media, popular websites and blogs. Customers can also prioritize and engage in conversations
across the web and leverage the power of publishing content to department, dealer, franchise or other social media accounts.
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Bridgeline Unbound Translate is a translation product that allows companies with web sites in multiple languages to create, approve, and publish content with
automated and human translation services.
Bridgeline Unbound Franchises is a web content management and eCommerce platform built specifically to support the needs of multi-unit organizations and
franchises. Bridgeline Unbound Franchise acts as a control center for a large organization’s distributed websites, enabling local content publishing that is managed
through a workflow approval process that gives corporate marketing control of the brand and message.
Bridgeline also provides an alternative Digital Experience Platform that is 100% native on Salesforce called OrchestraCMS. This software is available as a SaaS license and is
reported as subscription licenses in the accompanying consolidated financial statements.
●
OrchestraCMS by Bridgeline is built 100% native on Salesforce. OrchestraCMS helps Salesforce customers create digital experiences for their customers, partners,
and employees - combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media,
portals, intranets, websites, applications and services.
OrchestraCMS also has a rich set of APIs to enable development of custom solutions, third-party integrations and delivery of digital transformation initiatives on the
Salesforce platform, helping customers drive deeper engagement and collaboration, increase efficiency and minimize risk.
Bridgeline offers an enterprise site search solution with its Celebros Search product. This software is available as a SaaS license and is reported as subscription licenses in the
accompanying consolidated financial statements.
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Celebros Search by Bridgeline is a commerce-oriented, site search product that provides for Natural Language Processing and incorporates artificial intelligence to
present relevant search results based on long-tail keyword searches. Celebros Search is a semantic search and conversion technology that is available in seven
languages. Celebros Search has plug-ins into the Bridgeline Unbound Commerce offering in addition to many other third-party Commerce platforms such as Magento,
Shopify, Hybris and more.
Hawk Search by Bridgeline, is a search, recommendation, and personalization application, built for marketers, merchandisers and developers that enhances,
normalizes and enriches a customer's site search and browse experience. Hawk Search leverages advanced artificial intelligence, machine learning and industry
leading analyzers to deliver accurate results from federated data sources.
Woorank by Bridgeline is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of the site’s technical, on-page and off-page SEO.
Woorank’s clear, actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.
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Services
Revenue from Digital Engagement Services
Revenue from all digital engagement services is reported as ‘Digital engagement services’ in the accompanying consolidated financial statements.
Digital Engagement Services
Digital engagement services address specific customer needs such as digital strategy, web design and web development, usability engineering, information architecture, and SEO
for their mission critical website, intranet or online store. Application development engagements are often sold as part of a multiple element arrangement that includes our software
products, hosting arrangements (i.e., Managed Service Hosting) that provide for the use of certain hardware and infrastructure through our partnership with Amazon Web Services
or professional services retained after completion of the application development.
Sales and Marketing
Overview
Bridgeline employs a direct sales force which focuses its efforts on selling to mid-sized and large companies. These companies are generally categorized in the following vertical
markets: financial services, franchise/dealer networks, retail brand names, health services and life sciences, high technology (software and hardware), credit unions and regional
banks, as well as associations and foundations.
We also pursue strategic alliances and partnerships to enhance the sales and distribution opportunities of Bridgeline intellectual property.
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Organic Growth from Existing Customer Base
Our business development professionals seek ongoing business opportunities within our existing customer base and within other operating divisions or subsidiaries of our
existing customer base.
New Customer Acquisition
We identify customers within our vertical expertise (financial services, franchise/dealer networks, retail brand names, health services and life sciences, high technology (software
and hardware), credit unions and regional banks, as well as associations and foundations). Our business development professionals create an annual territory plan identifying
various strategies to engage our target customers.
Customer Retention Programs
We use digital marketing capabilities when marketing to our customer base. We make available via email and on our website Bridgeline-authored white papers, featured case
studies, and other Company-related announcements. We also host educational on-line webinars, face-to-face seminars and training.
New Lead Generation Programs
We generate targeted leads and new business opportunities by leveraging on-line marketing strategies. We receive leads by maximizing the SEO capabilities of our own website.
Through our website, we provide various educational whitepapers and promote upcoming on-line seminars. In addition, we utilize banner advertisements on various independent
newsletters and paid search advertisements that are linked to our website. We also participate and exhibit at targeted events.
Social Media Programs
We market Bridgeline’s upcoming events, white papers, blogs, case studies, digital product tutorials, announcements, and related articles frequently on leading social media
platforms such as Twitter, LinkedIn, YouTube and Facebook.
Acquisitions
On March 1, 2021, the Company, pursuant to a Share Purchase Agreement (the “Woorank Purchase Agreement”), acquired all of the issued and outstanding shares of Woorank,
an entity located in Belgium. The total purchase price of $2.4 million consisted of (1) $285 thousand in cash paid at closing or in close proximity to closing, (2) $376 thousand of
deferred cash payable in installments post-closing, (3) $352 thousand seller note issued to one of the selling shareholders, and (4) amounts payable to one selling shareholder as
consideration for assistance with certain matters related to the acquisition for a period of one year from the closing date of the acquisition. The Woorank Purchase Agreement also
provides for additional consideration, in the event of achievement of certain revenue targets and operational goals, to the selling shareholders pursuant to three separate earn-out
provisions. The acquisition date fair value of contingent consideration was $1.3 million. 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,
with an aggregate issuance date fair value of $99 thousand, for a portion of the purchase price.
On May 28, 2021, the Company, pursuant to a Share Purchase Agreement (the “Hawk Purchase Agreement”), acquired all of the issued and outstanding shares of Hawk Search, an
Illinois corporation. The total purchase price of $9.9 million consisted of (1) $4.8 million initial cash payment at closing, (2) issuance of 1,500 shares of the Company’s newly
designated Series D Preferred Stock with an aggregate issuance date fair value of $930, and (3) $2,000 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 acquisition date fair value of contingent consideration was $2.2 million.
There were no acquisitions during the fiscal year ended September 30, 2020.
Research and Development
We have research and development activities focusing on creating new products and innovations, product enhancements, and funding future market opportunities. Research and
development expenses were approximately $2.4 million or 18% of revenues and $1.6 million or 15% of revenues during fiscal 2021 and 2020, respectively.
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Employees
Human Capital
Bridgeline is dedicated to creating the best digital presence for our customers, and our employees are critical to achieving this mission. In order to continue to design innovative
experiences and products, and compete and succeed in our highly competitive and rapidly evolving market, we continue to attract and retain experienced and talented employees.
As part of these efforts, we strive to offer a competitive compensation and benefits program, foster a community where everyone feels included and empowered to do to their best
work.
As of September 30, 2021, we had approximately 60 full-time employees. Of our full-time employees, approximately 48 were in the United States and the remaining were in our
various international locations. None of our employees are represented by a labor union or covered by a collective bargaining agreement.
Compensation and Benefits Program
Our compensation program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of
our strategic goals and create long-term value for our stockholders. We provide employees with compensation packages that include base salary, incentive bonuses, and long-term
stock option awards tied to the value of our stock price. We believe that a compensation program with both short-term and long-term awards provides fair and competitive
compensation and aligns employee and stockholder interests, including by incentivizing business and individual performance (pay for performance), motivating based on long-
term company performance and integrating compensation with our business plans. In addition to cash and equity compensation, we also offer employees benefits such as life and
health (medical, dental & vision) insurance, paid time off, paid parental leave, and a 401(k) plan.
Customers
We primarily serve the following vertical markets that we believe have a history of investing in information technology enhancements and initiatives:
● Financial Services
● Franchise/Dealer Networks
● Retail Brand Names
● Health Services and Life Sciences
● High Technology (software and hardware)
● Credit Unions and Regional Banks
● Associations and Foundations
For the year ended September 30, 2021, no customer exceeded 10% of the Company’s total revenues. For the year ended September 30, 2020, one customer generated approximately
12% of our revenue.
Competition
The markets for our products and services, including software for web content management, eCommerce platform software, eMarketing software, web analytics software and digital
engagement services are highly competitive, fragmented, and rapidly changing. Barriers to entry in such markets remain relatively low. The markets are significantly affected by
new product introductions and other market activities of industry participants. With the introduction of new technologies and market entrants, we expect competition to persist
and intensify in the future.
We believe we compete adequately with others and we distinguish ourselves from our competitors in a number of ways, including:
● We believe our competitors generally offer their web application software as a single point of entry type product (such as content management only, or commerce only) as
compared to the deeply integrated approach provided by Bridgeline’s platforms.
● We believe our competitors can generally only deploy their solutions in either a Cloud/SaaS environment or in a dedicated server environment. Bridgeline’s platform’s
architecture is flexible and some are capable of being deployed in either a Cloud/SaaS or dedicated server environment.
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● We believe the majority of our competitors do not provide interactive technology development services that complement their software products. Our ability to develop
mission critical websites and online stores on our own deeply integrated platforms provides a quality end-to-end solution that distinguishes us from our competitors.
● We believe the interface of the Bridgeline platforms have been designed for ease of use without substantial technical skills.
● Finally, we believe the Bridgeline platforms offers a competitive price-to-functionality ratio when compared to our competitors.
Patents, Trademarks, and Trade Secrets
We own a number of trade secrets, licenses and trademarks related to Bridgeline products and services and their loss could have a material adverse effect on the Company. We do
not own any patents. For additional information see Risk Factor – If we are unable to protect our proprietary technology and other intellectual property rights, our ability to
compete in the marketplace may be substantially reduced.
Available Information
This Annual Report on Form 10-K, as well as our quarterly reports on Form 10-Q and current reports on Form 8-K, along with any amendments to those reports, are made available
upon request, on our website www.bridgeline.com as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange
Commission (“SEC”). Copies of the following are also available through our website on the “About – Investor Relations” page and are available in print to any shareholder who
requests it:
● Code of Business Ethics
● Committee Charters for the following Board Committees:
o Nominating and Corporate Governance Committee
o Audit Committee
o Compensation Committee
The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information regarding
the SEC’s Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information
statements, and other information and can be found at http://www.sec.gov.
Item 1A. Risk Factors
This report contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. The cautionary
statements made in this report are applicable to all forward-looking statements wherever they appear in this report. Our actual results could differ materially from those
discussed herein. In addition to the risks discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our business is subject to the
risks set forth below.
We operate in a rapidly changing environment that involves certain risks and uncertainties, some of which are beyond our control. The risks described below are not the only
risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business,
financial condition and/or operating results.
Risk Factors
We have incurred significant net losses since inception and expect to continue to incur operating losses for the foreseeable future. We may never achieve or sustain
profitability, which would depress the market price of our common stock and could cause you to lose all or a part of your investment.
We have incurred a net loss of $6.7 million for the year ended September 30, 2021, which includes expenses related to the change in the fair value of warrant liabilities. Since our
inception in 2000 through fiscal 2019, we have incurred net losses. As of September 30, 2021, we had an accumulated deficit of approximately $82.3 million. Our prior losses have
had an adverse effect on our stockholders’ equity and working capital. Because of the numerous risks and uncertainties associated with our business, we are unable to predict the
extent of any future losses or when we will become profitable. If we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.
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We may require additional financing to execute our business plan and further expand our operations.
We may require additional funding to further expand our operations. We depend on financing sources, either debt or equity, or a combination thereof, which may not be available
to us in a timely basis if at all, or on terms acceptable to us. Further, our ability to obtain financing may be limited by rules of the NASDAQ Capital Market.
In July 2021, the Company received approximately $5.8 million in cash relating the issuance of 1,543,779 shares of its common stock upon exercise of Series A Warrants, originally
issued in March 2019, with an exercise price of $4.00 per share.
On 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 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 of 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 same day was
$4.6 million.
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 transaction, net of certain fees due to placement agents and transaction
expenses, was approximately $2.5 million.
In connection with the acquisition of Hawk Search completed during the third quarter of fiscal year 2021, the Company recognized an obligation for a deferred payment
representing a portion of the purchase price of $2.0 million payable on or before December 31, 2021, and contingent earn-out payments of $2.2 million (acquisition date fair value)
which are payable, no later than December 31, 2022, and may vary in amount in the event of achievement of certain revenue targets and operational goals.
In connection with the acquisition of Woorank completed during the second quarter of fiscal year 2021, the Company (1) assumed the outstanding long-term debt obligations of
$2.1 million of the acquiree of which $732 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 $376 thousand which is expected to be paid within the next twelve months, and (4) recognized contingent
earn-out payments of $1.3 million (acquisition date fair value) which are payable in the event of achievement of certain revenue targets and operational goals.
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. 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. On August 17, 2021, the ATM offering expired unused.
If we fail to obtain acceptable funding when needed, we may not have sufficient resources to fund our operations, and this would have a material adverse effect on our business.
A reduction in our license renewal rate could reduce our revenue.
Our customers have no obligation to renew their subscription licenses, and some customers have elected not to do so. Our license renewal rates may decline or fluctuate as a result
of a number of factors, including customer dissatisfaction with our products and services, our failure to update our products to maintain their attractiveness in the market, or
constraints or changes in budget priorities faced by our customers. A decline in license renewal rates could cause our revenue to decline, which would have a material adverse
effect on our operations.
We are dependent upon a small number of major customers, and a failure to renew our licenses with such customers could reduce our revenue.
Our customers have no obligation to renew their subscription licenses, and some customers have elected not to do so, including a number of our large customers in the recent two
fiscal years. Our license renewal rates may decline or fluctuate as a result of a number of factors, including customer dissatisfaction with our products and services, our failure to
update our products to maintain their attractiveness in the market, or constraints or changes in budget priorities faced by our customers. A decline in license renewal rates could
cause our revenue to decline, which would have a material adverse effect on our operations.
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The length of our sales cycle can fluctuate significantly, which could result in significant fluctuations in license revenues being recognized from quarter to quarter.
The decision by a customer to purchase our products often involves the development of a complex implementation plan across a customer’s business. This process often requires
a significant commitment of resources both by prospective customers and us. Given the significant investment and commitment of resources required in order to implement our
software, it may take several months, or even several quarters, for marketing opportunities to materialize. If a customer’s decision to purchase our products is delayed, or if the
installation of our products takes longer than originally anticipated, the date on which we may recognize revenue from these sales would be delayed. Such delays and fluctuations
could cause our revenue to be lower than expected in a particular period, and we may not be able to adjust our costs quickly enough to offset such lower revenue, potentially
negatively impacting our results of operations.
We depend on a third-party cloud platform provider to host our Bridgeline SaaS environment and managed services business and if we were to experience a disruption in
service, our business and reputation could suffer.
We host our SaaS and managed hosting customers via a third-party, Amazon Web Services. If upon renewal date our third-party provider does not provide commercially
reasonable terms, we may be required to transfer our services to a new provider, such as a data center facility, and we may incur significant equipment costs and possible service
interruption in connection with doing so. Service interruptions might reduce our revenue, cause us to issue credits or refunds to customers, subject us to potential liability, or harm
our renewal rates.
If our security measures or those of our third-party cloud computing platform provider are breached and unauthorized access is obtained to a customer’s data, our services
may be perceived as not being secure, and we may incur significant legal and financial exposure and liabilities.
Security breaches could expose us to a risk of loss of our customers’ information, litigation and possible liability. While we have security measures in place, they may be breached
as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise and result in someone obtaining unauthorized
access to our IT systems, our customers’ data or our data, including our intellectual property and other confidential business information. Because the techniques used to obtain
unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to implement adequate
preventative measures. In addition, our customers may authorize third-party technology providers to access their customer data, and some of our customers may not have
adequate security measures in place to protect their data that is stored on our services. Because we do not control our customers or third-party technology providers, or the
processing of such data by third-party technology providers, we cannot ensure the integrity or security of such transmissions or processing. Malicious third parties may also
conduct attacks designed to temporarily deny customers access to our services. Any security breach could result in a loss of confidence in the security of our services, damage
our reputation, negatively impact our future sales, disrupt our business and lead to legal liability.
We rely on encryption and authentication technology from third parties to provide the security and authentication to effectively secure transmission of confidential information,
including consumer payment card numbers. Such technology may not be sufficient to protect the transmission of such confidential information or these technologies may have
material defects that may compromise the confidentiality or integrity of the transmitted data. Any imposition of liability, particularly liability that is not covered by insurance, or is
in excess of insurance coverage, could harm our reputation, business and operating results. We might be required to expend significant capital and other resources to protect
further against security breaches or to rectify problems caused by any security breach, which, in turn, could divert funds available for corporate growth and expansion or future
acquisitions.
Our operating lease commitments may adversely affect our financial condition and cash flows from operations.
We have contractual commitments in operating lease arrangements. Our ability to meet our expenses and contractual commitments will depend on our future performance, which
will be affected by financial, business, economic, regulatory and other factors. We will not be able to control many of these factors, such as economic conditions and governmental
regulations. Further, our operations may not generate sufficient cash to enable us to service our working capital needs or contractual obligations resulting from our leases. If we are
at any time unable to generate sufficient cash flows from operations, we may be required to obtain additional sources of financing. There can be no assurance that we would be
able to successfully renegotiate such terms, or that additional financing could be obtained on terms that are favorable or acceptable to us. Refer to the Risk Factor - We may require
additional financing to execute our business plan and further expand our operations, for a description of capital raising activities.
We face intense and growing competition, which could result in price reductions, reduced operating margins and loss of market share.
We operate in a highly competitive marketplace and generally encounter intense competition to create and maintain demand for our services and to obtain service contracts. If we
are unable to successfully compete for new business and license renewals, our revenue growth and operating margins may decline. The market for our platforms and web
development services are competitive and rapidly changing. Barriers to entry in such markets are relatively low. With the introduction of new technologies and market entrants, we
expect competition to intensify in the future. Some of our principal competitors offer their products at a lower price, which may result in pricing pressures. Such pricing pressures
and increased competition generally could result in reduced sales, reduced margins or the failure of our product and service offerings to achieve or maintain more widespread
market acceptance.
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The web development/services market is highly fragmented with a large number of competitors and potential competitors. Our prominent public company competitors are Big
Commerce, Salesforce (Commerce Cloud), Optimizely (Episerver), Hubspot, Sitecore, and Adobe (Experience Manager). We face competition from customers and potential
customers who develop their own applications internally. We also face competition from potential competitors that are substantially larger than we are and who have significantly
greater financial, technical and marketing resources, and established direct and indirect channels of distribution. As a result, they are able to devote greater resources to the
development, promotion and sale of their products than we can.
If our products fail to perform properly due to undetected errors or similar problems, our business could suffer, and we could face product liability exposure.
We develop and sell complex web engagement software which may contain undetected errors or bugs. Such errors can be detected at any point in a product’s life cycle but are
frequently found after introduction of new software or enhancements to existing software. We continually introduce new products and new versions of our products. Despite
internal testing and testing by current and potential customers, our current and future products may contain serious defects. If we detect any errors before we ship a product, we
might have to delay product shipment for an extended period of time while we address the problem. We might not discover software errors that affect our new or current products
or enhancements until after they are deployed, and we may need to provide enhancements to correct such errors. Therefore, it is possible that, despite our testing, errors may occur
in our software. These errors could result in the following:
● harm to our reputation;
● lost sales;
● delays in commercial release;
● product liability claims;
● contractual disputes;
● negative publicity;
● delays in or loss of market acceptance of our products;
● license terminations or renegotiations; or
● unexpected expenses and diversion of resources to remedy errors.
Furthermore, our customers may use our software together with products from other companies. As a result, when problems occur, it might be difficult to identify the source of the
problem. Even when our software does not cause these problems, the existence of these errors might cause us to incur significant costs, divert the attention of our technical
personnel from our product development efforts, impact our reputation, or cause significant customer relations problems.
Technology and customer requirements evolve rapidly in our industry, and if we do not continue to develop new products and enhance our existing products in response to
these changes, our business could suffer.
We will need to continue to enhance our products in order to maintain our competitive position. We may not be successful in developing and marketing enhancements to our
products on a timely basis, and any enhancements we develop may not adequately address the changing needs of the marketplace. Overlaying the risks associated with our
existing products and enhancements are ongoing technological developments and rapid changes in customer requirements. Our future success will depend upon our ability to
develop and introduce, in a timely manner, new products that take advantage of technological advances and respond to new customer requirements. The development of new
products is increasingly complex and uncertain, which increases the risk of delays. We may not be successful in developing new products and incorporating new technology on a
timely basis, and any new products may not adequately address the changing needs of the marketplace. Failure to develop new products and product enhancements that meet
market needs in a timely manner could have a material adverse effect on our business, financial condition and operating results.
If we are unable to protect our proprietary technology and other intellectual property rights, our ability to compete in the marketplace may be substantially reduced.
If we are unable to protect our intellectual property, our competitors could use our intellectual property to market products similar to our products, which could decrease demand
for such products, thus decreasing our revenue. We rely on a combination of copyright, trademark and trade secret laws, as well as licensing agreements, third-party non-
disclosure agreements and other contractual measures to protect our intellectual property rights. These protections may not be adequate to prevent our competitors from copying
or reverse engineering our products. Our competitors may independently develop technologies that are substantially similar or superior to our technology. To protect our trade
secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. These agreements may not
provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade
secrets, know-how or other proprietary information. The protective mechanisms we include in our products may not be sufficient to prevent unauthorized copying. Existing
copyright laws afford only limited protection for our intellectual property rights and may not protect such rights in the event competitors independently develop similar products.
In addition, the laws of some countries in which our products are or may be licensed do not protect our products and intellectual property rights to the same extent as do the laws
of the United States.
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Policing unauthorized use of our products is difficult and litigation could become necessary in the future to enforce our intellectual property rights. Any litigation could be time
consuming and expensive to prosecute or resolve, result in substantial diversion of management attention and resources, and materially harm our business or financial condition.
If a third party asserts that we infringe upon its proprietary rights, we could be required to redesign our products, pay significant royalties or enter into license agreements.
Claims of infringement are becoming increasingly common as the software industry continues to develop and as related legal protections, including but not limited to patents, are
applied to software products. Although we do not believe that our products infringe on the rights of third parties, a third party may assert that our technology or technologies of
entities we acquire violates its intellectual property rights. As the number of software products in our markets increases, and the functionality of these products further overlap, we
believe that infringement claims will become more common. Any claims against us, regardless of their merit, could:
● be expensive and time consuming to defend;
● result in negative publicity;
● force us to stop licensing our products that incorporate the challenged intellectual property;
● require us to redesign our products;
● divert management’s attention and our other resources; and/or
● require us to enter into royalty or licensing agreements in order to obtain the right to use necessary technologies, which may not be available on terms acceptable to us, if
at all.
We believe that any successful challenge to our use of a trademark or domain name could substantially diminish our ability to conduct business in a particular market or
jurisdiction and thus decrease our revenue and result in possible losses to our business.
Increasing government regulation could affect our business and may adversely affect our financial condition.
We are subject not only to regulations applicable to businesses generally, but also to laws and regulations directly applicable to electronic commerce. In addition, an inability to
satisfy the standards of certain voluntary third-party certification bodies that our customers may expect, such as an attestation of compliance with the Payment Card Industry
(“PCI”) Data Security Standards, may have an adverse impact on our business and results. Further, there are various statutes, regulations, and rulings relevant to the direct email
marketing and text-messaging industries, including the Telephone Consumer Protection Act (“TCPA”), the CAN-SPAM Act and related Federal Communication Commission
(“FCC”) orders. The interpretation of many of these statutes, regulations, and rulings is evolving in the courts and administrative agencies and an inability to comply may have an
adverse impact on our business and results. If in the future we are unable to achieve or maintain industry-specific certifications or other requirements or standards relevant to our
customers, it may harm our business and adversely affect our results.
We may also expand our business in countries that have more stringent data protection laws than those in the United States, and such laws may be inconsistent across
jurisdictions and are subject to evolving and differing interpretations. In particular, the European Union has passed the General Data Protection Regulation (“GDPR”), which came
into force on May 25, 2018. The GDPR includes more stringent operational requirements for entities that receive or process personal data (as compared to U.S. privacy laws and
previous EU laws), along with significant penalties for non-compliance, more robust obligations on data processors and data controllers, greater rights for data subjects, and
heavier documentation requirements for data protection compliance programs. Additionally, both laws regulating privacy and third-party products purporting to address privacy
concerns could negatively affect the functionality of, and demand for, our products and services, thereby reducing our revenue.
General Risk Factors
Our revenue and quarterly results may fluctuate, which could adversely affect our stock price.
We have experienced, and may in the future experience, significant fluctuations in our quarterly operating results that may be caused by many factors. These factors include,
among others:
● changes in demand for our products;
● introduction, enhancement or announcement of products by us or our competitors;
● market acceptance of our new products;
● the growth rates of certain market segments in which we compete;
● size and timing of significant orders;
● budgeting cycles of customers;
● mix of products and services sold;
● changes in the level of operating expenses;
● completion or announcement of acquisitions; and
● general economic conditions in regions in which we conduct business.
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If we are unable to manage our future growth efficiently, our business, liquidity, revenues and profitability may suffer.
We anticipate that continued expansion of our core business will require us to address potential market opportunities. For example, we may need to expand the size of our research
and development, sales, corporate finance or operations staff. There can be no assurance that our infrastructure will be sufficiently flexible and adaptable to manage our projected
growth or that we will have sufficient resources, human or otherwise, to sustain such growth. If we are unable to adequately address these additional demands on our resources,
our profitability and growth might suffer. Also, if we continue to expand our operations, management might not be effective in expanding our physical facilities and our systems,
and our procedures or controls might not be adequate to support such expansion. Our inability to manage our growth could harm our business and decrease our revenues.
There may be a limited market for our common stock, which may make it more difficult for you to sell your stock and which may reduce the market price of our common
stock.
The average shares traded per day in fiscal 2021 was approximately 2,839,000 shares per day compared to approximately 484,000 shares for fiscal 2020, and 264,000 for fiscal 2019.
Our average trading volume of our common stock can be very sporadic and may impair the ability of holders of our common stock to sell their shares at the time they wish to sell
them or at a price that they consider reasonable. A low trading volume may also reduce the fair market value of the shares of our common stock. Accordingly, there can be no
assurance that the price of our common stock will reflect our actual value. There can be no assurance that the daily trading volume of our common stock will increase or improve
either now or in the future.
The market price of our common stock is volatile, which could adversely affect your investment in our common stock.
The market price of our common stock is volatile and could fluctuate significantly for many reasons, including, without limitation: as a result of the risk factors listed in this Annual
Report on Form 10-K; actual or anticipated fluctuations in our operating results; and general economic and industry conditions. During fiscal 2021, the closing price of our common
stock as reported by NASDAQ fluctuated between $1.99 and $12.23. We are required to meet certain financial criteria in order to maintain our listing on the NASDAQ Capital
Market. One such requirement is that we maintain a minimum closing bid price of at least $1.00 per share for our common stock. If we fail this requirement then NASDAQ will issue
a notice that we are not in compliance and we will need to take corrective actions in order to not be delisted. Such corrective actions could be a reverse stock split.
We are dependent upon our management team and the loss of any of these individuals could harm our business.
We are dependent on the efforts of our key management personnel. The loss of any of our key management personnel, or our inability to recruit and train additional key
management and other personnel in a timely manner, could materially and adversely affect our business, operations and future prospects. We maintain a key man insurance policy
covering our Chief Executive Officer.
Because competition for highly qualified personnel is intense, we might not be able to attract and retain the employees we need to support our planned growth.
We will need to increase the size and maintain the quality of our sales force, software development staff and professional services organization to execute our growth plans. To
meet our objectives, we must attract and retain highly qualified personnel with specialized skill sets. Competition for qualified personnel can be intense, and we might not be
successful in attracting and retaining them. Our ability to maintain and expand our sales, product development and professional services teams will depend on our ability to recruit,
train and retain top quality people with advanced skills who understand sales to, and the specific needs of, our target customers. For these reasons, we have experienced, and we
expect to again experience in the future, challenges in hiring and retaining highly skilled employees with appropriate qualifications for our business. In addition to hiring services
personnel to meet our needs, we may also engage additional third-party consultants as contractors, which could have a negative impact on our financial results. If we are unable to
hire or retain qualified personnel, or if newly hired personnel fail to develop the necessary skills or reach productivity slower than anticipated, it would be more difficult for us to
sell our products and services, and we could experience a shortfall in revenue and fail to achieve our planned growth.
Future acquisitions may be difficult to integrate into our existing operations, may disrupt our business, dilute stockholder value, divert management’s attention, or negatively
affect our operating results.
We have acquired multiple businesses since our inception in 2000, including two in fiscal 2021. Future acquisitions could involve substantial investment of funds or financings by
issuance of debt or equity securities and could result in one-time charges and expenses and have the potential to either dilute the interests of existing shareholders or result in the
issuance or assumption of debt. Any such acquisition may not be successful in generating revenues, income or other returns to us, and the resources committed to such activities
will not be available to us for other purposes. Moreover, if we are unable to access capital markets on acceptable terms or at all, we may not be able to consummate acquisitions, or
may have to do so based upon less than optimal capital structure. Our inability to take advantage of growth opportunities for our business or to address risks associated with
acquisitions or investments in businesses may negatively affect our operating results. Additionally, any impairment of goodwill or other intangible assets acquired in an
acquisition or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings which, in turn, may have an
adverse material effect on the price of our common stock.
15
We have issued preferred stock with rights senior to our common stock, and may issue additional preferred stock in the future, in order to consummate a merger or other
transaction necessary to continue as a going concern.
Our Certificate of Incorporation authorizes the issuance of up to 1.0 million shares of preferred stock, par value $0.001 per share, without shareholder approval and on terms
established by our board of directors, of which 264,000 shares have been designated as Series A Preferred, 5,000 shares have been designated as Series B Preferred, 11,000 shares
have been designated as Series C Preferred and 4,200 shares have been designated as Series D Preferred. We may issue additional shares of preferred stock in order to consummate
a financing or other transaction, in lieu of the issuance of common stock. The rights and preferences of any such class or series of preferred stock would be established by our
board of directors in its sole discretion and may have dividend, voting, liquidation and other rights and preferences that are senior to the rights of our common stock.
We have never paid dividends on our common stock and we do not anticipate paying dividends in the future.
We have never paid cash dividends and do not believe that we will pay any cash dividends on our common stock in the future. Since we have no plan to pay cash dividends, an
investor would only realize income from their investment in our shares if there is an increase in the market price of our common stock, which is uncertain and unpredictable.
We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make the removal of
management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. Provisions
in our amended and restated bylaws and Delaware law may have the effect of discouraging lawsuits against our directors and officers.
Our amended and restated bylaws require that derivative actions brought in our name, actions against our directors, officers, other employees or stockholders for breach of
fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware. Any person or entity purchasing or otherwise acquiring any
interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated bylaws.
This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other
employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our
amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which
could harm our business, operating results and financial condition.
The COVID-19 pandemic could have a material adverse effect on our ability to operate, results of operations, financial condition, liquidity, and capital investments.
In 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our services. The
COVID-19 pandemic and similar issues in the future could have a material adverse effect on our ability to operate, results of operations, financial condition, liquidity, and capital
investments. Several public health organizations have recommended, and some governments have implemented, certain measures to slow and limit the transmission of the virus,
including shelter in place, social distancing ordinances, and business shutdowns. There is considerable uncertainty regarding the extent to which the COVID-19 outbreak will
continue to spread, and the extent and duration of governmental and other measures implemented to try to limit the spread of the virus.
The pandemic and such preventive measures, or others required or that we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period
of time, such as the potential shut down of certain locations, decreased employee availability, increased claims or other expenses, potential border closures, and others. These
disruptions and challenges may continue for an indefinite period of time and may also materially affect our future access to our sources of liquidity, particularly our cash flows from
operations, financial condition, capitalization, and capital investments. Additionally, the effects of COVID-19 on the global economy could adversely affect our ability to access the
capital and other financial markets, and if so, we may need to consider alternative sources of funding for some of our operations and for working capital, which may increase our
cost of, as well as adversely impact our access to, capital. These uncertain economic conditions may also result in the inability of our customers to make payments to us, on a
timely basis or at all.
Although these disruptions may continue to occur, the long-term economic impact and near-term financial impacts of the COVID-19 pandemic, including but not limited to, possible
impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments.
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Item 1B. Unresolved Staff Comments
None
Item 2. Properties.
The following table lists our office locations, all of which are leased:
Geographic Location
Woburn, Massachusetts
Woodbury, New York
Brussels, Belgium
Raleigh, North Carolina
Vancouver, Canada
Des Plaines, Illinois
Item 3. Legal Proceedings.
Address
100 Sylvan Rd Suite G-700
Woburn, MA 01801
150 Woodbury Road
Woodbury, NY 11797
Cours Saint Michel 30B
1040 Brussels, Belgium
4242 Six Forks Rd Suite 1550
North Hills Tower II
Raleigh, NC 27609
1055 West Hastings St, Suite 1700
Guinness Tower
Vancouver BC V6E 2E9
2700 S River Rd, Suite 400
Des Plaines, IL 60018
Size
775 square feet,
professional office space
3,630 square feet,
professional office space
PO Box
202 square feet,
professional office space
PO Box
2,500 square feet,
professional office space
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.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities.
PART II
We have not declared or paid cash dividends on our common stock and do not plan to pay cash dividends to our common shareholders in the near future. As of December 13,
2021, our common stock was held of record by approximately 12,435 shareholders. Most of the Company’s shares of common stock are held in street name through one or more
nominees.
Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities
The following summarizes all sales of our unregistered securities during the year ended September 30, 2021 for which more information is disclosed on our Form 8-Ks. The
securities in the below-referenced transactions were (i) issued without registration and (ii) were subject to restrictions under the Securities Act and the securities laws of certain
states, in reliance on the private offering exemptions contained in Sections 4(a)(2), 4(a)(6) and/or 3(b) of the Securities Act and on Regulation D promulgated there under, and in
reliance on similar exemptions under applicable state laws as transactions not involving a public offering. Unless stated otherwise, no placement or underwriting fees were paid in
connection with these transactions.
(1) On 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 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 of 592,105 shares of common stock
at an exercise price of $2.51 per share. 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 Company issued to the placement agents common stock purchase warrants to purchase an aggregate of 179,536 shares of
common stock. The warrants have a term of five years from the commencement of sales and an exercise price of $2.85 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 same day was $4.6 million. As of
September 30, 2021, all 2,700 shares of Series D Preferred Stock were converted to 1,184,211 common shares.
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(2) On May 28, 2021, the Company issued 1,500 shares of the newly designated Series D Convertible Preferred Stock as a component of the purchase price for the
acquisition of Hawk Search. As of September 30, 2021, all 1,500 shares of Series D Preferred Stock were converted to 657,895 common shares.
Item 6. Selected Financial Data.
Not required.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking
statements as a result of a variety of factors and risks, including the impact of any weakness in the U.S. and international economies on our business, our inability to manage
our future growth effectively or profitably, fluctuations in our revenue and quarterly results, our license renewal rate, the impact of competition and our ability to maintain
margins or market share, the limited market for our common stock, the ability to maintain our listing on the NASDAQ Capital Market, the volatility of the market price of our
common stock, the ability to raise capital, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to
protect our proprietary technology, the security of our software and response to cyber security risks, our ability to meet our financial obligations and commitments, our
dependence on our management team and key personnel, our ability to hire and retain future key personnel, our ability to maintain an effective system of internal controls, or
our ability to respond to government regulations. These and other risks are more fully described herein and in our other filings with the Securities and Exchange Commission.
This section should be read in combination with the accompanying audited consolidated financial statements and related notes prepared in accordance with United States
generally accepted accounting principles (“GAAP”).
Overview
Bridgeline Digital is a marketing technology software company that helps customers grow online revenue and share information with customers, partners, and employees.
Bridgeline’s Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics.
Bridgeline’s Unbound platform, combined with its professional services, assists customers in driving lead generation, increasing revenue, improving customer service and loyalty,
enhancing employee knowledge, and reducing operational costs.
Our Unbound Franchise product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale.
OrchestraCMS is the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners,
and employees; uniquely combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals,
intranets, websites, applications and services.
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Celebros Search 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.
Woorank SRL (“Woorank”) is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of the site’s technical, on-page and off-page SEO. Woorank’s clear,
actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.
Hawk Search, Inc. (“Hawk Search”) is a search, recommendation, and personalization application, built for marketers, merchandisers and developers that enhances, normalizes and
enriches a customer's site search and browse experience. Hawk Search leverages advanced artificial intelligence, machine learning and industry leading analyzers to deliver
accurate results from federated data sources.
Bridgeline Digital was incorporated under the laws of the State of Delaware on August 28, 2000.
Sales and Marketing
Bridgeline employs a direct sales force which focuses its efforts on selling to mid-sized and large companies. These companies are generally categorized in the following vertical
markets: financial services, franchise/dealer networks, retail brand names, health services and life sciences, high technology (software and hardware), credit unions and regional
banks, as well as associations and foundations. We also pursue strategic alliances and partnerships that will enhance the sales and distribution opportunities of Bridgeline
intellectual property.
Locations
The Company’s corporate office is located in Woburn, Massachusetts. The Company maintains regional field offices serving the following geographical locations: Boston,
Massachusetts; Woodbury, New York; Chicago, Illinois; Raleigh, North Carolina; Ontario, Canada; and Brussels, Belgium.
The Company has four wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd., located in Bangalore, India; Bridgeline Digital Canada, Inc., located in Ontario, Canada; and
Bridgeline Digital Belgium BV, located in Brussels, Belgium.
Acquisitions
Bridgeline will continue to evaluate expanding its distribution of Bridgeline Unbound and its interactive development capabilities through acquisitions. We may make additional
acquisitions in the foreseeable future. These potential acquisitions will be consistent with our growth strategy by providing Bridgeline with new geographical distribution
opportunities, an expanded customer base, an expanded sales force and an expanded developer force. In addition, integrating acquired companies into our existing operations
allows us to consolidate the finance, human resources, legal, marketing, and research and development of the acquired businesses with our own internal resources, hence reducing
the aggregate of these expenses for the combined businesses and resulting in improved operating results.
On March 1, 2021, the Company, pursuant to a Share Purchase Agreement (the “Woorank Purchase Agreement”), acquired all of the issued and outstanding shares of Woorank
SRL (“Woorank”), an entity located in Belgium. The total purchase price of approximately $2.4 million consisted of (1) $285 thousand in cash paid at closing or in close proximity to
closing, (2) $376 thousand of deferred cash payable in installments post-closing, (3) $352 thousand seller note issued to one of the selling shareholders, and (4) amounts payable to
one selling shareholder as consideration for assistance with certain matters related to the acquisition for a period of one year from the closing date of the acquisition. The Woorank
Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets and operational goals, to the selling shareholders pursuant
to three separate earn-out provisions. The acquisition date fair value of contingent consideration was $1.3 million. 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, 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, with an aggregate issuance date fair value of $99 thousand, for a portion of the purchase price.
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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 total purchase price of approximately $9.9 million consisted of (1) $4.8 million initial cash payment at closing, (2) issuance of 1,500
shares of the Company’s newly designated Series D Preferred Stock with an aggregate issuance date fair value of $930 thousand, and (3) $2.0 million deferred cash payable on or
before December 31, 2021. The Hawk Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets, to the selling
shareholders as an additional earn-out, payable no later than December 31, 2022. The acquisition date fair value of contingent consideration was approximately $2.2 million.
Customer Information
We currently have over 150,000 active customers. For the year ended September 30, 2021, no customers exceeded 10% of the Company’s total revenue. For the year ended
September 30, 2020, one customer represented approximately 12% of the Company’s total revenue.
Summary of Results of Operations
Total revenue for the fiscal year ended September 30, 2021 (“fiscal 2021”) increased to $13.3 million from $10.9 million for the fiscal year ended September 30, 2020 (“fiscal
2020”). Loss from operations for fiscal 2021 was $1.2 million, compared with loss from operations of $1.6 million for fiscal 2020. We had a net loss for fiscal 2021 of $6.7 million,
which included government grant income related to Paycheck Protection Program (“PPP”) loan forgiveness of $88 thousand, a loss of approximately $5.9 million as a result of the
change in fair value of certain warrant liabilities and a $1.2 million discrete benefit in taxes, compared with net income of $326 thousand, which included government grant income
related to PPP loan forgiveness of $960 thousand and a gain of approximately $1.0 million as a result of the change in fair value of certain warrant liabilities for fiscal 2020. Basic and
diluted net loss per share calculation attributable to common shareholders for fiscal 2021 was ($1.47) compared with the equivalent basic net loss per share attributable to common
shareholders of ($0.59) for fiscal 2020.
(in thousands)
Net Revenue
Digital engagement services
% of total net revenue
Subscription and perpetual licenses
% of total net revenue
Total net revenue
Cost of revenue
Digital engagement services
% of digital engagement services revenue
Subscription and perpetual licenses
% of subscription and perpetual revenue
Total cost of revenue
Gross profit
Gross profit margin
Operating expenses
Sales and marketing
% of total revenue
General and administrative
% of total revenue%
Research and development
% of total revenue
Depreciation and amortization
% of total revenue
Restructuring and acquisition related expenses
% of total revenue
Total operating expenses
Loss from operations
Interest expense and other, net
Government grant income
Change in fair value of warrant liabilities
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income/(loss)
Non-GAAP Measure:
Adjusted EBITDA
Years Ended
September 30,
2021
2020
$
Change
%
Change
$
3,296
$
25%
9,963
75%
3,409
$
31%
7,498
69%
13,259
10,907
1,743
53%
2,790
28%
4,533
8,726
66%
2,726
21%
2,359
18%
2,387
18%
1,202
9%
1,235
9%
9,909
(1,183)
(883)
88
(5,885)
(7,863)
(1,174)
1,831
54%
2,676
36%
4,507
6,400
59%
2,614
24%
2,455
23%
1,641
15%
968
9%
366
3%
8,044
(1,644)
(7)
960
1,028
337
11
(113)
2,465
2,352
(88)
114
26
2,326
112
(96)
746
234
869
1,865
461
(876)
(872)
(6,913)
(8,200)
(1,185)
(3)%
33%
22%
(5)%
4%
1%
36%
4%
(4)%
45%
24%
237%
23%
(28)%
12,514%
(91)%
(672)%
(2,433)%
(10,773)%
(6,689) $
326
$
(7,015)
(2,152)%
1,839
$
(116) $
1,955
(1,685)%
$
$
20
Revenue
Our revenue is derived from two sources: (i) digital engagement services and (ii) subscription and perpetual licenses.
Digital Engagement Services
Digital engagement services revenue is comprised of Bridgeline Unbound implementation and retainer-related services. Total revenue from digital engagement services decreased
$113 thousand, or 3%, to $3.3 million in fiscal 2021 from $3.4 million in fiscal 2020. Digital engagement services revenue as a percentage of total revenue decreased to 25% in fiscal
2021 from 31% in fiscal 2020. The decrease compared to the prior period is primarily due to a decrease in new service engagements partially offset by $325 thousand related to
revenues from the Company’s fiscal 2021 acquisitions.
Subscription and Perpetual Licenses
Revenue from subscription (SaaS) and perpetual licenses increased $2.5 million, or 33%, to $10.0 million in fiscal 2021 from $7.5 million in fiscal 2020. The increase compared to the
prior period is primarily due to significant multi-year license renewals across our diverse portfolio of Fortune 500 companies and the inclusion of revenue of $2.6 million from the
Company’s fiscal 2021 acquisitions. Subscription and perpetual license revenue as a percentage of total revenue increased to 75% in fiscal 2021 from 69% in fiscal 2020. The
increase as a percentage of total revenue is attributable to the additional increase in subscription and perpetual licenses during the period compared to digital services revenue.
Cost of Revenue
Total cost of revenue for fiscal 2021 increased $26 thousand, or 1%, to $4.5 million from $4.5 million. The increase for fiscal 2021 compared to fiscal 2020 is primarily attributable to
decreases in headcount and the use of third-party consultants.
Cost of Digital Engagement Services
Cost of digital engagement services decreased $88 thousand, or 5%, to $1.7 million in fiscal 2021 from $1.8 million in fiscal 2020. The decrease in cost of digital engagement
services in fiscal 2021 compared to fiscal 2020 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 cost of total digital engagement services as a percentage of total digital engagement services revenue decreased to 53% in fiscal 2021 from 54% in
fiscal 2020. The decrease as a percentage of revenues in fiscal 2021 compared to fiscal 2020 is primarily due to the overall decrease in digital engagement services revenue and
costs incurred related to fiscal 2021 business acquisitions, as noted above.
Cost of Subscription and Perpetual License
Cost of subscription and perpetual licenses increased $114 thousand, or 4%, to $2.8 million in fiscal 2021 compared to $2.7 million in fiscal 2020. The increase in cost of
subscription and perpetual licenses in fiscal 2021 compared to fiscal 2020 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% in fiscal 2021 from 36% in fiscal 2020. The decrease as a percentage of revenues is primarily due to the overall increases in subscription and perpetual license
revenue.
21
Gross Profit
Gross profit increased $2.3 million, or 36%, in fiscal 2021 to $8.7 million compared to $6.4 million in fiscal 2020.The gross profit margin increased to 66% for fiscal 2021 compared to
59% for fiscal 2020. The increase in the gross profit margin for fiscal 2021 compared to fiscal 2020 is primarily attributable to decreases in headcount and the use of third-party
consultants and an increase in the proportion of license revenue, which is generally associated with higher margins, to digital engagement service revenue.
Operating Expenses
Sales and Marketing Expenses
Sales and marketing expenses increased $112 thousand, or 4%, to $2.7 million in fiscal 2021 from $2.6 million in fiscal 2020. Sales and marketing expense as a percentage of total
revenue decreased to 21% in fiscal 2021 compared to 24% in fiscal 2020. The increase compared to the prior period is primarily attributable to the allocation of third-party
subcontractor and partner costs and additional costs related to the fiscal 2021 business acquisitions. The decrease as a percentage of revenues is primarily due to the overall
increase in revenues.
General and Administrative Expenses
General and administrative expenses decreased $96 thousand, or 4%, to $2.4 million in fiscal 2021 from $2.5 million in fiscal 2020. General and administrative expense as a
percentage of revenue decreased to 18% in fiscal 2021 compared to 23% in fiscal 2020. These net decreases compared to the prior period are primarily attributable to an overall
decrease in support headcount and personnel expenses offset by increases associated with business acquisitions in fiscal 2021.
Research and Development
Research and development expense increased $746 thousand, or 45%, to $2.4 million in fiscal 2021 from $1.6 million in fiscal 2020. Research and development expense as a
percentage of total revenue increased to 18% in fiscal 2021 compared to 15% for fiscal 2020. These increases compared to the prior period are primarily attributable to the
allocation of support team and third-party subcontractor costs and additional research and development expenses related to the business acquisitions in fiscal 2021.
22
Depreciation and Amortization
Depreciation and amortization expense increased by $234 thousand, or 24%, to $1.2 million in fiscal 2021 from $968 thousand in fiscal 2020. Depreciation and amortization as a
percentage of total revenue remained consistent at 9% in fiscal 2021 and 2020. The increase compared to the prior period is primarily due to amortization of intangible assets
resulting from acquisitions completed during fiscal 2021.
Restructuring and Acquisition Related Expenses
In connection with the acquisition of businesses completed during the fiscal 2021 second and third quarters, the Company incurred acquisition related legal and investment
banking expenses of $1.2 million during fiscal 2021.
During fiscal 2020, the Company recognized $366 thousand related to a reduction in the workforce 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.
Loss from Operations
The loss from operations was $1.2 million for fiscal 2021 compared to a loss from operations of $1.6 million for fiscal 2020, a decrease of $461 thousand or 28%.
Interest expense and other, net; Government grant income; Change in fair value of warrant liabilities
The Company recognized a loss related to the change in fair value of warrant liabilities of $5.9 million, for the year ended September 30, 2021 and a gain related to the change in
fair value of warrant liabilities of $1.0 million for the year ended September 30, 2020, respectively.
During the years ended September 30, 2021 and 2020, the Company recognized government grant income of $88 thousand and $960 thousand, respectively, associated with
proceeds received under the PPP deemed probable to be forgiven based on the actual expenditures from the date proceeds were received by the Company through September 30,
2020. The Company applied for full PPP loan forgiveness on March 29, 2021 and received approval from the U.S. Small Business Administration’s (the “SBA”) in August 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 first quarter of fiscal 2021, the remaining loan proceeds were expended on qualified expenses and as a result, the Company recognized
$88 thousand of government grant income.
During the years ended September 30, 2021 and 2020, interest expense and other net, was $883 thousand and $7 thousand, respectively and included non-recurring non-operating
costs.
Provision for Income Taxes
The provision for (benefit from) income taxes was ($1.2) million for fiscal 2021 and $11 thousand for fiscal 2020, respectively. Income tax expense consists of estimated liability for
federal and state income taxes owed by the Company. Net operating loss (“NOL”) carryforwards are estimated to be sufficient to offset any potential taxable income for all
periods presented. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company maintains a
valuation allowance against its net deferred tax assets. As of September 30, 2021 and 2020, the Company had a full valuation allowance on its net deferred tax assets.
The Federal NOL carryforward is approximately $32 million as of September 30, 2021 in which the 20-year carryforward expires on various dates through 2037 and the remaining
NOL carryforward is indefinite. Net operating losses incurred after December 31, 2017 carry forward indefinitely. Internal Revenue Code Section 382 places certain limitations on
the amount of taxable income that can be offset by NOL carryforwards after a change in control of a loss corporation. Generally, after a change in control, a loss corporation
cannot deduct NOL carryforwards in excess of the Section 382 limitation. Due to these “change of ownership” provisions, utilization of NOL carryforwards may be subject to an
annual limitation on utilization against taxable income in future periods. The Company has not performed a Section 382 analysis. However, if performed, Section 382 may be found
to limit potential future utilization of our NOL carryforwards. The Company also has approximately $30 million in state NOLs which expire on various dates through 2039.
The acquisition of Hawk Search, Inc. during the third quarter of fiscal 2021 resulted in the recognition of deferred tax liabilities of approximately $1.1 million, 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 $1.1 million of the pre-existing valuation
allowance against the deferred tax assets and corresponding deferred tax benefit recognized during fiscal 2021.
23
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, other income and expenses, change in fair
value of derivative instruments, change in fair value of contingent consideration, and restructuring and acquisition related charges (“Adjusted EBITDA”).
We believe this non-GAAP financial measure of Adjusted EBITDA is useful to management and investors in evaluating our operating performance for the periods presented and
provides a tool for evaluating our ongoing operations.
Adjusted EBITDA, however, is not a measure of operating performance under accounting principles generally accepted in the United States of America (“U.S. GAAP”) and
should not be considered as an alternative or substitute for U.S. GAAP profitability measures such as (i) income from operations and net income, or (ii) cash flows from
operating, investing and financing activities, both as determined in accordance with U.S. GAAP. Adjusted EBITDA as an operating performance measure has material limitations
because it excludes the financial statement impact of income taxes, net interest expense, amortization of intangibles, depreciation, goodwill impairment, restructuring charges,
acquisition related expenses, loss on disposal of assets, other amortization, changes in fair value of warrant liabilities, changes in fair value of contingent consideration and
stock-based compensation, and therefore does not represent an accurate measure of profitability. As a result, Adjusted EBITDA should be evaluated in conjunction with net
income (loss) for a complete analysis of our profitability, as net income (loss) includes the financial statement impact of these items and is the most directly comparable U.S.
GAAP operating performance measure to Adjusted EBITDA. Our definition of Adjusted EBITDA may also differ from and therefore may not be comparable with similarly titled
measures used by other companies, thereby limiting its usefulness as a comparative measure. Because of the limitations that Adjusted EBITDA has as an analytical tool,
investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under U.S. GAAP.
24
The following table reconciles net income (loss) (which is the most directly comparable U.S. GAAP operating performance measure) to Adjusted EBITDA:
Net income (loss)
Provision for income tax
Interest expense and other, net
Government grant income
Change in fair value of warrants
Amortization of intangible assets
Depreciation
Restructuring and acquisition related charges
Other amortization
Stock-based compensation
Adjusted EBITDA
Years Ended
September 30,
2021
2020
$
$
(6,689) $
(1,174)
883
(88)
5,885
1,130
70
1,235
2
188
1,442 $
326
11
7
(960)
(1,028)
891
61
366
16
194
(116)
Adjusted EBITDA increased year over year, which is primarily attributable to increases in revenues due to business acquisitions that occurred in fiscal 2021 and cost control
measures.
Liquidity and Capital Resources
Cash Flows
Operating Activities
Cash used in operating activities was $989 thousand during fiscal 2021 compared to cash used in operating activities of $498 thousand during fiscal 2020. The change in cash
used in operating activities compared to the prior period was primarily due to an increase in loss from operations partially offset by changes in non-cash items, including changes
in fair value of warrant liabilities, and changes to accounts payable and accrued liabilities and deferred revenue.
Investing Activities
Cash used in investing activities was $4.5 million during fiscal 2021 and we did not have any cash flows from investing activities during fiscal 2020. Cash used in investing
activities during fiscal 2021 was primarily related to net cash paid for the purchase of businesses during the second and third fiscal quarters of 2021.
Financing Activities
Cash provided by financing activities was $13.5 million during fiscal 2021 compared with $1.0 million during fiscal 2020. Cash provided by financing activities was primarily
attributable to cash proceeds of approximately $14.3 million related to the issuance of common stock, Series D Convertible Preferred Stock and stock options and warrant
exercises partially offset by re-payments of contingent consideration and long-term debt assumed in connection with the acquisition of a business. Cash provided by financing
activities for fiscal 2020 was attributable to the proceeds received under the PPP.
Capital Resources and Liquidity Outlook
In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. We expect our operations in all locations to be
affected as the virus continues to proliferate. We have adjusted certain aspects of our operations to protect employees and customers while still meeting customers’ needs for
vital technology. We will continue to monitor the situation closely and it is possible that we will implement further measures. In light of the uncertainty as to the severity and
duration of the pandemic, the impact on our revenue, profitability and financial position is uncertain at this time.
In July 2021, the Company received approximately $5.8 million in cash relating the issuance of 1,543,779 shares of its common stock upon exercise of Series A Warrants, originally
issued in March 2019, with an exercise price of $4.00 per share.
On May 14, 2021, the Company offered and sold, in a registered direct offering, a total of 1,060,000 shares of its common stock par value $0.001 per share, 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 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 of 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 same day was $4.6 million.
25
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 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 2021 fiscal year third quarter (Hawk Search), the Company recognized an obligation for a deferred payment
representing a portion of the purchase price of $2.0 million payable on or before December 31, 2021 and contingent earn-out payments of $2.2 million which are payable, no later
than December 31, 2022, in the event of achievement of certain revenue targets and operational goals.
In connection with an acquisition of a business completed during the 2021 fiscal year second quarter (Woorank), the Company (1) assumed the outstanding long-term debt
obligations of $2.1 million of the acquiree of which $732 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 $376 thousand which is expected to be paid within the next twelve months, and (4)
recognized contingent earn-out payments of $1.3 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 and headcount. The Company continued to maintain tight control over discretionary spending for the 2021
fiscal year. The Company believes that future revenues and cash flows will supplement its working capital and it has an appropriate cost structure to support future revenue
growth.
On April 17, 2020, the Company entered into a loan with an aggregate principal amount of $1,047,500, pursuant to the PPP. The Company performed initial calculations for PPP
loan forgiveness according to the terms and conditions of the SBA Loan Forgiveness Application (Revised June 16, 2020) and, based on such calculations, expected 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 determined it was probable the Company will meet all
the conditions of the PPP loan forgiveness. The Company applied for full PPP loan forgiveness on March 29, 2021, and received approval from the SBA in August 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 first quarter of fiscal 2021, the remaining loan proceeds were expended on qualified expenses and as a result, the Company recognized $88
thousand as government grant income.
Off-Balance Sheet Arrangements
At this time, the Company does not have any off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons, other than our
operating leases.
Contractual Obligations
We lease all of our office locations. The gross obligations for operating leases and subleases is $550 thousand and $236 thousand, respectively, of which $185 thousand and
$101 thousand is expected in the next twelve months. Debt payments on the Company’s various debt obligations total $1.9 million of which $732 thousand is expected to be paid
in the next twelve months. Contingent consideration payments total $3.4 million of which $1.2 million is expected to be paid in the next twelve months. Deferred purchase price
payments total $2.4 million of which $2.2 million is expected to be paid in the next twelve months.
26
Critical Accounting Policies and Estimates
These critical accounting policies and estimates by our management should be read in conjunction with Note 2, Summary of Significant Accounting Policies to the Consolidated
Financial Statements that were prepared in accordance with U.S. GAAP.
The preparation of consolidated financial statements in accordance with 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 periods. We regularly make estimates and assumptions
that affect the reported amounts of assets and liabilities. The most significant estimates included in our consolidated 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.
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 goodwill and other intangible assets;
● Accounting for business combinations;
● Accounting for Payroll Protection Program; and
● Accounting for stock-based compensation.
Revenue Recognition
Overview
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:
1. Identify the customer contract;
2. Identify performance obligations that are distinct;
3. Determine the transaction price;
4. Allocate the transaction price to the distinct performance obligations; and
5. Recognize revenue as the performance obligations are satisfied.
Identify the customer contract
A customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment
terms are identified, the contract has commercial substance and collectability and consideration is probable.
27
Identify performance obligations that are distinct
A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is
distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and the
Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
Determine the transaction price
The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding
sales taxes that are collected on behalf of government agencies.
Allocate the transaction price to distinct performance obligations
The transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the
customer. The Company determines the SSP of its goods and services based upon the historical average sales prices for each type of software license and professional
services sold.
Recognize revenue as the performance obligations are satisfied
Revenue is recognized when or as control of the promised goods or services is transferred to customers. Revenue from SaaS licenses is recognized ratably over the
subscription period beginning on the date the license is made available to customers. Most subscription contracts are three-year terms. Customers who license the
software on a perpetual basis receive rights to use the software for an indefinite time period and an option to purchase post-customer support (“PCS”). PCS revenue is
recognized ratably on a straight-line basis over the period of performance and the perpetual license is recognized upon delivery. The Company also offers hosting
services for those customers who purchase a perpetual license and do not want to run the software in their environment. Revenue from hosting is recognized ratably over
the service period, ranging from one to three-year terms. The Company recognizes revenue from professional services as the services are provided.
Customer Payment Terms
Payment terms with customers typically require payment 30 days from invoice date. Payment terms may vary by customer but generally do not exceed 45 days from invoice
date. Invoicing for digital engagement services are either monthly or upon achievement of milestones and payment terms for such billings are within the standard terms
described above. Invoices for subscriptions and hosting are typically issued monthly and are generally due in the month of service. The Company’s subscription and hosting
agreements provide for refunds when service is interrupted for an extended period of time and are reserved for in the month in which they occur, if necessary.
Our digital engagement services agreements with customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained. In
the infrequent instances where customers raise a concern over delivered products or services, we have endeavored to remedy the concern and all costs related to such matters
have been insignificant in all periods presented.
Warranty
Certain arrangements include a warranty period, which is generally 30 days from the completion of work. In hosting arrangements, we provide warranties of up-time reliability. We
continue to monitor the conditions that are subject to the warranties to identify if a warranty claim may arise. If we determine that a warranty claim is probable, then any related
cost to satisfy the warranty obligation is estimated and accrued. Warranty claims to date have been immaterial.
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.
28
Accounting for Goodwill and Intangible Assets
Goodwill is tested for impairment annually during the fourth quarter of every fiscal 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 Business Combinations
The Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including
identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. The Company bases the fair value of identifiable intangible assets
acquired in a business combination on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of
inputs and assumptions that a market participant would use. The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable
intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated growth rates, cash flows and discounts rates and estimated useful lives
could result in different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with these acquisitions are expensed as
incurred through general and administrative expense on the consolidated statements of operations. In those circumstances where an acquisition involves a contingent
consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date. The Company
re-measures this liability each reporting period and records changes in the fair value through income (loss) before income taxes within the consolidated statements of operations.
Accounting for Payroll 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 a 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 Financial Accounting Standards Board (“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.
Accounting for Stock-Based Compensation
At September 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 12 of these consolidated financial statements.
The Company accounts for stock-based compensation awards in accordance with ASC 718, 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 stock options using the Black-Scholes-Merton option valuation model. The fair value of an award is affected by our stock price on the date of grant
as well as other assumptions, including the estimated volatility of our stock price over the term of the awards and the estimated period of time that we expect employees to hold
their stock options. The risk-free interest rate assumption we use is based upon United States Treasury interest rates appropriate for the expected life of the awards. We use the
historical volatility of our publicly traded options in order to estimate future stock price trends. In order to determine the estimated period of time that we expect employees to
hold their stock options, we use historical trends of employee turnovers. Our expected dividend rate is zero since we do not currently pay cash dividends on our common stock
and do not anticipate doing so in the foreseeable future. The aforementioned inputs entered into the option valuation model we use to fair value our stock awards are subjective
estimates and changes to these estimates will cause the fair value of our stock awards and related stock-based compensation expense we record to vary.
We record deferred tax assets for stock-based awards that result in deductions on our income tax returns, based on the amount of stock-based compensation recognized and the
statutory tax rate in the jurisdiction in which we will receive a tax deduction.
29
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
30
Item 8. Financial Statements and Supplementary Data.
To the Shareholders and Board of Directors
Bridgeline Digital, Inc.
Opinion on the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
We have audited the accompanying consolidated balance sheet of Bridgeline Digital, Inc. and Subsidiaries (the “Company”) as of September 30, 2021, and the related consolidated
statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the year ended September 30, 2021, and the related notes (collectively referred to
as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
September 30, 2021, and the results of its operations and its cash flows for the year ended September 30, 2021, in conformity with accounting principles generally accepted in the
United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial
statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of
expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits
also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial
statements. We believe that our audit provides a reasonable basis for our opinion.
31
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that was communicated or required to be
communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially
challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as
a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which
they relate.
Business Combinations – Acquisitions of Woorank SRL and Hawk Search, Inc.
As described in Note 16 to the consolidated financial statements, the Company completed acquisitions of (1) Woorank SRL on March 1, 2021, for purchase consideration of
approximately $2.4 million and (2) Hawk Search, Inc. on May 28, 2021 for purchase consideration of approximately $9.9 million. The purchase price allocations resulted in the
Company recording $6.3 million of intangible assets and $3.5 million of contingent consideration payable, estimated at the acquisition date.
The Company accounted for both acquisitions under the acquisition method of accounting for business combinations. Assets acquired and liabilities assumed have been recorded
at their estimated fair values as of the acquisition date. The fair value of intangible assets was determined based on valuations using a discounted cash flow model, which requires
significant estimates and assumptions, including estimating future revenues and costs. Management, with the assistance of an independent valuation expert, estimated the fair
value of the intangible assets using the multi-period excess earnings method (customer relationships) and the relief from royalty methodology (tradename and developed
technology). The fair value of contingent consideration payable was determined based on the probability of achievement of the revenue targets and operational goals, which
requires significant estimates and assumptions, including estimating future revenues. Management, with the assistance of an independent valuation expert, estimated the fair value
of the contingent consideration payable using the Monte Carlo simulation model.
Given the fair value determination of the intangible assets and contingent consideration payable requires management to make significant estimates and assumptions related to the
forecasts of future cash flows and the selection of the discount rate, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a
high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.
These procedures included:
● reviewing the purchase and sale agreements and evaluating the transactions to determine that both acquisitions met the requirements of a business combination, and our
analysis of the initial allocation of the purchase price accounting as well as the determination of the balance sheet classification of each component of the transaction.
● obtaining third party valuation reports to gain an understanding of the process and key assumptions for estimating the fair value of intangible assets and contingent
consideration payable. We utilized our valuation specialists to evaluate the adequacy and appropriateness of the methodologies and assumptions used in developing the
forecast and the discount rates used.
● agreeing the underlying data used as part of the valuations to source documents, including the purchase and sale agreements, and assessing the reasonableness of
management’s forecasts of future cash flows by comparing the projections to historical results.
● performing independent shadow calculations to test the reasonableness and mathematical accuracy of the fair values concluded on by the Company.
● evaluating whether the estimated future cash flows were consistent with projections used by the Company, as well as evidence obtained in other areas of the audit.
Furthermore, we assessed the appropriateness of the disclosures in the consolidated financial statements.
Derivative Instruments
As described in Note 12 to the consolidated financial statements, in May 2021, the Company offered and sold, in a registered direct offering, shares of its common stock and
entered into a private placement which consisted of Series D Convertible Preferred Stock and warrants to purchase common stock upon conversion of the Series D Preferred Stock
for aggregate gross proceeds of $5.1 million. The Company allocated the proceeds between equity instruments and derivative liabilities using the relative fair value approach. As
described in Note 5 to the consolidated financial statements, the Company classifies warrants on its Series A, C and D convertible preferred stock as liabilities that are subject to re-
measurement on a quarterly basis. Management, with the assistance of an independent valuation expert, estimates the fair value of the warrant liabilities using Monte Carlo
simulation and Black Scholes models, which take into consideration the volatilities of the Company and comparable public companies.
32
Given the determination of the fair values of equity instruments and derivative liabilities require management to make significant estimates and assumptions regarding the relevant
valuation calculations, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an
increased extent of effort, including the need to involve professionals in our firm having the expertise in the valuation of financial instruments.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.
These procedures included:
● evaluating management’s assessment and the Company’s accounting analysis as to the classification of equity instruments and derivative liabilities, including the
determination of the balance sheet classification of each component of the transaction and identification of any derivatives included in the arrangements.
● obtaining third party valuation reports to gain an understanding of management’s key assumptions in determining the fair value of warrant liabilities and assessing the
source information underlying the valuation assumptions.
● with the assistance of our valuation specialists, evaluating the methodologies and assumptions used to assess the Company’s fair value of equity instruments and
derivative liabilities, including the selection of the valuation methodology and other significant assumptions used by the Company.
● performing independent shadow calculations to test the reasonableness of the fair values for warrant liabilities concluded on by the Company’s specialist. Such
calculations assessed the mathematical accuracy of the valuation model and assessed the source information underlying the valuation assumptions used in the model to
determine the fair value for the Series D issuance at inception and liability classified warrants on a quarterly basis.
● assess the appropriateness of the disclosures in the consolidated financial statements.
/s/ PKF O'Connor Davies, LLP
PKF O'Connor Davies, LLP
New York, New York
December 20, 2021
We have served as the Company’s auditor since February 27, 2021.
33
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Bridgeline Digital, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Bridgeline Digital, Inc. (the “Company”) as of September 30, 2020, the related consolidated statements of
operations, comprehensive income/(loss), stockholders’ equity and cash flows for the year ended September 30, 2020, and the related notes (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020, and the
results of its operations and its cash flows for the year ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the
Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These
conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our
audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audit provides a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2006 (such date takes into account the acquisition of a portion of UHY LLP by Marcum LLP in April 2010) to 2021.
Boston, MA
December 23, 2020
34
BRIDGELINE DIGITAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
As of September 30,
2021
2020
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses
Other current assets
Total current assets
Property and equipment, net
Operating lease assets
Intangible assets, net
Goodwill
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of long-term debt
Current portion of operating lease liabilities
Accounts payable
Accrued liabilities
Purchase price and contingent consideration payable, current portion (Note 16)
Paycheck Protection Program Liability (Note 10)
Deferred revenue
Total current liabilities
Long-term debt, net of current portion (Note 10)
Operating lease liabilities, net of current portion
Purchase price and contingent consideration payable, net of current portion (Note 16)
Warrant liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock - $0.001 par value; 1,000,000 shares authorized;
Series A Convertible Preferred stock: 264,000 shares authorized; no shares issued and outstanding at September 30,
2021 and 2020
Series C Convertible Preferred stock: 11,000 shares authorized; 350 shares issued and outstanding at September 30,
2021 and 2020
Series D Convertible Preferred stock: 4,200 shares authorized; no shares issued and outstanding at September 30, 2021
and 2020
Common stock - $0.001 par value; 50,000,000 shares authorized; 10,187,128 shares at September 30, 2021 and 4,420,170
shares at September 30, 2020, issued and outstanding
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
8,852 $
1,370
179
17
10,418
252
481
7,755
15,985
76
34,967 $
732 $
161
974
908
3,463
-
2,097
8,335
1,197
320
2,360
4,404
774
17,390
-
-
-
10
100,207
(82,287)
(353)
17,577
34,967 $
861
665
268
111
1,905
238
294
2,617
5,557
49
10,660
-
96
1,311
599
-
88
1,511
3,605
-
198
-
2,486
15
6,304
-
-
-
4
78,316
(73,583)
(381)
4,356
10,660
The accompanying notes are an integral part of these consolidated financial statements.
35
BRIDGELINE DIGITAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Years Ended September 30,
2021
2020
Net revenue:
Digital engagement services
Subscription and perpetual licenses
Total net revenue
Cost of revenue:
Digital engagement services
Subscription and perpetual licenses
Total cost of revenue
Gross profit
Operating expenses:
Sales and marketing
General and administrative
Research and development
Depreciation and amortization
Restructuring and acquisition related expenses
Total operating expenses
Loss from operations
Interest expense and other, net
Government grant income (Note 10)
Change in fair value of warrant liabilities
Income (loss) before income taxes
Provision for (benefit from) income taxes
Net income (loss)
Dividends on Series A convertible preferred stock
Deemed dividend on convertible preferred stock (Notes 12 and 16)
Net loss attributable to common shareholders
Net loss per share attributable to common shareholders:
Basic
Diluted
Number of weighted average shares outstanding:
Basic
Diluted
$
$
$
$
3,296 $
9,963
13,259
1,743
2,790
4,533
8,726
2,726
2,359
2,387
1,202
1,235
9,909
(1,183)
(883)
88
(5,885)
(7,863)
(1,174)
(6,689)
-
(2,015)
(8,704) $
(1.47) $
(1.47) $
3,409
7,498
10,907
1,831
2,676
4,507
6,400
2,614
2,455
1,641
968
366
8,044
(1,644)
(7)
960
1,028
337
11
326
(106)
(2,314)
(2,094)
(0.59)
(0.59)
5,935,981
5,935,981
3,555,032
3,555,032
The accompanying notes are an integral part of these consolidated financial statements.
36
BRIDGELINE DIGITAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(in thousands)
Net income (loss)
Other comprehensive income (loss):
Net change in foreign currency translation adjustment
Comprehensive income (loss)
Dividends on Series A convertible preferred stock
Deemed dividend on convertible preferred stock (Notes 12 and 16)
Comprehensive loss attributable to common shareholders
Years Ended September 30,
2021
2020
(6,689) $
28
(6,661)
-
(2,015)
(8,676) $
326
(43)
283
(106)
(2,314)
(2,137)
$
$
The accompanying notes are an integral part of these consolidated financial statements.
37
BRIDGELINE DIGITAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
Balance at October 1, 2019
Shares
Amount
262,751 $
Shares
2,798,475 $
-
Amount
Preferred Stock
Common Stock
Additional
Paid-in
Capital
Accumulated
Other
Accumulated Comprehensive Stockholders’
Loss
Deficit
Equity
Total
3 $
75,620 $
(71,489) $
(106)
(338) $
2,314
(2,314)
Dividends on Series A convertible preferred stock
Deemed dividend on amendment of Series A
convertible preferred stock (Note 12)
Series A convertible preferred stock dividend
liabilities settled in shares
Series A convertible preferred stock conversion
to common
Series C convertible preferred stock conversion to
common
Stock-based compensation expense
Net income
Foreign currency translation
Balance at September 30, 2020
Stock-based compensation expense
Deemed dividend on beneficial conversion feature
(Notes 12 and 16)
Issuance of common stock – stock options
exercised
Issuance of common stock – warrants exercised
Issuance of common stock, net of offering costs
Issuance of stock in connection with acquisition of a
business
Issuance of Series D convertible preferred stock,
net of offering costs
Issuance of Series D convertible preferred in
connection with acquisition of business
Series D convertible preferred stock conversion
to common
Net loss
Foreign currency translation
Balance at September 30, 2021
112,960
1
188
(262,310)
(91)
1,498,623
10,112
350 $
-
4,420,170 $
4 $
194
78,316 $
607
326
(73,583) $
(43)
(381) $
2,015
(2,015)
27,333
1,928,086
1,940,000
29,433
3
2
39
12,371
4,453
99
1,377
930
1,842,106
1
(6,689)
2,700
1,500
(4,200)
350 $
- 10,187,128 $
10 $
100,207 $
(82,287) $
The accompanying notes are an integral part of these consolidated financial statements.
38
28
(353) $
3,796
(106)
-
189
-
-
194
326
(43)
4,356
607
-
39
12,374
4,455
99
1,377
930
1
(6,689)
28
17,577
BRIDGELINE DIGITAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended
September 30,
2021
2020
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Amortization of intangible assets
Depreciation
Other amortization
Change in fair value of contingent consideration
Change in fair value of warrant liabilities
Stock-based compensation
Deferred income taxes
Government grant income (Note 10)
Changes in operating assets and liabilities
Accounts receivable
Prepaid expenses
Other current assets and other assets
Accounts payable and accrued liabilities
Deferred revenue
Other liabilities
Total adjustments
Net cash used in operating activities
Cash flows from investing activities:
Software development capitalization costs
Purchase of property and equipment
Purchase of business, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs
Proceeds from issuance of Series D convertible preferred stock, net of issuance costs
Proceeds from stock option and warrant exercises
Proceeds received under Paycheck Protection Program
Payments of contingent consideration and deferred cash payable
Payments of long-term debt
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
Supplemental disclosures of cash flow information:
Cash paid for:
Interest
Income taxes
Non-cash investing and financing activities:
Consideration paid in stock in connection with acquisition of businesses
Offering costs settled by issuance of liability classified warrants
Dividends accrued or settled in shares on convertible preferred stock
Deemed dividend on convertible preferred stock (Notes 12 and 16)
$
$
$
$
$
$
$
$
(6,689) $
1,130
70
2
170
5,885
607
(1,196)
(88)
36
149
99
(920)
(613)
369
5,700
(989)
(30)
(79)
(4,408)
(4,517)
4,626
2,526
7,127
-
(203)
(603)
13,473
24
7,991
861
8,852 $
7 $
- $
1,029 $
289 $
- $
2,015 $
326
891
61
16
-
(1,028)
194
-
(960)
630
89
(21)
(585)
(75)
(36)
(824)
(498)
-
-
-
-
-
-
-
1,048
-
-
1,048
15
565
296
861
-
3
-
-
189
2,314
The accompanying notes are an integral part of these consolidated financial statements.
39
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. Description of Business
Overview
Bridgeline Digital is a marketing technology software company that helps companies grow online revenue and share information with customers, partners and employees.
Bridgeline’s Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, eMarketing, Social Media management, Web Analytics.
Bridgeline’s Unbound platform, combined with its professional services, assists customers in driving lead generation, increasing revenue, improving customer service and loyalty,
enhancing employee knowledge, and reducing operational costs.
Our Unbound Franchise product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale.
OrchestraCMS is the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners,
and employees; uniquely combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals,
intranets, websites, applications and services.
Celebros Search is a commerce-oriented site search product that provides for Natural Language Processing with artificial intelligence to present relevant search results based on
long-tail keyword searches in seven languages.
Woorank SRL (“Woorank”) is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of the site’s technical, on-page and off-page SEO. Woorank’s clear,
actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.
Hawk Search, Inc. (“Hawk Search”) is a search, recommendation, and personalization application, built for marketers, merchandisers and developers that enhances, normalizes and
enriches a customer's site search and browse experience. Hawk Search leverages advanced artificial intelligence, machine learning and industry leading analyzers to deliver
accurate results from federated data sources.
All of Bridgeline’s software is available through a cloud-based software as a service (“SaaS”) model, whose flexible architecture provides customers with hosting and support.
Additionally, Unbound and Hawk Search is available via a traditional perpetual licensing business model, in which the software resides on a dedicated infrastructure in either the
customer’s facility, or manage-hosted by Bridgeline via a cloud-based hosted services model.
Bridgeline Digital was incorporated under the laws of the State of Delaware on August 28, 2000.
Locations
The Company’s corporate office is located in Woburn, Massachusetts. The Company maintains regional field offices serving the following geographical locations: Boston,
Massachusetts; Woodbury, New York; Chicago, Illinois; Raleigh, North Carolina; Ontario, Canada; and Brussels, Belgium.
The Company has four wholly-owned subsidiaries: Bridgeline Digital Canada, Inc., located in Ontario, Canada; Hawk Search Inc. located in Illinois, United States and Bridgeline
Digital Belgium BV, located in Brussels, Belgium.
40
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Company’s fiscal year end is September 30th. The 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.
Use of Estimates
The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to make certain
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reported periods. The most significant estimates included in these consolidated financial statements are the valuation of
accounts receivable, including the adequacy of the allowance for doubtful accounts, recognition and measurement of deferred revenues, fair value of contingent consideration and
fair value measurements related to the valuation of warrants. The complexity of the estimation process and factors relating to assumptions, risks and uncertainties inherent with the
use of the estimates affect the amount of revenue and related expenses reported in the Company’s consolidated financial statements. Internal and external factors can affect the
Company’s estimates. Actual results could differ from these estimates under different assumptions or conditions.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with original maturity of three months or less from the date of purchase to be cash equivalents.
The Company’s cash is maintained with what management believes to be high-credit quality financial institutions. At times, deposits held at these banks may exceed the insured
limits. Management believes that the financial institutions that hold the Company’s deposits are financially sound and have minimal credit risk. Risks associated with cash and
cash equivalents are mitigated by the Company’s investment policy, which limits the Company’s investing of excess cash into only money market mutual funds.
Concentration of Credit Risk, Significant Customers, and Off-Balance Sheet Risk
Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable.
The Company extends credit to customers on an unsecured basis in the normal course of business. Management performs ongoing credit evaluations of its customers’ financial
condition and limits the amount of credit when deemed necessary. Accounts receivable are carried at original invoice amount, less an estimate for doubtful accounts based on a
review of all outstanding amounts.
The Company has no off-balance sheets risks such as foreign exchange contracts, interest rate swaps, option contracts or other foreign hedging agreements.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. For all customers, the
Company recognizes allowances for doubtful accounts based on the length of time that the receivables are past due, current business environment and its historical experience. If
the financial condition of the Company’s customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required.
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.
41
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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;
1.
2.
3. Determine the transaction price;
4. Allocate the transaction price to the distinct performance obligations; and
5. Recognize revenue as the performance obligations are satisfied.
Identify the customer contract
A customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms
are identified, the contract has commercial substance and collectability and consideration is probable.
Identify performance obligations that are distinct
A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is
distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and the Company’s
promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.
Determine the transaction price
The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales
taxes that are collected on behalf of government agencies.
Allocate the transaction price to distinct performance obligations
The transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the
customer. The Company determines the SSP of its goods and services based upon the historical average sales prices for each type of software license and professional
services sold.
Recognize revenue as the performance obligations are satisfied
Revenue is recognized when or as control of the promised goods or services is transferred to customers. Revenue from SaaS licenses is recognized ratably over the
subscription period beginning on the date the license is made available to customers. Most subscription contracts are three-year terms. Customers who license the software
on a perpetual basis receive rights to use the software for an indefinite time period and an option to purchase post-customer support (“PCS”). PCS revenue is recognized
ratably on a straight-line basis over the period of performance and the perpetual license is recognized upon delivery. The Company also offers hosting services for those
customers who purchase a perpetual license and do not want to run the software in their environment. Revenue from hosting is recognized ratably over the service period,
ranging from one to three-year terms. The Company recognizes revenue from professional services as the services are provided.
Disaggregation of Revenue
The Company provides disaggregation of revenue based on geography and product groupings (see Note 14) as it believes this best depicts how the nature, amount, timing
and uncertainty of revenue and cash flows are affected by economic factors.
42
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Customer Payment Terms
Payment terms with customers typically require payment 30 days from invoice date. Payment terms may vary by customer but generally do not exceed 45 days from invoice
date. Invoicing for digital engagement services is either monthly or upon achievement of milestones and payment terms for such billings are within the standard terms
described above. Invoices for subscriptions and hosting are typically issued monthly and are generally due in the month of service.
Warranty
Certain arrangements include a warranty period, which is generally 30 days from the completion of work. In hosting arrangements, the Company provides warranties of up-time
reliability. The Company continues to monitor the conditions that are subject to the warranties to identify if a warranty claim may arise. If it is determined that a warranty claim
is probable, then any related cost to satisfy the warranty obligation is estimated and accrued. Warranty claims to date have been immaterial.
Property and Equipment
The components of property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful
lives of the related assets (three to five years). Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful life of the asset or the
lease term. Repairs and maintenance costs are expensed as incurred.
Internal-Use Software
Costs incurred in the preliminary stages of development were expensed as incurred. Once an application had reached the development stage, internal and external costs, if direct
and incremental, were capitalized until the software was substantially complete and ready for its intended use. Capitalization ceased upon completion of all substantial testing. The
Company also capitalized costs related to specific upgrades and enhancements when it was probable that the expenditures would result in additional functionality. Capitalized
costs were recorded as part of equipment and improvements. Training costs were expensed as incurred. Internal use software was amortized on a straight-line basis over its
estimated useful life, generally three years.
In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 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.
Research and Development and Software Development Costs
Costs for research and development of a software product to sell, lease or otherwise market are charged to operations as incurred until technological feasibility has been
established. Once technological feasibility has been established, certain software development costs incurred during the application development stage are eligible for
capitalization. Based on the Company’s software product development process, technological feasibility is established upon completion of a working model.
Software development costs that are capitalized are amortized to cost of sales over the estimated useful life of the software, typically three years. Capitalization ceases when a
product is available for general release to customers. Capitalization costs are included in other assets in the consolidated financial statements. The Company did not incur
development costs during fiscal 2021 and 2020.
Intangible Assets
All intangible assets have finite lives and are stated at cost, net of amortization. Amortization is computed over the estimated useful life of the related assets on a straight-line
method as follows:
Technology
Customer related
Domain and trade names
Description
Estimated Useful Life (in years)
3 - 5
3 - 10
1 - 15
43
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Goodwill
The carrying value of goodwill is not amortized, but is tested for impairment annually as of September 30, as well as on an interim basis whenever events or changes in
circumstances indicate that the carrying amount of a reporting unity may not be recoverable. An impairment charge is recognized for the amount by which the carrying amount
exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Goodwill is
assessed at the consolidated level as one reporting unit.
Valuation of Long-Lived Assets
The Company periodically reviews its long-lived assets, which consist primarily of property and equipment and intangible assets with finite lives, for impairment whenever events
or changes in circumstances indicate the carrying amount of such assets may exceed their fair value. Recoverability of these assets is assessed using a number of factors,
including operating results, business plans, budgets, economic projections and undiscounted cash flows.
In addition, the Company’s evaluation considers non-financial data such as market trends, product development cycles and changes in management’s market emphasis. For the
definite-lived intangible asset impairment review, the carrying value of the intangible assets is compared against the estimated undiscounted cash flows to be generated over the
remaining life of the intangible assets. To the extent that the undiscounted future cash flows are less than the carrying value, the fair value of the asset is determined. If such fair
value is less than the current carrying value, the asset is written down to the estimated fair value. There were no impairments of goodwill or long-lived assets in fiscal 2021 or 2020.
Business Combinations
The Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including
identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. The Company bases the fair value of identifiable intangible assets acquired
in a business combination on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and
assumptions that a market participant would use. The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable intangible assets
acquired to goodwill. The use of alternative valuation assumptions, including estimated growth rates, cash flows and discounts rates and estimated useful lives could result in
different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with these acquisitions are expensed as incurred through
acquisition related expenses on the consolidated statements of operations. In those circumstances where an acquisition involves a contingent consideration arrangement, the
Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date. The Company re-measures this liability each
reporting period and records changes in the fair value through income before income taxes within the consolidated statements of operations.
Foreign Currency
The Company determines the appropriate method of measuring assets and liabilities as to whether the method should be based on the functional currency of the entity in the
environment in which it operates or the reporting currency of the Company, the U.S. dollar. The Company has determined that the functional currency of its foreign subsidiaries
are the local currencies of their respective jurisdictions. Assets and liabilities are translated into U.S. dollars at exchange rates in effect at the balance sheet date. Equity accounts
are translated at historical rates, except for the change in retained earnings as a result of the income statement translation process. Revenue and expense items are translated into
U.S. dollars at average exchange rates for the period. The adjustments are recorded as a separate component of stockholders’ equity and are included in accumulated other
comprehensive income (loss). The Company’s foreign currency translation net gains (losses) for fiscal 2021 and 2020 were $28 and $(43), respectively. Transaction gains and
losses related to monetary assets and liabilities denominated in a currency different from a subsidiary’s functional currency are included in the consolidated statements of
operations.
Segment Information
The Company has one reportable segment.
Stock-Based Compensation
The Company accounts for stock-based compensation in the consolidated statements of operations based on the fair values of the awards on the date of grant on a straight-line
basis over their vesting term. Compensation expense is recognized only for share-based payments expected to vest. The Company estimates forfeitures at the date of grant based
on the Company’s historical experience and future expectations.
44
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Common Stock Purchase Warrants
The Company estimated the fair value of common stock warrants issued to non-employees using the binomial options pricing model. The Company evaluates common stock
warrants as they are issued to determine whether they should be classified as an equity instrument or a liability. Those warrants that are classified as a liability are carried at fair
value at each reporting date, with changes in their fair value recorded in change in fair value of warrant liabilities in the consolidated statements of operations.
Advertising Costs
Advertising costs are expensed when incurred. Such costs were $286 and $149 for fiscal 2021 and 2020, respectively.
Employee Benefits
The Company sponsors a contributory 401(k) plan allowing all full-time employees who meet prescribed service requirements to participate. The Company is not required to make
matching contributions, although the plan provides for discretionary contributions by the Company. The Company made no contributions in either fiscal 2021 or fiscal 2020.
Income Taxes
On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act made broad
and complex changes to the U.S. tax code that affected the Company’s fiscal year ended September 30, 2018, including, but not limited to, reducing the U.S. federal corporate tax
rate. For taxable years after December 31, 2017, the Tax Act reduced the federal corporate tax rate to 21 percent. The Tax Act repealed the Corporate Alternative Minimum Tax
(“AMT”).
The Tax Act required the Company to pay a one-time transition tax on earnings of the Company's foreign subsidiaries that were previously tax deferred for U.S. income taxes and
created new taxes on the Company's foreign-sourced earnings. The Company determined that the repatriation tax was zero because the foreign subsidiary had no positive retained
earnings, and no current income.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted in response to the COVID- 19 pandemic. The CARES Act, among other
things, contains modifications on the limitation of business interest for tax years beginning in 2019 and 2020, and permits net operating loss carryovers and carrybacks to offset
100% of taxable income for taxable years beginning before 2021. In addition, the CARES Act allows net operating losses incurred in 2018, 2019, and 2020 to be carried back to each
of the five preceding taxable years to generate a refund of previously paid income taxes. These provisions of the CARES Act did not have a material effect on the Company’s
estimated effective tax rate.
The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the Company’s consolidated financial
statements and tax returns. Deferred income taxes are recognized based on temporary differences between the financial statement and tax basis of assets and liabilities using
enacted tax rates in effect for the year in which the temporary differences are expected to reverse. Valuation allowances are provided if based upon the weight of available evidence,
it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company provides for reserves for potential payments of taxes to various tax authorities related to uncertain tax positions. Reserves are based on a determination of whether
and how much of a tax benefit taken by the Company in its tax filings or positions is “more likely than not” to be realized following resolution of any uncertainty related to the tax
benefit, assuming that the matter in question will be raised by the tax authorities. Interest and penalties associated with uncertain tax positions are included in the provision for
benefit from income taxes.
The Company does not provide for U.S. income taxes on the undistributed earnings of its foreign subsidiaries, which the Company considers to be permanent investments.
Net Loss Per Share
The Company presents basic and diluted earnings per share information for its common stock. The Series D Preferred Stock was considered participating securities, as 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. During the fourth quarter of fiscal 2021, all Series D Preferred Stock were converted to common shares with no remaining Series D Preferred Stock outstanding at
September 30, 2021.
45
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding. Diluted net
income 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 years ended September 30, 2021 and 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 anti-dilutive, as the Company reported a net loss attributable to common shareholders for the periods and the impact of in-the-money warrants was also anti-
dilutive. Potential common stock equivalents excluded were the Company’s Convertible Preferred Stock, stock options and warrants (See Note 12) and conti
ngently issuable shares associated with acquired businesses (See Note 16).
Recently Issued Accounting Pronouncements Not Yet Effective
Financial Instruments – Credit Losses
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 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 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.
Debt with Conversion and Other Options and Derivatives and Hedging
In August 2020, the FASB issued ASU No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s
Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. The amendments in ASU No. 2020-06 simplify the complexity
associated with applying U.S. GAAP for certain financial instruments with characteristics of liabilities and equity. More specifically, the amendments focus on the guidance for
convertible instruments and derivative scope exceptions for contracts in an entity’s own equity. ASU 2020-06 is effective for fiscal years beginning after December 15, 2021,
including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within
those fiscal years. The Company is currently evaluating the impact of the new standard on its consolidated financial statements and related disclosures.
Business Combinations
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 606): Accounting for Contract Assets and Contract Liabilities from Contracts with
Customers, which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had
originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were
recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with U.S. GAAP. The amendment in this update is
effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period.
The guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendment in this update. The Company is evaluating the
potential impact of this adoption 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 or
related disclosures.
3. Accounts Receivable
Accounts receivable consist of the following:
Accounts receivable
Allowance for doubtful accounts
Accounts receivable, net
As of September 30,
2021
2020
$
$
1,403 $
(33)
1,370 $
698
(33)
665
As of and for the year ended September 30, 2021, two customers represented approximately 13%, and 10% of accounts receivable and no customers exceeded 10% of the
Company’s total revenues. As of and for the year ended September 30, 2020, three customers represented approximately 15%, 14% and 10% of accounts receivable and one
customer represented approximately 12% of total revenues.
4. Property and equipment
Property and equipment consist of the following:
Furniture and fixtures
Purchased software
Computer equipment
Leasehold improvements
Total cost
Less accumulated depreciation and amortization
Property and equipment, net
Depreciation and amortization on the above assets were $70 and $61 in fiscal 2021 and 2020, respectively.
As of September 30,
2021
2020
98 $
18
150
197
463
(211)
252 $
73
18
93
195
379
(141)
238
$
$
5. Fair Value Measurement and Fair Value of Financial Instruments
The Company’s financial instruments consist principally of accounts receivable, accounts payable, warrant liabilities, contingent consideration and long-term debt arrangements.
The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit
price) in an orderly transaction between market participants at the measurement date. Additionally, under U.S. GAAP, companies are required to provide disclosure and categorize
assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable
measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of
input significant to the fair value measurement. The fair value hierarchy is defined as follows:
Level 1—Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant
inputs are observable, either directly or indirectly.
Level 3—Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement.
Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.
The carrying value of the Company’s accounts receivable and accounts payable approximate their fair value due to their short-term nature. Debts with an aggregate fair value of
$1.7 million have an aggregate carrying value of $1.9 million. The fair value is based on interest rates that are currently available to the Company for issuance of debt with similar
terms and remaining maturities. If measured at fair value in the financial statements, the debt would be classified as Level 2 in the fair value hierarchy.
47
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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 28.8% - 66.2% and 55.8%,
respectively, as of September 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:
Volatility
Risk-free rate
Stock price
Montage
Capital
As of September 30, 2021
Series C
Preferred
Series D
Preferred
As of September 30, 2020
Montage
Capital
Series C
Preferred
At inception
Series D
Preferred
88.7%
0.80%
$
4.11
83.9%
0.50%
$
4.11
85.7%
1.00%
$
4.11
84.0%
0.28%
$
1.86
84.1%
0.20%
$
1.86
86.3%
0.90%
2.50
$
The Company recognized a gain (loss) of ($5,885) and $1,028 for the years ended September 30, 2021 and 2020, respectively, related to the change in fair value of warrant liabilities.
The changes in fair value of warrant liabilities were due to changes in inputs, primarily a change in the stock price and the risk-free rate, to the Monte Carlo option-pricing model.
The Company’s contingent consideration obligations are from arrangements resulting from acquisitions that involve potential future payment of consideration that is contingent
upon the achievement of the revenue targets and operational goals. Contingent consideration is recognized at its estimated fair value at the date of acquisition based on the
Company’s expected probability of future payment, discounted using a weighted average cost of capital in accordance with accepted valuation methodologies.
The Company reviews and re-assesses the estimated fair value of contingent consideration liabilities at each reporting period and the updated fair value could differ materially from
the initial estimates. The Company measures contingent consideration recognized in connection with acquisitions at fair value on a recurring basis using significant unobservable
inputs classified as Level 3 inputs. The Company uses a simulation-based model to estimate the fair value of contingent consideration on the acquisition date and at each reporting
period. The simulation model uses certain inputs and assumptions, including revenue projections, an estimate of revenue discount and volatility rate based on comparable public
companies’ data, and risk-free rate. Significant increases or decreases to either of these inputs in isolation could result in a significantly higher or lower liability with a higher
liability limited to the contractual maximum of the contingent consideration liabilities. Ultimately, the liability will be equivalent to the amount paid, and the difference between the
fair value estimate on the acquisition date and each reporting period and the amount paid will be recorded in earnings. The significant inputs and assumptions utilized were as
follows:
Revenue discount rate
Revenue volatility
Discount rate
At September 30, 2021
3.5%
11.0%
10.5%
At acquisition
5.0%
20.3%
8.8%
Assets and liabilities of the Company measured at fair value on a recurring basis as of September 30, 2021 and 2020, are as follows:
Liabilities:
Warrant liabilities:
Montage
Series A and C
Series D
Total warrant liabilities
Contingent consideration obligations
Total Liabilities
Level 1
As of September 30, 2021
Level 2
Level 3
Total
$
$
48
- $
-
-
-
- $
- $
-
-
-
- $
13 $
2,026
2,365
4,404
3,649
8,053 $
13
2,026
2,365
4,404
3,649
8,053
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Liabilities:
Warrant liabilities - Montage
Warrant liabilities - Series A, B and C
Total Liabilities
Level 1
As of September 30, 2020
Level 2
Level 3
Total
$
$
- $
-
- $
- $
-
- $
26 $
2,460
2,486 $
26
2,460
2,486
The following table provides a rollforward of the fair value, as determined by Level 3 inputs, as follows:
Balance at beginning of period, October 1, 2019
Additions
Exercises
Adjustment to fair value
Balance at end of period, September 30, 2020
Additions
Exercises or payments
Adjustment to fair value
Balance at end of period, September 30, 2021
6. Goodwill
Contingent
Consideration
Obligations
Warrant
Liabilities
- $
-
-
-
- $
3,479
-
170
3,649 $
3,514
-
-
(1,028)
2,486
1,319
(5,286)
5,885
4,404
$
$
$
The carrying value of goodwill is not amortized, but is tested for impairment annually as of September 30th, as well as whenever events or changes in circumstances indicate that
the carrying amount of a reporting unit may not be recoverable. 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.
Annual tests were performed at September 30, 2021 and 2020. Management performed a qualitative assessment that did not result in any impairment indictors at September 30, 2021
and 2020. Impairment charges are reflected as a reduction in goodwill in the Company’s consolidated balance sheets and an expense in the Company’s consolidated statements of
operations.
Changes in the carrying value of goodwill are as follows:
Balance at beginning of period
Acquisitions
Balance at end of period
7. Intangible Assets
The components of intangible assets, net of accumulated amortization, are as follows:
Domain and trade names
Customer related
Technology
Intangibles, net
As of September 30,
2021
2020
5,557 $
10,428
15,985 $
As of September 30,
2021
2020
732 $
5,465
1,558
7,755 $
5,557
-
5,557
10
1,500
1,107
2,617
$
$
$
$
Total amortization expense related to intangible assets was $1,130 and $891 for the years ended September 30, 2021 and 2020, respectively, and is reflected in Operating expenses
on the consolidated statements of operations. The estimated amortization expense for fiscal years 2022, 2023, 2024, 2025, 2026 and thereafter is $1,494, $1,415, $1,032, $738, $673 and
$2,403, respectively.
8. Accrued Liabilities
Accrued liabilities consist of the following:
Compensation and benefits
Professional fees
Taxes
Other
Balance at end of period
As of September 30,
2021
2020
541 $
81
84
202
908 $
368
29
46
156
599
$
$
9. Restructuring and Acquisition Related Expenses
Restructuring Activities
In March 2020, the Company recognized $366 of expenses related to a reduction in workforce 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. There were no restructuring activities during the year ended
September 30, 2021.
The following table summarizes the restructuring charges reserve activity:
Balance at beginning of period, October 1, 2019
Charges to operations
Cash disbursements
Changes in estimates
Accretion expense
Balance at end of period, September 30, 2020
Employee
Severance and
Benefits
Facility
Closures
and Other
Costs
$
$
59 $
366
(425)
-
-
- $
16 $
-
(16)
-
-
- $
Total
75
366
(441)
-
-
-
There were no accrued restructuring costs included in Accrued Liabilities as of September 30, 2021 and 2020, respectively.
Acquisition Related Expenses
In connection with the acquisition of businesses completed during the fiscal 2021 second and third quarters (see Note 16), the Company incurred acquisition expenses of $1,235
during the year ended September 30, 2021, which are included in Restructuring and acquisition related expenses in the consolidated statements of operations. There were no
acquisition related expenses incurred during the year ended September 30, 2020.
10. 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
16). The assumed debt obligations and seller note are denominated in Euros.
At September 30, 2021, long-term debt consisted of the following:
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.
Term loan payable, accruing interest at fixed rates ranging between 0.99% to 1.5% per annum, payable in monthly or
quarterly payments of interest and principal and matures on October 10, 2022.
Term loan payable, accruing interest at 1.3% per annum, payable in quarterly installments and matures on April 30,
2027.
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.
$
Total debt
Less current portion:
Long-term debt, net of current portion
At September 30, 2021, future maturities of long-term debt are as follows:
Fiscal year:
2022
2023
2024
2025
2026
Thereafter
Total debt
Payroll Protection Program
$
$
$
718
362
466
383
1,929
(732)
1,197
732
540
224
224
85
124
1,929
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%) per annum, with the first six 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 first six 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. 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.
51
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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 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. At the time in
which the PPP Loan was obtained, U.S. GAAP did not contain authoritative accounting guidance and subsequently, ASU 2021-10, Government Assistance (Topic 832), was
issued to address disclosure requirements about transactions with a government that are accounted for by applying a grant model, such as IAS 20.
The following provides the balance and activity related to the PPP Loan:
Balance at beginning of period
Qualified expenses incurred during the period eligible for forgiveness
Balance at end of period
As of September 30,
2021
2020
88 $
(88)
- $
1,048
(960)
88
$
$
The Company applied for full PPP Loan forgiveness on March 29, 2021 and received approval from the SBA in August 2021. The Company classified 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 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.
11. Leases
The Company leases facilities in the United States for its corporate and regional field offices. During the years ended September 30, 2021 and 2020, the Company was also a
lessee/sublessor for certain office locations relating to its restructuring plans commenced in fiscal 2015.
Determination of Whether a Contract Contains a Lease
We determine if an arrangement is a lease at inception, or upon modification of a contract and classify each lease as either an operating or finance lease at commencement. The
Company reassesses lease classification subsequent to commencement upon a change to the expected lease term or a modification to the contract. Operating leases represent the
Company’s right to use an underlying asset as lessee for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease.
A contract contains a lease if the contract conveys the right to control the use of the identified property or equipment, explicitly or implicitly, for a period of time in exchange for
consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of and obtain substantially all of the economic benefit from the use of the
underlying asset. At commencement, contracts containing a lease are further evaluated for classification as an operating lease or finance lease based on their terms.
ROU Model and Determination of Lease Term
The Company uses the Right-of-Use (“ROU”) model to account for leases, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A
lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rates
implicit in the Company’s leases are not readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a
collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the
commencement date and any residual value guarantees, if applicable. The initial ROU asset consists of the initial measurement of the lease liability, adjusted for any payments
made before the commencement date, initial direct costs and lease incentives earned. When determining the lease term, the Company includes option periods when it is reasonably
certain that those options will be exercised.
Lease Costs
For operating leases, minimum lease payments, including minimum scheduled rent increases, are recognized as operating lease costs on a straight-line basis over the applicable
lease terms. Some operating lease arrangements include variable lease costs, including real estate taxes, insurance, common area maintenance or increases in rental costs related to
inflation. Such variable payments, other than those dependent upon a market index or rate, are excluded from the measurement of the lease liability and are expensed when the
obligation for those payments is incurred.
52
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Significant Assumptions and Judgments
Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values,
market rents, useful life of the underlying property, discount rate and probable term, all of which can impact (1) the classification as either an operating or finance lease, (2)
measurement of lease liabilities and ROU assets and (3) the term over which the ROU asset and leasehold improvements are amortized. The amount of depreciation and
amortization, interest and rent expense would vary if different estimates and assumptions were used.
The components of net lease costs were as follows:
Condensed Consolidated Statements of Operations:
Operating lease cost
Variable lease cost
Less: Sublease income, net
Total
As of September 30,
2021
2020
$
$
115 $
55
(101)
69 $
273
84
(73)
284
Cash paid for amounts included in the measurement of lease liabilities was $225 for the year ended September 30, 2021, all of which represents operating cash flows from operating
leases. As of September 30, 2021, the weighted average remaining lease term was 3.3 years and the weighted average discount rate was 7.0%.
At September 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:
Fiscal year:
2022
2023
2024
2025
2026
Total lease commitments
Less: Amount representing interest
Present value of lease liabilities
Less: Current portion
Operating lease liabilities, net of current portion
Payments
Operating
Leases
Receipts
Subleases
Net Leases
$
$
185 $
173
116
69
7
550 $
(69)
481
(161)
320
101 $
101
34
-
-
236 $
84
72
82
69
7
314
As of September 30, 2021, the Company had no lease commitments that extend past 2026.
53
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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:
Fiscal year:
2021
2022
2023
2024
2025
Total lease commitments
12. Stockholders’ Equity
Series A Convertible Preferred Stock
Payments
Operating
Leases
Receipts
Subleases
Net Leases
$
$
96 $
82
85
87
88
438 $
101 $
101
101
36
-
339 $
(5)
(19)
(16)
51
88
99
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 to (i) the number of shares of Series A
Preferred Stock to be converted, multiplied by the stated value of $10.00 (the “Stated Value”) and (ii) divided by the conversion price in effect at the time of conversion.
On December 31, 2019 (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 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 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 provides 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 first eighteen 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 Series A Preferred Stock to be converted
shall also be converted into common stock at the conversion price.
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 on an as-converted
basis.
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) the fair value of the consideration transferred; that is, the
Series A Preferred Stock, as amended, and (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 attributable to common shareholders during fiscal 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.
54
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
As of September 30, 2020, all previously outstanding shares of Series A Convertible Preferred Stock were converted into 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 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 September 30, 2021, the Company had 350 shares of Series C Preferred Stock
outstanding which were convertible into an aggregate of 38,889 shares of the Company’s common stock.
Registered Offering of Common Stock and Private Placement of Series D Convertible Preferred Stock (the “ May 2021 Offerings”)
On May 14, 2021, the Company offered and sold a total of 1,060,000 shares of its common stock, to certain institutional investors at a public offering price of $2.28 per share in a
registered direct offering (“RD Offering”). The RD Offering was registered under the Securities Act of 1933, as amended, pursuant to a prospectus supplement to the Company's
currently effective registration statement on Form S-3.
Additionally, on May 14, 2021, the Company entered into securities purchase agreements with certain institutional investors pursuant to which the Company offered and sold a
total of 2,700 units (“Units”) at a purchase price of $1,000 per Unit (“Private Placement”). Each Unit consisted of (i) one share of the Company’s newly designated Series D
Convertible Preferred Stock (“Series D Preferred Stock”) and (ii) warrants to purchase common stock up to one-half of the shares issuable upon conversion of the Series D
Preferred Stock as a part of the Units. In total, the Company issued 2,700 shares of Series D Preferred Stock and warrants to purchase up to 592,106 shares of common stock.
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:
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.
55
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
After Stockholder Approval, the Series D Preferred Stock has no 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, it is subject to the applicable rules of the Nasdaq Stock
Market LLC, including Nasdaq Listing Rule 5635(a), which requires stockholder approval in connection with the acquisition of another company (see Note 16) 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 16) and the May 2021 Offerings would be aggregated together. Thus, to permit the issuance of common stock upon conversion of the
Series D Preferred Stock and upon exercise of the warrants issued in the Private Placement, the Company had to obtain stockholder approval of these issuances. Upon
issuance, the Company had determined that such prohibition did not represent an inability for the Company to satisfy its obligation to deliver shares upon
conversion, as the holders’ conversion option itself is contingent upon Stockholder Approval. On September 16, 2021, the Company obtained Stockholder Approval.
The Company determined that the Series D Preferred Stock should be classified as permanent equity.
The Series D Preferred Stock 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 $1.3 million. As discussed in Note 16, upon the acquisition of Hawk Search during the third quarter of fiscal
2021, Series D Preferred Stock was issued as part of consideration transferred in which the intrinsic value of the embedded conversion feature was calculated at $724 as of the
acquisition date. As of September 30, 2021, the Company recognized the impact of the beneficial conversion feature upon Stockholder Approval, as the beneficial conversion
feature became immediately exercisable, at the option of the holder. The Company recognized full accretion of the beneficial conversion feature as a deemed dividend of $2.0
million to the Series D Preferred Stock. Such deemed dividend is recognized as an increase to accumulated deficit and an increase to additional paid-in capital and is included as a
component of net loss attributable to common stockholders. During the fourth quarter of fiscal 2021, all Series D Preferred Stock were converted to common shares with no
remaining Series D Preferred Stock outstanding at September 30, 2021.
As noted above, in connection with the May 2021 Offerings, the Company issued Series D Preferred Warrants and Placement Agents Warrants to purchase up to 592,106 and
179,536 shares of common stock, respectively. The Series D Preferred and Placement Agents Warrants (hereinafter referred to collectively as the “Series D Warrants”) are
puttable at the option of the holder in the event of a Fundamental Transaction, as defined in the respective warrant agreements. The put feature requires the Company to pay
holders an amount of cash equal to the Black-Scholes Value, as defined in the respective warrant agreements, of the remaining unexercised portion of the Series D Warrants on
the date of consummation of such Fundamental Transaction. The Company determined that the Series D Warrants are required to be classified as liabilities measured at fair value
at their issuance date and to be subsequently remeasured at fair value each reporting period with changes in fair value recognized in period earnings (see Note 5).
As the common stock in the RD Offering was sold concurrently with the Units sold in the Private Placement, for any common purchasers, inclusive of purchaser affiliated
entities, the aggregate proceeds from the May 2021 Offerings were allocated, on an investor-by-investor basis, to the Series D Preferred Warrants based on their fair value and
the residual proceeds to the common stock and Series D Preferred Stock based on their relative fair values. Accordingly, the May 2021 Offerings proceeds, net of certain fees due
to placement agents, inclusive of the fair value of warrants issued to placement agents, and transaction-related expenses, of $4.3 million were allocated $1.0 million to the Series D
Preferred Warrants based on their issuance-date fair value, $1.9 million to common stock and $1.3 million to Series D Preferred Stock based on their respective relative fair values.
56
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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 Stocks 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 Stocks and the exercise of the Series D Warrants. As of August 18, 2021, the registration statement was declared effective
by the SEC.
Registered Offering and Sale of Common Stock
On February 4, 2021, the Company offered and sold a total of 880,000 shares of its common stock, par value $0.001 per share, to certain institutional and accredited investors at a
public offering price of $3.10 per share in a registered direct offering (the “Offering”). The Offering was registered under the Securities Act of 1933, as amended, pursuant to a
prospectus supplement to the Company’s currently effective registration statement on Form S-3 (File No. 333-239104), which was initially filed with the SEC on June 12, 2020, and
was declared effective on June 25, 2020. The Company filed the final prospectus supplement for the Offering on or about February 5, 2021. The Offering closed on February 8,
2021, and resulted in proceeds, net of certain fees due to placement agents and transaction expenses, to the Company of approximately $2.5 million. The net proceeds received by
the Company will be used for general corporate purposes, including general working capital.
Joseph Gunnar & Company, LLC acted as lead placement agent for the Offering, and Taglich Brothers, Inc. acted as co-placement agent for the Offering (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.
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 September 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 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 September 30, 2021, there were 799,201 options outstanding and 4,045 shares available for future issuance under the 2016
Plan.
57
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 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 years ended September 30, 2021 and 2020, compensation expense related to share-based payments was as follows:
Cost of revenue
Operating expenses
Interest expense and other, net
Years ended
September 30,
2021
2020
$
$
25 $
163
419
607 $
21
173
-
194
Interest expense and other, net includes compensation expense related the fair value of fully-vested stock options granted in August 2021. 100,000 shares were granted to
directors, as more fully described below under the caption “Summary of Option and Warrant Activity and Outstanding Shares.” As of September 30, 2021, the Company had
approximately $385 of unrecognized compensation costs related to unvested options, which are expected to be recognized over a weighted-average period of 2.1 years.
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 activities. Warrants may also be issued to individuals or companies in exchange for services provided to 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 warrant (the “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) dissolution or liquidation of the Company, (2) any sale or distribution of all or substantially all of the assets of the Company, or (3) a “Change in
Control” as defined within the meaning of Sections 13(d) and 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. The fair value of the Montage warrant liability at September 30, 2021 and
2020, was $13 and $26, respectively.
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 $4.00; (ii) Series B Warrants with an
initial term of 24 months and an exercise price of $4.00; and (iii) Series C Warrants with an initial term of 5.5 years and an exercise price of $0.05 (collectively, hereinafter referred to
as the “Series C Preferred Warrants”). The Company also issued warrants with an exercise price of $4.00 to purchase shares of the Company’s common stock to the Placement
Agents. The Company may not effect, and a holder will not be entitled to convert, the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving
effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed
4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. During year ended September
30, 2021, 1,684,250 Series A Warrants were exercised, 2,556,875 Series B Warrants expired unexercised, 55,557 Series C Warrants were exercised and 236,580 Placement Agent
Warrants were exercised.
As of September 30, 2021, the number of shares issuable upon exercise of the (i) Series A Warrants were 872,625 shares; (ii) Series C Warrants were 13,738 shares; (iii) the
Placement Agent Warrants issued in connection with the Series C Preferred Stock were 11,992 shares and (iv) Investor Warrants were 41,141 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.
58
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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 September 30, 2021, no 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, 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 Note 5).
Total warrants outstanding as September 30, 2021 were as follows:
Type
Investors
Director/Shareholder
Financing (Montage)
Director/Shareholder
Investors
Placement Agent
Investors
Investors
Investors
Placement Agent
Placement Agent
Investors
Placement Agent
Total
Warrant Issuances
Issue
Date
11/9/2016
12/31/2016
10/10/2017
12/31/2017
10/19/2018
10/16/2018
3/12/2019
3/12/2019
3/12/2019
3/12/2019
2/4/2021
5/14/2021
5/14/2021
Shares
Price
Expiration
4,271 $
120 $
1,327 $
120 $
3,120 $
10,000 $
41,621 $
872,625 $
13,738 $
11,992 $
58,169 $
592,106 $
179,536 $
1,788,745
175.00
1,000.00
132.50
1,000.00
25.00
31.25
4.00
4.00
0.05
4.00
3.88
2.51
2.85
5/9/2022
12/31/2021
10/10/2025
12/31/2021
10/19/2023
10/16/2023
10/19/2023
9/12/2024
9/12/2024
9/12/2024
2/4/2026
11/16/2026
5/12/2026
During the year ended September 30, 2021, the Company issued warrants to purchase common stock as follows:
Issuances
Placement Agent - public offering
Investors - Series D
Placement Agent
Total issued in fiscal 2021
During the year ended September 30, 2020, there were no warrants issued.
Summary of Option and Warrant Activity and Outstanding Shares
Shares
Exercise Price
58,169 $
592,106 $
179,536 $
829,811
3.88
2.51
2.85
During the year ended September 30, 2021, the Company granted options to purchase 240,000 shares of which (a) 95,500 shares were granted at an exercise price of $2.51, which
vest ratably over a three-year period commencing on June 1, 2021, (b) 100,000 shares were granted to directors at an exercise price of $5.92 which vested immediately upon the grant
date of August 2, 2021, and (c) 44,500 shares were granted at an exercise price of $4.11, which vest ratably over a three-year period commencing on September 30, 2021. All such
options granted expire ten years from the date of grant.
During the year ended September 30, 2020, 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 period commencing on November 20, 2019, (b) 1,000 shares at an exercise price of $1.61, which vest ratably over a three-year
period commencing on December 2, 2019, and (c) 20,000 shares at an exercise price of $1.61, which vest ratably over a three-year period commencing on June 15, 2020. All such
options granted expire ten years from the date of grant.
59
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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 years ended September 30, 2021 and 2020, are as follows:
Weighted-average fair value per share option
Expected life (in years)
Volatility
Risk-free interest rate
Dividend yield
$
September 30,
2021
2020
$
2.96
5.6
85.8%
1.0%
0.0%
0.96
6.0
76.29%
1.61%
0.0%
The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise based on historical trends of employee turnover. Expected
volatility is based on historical daily price changes of the Company’s common stock for a period equal to the expected life. The risk-free interest rate is based on the U.S. Treasury
yield in effect at the time of grant. The expected dividend yield is zero since the Company does not currently pay cash dividends on its common stock and does not anticipate
doing so in the foreseeable future.
A summary of combined stock option and warrant activity is as follows:
Outstanding, October 1, 2019
Granted
Exercised
Forfeited
Expired
Outstanding, September 30, 2020
Granted
Exercised
Forfeited
Expired
Outstanding, September 30, 2021
Stock Options
Stock Warrants
Weighted
Average
Exercise
Price
Options
8,048 $
702,353
-
(97,000)
-
613,401
240,000
(27,333)
(26,647)
(220)
799,201 $
306.41
1.41
-
3.96
-
4.76
4.35
1.40
2.38
470.77
4.66
Weighted
Average
Exercise
Price
4.54
-
-
-
952.11
4.37
2.68
3.89
-
4.28
4.18
Warrants
5,496,966 $
-
-
-
(967)
5,495,999
829,811
(1,976,387)
-
(2,560,678)
1,788,745 $
There were 339,769 and 5,865 options vested and exercisable as of September 30, 2021 and 2020, respectively. The options outstanding at September 30, 2021 and 2020 had an
aggregate intrinsic value of $1,640 and $275, respectively.
A summary of the status of unvested shares is as follows:
Unvested at October 1, 2020
Granted
Vested
Forfeited
Unvested at September 30, 2021
Weighted
Average
Grant-Date
Fair Value
0.97
2.96
2.20
0.96
1.14
Shares
607,336 $
240,000
(361,257)
(26,647)
459,432 $
60
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The following table summarizes information about outstanding stock options at September 30, 2021:
Exercise Price
Options outstanding
Options exercisable
13. Commitments and Contingencies
Weighted
Average
Remaining
Contractual Life
(Years)
Weighted
Average
Exercise Price
8.6 $
8.6 $
4.66 $
8.73 $
Aggregate
Intrinsic Value
1,639,847
585,794
Number of
Options
799,201
339,769
The Company leases certain of its buildings under noncancelable lease agreements. Refer to the Leases footnote (Note 11) of the Notes to the Consolidated Financial Statements
for additional information.
The Company frequently warrants that the technology solutions it develops for its clients will operate in accordance with the project specifications without defects for a specified
warranty period, subject to certain limitations that the Company believes are standard in the industry. In the event that defects are discovered during the warranty period, and none
of the limitations apply, the Company is obligated to remedy the defects until the solution that the Company provided operates within the project specifications. The Company is
not typically obligated by contract to provide its clients with any refunds of the fees they have paid, although a small number of its contracts provide for the payment of liquidated
damages upon default. The Company has purchased insurance policies covering professional errors and omissions, property damage and general liability that reduce its monetary
exposure for warranty-related claims and enable it to recover a portion of any future amounts paid.
The Company’s contracts typically provide for testing and client acceptance procedures that are designed to mitigate the likelihood of warranty-related claims, although there can
be no assurance that such procedures will be effective for each project. The Company has not paid any material amounts related to warranties for its solutions. The Company
sometimes commits unanticipated levels of effort to projects to remedy defects covered by its warranties. The Company’s estimate of its exposure to warranties on contracts is
immaterial as of September 30, 2021.
The Company’s agreements with customers generally require the Company to indemnify the customer against claims in which the Company’s products infringe third-party patents,
copyrights, or trademarks and indemnify against product liability matters. As of September 30, 2021, and 2020, the Company has not experienced any losses related to the
indemnification obligations and no significant claims with respect thereto were outstanding. The Company does not expect significant claims related to the indemnification
obligations and, consequently, concluded that the fair value of these obligations is negligible, and no related reserves were established.
Litigation
The Company is subject to ordinary routine litigation and claims incidental to its business. As of September 30, 2021, the Company was not engaged in any material legal
proceedings.
14. 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:
Revenues:
United States
International
Years Ended September 30,
2021
2020
$
$
10,266 $
2,993
13,259 $
9,013
1,894
10,907
The largest concentration within the Company’s international revenue geography is within Canada.
Long-lived assets located in foreign jurisdictions aggregated approximately $7.5 million and $3.5 million as of September 30, 2021 and 2020, respectively.
61
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The Company’s revenue by type is as follows:
Revenues:
Digital Engagement Services
Subscription
Perpetual Licenses
Maintenance
Hosting
Deferred Revenue
Years Ended September 30,
2021
2020
$
$
3,296 $
8,736
-
380
847
13,259 $
3,409
6,185
20
349
944
10,907
Amounts that have been invoiced are recognized in accounts receivable, 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 will be recognized during the succeeding 12-month period is
recognized as current deferred revenue and the remaining portion is recognized as noncurrent deferred revenue and is included in Other long-term liabilities.
As of September 30, 2021, approximately $418 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 years ended September 30, 2021 and 2020:
Balance as of October 1, 2019
Increase
Balance as of September 30, 2020
Increase
Balance as of September 30, 2021
Deferred Capitalized Commissions Costs
Deferred Revenue
Current
Long Term
$
$
1,262 $
249
1,511
586
2,097 $
8
7
15
403
418
The incremental direct costs of obtaining a contract, which primarily consist of sales commissions paid for new subscription contracts, are deferred and amortized on a straight-line
basis over a period of approximately three years. The Company evaluated both qualitative and quantitative factors, including the estimated life cycles of its offerings, renewal rates,
and its customer attrition to determine the amortization periods for the capitalized costs. The initial amortization period will generally be the customer contract term, which is
typically thirty-six (36) months, with some exceptions. Deferred capitalized commission expense that will be recognized as expense during the succeeding 12-month period is
recognized as current deferred capitalized commission costs, and the remaining portion is recognized as long-term deferred capitalized commission costs. Total deferred capitalized
commissions were $8 and $20 as of September 30, 2021 and 2020, respectively. Current deferred capitalized commission costs are included in Other current assets in the
consolidated balance sheets and noncurrent deferred capitalized commission costs are included in Other assets in the consolidated balance sheets. Amortization expense was $2
and $16 the years ended September 30, 2021 and 2020, respectively.
15. Income Taxes
The components of the Company’s tax provision (benefit) as of September 30, 2021 and 2020, is as follows:
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Grand total
Year Ended September 30,
2021
2020
$
$
(11) $
33
-
22
(953)
(217)
(26)
(1,196)
(1,174) $
-
11
-
11
-
-
-
-
11
The Company’s income tax provision was computed using the federal statutory rate and average state statutory rates, net of related federal benefit. The provision differs from the
amount computed by applying the statutory federal income tax rate to pretax income, as follows:
Income tax provision/(benefit) at the federal statutory rate of 21%
Permanent differences, net
State income tax provision/(benefit)
Foreign tax rate differences
Change in valuation allowance attributable to operations
True up to prior year NOL
AMT tax refundable under CARES act
Other
$
Year Ended September 30,
2021
2020
(1,695) $
1,503
26
340
(1,202)
(146)
-
-
67
(682)
14
-
486
110
23
(7)
Total
$
(1,174) $
11
As of September 30, 2021, the Company has federal net operating loss (“NOL”) carryforwards of approximately $32 million in which the 20-year carryforward expires on various
dates through 2037 and the remaining NOL carryforward is indefinite. Internal Revenue Code Section 382 places a limitation on the amount of taxable income which can be offset by
NOL carryforwards after a change in control of a loss corporation. Due to these “change of ownership” provisions, utilization of NOL carryforwards may be subject to an annual
limitation in future periods. The Company has not performed a Section 382 analysis. However, if performed, Section 382 may be found to limit potential future utilization of the
Company’s NOL carryforwards. The Company also has approximately $30 million in state NOLs which expire on various dates through 2039.
The Company has deferred tax assets that are available to offset future taxable income. A valuation allowance is established if it is more likely than not that all or a portion of the
deferred tax assets will not be realized. Management believes that it is more likely than not that all deferred tax assets will not be realized. Accordingly, the Company has
established a valuation allowance against a portion of its deferred tax assets at September 30, 2021 and 2020. For the years ended September 30, 2021 and 2020, the valuation
allowance for deferred tax assets decreased by $1.1 million and increased by $543 thousand, respectively. The acquisition of Hawk Search, Inc. (see Note 16) 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 year
ended September 30, 2021.
The Company recognizes interest accrued related to unrecognized tax benefits in interest expense. Penalties, if incurred, are recognized as a component of tax expense.
The Company is subject to U.S. federal income tax as well as income tax of certain state jurisdictions. The Company has not been audited by the Internal Revenue Service (“IRS”)
or any states in connection with income taxes. The tax periods from 2017– 2021 generally remain open to examination by the IRS and state authorities.
63
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Significant components of the Company’s deferred tax assets and liabilities are as follows:
Deferred tax assets:
Bad debt reserve
Deferred revenue
Accrued expenses
AMT carryforward
Net operating loss carryforwards
Contribution carryforward
Right of use liability
Debt forgiveness
Stock Options
Other
Depreciation
Intangibles
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Right of use asset
Depreciation
Intangibles
Expenses related to debt forgiveness
Total deferred tax liabilities
Net deferred tax liabilities
September 30,
2021
2020
$
$
8 $
1,392
86
-
9,016
1
121
-
127
20
-
-
10,771
(10,083)
688
121
32
901
-
1,054
(366) $
8
754
37
-
9,363
1
74
243
-
-
8
408
10,896
(10,577)
319
75
-
-
244
319
-
Net deferred tax assets are reflected in Other assets and net deferred tax liabilities are reflected in Other long-term liabilities on the consolidated balance sheets. Undistributed
earnings of the Company’s foreign subsidiaries amounted to approximately $0 and $85 at September 30, 2021 and 2020, respectively. The 2017 Tax Act subjects a U.S. shareholder
to tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries. The FASB Staff Q&A, Topic 740, No. 5, Accounting for Global Intangible Low-
Taxed Income, provides that an entity may make an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in
future years, or provide for the tax expense related to GILTI in the year the tax is incurred as a period expense only. Additionally, the 2017 Tax Act provides for a tax benefit to U.S.
taxpayers that sell goods or services to foreign customers under the new Foreign Derived Intangible Income Deduction ("FDII") rules. As of September 30, 2021, the Company
reported no GILTI tax expense for the year ended September 30, 2021. When accounting for uncertain income tax positions, the impact of uncertain tax positions is recognized in
the consolidated financial statements if they are more likely than not of being sustained upon examination, based on the technical merits of the position. The Company’s
management has determined that the Company has no uncertain tax positions requiring recognition as of September 30, 2021 and 2020. The Company does not expect any change
to this determination in the next twelve months.
16. Acquisitions
Woorank Acquisition
On March 1, 2021, the Company, pursuant to a Share Purchase Agreement (the “Woorank Purchase Agreement”), acquired all of the issued and outstanding shares of Woorank,
an entity located in Belgium. The Company accounted for 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 Woorank Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets and operational goals, to the
selling shareholders pursuant to three separate earn-out provisions. 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 September 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
estimated fair value of the contingent consideration was determined based on the Company’s expected probability of future payment, discounted using a weighted average cost of
capital. The fair value of the contingent consideration is included within Purchase price and contingent consideration payable on the consolidated balance sheets. The fair value of
intangible assets was based on valuations using a discounted cash flow model (Level 3 inputs) which requires significant estimates and assumptions, including estimating future
revenues and costs. The fair value of debt obligations assumed was based on the interest rates underlying these instruments in relation to the market rates available for similar
instruments. The excess of the purchase price over the assets acquired and liabilities assumed was recognized as goodwill. The goodwill is attributable to expected synergies and
customer cross selling opportunities between the Company and Woorank.
64
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Hawk Search Acquisition
On May 28, 2021, the Company, pursuant to a Share Purchase Agreement (the “Hawk Purchase Agreement”), acquired all of the issued and outstanding shares of Hawk Search,
an Illinois corporation. The purchase price consisted of (1) an initial cash payment at closing, (2) issuance of 1,500 shares of the Company’s newly designated Series D Preferred
Stock, and (3) deferred cash payable on or before December 31, 2021. The Hawk Purchase Agreement also provides for additional consideration, in the event of achievement of
certain revenue targets, to the selling shareholders as an additional earn-out, payable no later than 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 12) which occurred in close proximity to the acquisition date. As more fully described in Note 12, the Series D Preferred Stock contains an embedded
beneficial conversion feature. The intrinsic value of $724 was calculated as of the acquisition date. The fair value of contingent consideration was determined based on the
probability of achievement of the revenue targets and operational goals, which includes estimating future revenues. The fair value of intangible assets was based on valuations
using a discounted cash flow model (Level 3 inputs) which requires significant estimates and assumptions, including estimating future revenues and costs. The excess of the
purchase price over the assets acquired and liabilities assumed was recognized as goodwill. The goodwill is attributable to expected synergies and customer cross selling
opportunities between the Company and Hawk Search.
The acquisition date fair value of consideration transferred was as follows:
Woorank
Hawk Search
Total
Cash paid at or in close proximity to closing
Future deferred payments
Common stock (29,433 shares at $3.38 per share)
Series D Convertible Preferred Stock (1,500 shares at $618
per share)
Seller’s note
Contingent consideration (earn-outs)
Total consideration paid
$
$
285 $
376
99
-
352
1,289
2,401 $
4,800 $
2,000
-
930
-
2,190
9,920 $
The preliminary acquisition date fair value of assets acquired, and liabilities assumed was as follows:
Woorank
Hawk Search
Total
Assets acquired:
Cash
Non-cash current assets
Property and equipment
Intangible assets:
Acquired software
Customer relationships
Domain and trade names
Goodwill
Total assets acquired
Liabilities assumed:
Current liabilities
Assumed debt obligations
Deferred tax liabilities
Total liabilities assumed
Total consideration paid
$
$
65
577 $
23
5
282
1,280
116
2,888
5,171
208
2,159
403
2,770
2,401 $
100 $
780
-
560
3,410
620
7,540
13,010
1,909
-
1,181
3,090
9,920 $
5,085
2,376
99
930
352
3,479
12,321
677
803
5
842
4,690
736
10,428
18,181
2,117
2,159
1,584
5,860
12,321
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
The average useful lives of the identifiable intangible assets acquired were as follows:
Acquired software
Customer relationships
Domain and trade names
Woorank
Hawk Search
(in years)
5
8
12
5
10
15
Total revenue from the Woorank and Hawk Search acquisitions was $1.0 million and $1.9 million respectively, for the year ended September 30, 2021. Total earnings from the
acquisitions are impracticable to disclose as the operations were merged with existing operations and certain costs were not accounted for separately.
Pro Forma Information (Unaudited)
The following is the unaudited pro forma information assuming the acquisitions occurred on October 1, 2019:
(in thousands, except share and per share data)
Revenue
Net income (loss) attributable to common shareholders - basic
Net income (loss) attributable to common shareholders - diluted
Net income (loss) per share attributable to common shareholders:
Basic
Diluted
Weighted average common shares outstanding - basic
Weighted average common shares outstanding - diluted
17. Related Party Transactions
Year ended
September 30,
2021
Year ended
September 30,
2020
$
$
$
$
$
16,381 $
(8,773) $
(8,773) $
(1.49) $
(1.49) $
16,817
(2,971)
(2,971)
(0.84)
(0.84)
5,935,981
5,935,981
3,555,032
3,555,032
In October 2013, Mr. Michael Taglich joined the Board of Directors. Michael Taglich is the Chairman and President of Taglich Brothers, Inc. (“Taglich Brothers”), a New York
based securities firm. Taglich Brothers were the Placement Agents for many of the Company’s private offerings and debt issuances. In connection with previous private offerings
and debt issuances which occurred prior to the fiscal years presented in these consolidated financial statements, Taglich Brothers were granted Placement Agent Warrants to
purchase 10,926 shares of common stock at a weighted average price of $761.61 per share. As of September 30, 2021, Michael Taglich beneficially owns approximately 3.4% of the
Company’s stock.
In connection with the November 2016 Private Placement, the Company issued to the investors warrants to purchase an aggregate total of 4,270 shares of common stock. Included
were warrant shares issued to Roger Kahn (172 shares), the Company’s President and Chief Executive Officer, and Michael Taglich ( 308 shares). Each warrant share expires five
and one-half years from the date of issuance and is exercisable for $175 per share beginning six months from the date of issuance, or May 9, 2017. The warrants expire May 9, 2022.
66
BRIDGELINE DIGITAL, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
In consideration of previous loans made by Michael Taglich to the Company and the personal guaranty on a former third-party credit facility no longer maintained by the
Company, Mr. Taglich has been issued warrants to purchase common stock totaling 1,080 shares at an exercise price of $1,000 per share.
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 per month 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
million up to $1 million for an acquisition target over $200 million.
Michael Taglich purchased 350 units in the amount of $350 of Series C Preferred Stock and associated warrants in the private transaction consummated on March 13, 2019. Mr.
Taglich’s purchase was subject to stockholder approval pursuant to Nasdaq Marketplace Rule 5635(c), for which approval by the stockholders of the Company was obtained on
April 26, 2019.
In connection with the February and May 2021 Offerings (see Note 12), 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.
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
consolidated financial statements.
67
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
(a) Dismissal of Previous Independent Registered Accounting Firm
On February 26, 2021, the Audit Committee of the Company’s board of directors, informed Marcum LLP (“ Marcum”) of its decision to dismiss Marcum as the Company's
independent registered public accounting firm, effective as of that date.
Marcum’s report on the Company’s consolidated financial statements as of September 30, 2020 and September 30, 2019 did not contain an adverse opinion or a disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles, other than, in each of the years ended September 30, 2020 and September 30, 2019,
to include an explanatory paragraph regarding substantial doubt as to the Company’s ability to continue as a going concern.
During the years ended September 30, 2020 and September 30, 2019 and the subsequent interim period through February 26, 2021, there were no “disagreements” (as such term is
defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304) with Marcum on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Marcum would have caused Marcum to make reference to the subject matter
of the disagreements or reportable events in connection with its reports on the financial statements for such years. During the years ended September 30, 2020 and September 30,
2019 and the subsequent interim period through February 26, 2021, there have been no “reportable events” (as such term is defined in Item 304(a)(1)(v) of Regulation S-K).
In accordance with Item 304(a)(3) of Regulation S-K, the Company provided Marcum with a copy of the disclosure it is making in this Current Report on Form 8-K and requested
that Marcum furnish the Company with a copy of its letter addressed to the Securities and Exchange Commission stating whether Marcum agrees with the statements made by the
Company in response to Item 304(a) of Regulation S-K.
(b) Appointment of New Independent Registered Public Accounting Firm
On February 27, 2021, the Company’s Audit Committee approved the engagement of PKF O’Connor Davies (“ PKF”) as the Company’s new independent registered public
accounting firm for the fiscal year ending September 30, 2021, effective immediately. During the fiscal years ended September 30, 2020 and September 30, 2019 and through the
subsequent interim period as of February 26, 2021, neither the Company, nor any party on behalf of the Company, consulted with PKF regarding either (a) the application of
accounting principles to a specified transaction, either completed or proposed, or the audit opinion that might be rendered regarding the Company’s consolidated financial
statements, and no written report or oral advice was provided to the Company that PKF concluded was an important factor considered by the Company in deciding on any
accounting, auditing or financial reporting issue, or (b) any matter subject of any “disagreement” (as such term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related
instructions) or a “reportable event” (as such term is defined in Item 304(a)(1)(v) of Regulation S-K).
Item 9A. Controls and Procedures.
Management’s Report on Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of
1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such
information is accumulated and communicated to our management, including our President and Chief Executive Officer (Principal Executive Officer) and our Chief Financial Officer
(Principal Financial and Accounting Officer), as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and
procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired
control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and
procedures.
68
As of September 30, 2021, the end of our fiscal year covered by this report, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls
and procedures. Based on the foregoing, we concluded that our disclosure controls and procedures were effective as of the end of the period covered by this annual report.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Responsibility estimates and judgments by management are
required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not
absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s
authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States.
Our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2021. In making this assessment, our management used the criteria
set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in the 2013 Internal Control-Integrated Framework. Our management has
concluded that as of September 30, 2021, our internal control over financial reporting is effective in providing reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our management reviewed the results of its
assessment with our Board of Directors.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Company’s registered public accounting firm pursuant to a permanent exemption from the internal control audit requirements of Section
404(b) of the Sarbanes-Oxley Act of 2002.
Inherent Limitations on Effectiveness of Controls
Internal control over financial reporting has inherent limitations which include but are not limited to the use of independent professionals for advice and guidance, interpretation of
existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process
which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also
can be circumvented by collusion or improper management override. Provided its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements on a timely basis; however, these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards
to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement
preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal controls over financial reporting that occurred during the fiscal year ended September 30, 2021 that have materially, or are
reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
Item 10. Directors, Executive Officers and Corporate Governance.
The following table sets forth information regarding our directors and executive officers:
PART III
Name
Joni Kahn
Kenneth Galaznik
Scott Landers
Michael Taglich
Roger Kahn
Thomas R. Windhausen
Age
66
69
50
56
52
43
Position
Chairperson (1)(2)(3)(4)
Director (1)(2)(4)
Director (1)(2)(3)(4)
Director
Director, President and Chief Executive Officer
Chief Financial Officer (5)
(1)
(2)
(3)
(4)
(5)
Member of the Audit Committee.
Member of the Compensation Committee.
Member of the Nominating and Governance Committee.
Independent director.
Mr. Windhausen was appointed as our Chief Financial Officer and Treasurer effective November 30, 2021, following the resignation of our former
Chief Financial Officer, Mark G. Downey.
69
Biographies
Joni Kahn has been a member of our Board of Directors since April 2012. In May 2015, Ms. Kahn was appointed Chairperson of the Board of Directors. She also serves
as the Chair of the Compensation Committee and is a member of the Audit and Nominating and Governance Committees. Ms. Kahn has over thirty years of operating experience
with high growth software and services companies with specific expertise in the SaaS (Software as a Service), ERP (Enterprise Resource Planning) Applications, Business
Intelligence and Analytics and Cybersecurity segments. From 2013 to 2015, Ms. Kahn was the Senior Vice President of Global Services for Big Machines, Inc., which was
acquired by Oracle in October 2013. From 2007 to 2012, Ms. Kahn was Vice President of Services for HP’s Enterprise Security Software group. From 2005 to 2007, Ms. Kahn was
the Executive Vice President at BearingPoint where she managed a team of over 3,000 professionals and was responsible for North American delivery of enterprise applications,
systems integration and managed services solutions. Ms. Kahn also oversaw global development centers in India, China and the U.S. From 2002 to 2005, Ms. Kahn was the
Senior Group Vice President for worldwide professional services for Business Objects, a business intelligence and analytics software maker based in San Jose, CA, where she led
the applications and services division that supported that company's transformation from a products company to an enterprise solutions company. Business Objects was
acquired by SAP in 2007. From 2000 to 2007, Ms. Kahn was a Member of the Board of Directors for MapInfo, a global location intelligence solutions company. She was a member
of MapInfo’s Audit Committee and the Compensation Committee. MapInfo was acquired by Pitney Bowes in 2007. From 1993 to 2000, Ms. Kahn was an Executive Vice President
and Partner of KPMG Consulting, where she helped grow the firm’s consulting business from $700 million to $2.5 billion. Ms. Kahn received her B.B.A in Accounting from the
University of Wisconsin – Madison. Ms. Kahn brings extensive leadership experience to our Board and our Audit Committee as an experienced senior executive. Ms. Kahn has
over thirty years of executive level managerial, operational, and strategic planning experience leading world-class sales, service and support technology organizations. Her
service on prior boards also provides financial and governance experience.
Ms. Kahn brings extensive leadership experience to our Board and our Audit Committee as an experienced senior executive. Ms. Kahn has over thirty years of executive
level managerial, operational, and strategic planning experience leading world-class sales, service and support technology organizations. Her service on prior boards also
provides financial and governance experience.
The Board of Directors has determined that Ms. Kahn’s vast experience in the technology industry and finance, as well as her executive leadership, makes her qualified
to continue as the Chairperson and member of our Board of Directors.
70
Kenneth Galaznik has been a member of our Board of Directors since 2006. Mr. Galaznik is the Chairman of the Company’s Audit Committee and serves as a member of
the Compensation Committee. From 2005 to 2016, Mr. Galaznik was the Senior Vice President, Chief Financial Officer and Treasurer of American Science and Engineering, Inc., a
publicly held supplier of X-ray inspection and screening systems with a public market cap of over $200 million. Mr. Galaznik retired from his position at American Science and
Engineering on March 31, 2016. From August 2002 to February 2005, Mr. Galaznik was Vice President of Finance of American Science and Engineering, Inc. From November 2001
to August 2002, Mr. Galaznik was self-employed as a consultant. From March 1999 to September 2001, he served as Vice President of Finance at Spectro Analytical Instruments,
Inc. and has more than 35 years of experience in accounting and finance positions. Mr. Galaznik holds a B.B.A. degree in accounting from The University of Houston. Mr.
Galaznik brings extensive experience to our Board and our Audit Committee as an experienced senior executive, a financial expert, and as a chief financial officer of a publicly-held
company.
The Board of Directors has determined that Mr. Galaznik’s deep experience in finance and his executive leadership make him qualified to continue as a member of our
Board of Directors.
Scott Landers has been a member of our Board of Directors since 2010. Mr. Landers is the Chair of the Nominating and Corporate Governance Committee and serves as
a member of the Audit and Compensation Committees. Mr. Landers was President and Chief Executive Officer of Monotype Imaging Holdings, Inc. from 2016 to July 2021. He
previously held the positions of Chief Operating Officer and Chief Financial Officer from 2008 to 2015. Monotype is a leading provider of fonts and font software, and the
company was under both public and private ownership during his tenure. Prior to joining Monotype, from September 2007 until July 2008, Mr. Landers was the Vice President of
Global Finance at Pitney Bowes Software, a $450 million division of Pitney Bowes, a leading global provider of location intelligence solutions. From 1997 until September 2007,
Mr. Landers held several senior finance positions, including Vice President of Finance and Administration at MapInfo, a publicly held company which was acquired by Pitney
Bowes in April 2007. Earlier in his career, Mr. Landers was a Business Assurance Manager with Coopers & Lybrand. Mr. Landers holds a bachelor's degree in accounting from Le
Moyne College in Syracuse, N.Y. and a master’s degree in business administration from The College of Saint Rose in Albany, N.Y. Mr. Landers brings extensive experience to our
Board and our Audit Committee as an experienced senior executive, a financial expert, and a chief executive officer and a chief financial officer of a publicly-held company.
Our Board of Directors has determined that Mr. Lander’s financial skills, public-company experience, strategic business acumen and executive leadership make
him qualified to continue as a member of our Board of Directors.
Michael Taglich has been a member of our Board of Directors since 2013. He is the Chairman and President of Taglich Brothers, Inc., a New York City based securities
firm which he co-founded in 1992 with his brother Robert Taglich. Taglich Brothers, Inc. focuses on public and private micro-cap companies in a wide variety of industries. He is
currently the Chairman of the Board of Air Industries Group Inc., a publicly traded aerospace and defense company (NYSE AIRI), and Mare Island Dry Dock Inc., a privately-held
company. He also serves as a director of a number of other private companies. Michael Taglich brings extensive professional experience which spans various aspects of senior
management, including finance, operations and strategic planning. Mr. Taglich has more than 30 years of financial industry experience and served on his first public company
board over 20 years ago.
Our Board of Directors has determined that Mr. Taglich’s executive strategic business skills in both private and public companies, as well as his experience leading and
advising high-growth companies, make him qualified to continue as a member of our Board of Directors.
Roger Kahn has been a member of our Board of Directors since December 2017. Mr. Kahn joined the Company as the Chief Operating Officer in August 2015 and has
been our President and Chief Executive Officer since May 2016. Prior to joining Bridgeline Digital, Mr. Kahn co-founded FatWire, a leading content management and digital
engagement company. As the General Manager and Chief Technology Officer of FatWire, Mr. Kahn built the company into a global corporation with offices in thirteen countries.
FatWire was acquired by Oracle in 2011. Mr. Kahn received his Ph.D. in Computer Science and Artificial Intelligence from the University of Chicago.
Our Board of Directors has determined that Mr. Kahn’s vast experience as a successful entrepreneur in the technology space, as well as his technical and leadership
acumen, make him qualified to continue as a member of our Board of Directors.
Thomas Windhausen has served as the Company’s Chief Financial Officer and Treasurer since November 2021. Prior to that he served as the Company’s VP of Finance
since October 2021. Mr. Windhausen comes to Bridgeline with more than 20 years of experience in both public accounting and industry. Prior to joining the Company, Mr.
Windhausen served as a VP of Finance with Comtech Telecommunications Corp. from July 2019 to September 2021, and from June 2011 to June 2019, Mr. Windhausen held various
accounting and finance roles with Dealertrack Technologies, Inc., and its successor Cox Automotive Inc. Mr. Windhausen started his career at PricewaterhouseCoopers, where he
spent more than 10 years. He received his Bachelor’s of Science degree in Accounting from Le Moyne College in Syracuse, N.Y. and he is a member of the American Institute of
Certified Public Accountants and New York State Society of Certified Public Accountants.
71
There are no family relationships between any of the directors and the Company’s executive officers, including between Ms. Joni Kahn and Mr. Roger Kahn, the
Company’s President and Chief Executive Officer.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”) requires the Company’s executive officers, directors and persons who
beneficially own more than 10% of a registered class of the Company’s equity securities (collectively, the “Reporting Persons”) to file certain reports regarding ownership of, and
transactions in, the Company’s securities with the Securities and Exchange Commission (the “SEC”). These officers, directors and stockholders are also required by SEC rules to
furnish the Company with copies of all Section 16(a) reports that they file with the SEC. With respect to fiscal 2021 and 2020 and based solely on its review of the copies of such
forms and amendments thereto received by it, the Company believes that all of the executive officers, directors, and owners of ten percent of the outstanding Common Stock
complied with all applicable filing requirements.
Code of Conduct and Ethics
The Company's Board of Directors has adopted a Code of Ethics within the meaning of Item 406(b) of Regulation S-K of the Securities Act that applies to all of the
Company's officers and employees, including its principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar
functions. The Code of Ethics codifies the business and ethical principles that govern the Company's business. A copy of the Code of Ethics is available on the Company's
website www.bridgeline.com. The Company intends to post amendments to or waivers from its Code of Ethics (to the extent applicable to its principal executive officer, principal
financial officer or principal accounting officer) on its website. The Company's website is not part of this proxy statement.
The Company has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.
Committees of the Board of Directors
Audit Committee
The Audit Committee assists the Board in the oversight of the audit of our consolidated financial statements and the quality and integrity of our accounting, auditing
and financial reporting processes. The Audit Committee is responsible for making recommendations to the Board concerning the selection and engagement of independent
registered public accountants and for reviewing the scope of the annual audit, audit fees, results of the audit and auditor independence. The Audit Committee also reviews and
discusses with management and the Board such matters as accounting policies, internal accounting controls and procedures for preparation of financial statements. Our Audit
Committee is comprised of Mr. Galaznik (Chair), Ms. Kahn and Mr. Landers. Our Board has determined that each of the members of the Audit Committee meet the criteria for
independence under the standards provided by the Nasdaq Stock Market. The Board of Directors has adopted a written charter for the Audit Committee. A copy of such charter
is available on the Company's website, www.bridgeline.com. During Fiscal 2021, the Audit Committee met five times. Each member of the Audit Committee attended each such
meeting. The Chairman of the Audit Committee was present at all meetings.
Audit Committee Financial Expert. Our Board has also determined that each of Mr. Galaznik and Mr. Landers qualifies as an "audit committee financial expert" as
defined under Item 407(d) (5) of Regulation S-K and as an independent director as defined by the Nasdaq listing standards.
Compensation Committee
The Compensation Committee evaluates the performance of our senior executives, considers the design and competitiveness of our compensation plans, including the
review of independent research and data regarding compensation paid to executives of public companies of similar size and geographic location, reviews and approves senior
executive compensation and administers our equity compensation plans. In addition, the Committee also conducts reviews of executive compensation to ensure compliance with
Section 162(m) of the Internal Revenue Code of 1986, as amended. Our Compensation Committee is comprised of Ms. Kahn (Chair), Mr. Galaznik and Mr. Landers, all of whom are
independent directors. The Board of Directors has adopted a written charter for the Compensation Committee. A copy of such charter is available on the Company's website,
www.bridgeline.com. During Fiscal 2021, the Compensation Committee met four times and acted three times by unanimous written consent.
72
Nominating and Corporate Governance Committee
The Nominating and Governance Committee identifies candidates for future Board membership and proposes criteria for Board candidates and candidates to fill Board
vacancies, as well as a slate of directors for election by the shareholders at each annual meeting. The Nominating and Governance Committee also annually assesses and reports
to the Board on Board and Board Committee performance and effectiveness and reviews and makes recommendations to the Board concerning the composition, size and
structure of the Board and its committees. A copy of such charter is available on the Company's website, www.bridgeline.com. Our Nominating and Governance Committee is
comprised of Mr. Landers (Chair) and Ms. Kahn, each of whom are independent directors. During Fiscal 2021, the Nominating and Governance Committee met four times.
Item 11. Executive Compensation.
Summary Compensation Table
The following Summary Compensation Table sets forth the total compensation paid or accrued for the fiscal years ended September 30, 2021 and September 30, 2020 for our
principal executive officer and our other two most highly compensated executive officers who were serving as executive officers as of September 30, 2021. We refer to these
officers as our named executive officers.
Name and
Principal Position
Roger Kahn
President and Chief Executive Officer
Mark G. Downey
Executive Vice President and Chief Financial Officer
and Treasurer
Fiscal
Year End
2021
2020
2021
2020
$
$
$
$
Salary
Bonus
Total
318,750 $
300,000 $
240,000 $
240,000 $
135,791 $
15,624 $
58,949 $
5,000 $
454,541
315,624
298,949
245,000
Employment Agreements
Roger Kahn
On August 24, 2015, Mr. Roger “Ari” Kahn joined Bridgeline Digital, Inc. (the “Company”) as the Company’s Chief Operating Officer. On December 1, 2015, Mr. Kahn and
another were named Co-Interim Chief Executive Officers and Presidents and assumed the responsibilities of the Office of the Chief Executive Officer and President. On May 6,
2016, the Company appointed Mr. Kahn as President and Chief Executive Officer, effective May 10, 2016. Mr. Kahn’s employment agreement was amended and reported on Form
8-K filed with the SEC on May 13, 2016. A new employment agreement was entered into on September 13, 2019 by and between the Company and Mr. Kahn. The principal change
to Mr. Kahn’s employment agreement, is that it will automatically renew each fiscal year unless the Company provides written notice of its intent not to renew such employment
agreement at least sixty (60) days in advance of the Company’s fiscal year rather than the employment agreement only renewing upon notice from the Company. In furtherance of
Mr. Kahn’s employment with the Company, a first amendment to Mr. Kahn, which amended the September 12, 2019 employment agreement, entitles Mr. Kahn to an annual salary
of $330,000 starting on the date of the amendment and an annual bonus of $137,500.
73
Mark G. Downey
On November 30, 2021, Mr. Mark G. Downey resigned from his position of Chief Financial Officer of Bridgeline Digital, Inc. (“Bridgeline” or the “Company”) to pursue new
professional opportunities. Mr. Downey will continue to provide transition services to the Company as a consultant until January 30, 2022.
Thomas R. Windhausen
Effective November 30, 2021, Thomas R. Windhausen was appointed by the Company’s Board of Directors as Chief Financial Officer and Treasurer of the Company. The
Company and Mr. Windhausen entered into an employment agreement (the “Employment Agreement”), effective November 30, 2021 through September 30, 2022, unless
extended by mutual agreement of the Company and Mr. Windhausen, whereby he will receive an two-hundred and forty thousand dollars base salary and the ability to earn a bi-
annual incentive bonus of twenty-two thousand five hundred dollars, which incentive bonus may be awarded to Mr. Windhausen at the discretion of the Company’s
Compensation Committee. The Employment Agreement also provides that Mr. Windhausen will be eligible to participate in all other employee benefits plans and programs, and,
in the event Mr. Windhausen’s employment is terminated by the Company without cause, he is entitled to receive severance benefits.
The foregoing descriptions of the material terms of the Employment Agreement by and between the Company and Mr. Windhausen do not purport to be complete descriptions
and are qualified in their entirety by reference to the Employment Agreement, which is filed as Exhibit 10.29 on to this Form 10-K. There are no family relationships between Mr.
Windhausen and any director or executive officer of the Company.
Outstanding Equity Awards at Fiscal 2021 Year-End
The following table sets forth information concerning outstanding stock options for each named executive officer as of September 30, 2021.
Name
Roger Kahn
Number of
Securities
Underlying
Unexercised
Options
Exercisable (1)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable (1)
800
4,446
83,117
88,363
- $
- $
166,236 $
166,236
Grant
Date
8/24/2015
8/19/2016
11/20/2019
Exercise
Price ($/sh)
Option
Expiration
Date
287.50
205.00
1.40
8/24/2025
8/19/2026
11/20/2029
Mark G. Downey
11/20/2019
13,334
26,666 $
1.40
11/20/2029
(1) Shares vest in equal installments upon the anniversary date of the grant over three years.
Director Compensation
The non-employee members of our Board of Directors are compensated as follows:
● Compensation. Each outside director receives an annual retainer of $12,000 and is compensated $1,500 for each meeting such director attends in person. Members of the
Audit Committee receive additional annual compensation of $3,000.
● Committee Chair Bonus. The Chair of the Board of Directors receives an additional annual fee of $15,000. The Chair of the Audit Committee receives an additional annual
fee of $10,000. The Chairs of the Compensation Committee and Nominating and Corporate Governance Committee each receive an additional annual fee of $5,000. These
fees are payable in lump sums in advance. Other directors who serve on our standing committees, other than the Audit Committee, do not receive additional compensation
for their committee services.
74
Director Compensation Table
The following table sets forth information concerning the compensation paid to our non-employee directors during the fiscal year ended September 30, 2021.
Director
Ken Galaznik
Joni Kahn
Scott Landers
Michael Taglich
Annual
Retainer
Board
Meetings
Chairman
Additional
Total
$
$
12,000 $
12,000
12,000
12,000
48,000 $
6,000 $
6,000
6,000
6,000
24,000 $
10,000 $
15,000
5,000
-
30,000 $
- $
3,000
3,000
-
6,000 $
28,000
36,000
26,000
18,000
108,000
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Beneficial ownership is determined in accordance with Rule 13d-3 under the Exchange Act. In computing the number of shares beneficially owned by a person or a group and the
percentage ownership of that person or group, shares of our common stock subject to options or warrants currently exercisable or exercisable within 60 days after December 20,
2021 are deemed outstanding, but are not deemed outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated, the
address of each individual named below is our address, 100 Sylvan Road, Suite G-700, Woburn, Massachusetts 01801.
The following tables set forth, as of December 20, 2021, the beneficial ownership of our Series C Preferred and Common Stock by (i) each person or group of persons known to us
to beneficially own more than 5% of the outstanding shares of each class of the outstanding securities, (ii) each of our directors and named executive officers, and (iii) all of our
executive officers and directors as a group. At the close of business on December 20, 2021, there were 350 shares of our Series C Preferred and 10,187,128 shares of our Common
Stock issued and outstanding.
Except as indicated in the footnotes to the tables below, each stockholder named in the table has sole voting and investment power with respect to the shares shown as
beneficially owned by such stockholder.
This information is based upon information received from or on behalf of the individuals named herein.
Series C Preferred Stock
Name and Address
Michael and Claudia Taglich
790 New York Avenue
Huntington, NY 11743
All current executive officers and directors as a group
Number of
Shares
Owned (1)
350
350
Percent of Shares
Outstanding
100.00%
*
(1)
Holder of Series C Preferred are entitled to vote on all matters presented to our stockholders on an as-converted basis. Each share of Series C Preferred Stock is
convertible, at the option of each respective holder, into approximately 111.11 shares of Common Stock.
Common Stock
Name and Address
Michael Taglich
Director
Roger Kahn
President, Chief Executive Officer, Director
Kenneth Galaznik
Director
Scott Landers
Director
Joni Kahn
Director
Mark G. Downey
Chief Financial Officer and Treasurer
All current executive officers and directors as a group
Number of
Shares
Owned
360,229
174,627
38,259
38,222
38,232
26,667
676,236
Percent of Shares
Outstanding
3.44%
1.69%
0.37%
0.37%
0.37%
0.26%
6.28%
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(1)
Includes 195,662 shares issuable upon the exercise of warrants, and 37,708 shares of Common Stock subject to currently exercisable options (includes options that will
become exercisable within 60 days of September 30, 2021). Also includes 35 shares of Common Stock and 2 shares issuable upon the exercise of warrants owned by Mr.
Taglich’s spouse.
75
(2)
(3)
(4)
(5)
(6)
(7)
Includes 172 shares issuable upon the exercise of warrants and 171,481 shares of Common Stock subject to currently exercisable options (includes options that will
become exercisable within 60 days of September 30, 2021). Includes 545 shares of common stock owned by Mr. Kahn’s spouse.
Includes 37,660 shares of Common Stock subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2021).
Includes 37,660 shares of Common Stock subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2021).
Includes 8 shares of Common Stock owned by Mr. Lander’s children.
Includes 37,664 shares of Common Stock subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2021).
Includes 26,667 shares of Common Stock subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2021).
Includes 348,840 shares of Common Stock subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2021).
We maintain a number of equity compensation plans for employees, officers, directors and other entities and individuals whose efforts contribute to our success. The table
below sets forth certain information as of our fiscal year ended September 30, 2021, regarding the shares of our common stock available for grant or granted under our equity
compensation plans.
Equity Compensation Plan Information
Number of
securities
to be issued upon
exercise of
outstanding
options,
warrants and
rights
Weighted average
exercise price of
outstanding
options,
warrants and
rights
Plan category
(a)
(b)
Number of
securities
remaining
available
for future issuance
under equity
compensation
plans
(excluding securities
reflected
in column a) (c)
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders (1)
Total
799,201 $
1,788,745
2,587,946 $
4.66
4.18
-
4,045
-
4,045
(1) At September 30, 2021, there were 1,788,745 total Warrants outstanding.
76
Stock warrants outstanding at September 30, 2021 are as follows:
Type
Issue
Date
Shares
Extended
Price
Expiration
Placement Agent
Placement Agent
Placement Agent
Director/Shareholder
Director/Shareholder
Director/Shareholder
Director/Shareholder
Placement Agent
Placement Agent
Placement Agent
Investors
Director/Shareholder
Financing
Director/Shareholder
Investors
Placement Agent
Total
06-Nov-13
28-Mar-14
28-Oct-14
31-Dec-14
12-Feb-15
12-May-15
31-Dec-15
17-May-16
11-May-16
15-Jul-16
08-Nov-16
31-Dec-16
10-Oct-17
31-Dec-17
19-Oct-18
14-Apr-19
- $
- $
- $
- $
- $
- $
- $
- $
- $
- $
4,271 $
120 $
1,327 $
120 $
3,120 $
10,000 $
18,958
1,625.00
1,312.50
812.50
1,000.00
1,000.00
1,000.00
1,000.00
187.50
187.50
230.00
175.00
1,000.00
132.50
1,000.00
25.00
31.25
06-Nov-18
28-Mar-19
28-Oct-19
31-Dec-19
12-Feb-20
12-May-20
31-Dec-20
17-May-21
11-May-21
15-Jul-21
09-May-22
31-Dec-21
10-Oct-25
31-Dec-21
19-Oct-23
16-Oct-23
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 404(d) of Regulation S-K requires the Company to disclose any transaction or proposed transaction which occurred since the beginning of the two most recently completed
fiscal years in which the amount involved exceeds the lesser of $120,000 or one percent (1%) of the average of the Company’s total assets as of the end of the last two completed
fiscal years in which the Company is a participant and in which any related person has or will have a direct or indirect material interest. A related person is any executive officer,
director, nominee for director, or holder of 5% or more of the Company's Common Stock, or an immediate family member of any of those persons.
In accordance with our Audit Committee charter, our Audit Committee is responsible for reviewing and approving the terms of any related-party transactions. Therefore, any
material financial transaction between the Company and any related person would need to be approved by our Audit Committee prior to the Company entering into such
transaction.
In October 2013, Mr. Michael Taglich joined the Board of Directors. Michael Taglich is the Chairman and President of Taglich Brothers, Inc., a New York based securities firm.
Taglich Brothers, Inc. acted as placement agents for many of the Company’s private offerings in 2012, 2013, 2014, and 2016. They were also the placement agent for the
Company’s $3 million subordinated debt offering in 2013, the Series A Preferred Stock sale in 2015, and Promissory Term Notes in 2018. Michael Taglich has also guaranteed $1.5
million in connection with the Company’s out of formula borrowings on its credit facility with Heritage Bank. In consideration of previous loans made by Michael Taglich to the
Company and the personal guaranty to Heritage Bank of Commerce, Mr. Taglich has been issued warrants to purchase common stock totaling 1,080 shares at an exercise price of
$1,000.00 per share.
In connection with the Company’s private placement completed in November 2016, the Company issued to the Investors warrants to purchase an aggregate total of 4,271 shares
of common stock. Included were warrants to purchase 172 shares of common stock issued to Roger Kahn and warrants to purchase 308 shares of common stock issued to
Michael Taglich. Each warrant to purchase common stock expires five and one-half years from the date of issuance and is exercisable for $175.00 per share beginning six months
from the date of issuance, or May 9, 2017. The warrants expire May 9, 2022.
In connection with previous private offerings and debt issuances, Taglich Brothers, Inc. was granted Placement Agent Warrants to purchase 4,246 shares of common stock at a
weighted average price of $321.00 per share.
In September 2018, the Company sold and issued subordinate promissory notes (the “Promissory Term Notes”) to certain accredited investors (each, a “Purchaser”), pursuant to
which it issued to the Purchasers (i) Promissory Term Notes, in the aggregate principal amount of approximately $941,000. The Promissory Term Notes have an original issue
discount of fifteen percent (15%), bear interest at a rate of twelve percent (12%) per annum and have a maturity date of the earlier to occur of (a) six months from the date of
execution of the Note Purchase Agreement, or (b) the consummation of a debt or equity financing resulting in the gross proceeds to the Company of at least $3.0 million. Michael
Taglich participated in the Note Purchase Agreement in September 2018. Michael Taglich purchased Promissory Term Notes in the amount of approximately $122,000 pursuant to
the Note Purchase Agreement. Taglich Brothers, Inc. served as placement agent for the above transaction, for which services the Company paid to Taglich Brothers, Inc. $40,000
in cash compensation, or five percent (5%) of the net proceeds received by the Company.
77
In November 2018, the Company engaged Taglich Brothers, on a non-exclusive basis, to perform advisory and investment banking services to identify possible acquisition target
possibilities. Fees for the services were $8,000 per month for three months and $5,000 thereafter, cancellable at any time. Taglich Brothers could also earn a success fee ranging
from $200,000 for a revenue target acquisition of under $5 million up to $1 million for an acquisition target over $200 million. In connection with the asset purchase of Stantive,
Taglich Brothers earned a success fee of $200,000.
Michael Taglich purchased 350 units in the amount of $350,000 of Series C Preferred Stock and associated warrants in the private transaction consummated on March 13, 2019.
Mr. Taglich’s purchase was subject to stockholder approval pursuant to Nasdaq Marketplace Rule 5635(c), for which approval by the stockholders of the Company was obtained
on April 26, 2019.
In December 2019, the Company engaged Taglich Brothers, on a non-exclusive basis, to perform advisory services to restate the rights and limitations for the Bridgeline Digital,
Inc. Series A Convertible Preferred Stock. Fees for the services were $21,000.
In connection with the Company’s registered direct completed in February 2021, the Company issued Taglich Brothers 29,084 Investors warrants. Each warrant to purchase
common stock expires five years from the date of issuance and is non-cash exercisable for $3.875 per share beginning six-months from the date of issuance, or February 4, 2021.
The warrants expire February 4, 2026.
In connection with the Company’s Series D Preferred Stock registered direct and PIPE completed in May 2021, the Company issued Taglich Brothers 53,861 Investors warrants.
Each warrant to purchase common stock expires five years from the date of issuance and is non-cash exercisable for $2.850 per share beginning six-months from the date of
issuance, or May 14, 2021. The warrants expire May 12, 2026.
78
Item 14. Principal Accounting Fees and Services.
Audit Fees
The firm of PKF O’Connor Davies LLP acts as our principal independent registered public accounting firm. They have served as our independent auditors since February 27,
2021. Our previous independent registered public accounting firm was Marcum LLP. A representative of PKF O’Connor Davies LLP is expected to attend this year's Annual
Meeting, and they will have an opportunity to make a statement if they desire to do so. It is also expected that such representative will be available to respond to appropriate
questions.
The table below shows the aggregate fees that the Company paid or accrued for the audit and other services provided by PKF O’Connor Davies LLP and Marcum LLP for the
fiscal year ended September 30, 2021 and by Marcum LLP for the fiscal year ended September 30, 2020. The Company did not engage its independent registered public
accounting firms during either of the fiscal years ended September 30, 2021 or September 30, 2020 for any other non-audit services.
Type of Service
Audit Fees
Audit-Related Fees
Tax Fees
Total
Amount of Fee for Fiscal Year Ended
September 30, 2021
$261,951
68,544
—
$330,495
September 30, 2020
$261,397
—
—
$261,397
Audit Fees. This category includes fees for the audits of the Company's annual financial statements, review of financial statements included in the Company's Form 10-Q
Quarterly Reports and services that are normally provided by the independent auditors in connection with statutory and regulatory filings or engagements for the relevant fiscal
years. PKF O’Connor Davies LLP and Marcum LLP were $219,000 and $42,951, respectively, for fiscal year ended September 30, 2021.
Audit-Related Fees. This category consists of audits performed in connection with certain acquisitions. PKF O’Connor Davies LLP and Marcum LLP were $42,500 and
$26,044, respectively, for fiscal year ended September 30, 2021.
Tax Fees. This category consists of professional services rendered for tax compliance, tax planning and tax advice. The services for the fees disclosed under this category
include tax return preparation, research and technical tax advice.
There were no other fees paid or accrued to PKF O’Connor Davies, LLP or Marcum LLP in the fiscal years ended September 30, 2021 or September 30, 2020.
Audit Committee Pre-Approval Policies and Procedures.
Before an independent public accounting firm is engaged by the Company to render audit or non-audit services, the engagement is approved by the Audit Committee. Our
Audit Committee has the sole authority to approve the scope of the audit and any audit-related services as well as all audit fees and terms. Our Audit Committee must pre-
approve any audit and non-audit related services by our independent registered public accounting firm. During our fiscal year ended September 30, 2021, no services were
provided to us by our independent registered public accounting firm other than in accordance with the pre-approval procedures described herein.
79
Item 15. Exhibits and Financial Statement Schedules.
(a) Documents Filed as Part of this Form 10-K
1. Financial Statements (included in Item 8 of this report on Form 10-K):
PART IV
– Reports of Independent Registered Public Accounting Firm
–Consolidated Balance Sheets as of September 30, 2021 and 2020
–Consolidated Statements of Operations for the years ended September 30, 2021 and 2020
–Consolidated Statements of Comprehensive Income/(Loss) for the years ended September 30, 2021 and 2020
–Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2021 and 2020
–Consolidated Statements of Cash Flows for the years ended September 30, 2021 and 2020
–Notes to Consolidated Financial Statements
2. Financial Statement Schedules
–Not applicable
80
(b) Exhibits
Documents listed below, except for documents followed by a parenthetical, are being filed as exhibits. Documents followed by a parenthetical are not being filed herewith and,
pursuant to Rule 12b-32 of the General Rules and Regulations promulgated by the SEC under the Securities Exchange Act of 1934 (the Act), reference is made to such documents
as previously filed as exhibits with the SEC.
Filed
Herewith
Filed
Herewith
Exhibit
No.
1.1
3.1
3.2
3.3
3.4
3.5
3.6
4.1
Exhibit
Underwriting Agreement by and between Bridgeline Digital, Inc. and ThinkEquity,
dated October 16, 2018
Amended and Restated Certificate of Incorporation, as amended
Certificate of Designations of the Series A Convertible Preferred Stock
Amended and Restated By-Laws
Certificate of Designations of the Series B Convertible Preferred Stock
Amended and Restated By-Laws
Amendment to the Amended and Restated Bylaws of Bridgeline Digital, Inc., dated
September 9, 2021
Registration Rights Agreement, dated November 3, 2016, by and between Bridgeline
Digital, Inc. and the Investors party thereto
Form
8-K
10-Q
8-K
10-Q
8-K
8-K
8-K
8-K
May 15, 2013
November 4, 2014
February 17, 2015
October 19, 2018
December 14, 2018
September 20, 2021
November 4, 2016
10.3
Incorporated by Reference
Filing Date
October 19, 2018
Exhibit No.
10.1
Amended and Restated Stock Incentive Plan, as amended
DEF 14 A
July 14, 2014
C
Exhibit
No.
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
Exhibit
Form of Common Stock Purchase Warrant Issued to Placement Agent
Form of Common Stock Purchase Warrant Issued by Company to Michael Taglich
dated January 7, 2015
Form of Common Stock Purchase Warrant Issued by Company to Michael Taglich
dated February 17, 2015
Form of Restricted Stock Agreement
Form of Common Stock Purchase Warrant Issued by Company to Michael Taglich
dated May 12, 2015
Form of Common Stock Purchase Warrant Issued by Company to Michael Taglich
dated July 21, 2015
Bridgeline Digital Inc. 2016 Stock Incentive Plan
Form of Common Stock Purchase Warrant issued to Placement Agent
Placement Agreement between Bridgeline Digital, Inc and Taglich Brothers, Inc dated
March 31, 2016
Form of Securities Purchase Agreement dated November 3, 2016
Form of Purchaser Warrant
Form of Registration Rights Agreement dated November 3, 2016
81
Incorporated by Reference
Exhibit No.
Form
8-K
8-K
10-Q
10-Q
10-Q
8-K
Filing Date
November 4, 2014
January 9, 2015
February 17, 2015
May 15, 2015
May 15, 2015
July 24, 2015
DEF 14 A
8-K
8-K
8-K
8-K
8-K
March 22, 2016 Appendix B
May 17, 2016
June 15, 2016
November 4, 2016
November 4, 2016
November 4, 2016
10.3
10.3
10.1
10.2
10.3
1.1
3.1
3.1
3.2
3.1
3.1
3.1
10.2
10.2
10.2
10.6
10.9
10.2
8-K
8-K
8-K
8-K
10-Q
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
November 4, 2016
October 13, 2017
October 13, 2017
October 13, 2017
May 15, 2018
September 11, 2018
September 11, 2018
September 11, 2018
October 24, 2018
February 3, 2021
February 9, 2021
February 9, 2021
September 19, 2018
March 2, 2021
May 12, 2021
10.4
10.1
10.2
10.3
10.2
10.1
10.2
10.3
10.1
10.1
10.1
10.2
10.1
10.1
10.1
Incorporated by Reference
Form
Filing Date
Exhibit No.
10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.28
10.29
Form of Insider Securities Purchase Agreement dated November 3, 2016
Loan and Security Agreement between Bridgeline Digital, Inc and Montage Capital II,
L.P. dated October 10, 2017
Form of Warrant to Purchase Stock issued to Montage Capital II, L.P
Intercreditor Agreement between Heritage Bank of Commerce and Montage Capital II,
L.P dated October 10, 2017
First Amendment to the Loan and Security Agreement between Bridgeline Digital, Inc
and Montage Capital II. LP, dated May 10, 2018
Form of Note Purchase Agreement
Form of Promissory Note
Form of Subordination Agreement
Second Amendment to the Loan and Security Agreement between Bridgeline Digital,
Inc and Montage Capital II, L.P., dated October 22, 2018
Share Purchase Agreement, by and between the Company and Woorank SRL., dated
February 2, 2021
Form of Securities Purchase Agreement, dated February 4, 2021
Form of Placement Agent Warrant, dated February 4, 2021
Employment Agreement dated September 13, 2019 between Bridgeline Digital, Inc. and
Roger “Ari” Kahn
First Amendment to Roger “Ari” Kahn’s Employment Agreement dated February 25,
2021
Share Purchase Agreement, by and between the Company, Svanaco, Inc., an Illinois
corporation, Svanawar, Inc., an Illinois corporation, and Hawk Search Inc., an Illinois
corporation, dated May 11, 2021
Employment Agreement dated November 30, 2021 between Bridgeline Digital, Inc. and
Thomas R. Windhausen
Exhibit
No.
21.1
23.1
23.2
31.1
31.2
32.1
32.2
101.INS**
101.SCH**
101.CAL**
101.DEF**
101.LAB**
101.PRE**
104
Exhibit
Subsidiaries of the Registrant
Consent of PKF O’Connor Davies, LLP
Consent of Marcum LLP
CEO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CFO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
CEO Certification, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
CFO Certification, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Inline XBRL Instance
Inline XBRL Taxonomy Extension Schema
Inline XBRL Taxonomy Extension Calculation
Inline XBRL Taxonomy Extension Definition
Inline XBRL Taxonomy Extension Labels
Inline XBRL Taxonomy Extension Presentation
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in
Exhibit 101)
(c) Financial Statement Schedules
Not applicable
82
X
Filed
Herewith
X
X
X
X
X
X
X
X
X
X
X
X
X
X
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
BRIDGELINE DIGITAL, INC.
a Delaware corporation
By:
/s/ Roger Kahn
Name: Roger Kahn
December 20, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
Title
Date
/s/ Roger Kahn
Roger Kahn
/s/ Thomas R. Windhausen
Thomas R. Windhausen
/s/Kenneth Galaznik
Kenneth Galaznik
/s/ Joni Kahn
Joni Kahn
/s/ Scott Landers
Scott Landers
/s/ Michael Taglich
Michael Taglich
President and Chief Executive Officer,
Director
(Principal Executive Officer)
Chief Financial Officer
(Principal Financial Officer)
Director
Director
Director
Director
83
December 20, 2021
December 20, 2021
December 20, 2021
December 20, 2021
December 20, 2021
December 20, 2021
Exhibit No.
10.29
21.1
23.1
23.2
31.1
31.2
32.1
32.2
101.INS*
101.SCH*
101.CAL*
101.DEF*
101.LAB*
101.PRE*
104
Index of Exhibits
Description of Document
Employment Agreement dated November 30, 2021 between Bridgeline Digital, Inc. and Thomas R. Windhausen
Subsidiaries of the Registrant
Consent of PKF O’Connor Davies, LLP
Consent of Marcum LLP
CEO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
CFO Certification, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
CEO Certification, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
CFO Certification, Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Inline XBRL Instance
Inline XBRL Taxonomy Extension Schema
Inline XBRL Taxonomy Extension Calculation
Inline XBRL Taxonomy Extension Definition
Inline XBRL Taxonomy Extension Labels
Inline XBRL Taxonomy Extension Presentation
Cover Page Interactive Data File (embedded within the Inline XBRL and contained in Exhibit 101)
*XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is
deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
84
Exhibit 10.29
Bridgeline Digital, Inc., a Delaware Corporation (the "Employer” or the "Company”) and Thomas R. Windhausen (the "Employee”), in consideration of the mutual promises made
herein, agree as follows:
EMPLOYMENT AGREEMENT
ARTICLE 1
TERM OF EMPLOYMENT
Section 1.1 Specified Period. Employer hereby employs Employee, and Employee hereby accepts employment with Employer for the term beginning on November 30, 2021 (the
"Commencement Date”), and terminating on September 30, 2022 ("Initial Term”).
Section 1.2 Succeeding Term. At the end of the Initial Term, or any succeeding one-year term, this Employment Agreement shall renew for successive periods of one (1) year
each (a "Succeeding Term”) only if the Employer gives written notice of renewal to Employee not less than sixty (60) days prior to the end of the Initial Term. If such notice of
renewal is not provided to the Employee by the Employer this Employment Agreement will terminate, except the provisions of Sections 2.3, 2.4, 2.5 and 2.6 shall continue in force so
long as the Employee remains employed by the Employer or any Affiliate of the Employer, whether under this Agreement or not, and whether as a consultant or not, and shall
survive any termination of employment under this Agreement for the periods specified therein, all as is more specifically provided in Section 7.10. Once this Employment
Agreement terminates then the Employee shall become an employee at will at the end of the Initial Term or Succeeding Term.
Section 1.3 Employment Term Defined. As used herein, the phrase "employment term” refers to the entire period of employment of Employee by Employer hereunder, whether
such employment is during the Initial Term, Succeeding Term or, following the end of the Succeeding Term, as an employee at will.
ARTICLE 2
DUTIES AND OBLIGATIONS OF EMPLOYEE
Section 2.1 General Duties. Employee shall serve as the Company’s Chief Financial Officer (CFO). In such capacity, Employee shall do and perform all services, acts or things
consistent within the scope of his employment and with the Employee’s skill and expertise in accordance with the instructions of and policies set by Employer’s Chief Executive
Officer (CEO), or his designee. These services shall include but are not limited to the following: Financial record keeping, planning, compliance, and reporting for the company. It
includes the development of a financial and operational strategy, metrics tied to that strategy, and the ongoing development and monitoring of control systems designed to
preserve company assets and report accurate financial results. Regulatory, including SEC and NASDAQ, compliance and reporting are part of the CFOs responsibility. The CFO
will serve as a signatory for the Company’s quarterly and annual reports under Section 302 as required by the Sarbanes-Oxley Act of 2002. The CFO will be expected to assist the
CEO in capital raises, investor relations, and banking. Employee shall perform such services in Bridgeline’s New York office or at such other location as may be designated by
Employer. The Employee shall be available to make business trips within the United States and / or Internationally for the purpose of meeting with and consulting with other
members of the Employer’s management, as well as with present and proposed customers and parties with whom the Employer does business, all on reasonable terms, bearing in
mind the position of the Employee.
Section 2.2 Devotion to Employer’s Business.
(a) Employee shall devote his best efforts and entire productive time, ability, and attention to diligently promote and improve the business of Employer during the
Term.
(b) Employee shall not engage in any other business duties or pursuits whatsoever, or directly or indirectly render any services of a business, commercial or
professional nature to any other person or organization, whether for compensation or otherwise, without the prior written consent of the Employer’s CEO. This Agreement shall
not be interpreted to prohibit Employee from making passive personal investments or conducting private business affairs if those private business affairs do not materially interfere
with the services required under this Agreement.
Section 2.3 Confidential Information; Tangible Property; Competitive Activities.
(a) Employee shall hold in confidence and not use or disclose to any person or entity without the express written authorization of Employer, either during the term of
employment or any time thereafter, secret or confidential information of Employer, as well as secret or confidential information and materials received in confidence from third
parties by Employee or Employer. If any confidential information described below is sought by legal process, Employee will promptly notify Employer and will cooperate with
Employer in preserving its confidentiality in connection with any legal proceeding.
The parties hereto hereby stipulate that, to the extent it is not known publicly, the information described in this Section (herein referred to as "Confidential Information”) is
important, material and has independent economic value (actual or potential) from not being generally known to others and that any breach of any terms of this Section 2.3 is a
material breach of this Agreement: (i) the names, buying habits and practices of Employer’s customers or prospective customers; (ii) Employer’s sales and marketing strategy and
methods and related data; (iii) the names of Employer’s vendors and suppliers; (iv) cost of materials/services; (v) the prices Employer obtains or has obtained or for which it sells
or has sold its products or services; (vi) development costs; (vii) compensation paid to employees or other terms of employment; (viii) Employer's past and projected sales
volumes; (ix) confidential information relating to actual products, proposed products or enhancements of existing products, including, but not limited to, source code, programming
instructions, engineering methods and techniques, logic diagrams, algorithms, development environment, software methodologies, and technical specifications for the Employer’s
web design and content management software. Confidential Information shall also include all information which the Employee should reasonably understand is secret or
confidential information, Confidential Information shall also include all information which the Employee should reasonably understand is secret or confidential information, if the
Employee has participated in or otherwise been involved with the development, analysis, invention or origination of such Confidential Information belonging to the Employer,
including, without limitation, methods, know-how, formula, customer and supplier lists, personnel and financial data, business plans, as well as product information, product plans
and product strategies. Notwithstanding the foregoing, "Confidential Information” does not include any information which (A) is now available to the public or which becomes
available to the public, (B) is or becomes available to the Employee from a source other than the Employer and such disclosure is not a breach of a confidentiality agreement with
the Employer, or (C) is required to be disclosed by any government agency or in connection with a court proceeding.
All Confidential Information, as well as all software code, methodologies, models, samples, tools, machinery, equipment, notes, books, correspondence, drawings and
other written, graphical or electromagnetic records relating to any of the products of Employer or relating to any of the Confidential Information of Employer which Employee shall
prepare, use, construct, observe, possess, or control shall be and shall remain the sole property of Employer and shall be returned by Employee upon termination of employment.
(b) During his employment and for twelve (12) months after the termination of his employment for any reason whatsoever, Employee shall not, directly or indirectly,
without the written consent of the Employer: (i) invest (except for the ownership of less than 3% of the capital stock of a publicly held company), or hold a directorship or other
position of authority in any of the Company's Direct Competitors ("Direct Competitors” defined as: EpiServer, Kentico, SiteCore, Acquia, CrownPeak, Hippo, SharpSpring,
HubSpot, or Marketo or ("Competitive Services” defined as design and development for third parties of: Internet/Intranet/Extranet Web sites and Web applications, content
management software, document management software, analytics software, eCommerce, eMarketing, or services such as Web consulting services or Web hosting services)), (ii)
undertake preparation of or planning for an organization or offering of Competitive Services, (iii) combine or collaborate with other employees or representatives of the Employer or
any third party for the purpose of organizing, engaging in, or offering Competitive Services, or (iv) be employed by, serve as a consultant to or otherwise provide services to
(whether as principal, partner, shareholder, member, officer, director, stockholder, agent, joint venturer, creditor, investor or in any other capacity), or participate in the management
of a Direct Competitor or participate in any other business that the Employer may be engaged or is planning to undertake in at the date of the termination of this Agreement.
Notwithstanding any to the contrary contained in this Section 2.3, in the event your employment is terminated for reasons in which economic factors are considered (specifically, a
layoff or closing of the office where you are employed), then the provisions of this Section 2.3 shall not apply. However, all other provisions of this Agreement shall remain in full
force and effect, including without limitation sections 2.3(a), 2.3(c) through 2.3(f).
(c) During his employment and for twelve (12) months after the termination of such employment for any reason whatsoever, Employee shall not become employed by,
associated with, or engaged by, in any capacity whatsoever, any customer, client or account (as defined below) of the Employer whereby Employee provides services to such
customer, client or account similar to those provided by the Employer to the customer, client or account during Employee’s employment. Employee acknowledges and understands
that Employer’s customers, clients and accounts have executed or will execute agreements pursuant to which the customer, client or account agrees not to hire Employer’s
employees.
(d) During his employment and for twelve (12) months after the termination of such employment for any reason whatsoever, Employee shall not, directly or indirectly,
without the consent of the Employer: contact, recruit, solicit, induce or employ, or attempt to contact, recruit, solicit, induce or employ, any employee, consultant, agent, director or
officer of the Employer to terminate his employment with, or otherwise cease any relationship with, the Employer; or contact, solicit, divert, take away or accept business from, or
attempt to contact, solicit, divert or take away, any clients, customers or accounts, or prospective clients, customers or accounts, of the Employer, or any of the Employer’s
business with such clients, customers or accounts which were, directly or indirectly, contacted, solicited or served by Employee, or were directly or indirectly under his
responsibility, while Employee was employed by the Company, or the identity of which Employee became aware during the term of his employment.
As used in this agreement the term "client," "customer," or "accounts" shall include: (i) any person or entity that is a client, customer or account of the Employer on the
date hereof or becomes a client, customer or account of the Employer during the Employee’s employment; (ii) any person or entity that was a client, customer or account of the
Employer at any time during the two-year period preceding the date of Employee’s termination; and (iii) any prospective client, customer or account to whom the Employer has
made a presentation (or similar offering of services) within a period of 180 days preceding the date of the termination of Employee’s employment.
(e) The covenants of this Section 2.3 shall be construed as separate covenants covering their subject matter in each of the separate counties and states in the United
States in which Employer (or its Affiliates) transacts its business. If at any time the foregoing provisions shall be deemed to be invalid or unenforceable or are prohibited by the
laws of the state or place where they are to be enforced, by reason of being vague or unreasonable as to duration or place of performance, this Section shall be considered divisible
and shall become and be immediately amended to include only such time and such area as shall be determined to be reasonable and enforceable by the court or other body having
jurisdiction over this Agreement; and the Employer and the Employee expressly agree that this Section, as so amended, shall be valid and binding as though any invalid or
unenforceable provision had not been included herein.
(f) The Employee represents and warrants that Employee is free to enter into this Agreement and to perform each of the terms and covenants contained herein, and
that doing so will not violate the terms or conditions of any agreement between Employee and any third party.
Section 2.4 Inventions and Original Works.
(a) Subject to Section 2.4(b) below, the Employee agrees that he will promptly make full written disclosure to Employer, will hold in trust for the sole right and benefit
of Employer, and hereby irrevocably assigns to Employer without any additional compensation all of his right, title and interest in and to any and all inventions (and patent rights
with respect thereto), original works of authorship (including all copyrights with respect thereto), developments, improvements or trade secrets which Employee may solely or
jointly conceive or develop or reduce to practice, or cause to be conceived or developed or reduced to practice, relating to or concerning the business of the Employer, whether or
not conceived, developed or reduced to practice: (i) during working hours, (ii) while on Employer premises, (iii) with use of Company equipment, materials or facilities, or (iv) while
performing his duties under this Agreement ("Employer Intellectual Property”).
Employee acknowledges that all original works of authorship relating to the business of Employer which are made by his (solely or jointly with others) within the scope of
his duties under this Agreement and which are protectable by copyrights are "works made for hire” as that term is defined in the United States Copyright Act (17 U.S.C.A., Section
101), and that Employee is an employee as defined under that Act. Employee further agrees from time to time to execute written transfers to Employer of ownership or specific
original works or authorship (and all copyrights therein) made by Employee (solely or jointly with others) which may, despite the preceding sentence, be deemed by a court of law
not to be "works made for hire” in such form as is acceptable to Employer in its reasonable discretion. Employee hereby waives in favor of Employer and its assigns and licensees
any and all artist’s or moral rights Employee may have in respect of any Invention pursuant to any local, state or federal laws or statutes of the United States and all similar rights
under the laws of all jurisdictions.
(b) The parties agree that the "business of the Employer” for the purposes of this Section 2.4 is acting as "a designer and developer for third parties of
Internet/Intranet/Extranet Web sites and Web applications, content management software, document management software, analytics software, eCommerce, eMarketing, or
services such as Web consulting services or Web hosting services”. Employee shall provide to Employer, and attach hereto as Exhibit 2.4(b), a list identifying and describing in
reasonable detail all inventions (and patent rights with respect thereto), original works of authorship (including all copyrights with respect thereto), developments, improvements,
concepts or trade secrets which Employee has solely or jointly conceived or developed or reduced to practice, or caused to be conceived or developed or reduced to practice to
date, and other intellectual property of the Employee. For the avoidance of doubt, Employee will identify on Exhibit 2.4(b) with sufficient detail any intellectual property belonging
to the Employee prior to the date hereof, including that related to the business of the Employer (collectively the "Employee's Personal Intellectual Property”). Employer
acknowledges and agrees that the provisions of Section 2.4(a) shall not apply to Employee’s Personal Intellectual Property or to any inventions (and patent rights with respect
thereto), original works of authorship (including all copyrights with respect thereto), developments, improvements, concepts or trade secrets conceived of or developed by
Employee during the term of this Agreement that is not Employer Intellectual Property.
Section 2.5 Maintenance of Records. Except with respect to the Intellectual Property for which the Employer has no rights, Employee agrees to keep and maintain reasonable
written records of all inventions, original works of authorship, trade secrets developed or made by his (solely or jointly with others) during the employment term. The Employee
also agrees to make and maintain adequate and reasonable written records customarily maintained by corporate managers, including, without limitation, lists and telephone
numbers of persons and companies he has contacted during his engagement by the Employer. Immediately upon the Employer’s request and promptly upon termination of the
Employee’s engagement with the Employer, the Employee shall deliver to the Employer all written records as described in this Section, together with all memoranda, notes, records,
reports, photographs, drawings, plans, papers, computer storage media, Confidential Information or other documents made or compiled by the Employee or made available to the
Employee during the course of his engagement by the Employer, and any copies or abstracts thereof, whether or not of a secret or confidential nature, and all of such records,
memoranda or other documents shall, during and after the engagement of the Employee by the Employer, be and shall be deemed to be the property of the Employer.
Section 2.6 Obtaining Letters Patent and Copyright Registration. During the employment term hereunder, Employee agrees to assist Employer, at Employer’s expense, to
obtain United States or foreign letters patent, and copyright registrations (as well as any transfers of ownership thereof) covering inventions and original works of authorship
assigned hereunder to Employer. Such obligation shall continue beyond the termination of this Agreement for a reasonable period of time not to exceed one (1) year subject to
Employer’s obligation to compensate Employee at such rates as may be mutually agreed upon by the Employer and Employee at the time, but not exceeding the annualized rate
provided for in Section 4.1 of this Agreement, and reimbursement to Employee of all expenses incurred.
If Employer is unable for any reason whatsoever, including Employee’s mental or physical incapacity to secure Employee’s signature to apply for or to pursue any application for
any United States of foreign letters, patent or copyright registrations (or any document transferring ownership thereof) covering inventions or original works or authorship
assigned to Employer under this Agreement, Employee hereby irrevocably designates and appoints Employer and its duly authorized officers and agents as Employee's agent and
attorney-in-fact to act for and in his behalf and stead to execute and file any such applications and documents and to do all other lawfully permitted acts to further the prosecution
and issuance of letters patent or copyright registrations or transfers thereof with the same legal force and effect as if executed by Employee. This appointment is coupled with an
interest in and to the inventions and works of authorship and shall survive Employee's death or disability. Employee hereby waives and quitclaims to Employer any and all claims
of any nature whatsoever which Employee now or may hereafter have against third parties for infringement of any patents or copyrights resulting from or relating to any such
application for letters, patent or copyright registrations assigned hereunder to Employer.
ARTICLE 3
COMPENSATION OF EMPLOYEE
Section 3.1 Annual Salary. As compensation for Employee’s services hereunder, Employee shall be paid a salary at the rate of Ten Thousand Dollars and 00/100 ($10,000.00)
semi-monthly (the equivalent of Two Hundred Forty Thousand Dollars and 00/100 ($240,000.00) per year ("Salary”) from the Commencement Date. Salary shall be paid in equal
installments not less frequently than twice each month.
Section 3.2 Semi-Annual Bonus. The Employee shall be eligible to be paid a semi-annual bonus earned in accordance with the terms set forth on Exhibit 3.2.
Section 3.3 Tax Withholding. Employer shall have the right to deduct or withhold from the compensation due to Employee hereunder any and all sums required for federal
income and social security taxes and all state or local taxes now applicable or that may be enacted and become applicable in the future, for which withholding is required by law.
ARTICLE 4
EMPLOYEE BENEFITS
Section 4.1 Annual Vacation. Employee shall be entitled to twenty (20) business days of paid vacation during each year of this Agreement. Employee may be absent from his
employment for vacation at such times as are pre-approved by the Employer’s CEO. Unused vacation shall not be carried over into the next year and will not be paid in the form of
cash.
Section 4.2 Benefits. Employee shall be eligible to participate in benefit plans provided by Employer, including health, and life insurance coverage should Employer elect to
participate in any such plans.
Section 4.3 Business Expenses. Employer shall reimburse Employee for all appropriate expenses for travel and entertainment by Employee for legitimate business purposes,
provided that they are approved in writing by the Company’s CEO or his designee, and provided that Employee furnishes to Employer adequate records and documentary
evidence for the substantiation of each such expenditure, as required by the Internal Revenue Code of 1986, as amended. Per the Company’s policy’s, expense reports must be
submitted each month to ensure reimbursement.
ARTICLE 5
TERMINATION OF EMPLOYMENT
Section 5.1 Termination. Employee’s employment hereunder may be terminated by Employee or Employer as herein provided, without further obligation or liability, except as
expressly provided in this Agreement.
Section 5.2 Resignation, Retirement, Death or Disability. Employee’s employment hereunder shall be terminated at any time by Employee’s resignation, or by Employee’s
retirement, death, or his inability to perform the essential functions of his position under this Agreement, with or without reasonable accommodation, for a total of ninety (90) days
or more in any continuous two hundred (200) day period because of a substantial physical or mental impairment ("Disability”). Employer shall not be liable for payment of base or
bonus compensation during any period of disability, though benefits shall continue to accrue.
Section 5.3 Termination for Cause. Employee’s employment hereunder may be terminated for Cause. "Cause" is conduct, as determined by the CEO, or his designee,
involving one or more of the following: (i) gross misconduct by the Employee; or (ii) the willful disregard of the rules or policies of the Company, provided that the Company must
provide Employee with written notice from the Company of such willful disregard of the rules or policies of the Company and Employee fails to cure (if curable) such willful
disregard of the rules or policies of the Company within five business days of such notice; or (iii) the violation of any noncompetition or nonsolicitation covenant with, or
assignment of inventions obligation to, the Company; or (iv) the formal charge of the Employee of a felony; or (v) the commission of an act of embezzlement, fraud or breach of
fiduciary duty against the Company (vi) engagement in a specific act or pattern of behavior which, in the reasonable opinion of the Company, impugns the reputation of the
Company or which creates an environment materially non-conducive to the growth and development of the Company; (vii) the failure of the Employee to perform in a material
respect his employment obligations as set forth in this Agreement without proper cause and the continuation thereof after delivery to Employee of written notice from the Employer
specifying in reasonable detail the nature of such failure. For purposes of this Section, no act, or failure to act, on the Employee’s part shall be considered "willful” unless done, or
omitted to be done, by his not in good faith and without reasonable belief that his action or omission was in the best interest of the Employer.
Section 5.4 Termination Without Cause. Employee’s employment hereunder may be terminated without Cause for any reason.
Section 5.5 Expiration. Employee's employment hereunder shall be terminated upon expiration of the Term of Employment as provided in Sections 1.1 and 1.2, unless the
parties agree that the Employee's employment shall become "at will.”
Section 5.6 Notice of Termination. Any termination of the Employee’s employment by the Employer or by the Employee (other than termination by reason of resignation,
retirement, or death), shall be communicated by written Notice of Termination to the other party hereto. For purposes of this Agreement, a "Notice of Termination” shall mean a
notice which shall include the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the Employee's employment under the provision so indicated.
Section 5.7 Date of Termination. The "Date of Termination” shall be: (a) if the Employee’s employment is terminated by his death, the date of his death; (b) if the Employee’s
employment is terminated by reason of Employee’s disability, thirty (30) days after Notice of Termination is given; (c) if the Employee's employment is terminated for Cause, the
date the Notice of Termination is given or after if so specified in such Notice of Termination; (d) if the Employee's employment is terminated for any other reason, the date on which
a Notice of Termination is given.
ARTICLE 6
PAYMENTS TO EMPLOYEE UPON TERMINATION
Section 6.1 Death, Disability or Retirement. In the event of Employee’s Retirement, Death or Disability, all benefits generally available to Employer's employees as of the date
of such an event shall be payable to Employee or Employee's estate, in accordance with the terms of any plan, contract, understanding or arrangement forming the basis for such
payment. Neither Employer nor any affiliate shall have any further obligation to Employee under this Agreement or otherwise, except for payment to Employee of any and all
accrued salary and bonuses, provision of the opportunity to elect COBRA health care continuation and otherwise as may be expressly required by law.
Section 6.2 Termination for Cause or Resignation. In the event Employee is terminated by Employer for Cause or Employee resigns, neither Employer nor any affiliate shall
have any further obligation to Employee under this Agreement or otherwise, except for payment to Employee of any and all accrued salary and bonuses, provision of the
opportunity to elect COBRA health care continuation and otherwise as may be expressly required by law.
Section 6.3 Termination Without Cause. Subject to other provisions in this Article 6 to the contrary and during the Initial Term and any Succeeding Annual Terms only, upon
the occurrence of a termination without Cause by Employer, Employer shall:
(a) Pay to Employee any and all accrued salary, bonuses and vacation;
(b) Pay to Employee, or in the event of Employee's subsequent death, to Employee's surviving spouse, or if none, to Employee's estate, as severance pay or liquidated
damages, or both, a sum equal to (i) the monthly rate of Salary payable under this Agreement for a period of three (3) months; provided, however in the event of Change of Control
(See Section 6.4) of the Company the Employer, or in the event of Employee's subsequent death, to Employee's surviving spouse, or if none, to Employee's estate, as severance
pay or liquidated damages the monthly rate of Salary payable under this Agreement for a period of four (4) months;
(c) Cause any stock options issued to Employee which have not lapsed and which are not otherwise exercisable to be accelerated so as to immediately exercisable by
Employee;
(d) Pay the Employer’s portion of the COBRA health insurance continuation premium in the same amount Employer contributed for Employee’s health insurance as of
the date of Employee’s termination for a period of three (3) months and thereafter provide Employee the opportunity to continue to elect COBRA health care continuation at
Employee’s cost (provided that the Employee makes the required premium contributions); provided, however, that Employer's obligation to contribute its portion of the COBRA
insurance premium during this three month period will cease immediately in the event Employee becomes employed following termination. Employee agrees to notify Employer
immediately regarding such new employment; and
(e) Provide to Employee such other payments or benefits as may be expressly required by law.
Section 6.4 Definition. A "Change in Control” will be deemed to have occurred only if any of the following events have occurred:
(a) any "person”, as such term is used in Section 13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act”), (other than the
Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any corporation owned directly or indirectly by the stockholders of
the Company in substantially the same proportion as their ownership in stock of the Company) is or becomes the "beneficial owner” (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company representing twenty percent (20%) or more of the combined voting power of the Company’s then outstanding securities;
(b) individuals who constitute the Board (as of the date hereof, the "incumbent Board”) cease for any reason to constitute at least a majority of the Board, provided that
any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company stockholders, was approved by a vote of at least a
majority of the directors them comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an
actual or threatened election contest relating to the election of directors of the Company, as such terms used in Rule 14a-11 of Regulation 14A under the Exchange Act) will be, for
purposes of this Employment Agreement, considered as though such person were a member of the Incumbent Board; or
(c) the stockholders of the Company approve a merger or consolidation of the Company with any other corporation, and such merger or consolidation is consummated,
other than (A) a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the surviving entity) at least fifty percent (50%) of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such merger or consolidation of the Company or (B) a merger or consolidation effected to implement a
recapitalization of the Company (or similar transaction) in which no "person” (as hereinabove defined) acquires more than seventy-five percent (75%) of the combined voting
power of the Company’s then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or
substantially all of the Company’s assets.
ARTICLE 7
GENERAL PROVISIONS
Section 7.1 Notices. Any notices to be given hereunder by either party to the other shall be in writing and may be transmitted by personal delivery or by mail, first class,
postage prepaid, or by electronic facsimile or email transmission (with verification of receipt). Mailed notices shall be addressed to the parties at their respective addresses set
forth herein. Each party may change that address by written notice in accordance with this section. Notices delivered personally shall be deemed communicated as of the date of
actual receipt. Mailed notices shall be deemed communicated as of one day after the date of mailing.
Section 7.2
Governing Law; Jurisdiction. This Agreement shall be governed by, construed and interpreted in accordance with the laws of the Commonwealth of
Massachusetts, without regard to its principles of conflicts of laws. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this
Agreement or any of the transactions contemplated hereby, shall be brought against any of the parties in the courts of the Commonwealth of Massachusetts, and each of the
parties irrevocably submits to the exclusive jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding, waives any objection to venue
laid therein, agrees that all claims in respect of any action or proceeding shall be heard and determined only in any such court and agrees not to bring any action or proceeding
arising out of or relating to this Agreement or any transaction contemplated hereby in any other court. Process in any action or proceeding referred to in the preceding sentence
may be served on any party anywhere in the world.
Section 7.3 Attorney’s Fees and Costs. If Employer or Employee commences any action at law or in equity against arising out of or relating to this Agreement (other than any
statutory cause of action relating to employment, including but not limited to claims under state and federal employment laws) the prevailing party (Employer/Employee) in such
action, shall reimburse the other its reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which the other party may be entitled. This
provision shall be construed as applicable to the entire contract.
Section 7.4 Entire Agreement. This Agreement supersedes any and all other agreements, either oral or in writing, between the parties hereto with respect to the subject matter
contained herein and contains all of the covenants and agreements between the parties with respect to that subject matter, including without limitation, any prior Employment
Agreement between Employer and Employee. Each party to this Agreement acknowledges that no representation, inducement, promise or agreement, orally or otherwise, have
been made by any party, or anyone acting on behalf of either party, which is not embodied herein, and that no other agreement, statement or promise not contained in this
Agreement shall be valid or binding on either party.
Section 7.5 Modification. Any modification of this Agreement will be effective only if it is in writing and signed by the Employee and properly authorized by Employer's Board
of Directors and signed by the CEO of Employer.
Section 7.6 Effect of Waiver. The failure of either party to insist on strict compliance with any of the terms, covenants or conditions of this Agreement by the other party shall
not be deemed a waiver of that term, covenant or condition, nor shall any waiver or relinquishment of any right or power at any one time or times be deemed a waiver or
relinquishment of that right or power for all or any other times.
Section 7.7 Partial Invalidity. If any provision in this Agreement is held by a court of competent jurisdiction to be invalid, void or unenforceable, the remaining provisions
shall nevertheless continue in full force without being impaired or invalidated in any way.
Section 7.8 Assignment. The rights and obligations of the parties hereto shall inure to the benefit of, and shall be binding upon, the successors and assigns of each of them;
provided, however, that the Employee shall not, during the continuance of this Agreement, assign this Agreement without the previous written consent of the Employer, and
provided, further, that nothing contained in this Agreement shall restrict or limit the Employer in any manner whatsoever from assigning any or all of its rights, benefits or
obligations under this Agreement to any successor corporation or entity or to any affiliate of the Employer without the necessity of obtaining the consent of the Employee.
"Affiliate” as used throughout this Agreement means any person or entity which directly or indirectly controls, or is controlled by, or is under common control with, the Employer.
Section 7.9 Specific Performance. If there is any violation of the Employee's obligations herein contained, the Employer, or any of its Affiliates, shall have the right to specific
performance in addition to any other remedy which may be available at law or at equity.
Section 7.10 Survival of Sections. The provisions of Sections 2.3, 2.4, 2.5 and 2.6 shall continue in force so long as the Employee remains employed by the Employer or any
Affiliate of the Employer, whether under this Agreement or not, and whether as a consultant or not, and shall survive any termination of employment under this Agreement for the
periods specified therein. Notwithstanding the foregoing, the provision of Sections 2.5 shall survive for only three years following any termination of employment.
Section 7.11 Injunctive Relief/Acknowledgement. Employee understands and acknowledges that the Employer's Proprietary Information, Inventions and good will are of a
special, unique, unusual, extraordinary character which gives them a peculiar value, the loss of which cannot be reasonably compensated by damages in an action at law. Employee
understands and acknowledges that, in addition to any and all other rights or remedies that the Employer may possess, Employer shall be entitled to injunctive and other equitable
relief, without posting a bond, to prevent a breach or threatened breach of this Agreement (and/or any provision thereof) by Employee. In the event that a court of appropriate
jurisdiction awards the Company injunctive or other equitable relief due to Employee’s breach of the terms of this Agreement, Employee agrees that the time periods provided in
Article 2.3 of this Agreement shall be tolled for the period during which Employee is in breach of the Agreement and shall resume once Employee complies with such injunctive or
other equitable relief.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly authorized officers as an instrument under seal on 12/1/2021.
Employer:
Bridgeline Digital, Inc.
By:/s/ Roger "Ari” Kahn
Roger "Ari” Kahn
President & Chief Executive Officer
Employee:
/s/ Thomas R. Windhausen
Thomas R. Windhausen
EXHIBIT 2.4(b)
Employee’s Personal Intellectual Property
EXHIBIT 3.2
Thomas R. Windhausen Incentive Bonus: You will have the opportunity to earn an incentive bonus of Twenty-Two Thousand Five Hundred Dollars and 00/100 ($22,500.00) semi-
annually for a total of up to Forty Five Thousand Dollars and 00/100 ($45,000.00) annually based on the achievement of certain goals listed below. The bonus periods shall be the
first and second half of the Company’s fiscal year. The bonus amount for the first Bonus Period shall be pro-rated based on the number of days you are employed the Company
during that period.
Bonus Terms: To be determined by the Chief Executive Officer.
For purposes of all bonuses that are covered by this Agreement, such amounts shall be considered "earned” only to the extent that you are employed by Bridgeline as an
employee in good standing at the time payment is to be made. Otherwise, bonuses will not be considered to have been "earned”.
Employer:
Bridgeline Digital, Inc.
By:/s/ Roger "Ari” Kahn
Roger "Ari” Kahn
President & Chief Executive Officer
Employee:
/s/ Thomas R. Windhausen
Thomas R. Windhausen
Subsidiaries of Bridgeline Digital, Inc.
EXHIBIT 21.1
Bridgeline Digital Pvt. Ltd.
Bridgeline Digital Canada, Inc.
Bridgeline Digital Belgium BV
Hawk Search Inc.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S CONSENT
EXHIBIT 23.1
We consent to the incorporation by reference in the Registration Statements of Bridgeline Digital, Inc. on Form S-8 (Nos. 333-213185, 333-208891, 333-170819, 333-188854, 333-
181677, 333-181678 and 333-234771) and Form S-3 (Nos. 333-214602, 333-230816, 333-239104 and 333-256638) of our report dated December 20, 2021, and with respect to our audit of
the consolidated financial statements of Bridgeline Digital, Inc. as of September 30, 2021 and for the year then ended, which report is included in this Annual Report on Form 10-K
of Bridgeline Digital, Inc. for the year ended September 30, 2021.
/s/ PKF O’Connor Davies, LLP
PKF O’Connor Davies, LLP
New York, New York
December 20, 2021
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM'S CONSENT
EXHIBIT 23.2
We consent to the incorporation by reference in the Registration Statements of Bridgeline Digital, Inc. on Form S-8 (File Nos. 333-213185, 333-208891, 333-170819, 333-188854, 333-
181677, 333-181678 and 333-234771) and Form S-3 (File Nos. 333-214602, 333-230816, 333-239104 and 333-256638) of our report dated December 23, 2020, which includes an
explanatory paragraph as to the Company’s ability to continue as a going concern, with respect to our audit of the consolidated financial statements of Bridgeline Digital, Inc. as of
September 30, 2020 and for the year then ended, which report is included in this Annual Report on Form 10-K of Bridgeline Digital, Inc. for the year ended September 30, 2021. We
were dismissed as auditors on February 26, 2021 and, accordingly, we have not performed any audit or review procedures with respect to any financial statements incorporated by
reference for the periods after the date of our dismissal.
/s/ Marcum LLP
Marcum LLP
Boston, Massachusetts
December 20, 2021
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, Roger Kahn, certify that:
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Bridgeline Digital, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results
of operations and cash flows of the Company as of, and for, the periods presented in this report;
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter
(the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting; and
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors
and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the Company’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over
financial reporting.
Date: December 20, 2021
/s/ Roger Kahn
Roger Kahn
President and Chief Executive Officer
(Principal Executive Officer)
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Thomas R. Windhausen, certify that:
EXHIBIT 31.2
1.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Bridgeline Digital, Inc.;
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light
of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results
of operations and cash flows of the Company as of, and for, the periods presented in this report;
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-
15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
(a)
(b)
(c)
(d)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that
material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during
the period in which this report is being prepared;
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of
the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation;
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter
(the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting; and
5.
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors
and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a)
(b)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to
adversely affect the Company’s ability to record, process, summarize and report financial information; and
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over
financial reporting.
Date: December 20, 2021
/s/ Thomas R. Windhausen
Thomas R. Windhausen
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Bridgeline Digital, Inc. (the "Company”) on Form 10-K for the year ended September 30, 2021, as filed with the Securities and
Exchange Commission on the date hereof (the "Report”), Roger Kahn, President and Chief Executive Officer of the Company certifies, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and
result of operations of the Company for the periods presented.
Date: December 20, 2021
Name:
Title:
/s/ Roger Kahn
Roger Kahn
President and Chief Executive Officer
(Principal Executive Officer)
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley
Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of Bridgeline Digital, Inc. (the "Company”) on Form 10-K for the year ended September 30, 2021 as filed with the Securities and
Exchange Commission on the date hereof (the "Report”), Thomas R. Windhausen, Chief Financial Officer of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and
result of operations of the Company for the periods presented.
Date: December 20, 2021
Name:
Title:
/s/ Thomas R. Windhausen
Thomas R. Windhausen
Chief Financial Officer
(Principal Financial Officer)
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley
Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.