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, 2022
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 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 ☐
Non-accelerated filer X
Accelerated filer ☐
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 $19.3 million based on the closing price of $1.91
of the issuer’s common stock, par value $0.001 per share, as reported by the NASDAQ Stock Market on March 31, 2022.
On December 20, 2022, there were 10,417,609 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 company that offers a suite of products that help companies grow online revenue by driving more traffic to their websites, converting
more visitors to purchasers, and increasing average order value.
HawkSearch is a site search, recommendation, and personalization application, built for marketers, merchandisers, and developers to enhance, normalize, and enrich an online
customer's content search and product discovery experience. HawkSearch leverages advanced artificial intelligence, machine learning and industry-leading merchandising features
to deliver accurate and highly relevant results and recommendations derived from multiple data sources.
Celebros Search is a commerce-oriented site search product that provides Natural Language Processing with artificial intelligence to present relevant search results based on long-
tail keyword searches with support for multiple languages.
Woorank is a Search Engine Optimization (“SEO”) audit tool that generates an instant performance audit of the site’s technical, on-page, and off-page SEO. Woorank’s clear,
actionable insights help companies increase their search engine ranking, while boosting website traffic, audience engagement, conversion, and customer retention rates.
Our Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, Digital Marketing, and Web Analytics. The Unbound platform,
combined with its professional services, assists customers in powering engaging digital experiences that drive lead generation, increase revenue, improve customer service and
loyalty, enhance employee knowledge, and reduce operational costs.
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The TruPresence product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale. TruPresence
provides centralized and distributed management of content and products from parent sites down to multiple child sites for consistency in branding and messaging, while also
enabling regional / local site owners to manage the local messaging, products and promotions specific to their local market.
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. The software uniquely combines content with business data, processes and applications across any channel or device, including Salesforce Communities, social
media, portals, intranets, websites, applications and services.
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 HawkSearch have the option to be available via a traditional perpetual licensing business model, in which the software can reside on a dedicated
infrastructure either on premise at the customer’s facility, or manage-hosted by Bridgeline via a cloud-based, dedicated 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: Woodbury,
New York; Rosemont, Illinois; Atascadero, California; 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 Rosemont, Illinois and Bridgeline Digital Belgium BV, located in Brussels, Belgium.
Products and Services
Products
Subscription and Perpetual Licenses
Bridgeline offers enterprise site search solutions with its Celebros Search and HawkSearch products. This software is available as a SaaS license and is reported as Subscription
and perpetual licenses in the accompanying consolidated financial statements.
● 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.
● HawkSearch by Bridgeline is a site search, recommendation, and personalization application built for marketers, merchandisers, and developers to enhance, normalize,
and enrich an online customer's content search and product discovery experience. HawkSearch leverages advanced artificial intelligence, machine learning and industry-
leading merchandising features to deliver accurate and highly relevant results and recommendations derived from multiple data sources. HawkSearch has integrations and
partner relationships with platforms such as Optimizely, BigCommerce, Magento, Sitefinity and others.
Bridgeline offers Search Engine Optimization auditing through its WooRank by Bridgeline software. This software is available as a SaaS license and is reported as Subscription and
perpetual licenses in the accompanying consolidated financial statements.
● Woorank by Bridgeline is a Search Engine Optimization (“SEO”) audit tool that generates an instant performance audit of the site’s technical, on-page, and off-page
SEO. Woorank’s clear, actionable insights help companies increase their search engine ranking, while boosting website traffic, audience engagement, conversion, and
customer retention rates.
Bridgeline offers franchise marketing software with its TruPresence platform. This software is available as a SaaS license and is reported as Subscription and perpetual licenses in
the accompanying consolidated financial statements.
● Bridgeline TruPresence is a web content management and eCommerce platform built specifically to support the needs of multi-unit organizations and franchises.
TruPresence provides centralized and distributed management of content and products from parent sites down to multiple child sites for consistency in branding and
messaging while also enabling regional / local site owners to manage the local messaging, products and promotions specific to their local market.
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Bridgeline offers Bridgeline Unbound as either a SaaS or perpetual license and is reported as subscription and perpetual licenses in the accompanying consolidated financial
statements.
● Bridgeline Unbound is a technology suite that includes Unbound Content, Unbound Marketing, Unbound Commerce, and Unbound Insights that empower marketers to
easily manage their digital experiences and create personalized customer journeys. Each Unbound implementation incorporates a set of flexible templates and modules to
accelerate implementation speed and reduce costs.
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.
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 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:
● Distributors and Wholesalers
● Multi-Unit Franchises & Enterprises
● Manufacturers
● eCommerce Retailers
● Industrial Distribution (Electrical, Plumbing, Building, Cleaning, Restaurant, Furniture Suppliers)
● Health Services and Life Sciences
● High Technology (software and hardware)
● Credit Unions and Regional Banks
● Associations and Foundations
We also pursue strategic alliances and partnerships to enhance the sales and distribution opportunities of Bridgeline intellectual property. We currently have partner relationships
with platforms such as Optimizely, BigCommerce, Adobe, Sitefinity, Shopify, and others.
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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. Our business development professionals create an annual territory plan identifying various strategies to prospect and engage
our target verticals.
Customer Retention Programs
We have a dedicated Customer Success team that engages with customers regularly to conduct strategic business reviews and audits to ensure they are getting the most value out
of the Bridgeline product offerings. We use surveying techniques to gauge and monitor customer sentiment as well as digital marketing capabilities to inform our customer base of
the latest feature releases and product innovations. We make product releases available via email campaigns as well as publish on our website. Bridgeline also provides
educational white papers and featured case studies, to inform customers of best practices and enhancements. We also host educational on-line webinars for customers as well as
face-to-face customer focus groups and training sessions.
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 websites.
Through our websites, 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 online and in-person events and conferences.
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
SRL (“WooRank”), an entity located in Belgium. The total purchase price of approximately $2.4 million consisted of (1) $285 thousand in cash paid at closing or in close proximity
to closing, (2) $376 thousand of deferred cash payable in installments post-closing, (3) a $352 thousand seller note issued to one of the selling shareholders, and (4) amounts
payable to one selling shareholder as consideration for assistance with certain matters related to the acquisition for a period of one year from the closing date of the acquisition. 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. The
WooRank Purchase Agreement also provides for additional consideration, in the event of the achievement of certain revenue targets and operational goals, to the selling
shareholders. The fair value of contingent consideration was $1.3 million on the date of the 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 HawkSearch,
Inc., an Illinois corporation (“HawkSearch”). The total purchase price of approximately $9.9 million consisted of (1) $4.8 million initial cash payment at closing, (2) an 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 in two installments, as amended and as follows: (i) the aggregate sum of $1,779 thousand, which was paid on July 1, 2022; and (ii)
the aggregate sum of $250 thousand, which was paid in October 3, 2022, as included within the Amendment to the Stock Purchase Agreement, dated June 15, 2022. The fair value of
contingent consideration was $250 thousand on September 30, 2022, all of which was paid in October 2022.
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 $3.2 million or 19% of revenues and $2.4 million or 18% of revenues during fiscal 2022 and 2021, 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 of inclusion and empower individuals to do their best work.
As of September 30, 2022, we had approximately 60 full-time employees. Of our full-time employees, approximately 50 were in the United States and the remaining were based 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:
● Distributors and Wholesalers
● Multi-Unit Franchises & Enterprises
● Manufacturers
● eCommerce Retailers
● Industrial Distribution (Electrical, Plumbing, Building, Cleaning, Restaurant, Furniture Suppliers)
● Health Services and Life Sciences
● High Technology (software and hardware)
● Credit Unions and Regional Banks
● Associations and Foundations
For the years ended September 30, 2022 and 2021, no customer exceeded 10% of the Company’s total revenues.
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 with an emphasis on a singular focus/function (such as content management only, or commerce
only) as compared to the deeply integrated and multi-faceted 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. The architecture
comprising Bridgeline’s platform’s are 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.
● We believe the interface of the Bridgeline platforms have been designed for ease of use without requiring substantial technical skills from our customers.
● Finally, we believe the Bridgeline platforms offer 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:
- Nominating and Corporate Governance Committee
- Audit Committee
- 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.
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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
Risk Factors Related to our Business
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 incurred net income of approximately $2.2 million for the year ended September 30, 2022, which includes income related to the change in the fair value of warrant liabilities. Since
our inception in 2000 and through fiscal 2019, and in fiscal 2021, we have incurred net losses, and may do so again. As of September 30, 2022, we had an accumulated deficit of
approximately $80 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 may become profitable. If we do become profitable, we may not be able to sustain or increase
our profitability on a quarterly or annual basis.
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 HawkSearch 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 (subsequently amended), 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, (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, and (4) recognized contingent earn-out payments of $1.3 million (acquisition date fair value) which were payable in the event of achievement of certain revenue
targets and operational goals.
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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, 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 or may elect 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 may become dependent upon a concentration of major customers, and a failure to renew our licenses with such customers could reduce our revenue.
We have previously and may from time to time derive a significant portion of our revenues from a relatively concentrated number of customers. Considering a reduction in our
license renewal rate could reduce our revenue, these consequences could be exacerbated if we are dependent upon several major customers and any one of them were to elect not
to renew.
The length of our sales cycle can alternate markedly, 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 or
interference 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. Interference from unauthorized access to or tampering with these systems, including those resulting from cyber-attacks, could result in a variety of
consequences, including devaluation of our intellectual property, goodwill, increased expenditures on data security and litigation, and can have a material adverse effect on our
business, revenues, reputation, operating results and financial condition.
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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 and cybercriminals, 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 cyber-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.
The marketplace is highly fragmented with a large number of competitors and potential competitors. Our prominent public company competitors include companies such as Coveo,
Elastic, Semrush and WeCommerce. 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.
11
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.
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.
12
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.
13
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 2022 was approximately 286,000 shares per day compared to approximately 2,839,000 for fiscal 2021, and 484,000 for fiscal 2020. 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.
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 2022, the closing price of our common
stock as reported by NASDAQ fluctuated between $1.10 and $4.12. 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 include a reverse stock split, which may
adversely affect the liquidity of our common stock. Additionally, there is no way to guarantee that such a measure, if implemented, would help us regain compliance with the
minimum bid price requirement or maintain compliance with other NASDAQ listing rules.
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.
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. 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 a
material adverse effect on the price of our common stock.
14
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 1,000,000 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.
15
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
Rosemont, Illinois
Atascadero, California
Ontario, Canada
Brussels, Belgium
Address
100 Sylvan Rd, Suite G-700
Woburn, MA 01801
150 Woodbury Road
Woodbury, NY 11797
5600 North River Rd, Suite 100
Rosemont, IL 60018
6225 Atascadero Ave
Atascadero, CA 93422
Perth Mews RO
Perth, ON K7H 3A0
Canada
Cours Saint Michel 30B
1040 Etterbeek
Brussels, Belgium
Description
Professional office space
Professional office space
Professional office space
Professional office space
PO Box
Professional office space
Professional office space is of varying size, ranging up to approximately 3,600 square feet.
Item 3. Legal Proceedings.
From time to time, we are subject to ordinary routine litigation and claims incidental to our business. We are not currently involved in any legal proceedings that we believe are
material.
Item 4. Mine Safety Disclosures
Not applicable.
16
PART II
Item 5. Market for Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities.
Market Information
Our common stock is currently traded on The NASDAQ Stock Market LLC, under the trading symbol “BLIN”.
Number of Shareholders
As of December 10, 2022, we had approximately 60 stockholders of record. Since many stockholders choose to hold their shares under the name of their brokerage firm, we estimate
that the actual number of stockholders was over 6,000.
Dividend Policy
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.
Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities
There were no sales of unregistered or registered equity securities during the fiscal year ended September 30, 2022.
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 company that offers a suite of products that help companies grow online revenue and share information with customers, partners, and
employees.
HawkSearch 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. HawkSearch leverages advanced artificial intelligence, machine learning and industry-leading analyzers to deliver accurate results from
federated data sources.
Celebros Search is a commerce-oriented site search product that provides Natural Language Processing with artificial intelligence to present relevant search results based on long-
tail keyword searches in seven languages.
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.
17
Our Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics. The
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 TruPresence 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.
All of our software is available through a cloud-based software as a service (“SaaS”) model. Additionally, Unbound and HawkSearch 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.
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:
● Distributors and Wholesalers
● Multi-Unit Franchises & Enterprises
● Manufacturers
● eCommerce Retailers
● Industrial Distribution (Electrical, Plumbing, Building, Cleaning, Restaurant, Furniture Suppliers)
● Health Services and Life Sciences
● High Technology (software and hardware)
● Credit Unions and Regional Banks
● Associations and Foundations
Each of the Bridgeline companies goes to market through two main types of partnerships. The first partner category includes platforms such as Optimizely, BigCommerce, Adobe,
Sitefinity and others. The Bridgeline software often embeds directly into these platforms through connectors and SDK solutions that Bridgeline develops in concert with each
platform. The second category includes web-development agencies which typically have deep relationships with end-customers and have the technical expertise to implement the
Bridgeline software solutions according to client needs, platform requirements, and industry standards.
Acquisitions
Bridgeline will continue to evaluate expanding its distribution of its suite of products and 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. This
integration may reduce the aggregate of such expenses for the combined businesses and similarly improve 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) a $352 thousand seller note issued to one of the selling shareholders, and (4) amounts
payable to one selling shareholder as consideration for assistance with certain matters related to the acquisition for a period of one year from the closing date of the acquisition. 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. 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. The fair value of contingent consideration was $1.3 million on the acquisition date.
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 HawkSearch,
Inc., an Illinois corporation (“HawkSearch”). The total purchase price of approximately $9.9 million consisted of (1) $4.8 million initial cash payment at closing, (2) an 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 in two installments, as amended and as follows: (i) the aggregate sum of $1,779 thousand which was paid on July 1, 2022; and (ii)
the aggregate sum of $250 thousand, which was paid on October 3, 2022, as included within the Amendment to the Stock Purchase Agreement, dated June 15, 2022. The fair value
of contingent consideration was $250 thousand on September 30, 2022, all of which was paid in October 2022
Customer Information
We currently have over 2,000 active customers. For the years ended September 30, 2022 and 2021, no customers exceeded 10% of the Company’s total revenue.
18
Summary of Results of Operations
Total revenue for the fiscal year ended September 30, 2022 (“fiscal 2022”) increased to $16.8 million from $13.3 million for the fiscal year ended September 30, 2021 (“fiscal
2021”). The loss from operations for fiscal 2022 was $1.9 million, compared with a loss from operations of $1.2 million for fiscal 2021. We had a net income for fiscal 2022 of
$2.1 million, which included a gain of approximately $3.7 million as a result of the change in fair value of certain warrant liabilities, compared with a net loss of $6.7 million, which
included 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 in fiscal 2021. Basic net
income (loss) per share attributable to common shareholders for fiscal 2022 was $0.21 compared with the equivalent basic net loss per share attributable to common shareholders of
($1.47) for fiscal 2021. Diluted net income (loss) per share attributable to common shareholders for fiscal 2022 was $0.20 compared with the equivalent diluted net loss per share
attributable to common shareholders of ($1.47) for fiscal 2021.
(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
Change in fair value of contingent consideration, 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,
2022
2021
$
Change
%
Change
3,259
$
19%
13,560
81%
16,819
1,759
54%
3,358
25%
5,117
11,702
70%
5,232
31%
3,387
20%
3,217
19%
1,599
10%
164
1%
13,599
(1,897)
417
-
3,655
2,175
30
3,296
$
25%
9,963
75%
13,259
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)
2,145
$
(6,689)
$
(37)
3,597
3,560
16
568
584
2,976
2,506
1,028
830
397
(1,071)
3,690
(714)
1,300
(88)
9,540
10,038
1,204
8,834
(1)%
36%
27%
1%
20%
13%
34%
92%
44%
35%
33%
(87)%
37%
(60)%
147%
(100)%
162%
128%
103%
132%
196
$
1,442
$
(1,246)
(86)%
$
$
$
19
Revenue
Our revenue is derived from two sources: (i) digital engagement services and (ii) subscription and perpetual licenses.
Digital Engagement Services
Digital engagement services revenue is comprised of implementation and retainer-related services. Total revenue from digital engagement services of $3.3 million in fiscal 2022
decreased 1% from $3.3 million in fiscal 2021. Digital engagement services revenue as a percentage of total revenue decreased to 19% in fiscal 2022 from 25% in fiscal 2021. The
decreases compared to the prior period are attributable to the increase in subscription and perpetual licenses, including additional revenue related to business acquisitions during
fiscal 2021.
Subscription and Perpetual Licenses
Revenue from subscription (SaaS) and perpetual licenses increased $3.6 million, or 36%, to $13.6 million in fiscal 2022 from $10.0 million in fiscal 2021. The increase compared to the
prior period is primarily due to significant multi-year license renewals across our diverse portfolio of companies and the inclusion of a full year of revenue from the Company’s
fiscal 2021 acquisitions compared to fiscal 2021, which only included revenues from the acquisition date to period end. Subscription and perpetual license revenue as a percentage
of total revenue increased to 81% in fiscal 2022 from 75% in fiscal 2021. The increase as a percentage of total revenue is attributable to the increase in subscription licenses,
including renewals and additional revenue related to the business acquisitions during fiscal 2021.
Cost of Revenue
Total cost of revenue for fiscal 2022 of $5.1 million increased $0.6 million, or 13%, from $4.5 million. The increase for fiscal 2022 compared to fiscal 2021 is primarily attributable to
costs incurred related to the business acquisitions during fiscal 2021.
Cost of Digital Engagement Services
Cost of digital engagement services increased 1%, to $1.8 million in fiscal 2022 from $1.7 million in fiscal 2021. The increase in cost of digital engagement services in fiscal 2022
compared to fiscal 2021 is primarily due to personnel costs, including costs incurred related to the business acquisitions during fiscal 2021. The cost of total digital engagement
services as a percentage of total digital engagement services revenue increased to 54% in fiscal 2022 from 53% in fiscal 2021. The increase as a percentage of revenues in fiscal
2022 compared to fiscal 2021 is primarily due to the overall decrease in digital engagement services revenue and costs incurred related to business acquisitions during fiscal 2021,
as noted above.
Cost of Subscription and Perpetual License
Cost of subscription and perpetual licenses of $3.4 million in fiscal 2022 increased $0.6 million, or 20%, from $2.8 million in fiscal 2021. The increase in cost of subscription and
perpetual licenses in fiscal 2022 compared to fiscal 2021 is primarily due to higher costs to operate our cloud-based hosting model with Amazon Web Services and additional
personnel costs, including costs incurred related to the business acquisitions during fiscal 2021. The cost of subscription and perpetual licenses as a percentage of subscription
and perpetual license revenue decreased to 25% in fiscal 2022 from 28% in fiscal 2021. The decrease as a percentage of revenues is primarily due to the overall increases in
subscription and perpetual license revenue.
20
Gross Profit
Gross profit of $11.7 million increased $3.0 million, or 34%, in fiscal 2022 to compared to $8.7 million for fiscal 2021. The gross profit margin increased to 70% for fiscal 2022
compared to 66% for fiscal 2021. The increase in the gross profit margin for fiscal 2022 compared to fiscal 2021 is primarily attributable to the 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 of $5.2 million in fiscal 2022 increased $2.5 million, or 92%, from $2.7 million in fiscal 2021. Sales and marketing expense as a percentage of total
revenue increased to 31% in fiscal 2022 compared to 21% in fiscal 2021. The increase compared to the prior period is primarily attributable to higher personnel costs and additional
sales and marketing costs, including such additional costs related to the business acquisitions during fiscal 2021.
General and Administrative Expenses
General and administrative expenses of $3.4 million in fiscal 2022 increased $1.0 million, or 44%, from $2.4 million in fiscal 2021. General and administrative expense as a percentage
of revenue increased to 20% in fiscal 2022 compared to 18% in fiscal 2021. These increases are primarily due to additional costs related to the business acquisitions during fiscal
2021.
Research and Development
Research and development expense of $3.2 million in fiscal 2022 increased $0.8 million, or 35%, from $2.4 million in fiscal 2021. Research and development expense as a percentage
of total revenue increased to 19% in fiscal 2022 compared to 18% for fiscal 2021. These increases compared to the prior period are primarily attributable to personnel and other
additional costs related to the business acquisitions during fiscal 2021.
21
Depreciation and Amortization
Depreciation and amortization expense of $1.6 million in fiscal 2022 increased by $0.4 million, or 33%, from $1.2 million in fiscal 2021. Depreciation and amortization as a percentage
of total revenue increased to 10% in fiscal 2022 compared to 9% in fiscal 2021. These increases are primarily due to amortization of intangible assets resulting from business
acquisitions during fiscal 2021.
Loss from Operations
The loss from operations was $1.9 million for fiscal 2022 compared to a loss from operations of $1.2 million for fiscal 2021, an increase of $0.7 million or 60%.
Change in fair value of contingent consideration, interest expense and other, net; Government grant income; Change in fair value of warrant liabilities
The Company recognized a gain related to the change in fair value of warrant liabilities of $3.7 million, for the year ended September 30, 2022 and a loss related to the change in fair
value of warrant liabilities of $5.9 million for the year ended September 30, 2021, respectively.
During the year ended September 30, 2021, the Company recognized government grant income of $88 thousand associated with proceeds received under the PPP deemed probable
to be forgiven based on the actual expenditures for qualified expenses during the period. As of the first quarter of fiscal 2021, the Company expended all loan proceeds on qualified
expenses incurred during the period. 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. 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, 2022 and 2021, change in fair value of contingent consideration, interest expense and other, net, was $0.4 million of gain in fiscal 2022
compared to a loss of $0.9 million in fiscal 2021, and included non-recurring non-operating costs.
Provision for Income Taxes
The provision for (benefit from) income taxes was $30 thousand for fiscal 2022 and ($1.2) million for fiscal 2021, 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, 2022 and 2021, the Company had a valuation allowance on its net deferred tax assets of $10.5 million and $10.1
million, respectively.
The Federal NOL carryforward is approximately $27.8 million as of September 30, 2022 of which $21.9 million is subject to the 20-year carryforward and expire on various dates
through 2039. The remaining federal NOL carryforward of $5.9 million 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 $46.8 million in state
NOLs which expire on various dates through 2041.
The acquisition of HawkSearch during the third quarter of fiscal 2021 resulted in the recognition of deferred tax liabilities of approximately $1.2 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 $1.2 million of the pre-existing valuation allowance
against the deferred tax assets and corresponding deferred tax benefit recognized during fiscal 2021.
22
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 income/expense, 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.
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
Change in fair value of contingent consideration, interest expense and other, net
Government grant income
Change in fair value of warrants
Amortization of intangible assets
Depreciation and other amortization
Restructuring and acquisition related charges
Stock-based compensation
Adjusted EBITDA
Years Ended
September 30,
2022
2021
2,145 $
30
(417)
-
(3,655)
1,487
121
164
321
196 $
(6,689)
(1,174)
883
(88)
5,885
1,130
72
1,235
188
1,442
$
$
Adjusted EBITDA decreased year over year, which is primarily attributable to additional costs related to the business acquisitions during fiscal 2021 as well as additional sales
and marketing spend.
23
Liquidity and Capital Resources
Cash Flows
Operating Activities
Cash used in operating activities was $0.1 million during fiscal 2022 compared to $1.0 million during fiscal 2021. The change in cash used in operating activities compared to the
prior period was primarily due to an increase in net earnings partially offset by changes in non-cash items, including changes in fair value of warrant liabilities, and changes to
accounts payable and accrued liabilities as well as deferred revenue.
Investing Activities
Cash used in investing activities was $0.2 million during fiscal 2022 compared to cash used in investing activities of $4.5 million during fiscal 2021. Cash used in investing activities
during fiscal 2022 related primarily to software development capitalized costs and purchases of property and equipment. 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 used in financing activities was $5.5 million during fiscal 2022 compared with cash provided of $13.5 million during fiscal 2021. Cash used in financing activities during fiscal
2022 was primarily related to deferred purchase price and contingent consideration payments related to acquisitions completed during fiscal 2021. Cash provided by financing
activities during fiscal 2021, 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.
Capital Resources and Liquidity Outlook
In connection with an acquisition of a business completed during the 2021 fiscal year third quarter (HawkSearch), the Company recognized a contingent consideration obligation
with a current carrying value of $0.3 million as of September 30, 2022, all of which was paid in October 2022.
In connection with an acquisition of a business completed during the 2021 fiscal year second quarter (WooRank), the Company assumed the outstanding long-term debt
obligations of which approximately $1.0 million remains outstanding at September 30, 2022, with $0.4 million payable over the next twelve months.
The Company has historically incurred operating losses and used cash on hand and from financing activities to fund operations as well as develop new products. 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.
The Company may offer and sell, from time to time, in one or more offerings, up to $50 million of its debt or equity securities, or any combination thereof. Such securities offerings
may be made pursuant to the Company’s currently effective registration statement on Form S-3 (File No. 333-262764), which was initially filed with the Securities and Exchange
Commission on February 16, 2022 and declared effective on March 4, 2022 (the “Shelf Registration”). A complete description of the types of securities that the Company may sell
is described in the Preliminary Prospectus contained in the Shelf Registration. As of the date of the filing of this Quarterly Report, there are no active offerings for the sale or
obligations to purchase any of the Company’s securities pursuant to the Shelf Registration. There can be no assurances that the Company will offer any securities for sale or that
if the Company does offer any securities that it will be successful in selling any portion of the securities offered on a timely basis if at all, or on terms acceptable to us. Further, our
ability to offer or sell such securities may be limited by rules of the NASDAQ Capital Market.
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 $0.6 million of which $0.2 million is expected in the next twelve months. Debt
payments on the Company’s various debt obligations total $1.0 million of which $0.4 million is expected to be paid in the next twelve months. In connection with an acquisition of a
business completed in the Company’s 2021 fiscal year, contingent consideration obligations total $0.3 million, which was paid in October 2022.
24
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; 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:
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.
25
1.
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.
2.
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.
3. 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.
4. 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.
5. 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.
26
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 recognizes changes in the fair value through income (loss) before income taxes within the consolidated statements of operations.
Accounting for Stock-Based Compensation
At September 30, 2022, we maintained two stock-based compensation plans, one of which has expired but still contains vested 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 that are expected to vest on a straight-line basis over the service period of the award, which is
generally three years. 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 recognize 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 recognize to vary.
We recognize 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.
27
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not required.
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of September 30, 2022 and 2021
Consolidated Statements of Operations for the years ended September 30, 2022 and 2021
Consolidated Statements of Comprehensive Income/(Loss) for the years ended September 30, 2022 and 2021
Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended September 30, 2022 and 2021
Notes to Consolidated Financial Statements
28
Page
29
31
32
33
34
35
36
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
Bridgeline Digital, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Bridgeline Digital, Inc. and Subsidiaries (the “Company”) as of September 30, 2022 and 2021, and the related
consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for each of the two years in the period ended September 30, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended September
30, 2022, 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 audits. 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 audits 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 audits 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 audits provide a reasonable basis for our opinion.
29
Critical Audit Matter
The critical audit matter communicated below is a matter 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it
relates.
Warrant Liabilities
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 the Monte
Carlo option-pricing model, which takes into consideration the volatilities of the Company and comparable public companies.
Given the determination of the fair value of warrant liabilities requires 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 accounting analysis as to the classification of warrant liabilities.
● obtaining third party valuation reports to gain an understanding of management’s key assumptions used in determining the fair value of warrant liabilities.
● with the assistance of our valuation specialists, evaluating the methodologies and key assumptions used by management to assess the Company’s fair value of
warrant liabilities, including assessing the reasonableness of the source information underlying the valuation assumptions.
● performing independent shadow calculations to test the reasonableness of the fair values for warrant liabilities concluded on by the Company’s specialist
● assess the appropriateness of the disclosures in the consolidated financial statements.
/s/ PKF O'Connor Davies, LLP
New York, New York
December 20, 2022
We have served as the Company’s auditor since 2021.
PCAOB ID No. 127
30
BRIDGELINE DIGITAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
As of September 30,
2022
2021
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable, net
Prepaid expenses and 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 17)
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 17)
Warrant liabilities
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock - $0.001 par value; 1,000,000 shares authorized;
Series C Convertible Preferred stock: 11,000 shares authorized; 350 shares issued and outstanding at September 30,
2022 and 2021
Series D Convertible Preferred stock: 4,200 shares authorized; no shares issued and outstanding at September 30, 2022
and 2021
Common stock - $0.001 par value; 50,000,000 shares authorized; 10,417,609 shares at September 30, 2022 and 10,187,128
shares at September 30, 2021, issued and outstanding
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
$
2,856 $
1,182
242
4,280
268
589
6,268
15,985
123
27,513 $
429 $
199
972
995
250
1,943
4,788
588
390
-
749
646
7,161
-
-
10
100,704
(80,142)
(220)
20,352
27,513 $
8,852
1,370
196
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
The accompanying notes are an integral part of these consolidated financial statements.
31
BRIDGELINE DIGITAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
Years Ended September 30,
2022
2021
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
Change in fair value of contingent consideration, 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)
Deemed dividend on convertible preferred stock (Note 12)
Net loss attributable to common shareholders
Net income (loss) per share attributable to common shareholders:
Basic
Diluted
Number of weighted average shares outstanding:
Basic
Diluted
$
$
$
$
3,259 $
13,560
16,819
1,759
3,358
5,117
11,702
5,232
3,387
3,217
1,599
164
13,599
(1,897)
417
-
3,655
2,175
30
2,145
-
2,145 $
0.21 $
0.20 $
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)
10,232,862
10,366,907
5,935,981
5,935,981
The accompanying notes are an integral part of these consolidated financial statements.
32
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)
Deemed dividend on convertible preferred stock (Note 12)
Comprehensive loss attributable to common shareholders
Years Ended September 30,
2022
2021
2,145 $
133
2,278
-
2,278 $
(6,689)
28
(6,661)
(2,015)
(8,676)
$
$
The accompanying notes are an integral part of these consolidated financial statements.
33
BRIDGELINE DIGITAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
Preferred Stock
Common Stock
Additional
Shares
Amount
Shares
Amount
Paid-in
Capital
Accumulated
Other
Accumulated Comprehensive Stockholders’
Loss
Deficit
Equity
Total
350 $
-
-
-
-
-
-
2,700
1,500
(4,200)
-
-
350 $
-
-
-
-
-
-
350 $
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4,420,170 $
-
-
27,333
1,928,086
1,940,000
29,433
-
-
1,842,106
-
-
10,187,128 $
-
13,333
17,148
200,000
-
-
10,417,609 $
4 $
-
-
-
3
2
-
-
-
1
-
-
10 $
-
-
-
-
-
-
10 $
78,316 $
607
(73,583) $
-
(381) $
-
2,015
(2,015)
39
12,371
4,453
99
1,377
930
-
-
-
100,207 $
478
19
-
-
-
-
100,704 $
-
-
-
-
-
-
-
(6,689)
-
(82,287) $
-
-
-
-
2,145
-
(80,142) $
-
-
-
-
-
-
-
-
-
28
(353) $
-
-
-
-
-
133
(220) $
4,356
607
-
39
12,374
4,455
99
1,377
930
1
(6,689)
28
17,577
478
19
-
-
2,145
133
20,352
Balance at September 30, 2020
Stock-based compensation expense
Deemed dividend on beneficial conversion feature
(Note 12)
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
Stock-based compensation expense
Issuance of common stock – stock options
exercised
Issuance of common stock – warrants exercised
Issuance of restricted common stock
Net income
Foreign currency translation
Balance at September 30, 2022
The accompanying notes are an integral part of these consolidated financial statements.
34
BRIDGELINE DIGITAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
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 and 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 and 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
Payments of contingent consideration and deferred cash payable
Payments of long-term debt
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosures of cash flow information:
Cash paid for:
Interest
Income taxes
Non-cash investing and financing activities:
Right-of-use asset obtained in exchange for new operating lease liability
Consideration paid in stock in connection with acquisition of businesses
Offering costs settled by issuance of liability classified warrants
Deemed dividend on convertible preferred stock (Note 12)
Years Ended
September 30,
2022
2021
$
2,145 $
1,487
121
(631)
(3,655)
478
(45)
-
159
(20)
87
(223)
(37)
(2,279)
(134)
(78)
(117)
-
(195)
-
-
19
(4,891)
(611)
(5,483)
(184)
(5,996)
8,852
2,856 $
38 $
31 $
282 $
- $
- $
- $
$
$
$
$
$
$
$
(6,689)
1,130
72
170
5,885
607
(1,196)
(88)
36
248
(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
The accompanying notes are an integral part of these consolidated financial statements.
35
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
1. Description of Business
Overview
Bridgeline Digital is a marketing technology company that offers a suite of products that help companies grow online revenue by driving more traffic to their websites, converting
more visitors to purchasers, and increasing average order value.
HawkSearch is a site search, recommendation, and personalization application, built for marketers, merchandisers, and developers to enhance, normalize, and enrich an online
customer's content search and product discovery experience. HawkSearch leverages advanced artificial intelligence, machine learning and industry-leading merchandising features
to deliver accurate and highly relevant results and recommendations derived from multiple data sources.
Celebros Search is a commerce-oriented site search product that provides Natural Language Processing with artificial intelligence to present relevant search results based on long-
tail keyword searches with support for multiple languages.
Woorank is a Search Engine Optimization (“SEO”) audit tool that generates an instant performance audit of the site’s technical, on-page, and off-page SEO. Woorank’s clear,
actionable insights help companies increase their search engine ranking, while boosting website traffic, audience engagement, conversion, and customer retention rates.
Our Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, Digital Marketing, and Web Analytics. The Unbound platform,
combined with its professional services, assists customers in powering engaging digital experiences that drive lead generation, increase revenue, improve customer service and
loyalty, enhance employee knowledge, and reduce operational costs.
The TruPresence product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale. TruPresence
provides centralized and distributed management of content and products from parent sites down to multiple child sites for consistency in branding and messaging, while also
enabling regional / local site owners to manage the local messaging, products and promotions specific to their local market.
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. The software uniquely combines content with business data, processes and applications across any channel or device, including Salesforce Communities, social
media, portals, intranets, websites, applications and services.
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 HawkSearch have the option to be available via a traditional perpetual licensing business model, in which the software can reside on a dedicated
infrastructure either on premise at the customer’s facility, or manage-hosted by Bridgeline via a cloud-based, dedicated 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: Woodbury,
New York; Rosemont, Illinois; Atascadero, California; 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 Rosemont, Illinois and Bridgeline Digital Belgium BV, located in Brussels, Belgium.
36
BRIDGELINE DIGITAL, INC.
NOTES TO 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.
37
BRIDGELINE DIGITAL, INC.
NOTES TO 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.
1.
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.
2.
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.
3. 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.
4. 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.
5. 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 15) as it believes this best depicts how the nature, amount, timing and
uncertainty of revenue and cash flows are affected by economic factors.
38
BRIDGELINE DIGITAL, INC.
NOTES TO 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 and amortization. Depreciation and amortization are 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 recognized 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.
Implementation costs incurred in cloud-computing arrangements that are a service contract are capitalized and amortized over the life of the arrangement.
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 incurred development
costs of $0.1 million during fiscal 2022 and none in fiscal 2021.
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
39
BRIDGELINE DIGITAL, INC.
NOTES TO 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 2022 or 2021.
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 recognizes changes in the fair value through income (loss) 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 recognized 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 2022 and 2021 were $133 and $28, 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.
40
BRIDGELINE DIGITAL, INC.
NOTES TO 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 a 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 period, with changes in their fair value recognized 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 $459 and $286 for fiscal 2022 and 2021, 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 2022 or fiscal 2021.
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 Income (Loss) Per Share
The Company presents basic and diluted income (loss) 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, 2022 or 2021.
41
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Basic net income (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares
outstanding. Diluted net income (loss) per share attributable to common shareholders is computed using the weighted average number of common shares outstanding during the
period plus the dilutive effect of outstanding stock options and warrants using the “treasury stock” method and convertible preferred stock using the as-if-converted method. The
computation of diluted earnings per share does not include the effect of outstanding stock options, warrants and convertible preferred stock that are considered anti-dilutive.
Recently Issued Accounting Pronouncements Not Yet Effective
Debt—Debt with Conversion and Other Options
In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 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) (“ASU 2020-06”). The ASU 2020-06 simplifies the accounting for convertible
instruments and application of the equity classification guidance and made certain disclosure amendments. In addition, this ASU also amends certain aspects of the earnings per
share (“EPS”) guidance. ASU 2020-06 is effective for financial reporting periods beginning after December 15, 2021, except smaller reporting companies for which this ASU is
effective for financial reporting periods beginning after December 15, 2023. Early adoption is permitted, and an entity should adopt this ASU as of the beginning of its annual fiscal
year. The Company elected to early adopt ASU 2020-06 as of the first day of the fiscal year ending September 30, 2023, using the modified retrospective approach. Based on an
evaluation performed, the Company determined that the adoption of ASU 2020-06 will not have any impact on its accumulated deficit as of October 1, 2022 or any other
components of the balance sheet. The Company does not expect that the adoption of ASU 2020-06 to have a material impact on its earnings per share.
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.
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.
42
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
3. Accounts Receivable
Accounts receivable consist of the following:
Accounts receivable
Allowance for doubtful accounts
Accounts receivable, net
As of September 30,
2022
2021
$
$
1,332 $
(150)
1,182 $
1,403
(33)
1,370
As of and for the year ended September 30, 2022, no customers exceeded 10% of accounts receivable and no customers exceeded 10% of the Company’s total revenues. 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.
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
As of September 30,
2022
2021
$
$
166 $
18
195
202
581
(313)
268 $
98
18
150
197
463
(211)
252
Depreciation and amortization on the above assets were $102 and $72 in fiscal 2022 and 2021, respectively.
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. As of September 30, 2022 and 2021, the
aggregate fair values of long-term debts were $0.9 million and $1.7 million, respectively, with an aggregate carrying value of $1.0 million and $1.9 million, respectively. 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.
43
BRIDGELINE DIGITAL, INC.
NOTES TO 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 26.6% - 64.3% and 55.3%,
respectively, as of September 30, 2022, and 28.8% - 66.2% and 55.8%, respectively, as of September 30, 2021. The volatility utilized in the Monte Carlo option-pricing model was
determined by weighing 60% to 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, 2022
Series C
Preferred
82.0%
4.20%
$
1.31
83.9%
4.20%
$
1.31
$
Series D
Preferred
Montage
Capital
As of September 30, 2021
Series C
Preferred
Series D
Preferred
At Inception
Series D
Preferred
84.7%
4.10%
$
1.31
88.7%
0.80%
$
4.11
83.9%
0.50%
$
4.11
85.7%
1.00%
$
4.11
86.3%
0.90%
2.50
The Company recognized a gain of $3,655 and a loss of ($5,885) for the years ended September 30, 2022 and 2021, 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 recognized in earnings. The significant inputs and assumptions utilized were as
follows:
Revenue discount rate
Revenue volatility
Discount rate
At September 30,
2021
At
Acquisition
3.5%
11.0%
10.5%
5.0%
20.3%
8.8%
The fair value of contingent consideration was $250 thousand on September 30, 2022, all of which was paid in October 2022.
Assets and liabilities of the Company measured at fair value on a recurring basis as of September 30, 2022 and 2021, 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, 2022
Level 2
Level 3
Total
$
$
44
- $
-
-
-
-
- $
- $
-
-
-
-
- $
12 $
234
503
749
250
999 $
12
234
503
749
250
999
Liabilities:
Warrant liabilities:
Montage
Series A and C
Series D
Total warrant liabilities
Contingent consideration obligations
Total Liabilities
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Level 1
As of September 30, 2021
Level 2
Level 3
Total
$
$
- $
-
-
-
- $
- $
-
-
-
- $
13 $
2,026
2,365
4,404
3,649
8,053 $
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, 2020
Additions
Exercises
Adjustment to fair value
Balance at end of period, September 30, 2021
Additions
Exercises or payments
Adjustment to fair value
Balance at end of period, September 30, 2022
6. Goodwill
Contingent
Consideration
Obligations
Warrant
Liabilities
$
$
$
- $
3,479
-
170
3,649 $
-
(2,768)
(631)
250
13
2,026
2,365
4,404
3,649
8,053
2,486
1,319
(5,286)
5,885
4,404
-
-
(3,655)
749
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, 2022 and 2021. Management performed a qualitative assessment that did not result in any impairment indicators at September 30,
2022 and 2021. 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
As of September 30,
2022
2021
$
$
15,985 $
-
15,985 $
5,557
10,428
15,985
45
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
7. Intangible Assets
The components of intangible assets, net of accumulated amortization, are as follows:
Domain and trade names
Customer related
Technology
Intangible, assets net
As of September 30,
2022
2021
$
$
682 $
4,522
1,064
6,268 $
732
5,465
1,558
7,755
Total amortization expense related to intangible assets was $1,487 and $1,130 for the years ended September 30, 2022 and 2021, respectively, and is reflected in Operating expenses
on the consolidated statements of operations. The estimated amortization expense for fiscal years 2023, 2024, 2025, 2026, 2027 and thereafter is $1,373, $1,004, $723, $667, $554 and
$1,947, respectively.
8. Accrued Liabilities
Accrued liabilities consist of the following:
Compensation and benefits
Professional fees
Taxes
Other
Accrued liabilities
9. Restructuring and Acquisition Related Expenses
As of September 30,
2022
2021
$
$
477 $
186
98
234
995 $
541
81
84
202
908
In connection with the acquisition of businesses completed during fiscal 2021 (see Note 17), the Company incurred restructuring and acquisition related expenses of $0.2 million
and $1.2 million during the year ended September 30, 2022 and 2021, which are included in Restructuring and acquisition related expenses in the consolidated statements of
operations.
46
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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
17). The assumed debt obligations and seller note are denominated in Euros.
Long-term debt consists as follows:
Vendor loan payable (“Vendor loan”), accruing interest at 3.0% per annum. Principal and interest are payable in one
remaining installment in March 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 in October 2022.
Term loan payable, accruing interest at 3-Month EURIBOR plus 1.3% per annum, payable in quarterly installments
starting in April 2023 and matures in July 2028.
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 in September 2025.
$
Total debt
Less current portion:
Long-term debt, net of current portion
At September 30, 2022, future maturities of long-term debt are as follows:
$
Fiscal year:
2023
2024
2025
2026
2027
Thereafter
Total debt
47
As of September 30,
2022
2021
292 $
44
389
292
1,017
(429)
588 $
$
$
718
362
466
383
1,929
(732)
1,197
429
188
188
71
73
68
1,017
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
11. Leases
The Company leases facilities in the United States for its corporate and regional field offices. During the years ended September 30, 2022 and 2021, the Company was also a
lessee/sublessor for certain office locations.
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.
48
BRIDGELINE DIGITAL, INC.
NOTES TO 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:
Operating lease cost
Variable lease cost
Less: Sublease income, net
Total
As of September 30,
2022
2021
$
$
153 $
55
(101)
107 $
115
55
(101)
69
Cash paid for amounts included in the measurement of lease liabilities was $108 and $225 for the years ended September 30, 2022 and 2021, respectively, all of which represents
operating cash flows from operating leases. As of September 30, 2022 and 2021, the weighted average remaining lease term was 3.4 and 3.3 years, respectively, and the weighted
average discount rate was 7.0% for both periods.
At September 30, 2022, 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:
2023
2024
2025
2026
2027
Thereafter
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
$
$
233 $
177
151
72
61
11
705 $
(116)
589
(199)
390
101 $
34
-
-
-
-
135 $
132
143
151
72
61
11
570
In fiscal 2022 the Company entered into a lease which ends in January 2028 for office space in Rosemont, IL. Total rental payments over the full term will be $0.4 million. There is
an option, at the Company’s election, to terminate the lease early in August 2025. If the early termination option were to be executed, the total rent payments would be $0.2 million,
plus a $0.1 million termination fee. As of September 30, 2022, the Company had no lease commitments that extend past fiscal 2029.
49
At September 30, 2021, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year were as follows:
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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
12. Stockholders’ Equity
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
Under our Certificate of Incorporation, we are authorized, subject to limitations prescribed by Delaware law and our Charter, to issue up to 1,000,000 shares of preferred stock in one
or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each
series and any of its qualifications, limitations or restrictions. Our Board of Directors can increase or decrease the number of shares of any series, but not below the number of
shares of that series then outstanding, without any further vote or action by our stockholders. Our Board of Directors may authorize the issuance of preferred stock with voting or
conversion rights that could adversely affect the voting power or other rights of the holders of the common stock.
Series A Convertible Preferred Stock
The Company has designated 264,000 shares of its preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”). The shares of Series A Preferred Stock may
be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series A Preferred Stock to be converted,
multiplied by the stated value of $10 and (ii) divided by the conversion price in effect at the time of conversion. As of September 30, 2022 and 2021, the Company had no shares of
Series A Preferred Stock outstanding.
Series B Convertible Preferred Stock
The Company has designated 5,000 shares of its preferred stock as Series B Convertible Preferred Stock (“Series B Preferred Stock”). The shares of Series B Preferred Stock may be
converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series B Preferred Stock to be converted,
multiplied by the stated value of $1,000 and (ii) divided by the conversion price in effect at the time of conversion. As of September 30, 2022 and 2021, the Company had no shares
of Series B Preferred Stock outstanding.
Series C Convertible Preferred Stock
The Company has designated 11,000 shares of its preferred stock as Series C Convertible Preferred Stock (“Series C Preferred Stock”). The shares of Series C Preferred Stock may
be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series C Preferred Stock to be converted,
multiplied by the stated value of $1,000 and (ii) divided by the conversion price in effect at the time of conversion. Series C Preferred Stock vote on an as-converted basis along
with shares of the Company’s common stock, are not entitled to receive dividends, unless specifically declared by our Board of Directors, and in the event of any liquidation,
dissolution or winding up of the Company the holders of Series C Preferred Stock are entitled to receive in preference to the holders of common stock, Series A Preferred Stock,
Series B Preferred Stock and any other stock, the amount equal to the stated value per share of Series C Preferred Stock. The Company may not effect, and a holder will not be
entitled to, convert the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause the aggregate
number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of
shares of common stock outstanding immediately after giving effect to the exercise. As of September 30, 2022 and 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.
50
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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 has designated 4,200 shares of its preferred stock as Series D Convertible Preferred Stock. The shares of Series D Preferred
Stock may be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series D Preferred Stock to be
converted, multiplied by the stated value of $1,000 and (ii) divided by the conversion price in effect at the time of conversion. Holders of Series D Preferred Stock were prohibited
from converting Series D Preferred Stock into conversion shares if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99% (or 9.99%
upon the election of the holder prior to the issuance of the Series D Preferred Stock) of the total number of shares of common stock then issued and outstanding. At the original
issuance date, shares of Series D Preferred Stock issued in Private Placement were convertible into an aggregate of 1,184,211 shares of common stock.
The Company’s common stock is listed on the NASDAQ Capital Market, and, as such, it is subject to the applicable rules of the Nasdaq Stock Market LLC, including
Nasdaq Listing Rule 5635(a), which requires stockholder approval in connection with the acquisition of another company (see Note 17) 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 17) and the May 2021 Offerings would
be aggregated together. Thus, to permit the issuance of common stock upon conversion of the Series D Preferred Stock and upon exercise of the warrants issued in the Private
Placement, the Company had to obtain stockholder approval of these issuances. Upon issuance, the Company had determined that such prohibition did not represent an inability
for the Company to satisfy its obligation to deliver shares upon conversion, as the holders’ conversion option itself was contingent upon Stockholder Approval. On September 16,
2021, the Company obtained Stockholder Approval. The Company determined that the Series D Preferred Stock should be classified as permanent equity.
The Series D Preferred Stock contained an embedded conversion feature that could affect the ultimate settlement of the Series D Preferred Stock. The Company determined that the
embedded conversion feature’s economic characteristics and risks were clearly and closely related to the economic characteristics and risks of the Series D Preferred Stock. As a
result, the embedded conversion feature was not required to be bifurcated from the Series D Preferred Stock.
The Series D Preferred Stock issued contained a beneficial conversion feature, which arises when a debt or equity security is issued with an embedded conversion option that is
deemed beneficial to the investor, that is, in-the-money, at inception, as the conversion option has an effective conversion price that is less than the market price of the underlying
stock at the commitment date. An embedded beneficial conversion feature is required to be recognized separately by allocating a portion of the proceeds equal to the intrinsic
value, at the commitment date, of the feature to additional paid-in capital. As discussed below, the May 2021 Offerings cash proceeds allocated to the Series D Preferred Stock
based on its relative fair value resulted in an effective conversion price of $1.41, which was below the commitment date fair value of the underlying shares of common stock of
$2.50, resulting in a beneficial conversion feature measured at $1.3 million. As discussed in Note 17, upon the acquisition of HawkSearch 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.
51
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
During the fourth quarter of fiscal 2021, the Company recognized the impact of the beneficial conversion feature upon Stockholder Approval, as the beneficial conversion feature
became immediately exercisable, at the option of the holder. The Company recognized full accretion of the beneficial conversion feature as a deemed dividend of $2.0 million to the
Series D Preferred Stock. Such deemed dividend was recognized as an increase to accumulated deficit and an increase to additional paid-in capital and was included as a
component of net loss attributable to common stockholders. During the fourth quarter of fiscal 2021, all Series D Preferred Stock was converted to common shares with no
remaining Series D Preferred Stock outstanding at September 30, 2022 and 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.
The issuance-date fair value of the Series D Warrants issued to placement agents was determined to be incremental cost directly attributable to the May 2021 Offerings and was
charged by the Company against proceeds along with other fees paid to the Placement Agents.
Registered Offering and Sale of Common Stock
On February 4, 2021, the Company offered and sold a total of 880,000 shares of its common stock, par value $0.001 per share, to certain institutional and accredited investors at a
public offering price of $3.10 per share in a registered direct offering (the “Offering”). The Offering was registered under the Securities Act of 1933, as amended, pursuant to a
prospectus supplement to the Company’s currently effective registration statement on Form S-3 (File No. 333-239104), which was initially filed with the SEC on June 12, 2020, and
was declared effective on June 25, 2020. The Company filed the final prospectus supplement for the Offering on or about February 5, 2021. The Offering closed on February 8, 2021,
and resulted in proceeds, net of certain fees due to placement agents and transaction expenses, to the Company of approximately $2.5 million. The net proceeds received by the
Company will be used for general corporate purposes, including general working capital.
Joseph Gunnar & Company, LLC acted as lead placement agent for the Offering, and Taglich Brothers, Inc. acted as co-placement agent for the Offering. As compensation for their
services, the Company paid to the Placement Agents a fee equal to 8% of the aggregate purchase price paid for shares placed by the Placement Agents at closing and reimbursed
the Placement Agents for certain expenses incurred in connection with the Offering. In addition, the Company issued to the Placement Agents warrants to purchase an aggregate
of 58,169 shares of common stock (the “Placement Agent Warrants”). The Placement Agent Warrants have a term of five years from the date of issuance and an exercise price of
$3.875 per share.
52
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
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, 2022, there were 1,333 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. At the annual meeting held on March 30, 2022, the Company’s stockholders
voted to amend the 2016 Plan to increase the number of shares of the Company’s common stock available for issuance as awards granted under the Stock Incentive Plan to
1,650,000 shares. As of September 30, 2022, there were 1,356,594 options outstanding and 239,074 shares available for future issuance under the 2016 Plan.
Compensation Expense
Compensation expense is generally recognized on a graded accelerated basis over the vesting period of grants. Compensation expense is recognized 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, 2022 and 2021, compensation expense related to share-based payments was as follows:
Cost of revenue
Operating expenses
Change in fair value of contingent consideration, interest expense and other, net
Total
Years ended
September 30,
2022
2021
$
$
26 $
295
157
478 $
25
163
419
607
Change in fair value of contingent consideration, interest expense and other, net includes compensation expense related the fair value of fully-vested stock options granted in
August 2021 and April 2022. During fiscal 2022 and 2021, 120,000 shares and 100,000 shares, respectively, 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, 2022, the Company had approximately $0.9 million of unrecognized
compensation costs related to unvested options, which is expected to be recognized over a weighted-average period of 2.14 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.
Series A and 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, which
expired unexercised during the Company’s 2021 fiscal year, 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.
53
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
As of September 30, 2022, 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 41,621 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 a half years which ends on November 16, 2026. Series
D Preferred Warrants have an exercise price of $2.51.
In addition, pursuant to the May 2021 Offerings, the Company issued to the Placement Agents warrants to purchase an aggregate of 179,536 shares of common stock. The
Placement Agents Warrants issued on May 14, 2021 have an initial exercise date of November 14, 2021, with a term of five years which ends on May 12, 2026. The Placement Agent
Warrants have an exercise price of $2.85.
The Company may not effect, and a holder will not be entitled to convert, the Series D Preferred Stock or exercise any May 2021 Offering Warrants, which, upon giving effect to
such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or,
at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. As of September 30, 2022, 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 A and 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).
During year ended September 30, 2022, 26,605 Placement Agent Warrants were exercised.
Total warrants outstanding as September 30, 2022, were as follows:
Type
Financing (Montage)
Investors
Placement Agent
Investors
Investors
Investors
Placement Agent
Placement Agent
Investors
Placement Agent
Total
Warrant Issuances
Issue
Date
10/10/2017
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
1,327 $
3,120 $
10,000 $
41,621 $
872,625 $
13,738 $
11,992 $
31,564 $
592,106 $
179,536 $
1,757,629
132.50
25.00
31.25
4.00
4.00
0.05
4.00
3.88
2.51
2.85
Expiration
10/10/2025
10/19/2023
10/16/2023
10/19/2023
9/12/2024
9/12/2024
9/12/2024
2/04/2026
11/16/2026
5/12/2026
The Company did not issue warrants to purchase common stock during the year ended September 30, 2022. 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
2021
Shares
Exercise Price
58,169 $
592,106 $
179,536 $
829,811
3.88
2.51
2.85
54
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Summary of Option and Warrant Activity and Outstanding Shares
During the year ended September 30, 2022, the Company, (i) issued 5,000 total options at an exercise price of $3.99, which vest ratably over a 3-year period, (ii) issued 120,000 total
options to Board members at an exercise price of $1.85, which vested immediately upon issuance, (iii) issued 362,000 total options to its Chief Executive Officer at an exercise price
of $1.85, which vest ratably over a 3-year period, (iv) issued 48,000 total options to employees at an exercise price of $1.27, which vest ratably over a 3-year period and (v) issued
200,000 total shares of restricted stock to its Chief Executive Officer at grant-date fair value of $1.29, based upon the closing price of the Company’s common stock on the grant
date, which vest quarterly over a 3-year period. All such options granted expire ten years from date of grant.
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.
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 year ended September 30, 2022 and 2021 are as follows:
Weighted-average fair value per share option
Expected life (in years)
Volatility
Risk-free interest rate
Dividend yield
$
2022
2021
Board
Non-Board
Board
Non-Board
$
1.30
5.0
89.2%
2.8%
0.0%
$
1.40
6.0
95.0%
2.8%
0.0%
$
3.99
5.0
86.5%
0.8%
0.0%
2.22
6.0
85.3%
1.1%
0.0%
The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise. 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 restricted stock, stock option and warrant activity is as follows:
Restricted Stock
Stock Options
Stock Warrants
Awards
Awards
Exercise Price Warrants
Weighted
Average
Outstanding, October 1, 2021
Granted
Exercised
Forfeited
Expired
Outstanding, September 30, 2021
Granted
Exercised
Forfeited
Expired
Outstanding, September 30, 2022
-
-
-
-
-
-
200,000
-
-
-
200,000
611,004 $
240,200
(40,998)
(59,754)
(220)
750,232 $
535,000
(13,334)
(113,838)
(133)
1,157,927 $
4.75
4.35
1.40
2.56
470.77
4.84
1.82
1.40
3.69
937.88
3.49
Weighted
Average
Exercise Price
4.54
-
-
-
4.28
4.18
-
3.88
-
218.89
3.64
5,495,999 $
829,811
(1,976,387)
-
(2,560,678)
1,788,745 $
-
(26,605)
-
(4,511)
1,757,629 $
There were 619,461 and 295,649 options vested and exercisable as of September 30, 2022 and 2021, respectively. The options outstanding at September 30, 2022 and 2021 had an
aggregate intrinsic value of $2 and $1,530, respectively.
55
A summary of the status of unvested options is as follows:
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Weighted Average
Grant-Date
Fair Value
Shares
Unvested at October 1, 2021
Granted
Vested
Forfeited/Cancelled
Unvested at September 30, 2022
454,583 $
535,000
(369,615)
(81,502)
538,466 $
The following table summarizes information about outstanding stock options at September 30, 2022:
Exercise Price
Options outstanding
Options exercisable
Weighted Average
Remaining
Contractual Life
(Years)
Number of
Options
Weighted Average
Exercise Price
Aggregate
Intrinsic Value
1,157,927
619,461
8.5 $
8.1 $
3.49 $
4.93 $
1.87
1.82
1.74
2.35
1.83
2
-
13. Net Income (Loss) Per Share Attributable to Common Shareholders
Basic and diluted net income (loss) per share is computed as follows:
(in thousands, except share and per share data)
Numerator:
Net income (loss) – basic earnings per share
Deemed dividend on amendment of Series A convertible preferred stock
Net income (loss) applicable to common shareholders - basic earnings per share
Effect of dilutive securities:
Change in fair value of in-the-money warrant derivative liabilities
Net income (loss) applicable to common shareholders - diluted earnings per share
Denominator:
Weighted-average shares outstanding for basic earnings per share
Effect of dilutive securities:
Options
Warrants
Preferred stock
Weighted-average shares outstanding for diluted earnings per share
Basic net income (loss) per share
Diluted net income (loss) per share
As of September 30,
2022
2021
2,145 $
-
2,145
(39)
2,106 $
10,232,862
81,765
13,391
38,889
10,366,907
0.21 $
0.20 $
(6,689)
(2,015)
(8,704)
-
(8,704)
5,935,981
-
-
-
5,935,981
(1.47)
(1.47)
$
$
$
$
56
Potential common stock equivalents excluded from the computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive were as follows (in
shares):
Stock options
Warrants
Convertible preferred stock
14. Commitments and Contingencies
As of September 30,
2022
2021
712,907
1,743,891
-
765,232
1,788,745
38,889
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, 2022 and 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, 2022 and 2021, the Company has not experienced any losses related to the
indemnification obligations and no significant claims with respect thereto were outstanding. The Company does not 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, 2022, the Company was not engaged in any material legal
proceedings.
15. 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,
2022
2021
$
$
13,202 $
3,617
16,819 $
10,266
2,993
13,259
The largest concentration within the Company’s international revenue geography is within Canada.
Long-lived assets located in foreign jurisdictions aggregated approximately $6.7 million and $7.5 million as of September 30, 2022 and 2021, respectively.
57
The Company’s revenue by type is as follows:
Revenues:
Digital Engagement Services
Subscription
Perpetual Licenses
Maintenance
Hosting
Deferred Revenue
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Years Ended September 30,
2022
2021
$
$
3,259 $
11,995
136
501
928
16,819 $
3,296
8,736
-
380
847
13,259
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.
The following table summarizes the classification and net change in deferred revenue as of and for the years ended September 30, 2022 and 2021:
Balance as of October 1, 2020
Increase
Balance as of September 30, 2021
Increase (decrease)
Balance as of September 30, 2022
Deferred Revenue
Current
Long Term
$
$
1,511 $
586
2,097
(154)
1,943 $
15
403
418
(34)
384
58
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
16. Income Taxes
The components of the Company’s tax provision (benefit) as of September 30, 2022 and 2021, is as follows:
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Grand total
Year Ended September 30,
2022
2021
(11) $
49
37
75
-
-
(45)
(45)
30 $
(11)
33
-
22
(953)
(217)
(26)
(1,196)
(1,174)
$
$
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 income taxed at different rates
Change in valuation allowance on deferred tax assets
True up adjustments
Total
Year Ended September 30,
2022
2021
$
$
457 $
(691)
39
(55)
407
(127)
30 $
(1,695)
1,503
26
340
(1,202)
(146)
(1,174)
As of September 30, 2022, the Company has federal net operating loss (“NOL”) carryforwards of approximately $27.8 million of which $21.9 million is subject to the 20-year
carryforward and expire on various dates through 2039. The remaining federal NOL carryforward of $5.9 million 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 $46.8 million in state NOLs which expire on
various dates through 2041.
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, 2022 and 2021. For the years ended September 30, 2022 and 2021, the valuation
allowance for deferred tax assets increased by $0.4 million and decreased by $1.2 million, respectively.
The acquisition of HawkSearch, Inc. in fiscal 2021 (see Note 17) 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 2019 – 2022 generally remain open to examination by the IRS and state authorities.
59
Significant components of the Company’s deferred tax assets and liabilities are as follows:
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
Deferred tax assets:
Bad debt reserve
Deferred revenue
Accrued expenses
Net operating loss carryforwards
Right of use liability
Stock options
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Right of use asset
Depreciation
Intangibles
Total deferred tax liabilities
Net deferred tax liabilities
September 30,
2022
2021
$
$
37 $
2,399
80
8,057
146
309
17
11,045
(10,542)
503
146
47
572
765
(262) $
8
1,392
86
9,016
121
127
21
10,771
(10,083)
688
121
32
901
1,054
(366)
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 at September 30, 2022 and 2021. 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, 2022, the Company reported GILTI of
$0.4 million, which resulted in $0.1 million of tax expense for the year ended September 30, 2022. 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, 2022 and 2021. The Company does not
expect any change to this determination in the next twelve months.
17. 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 at acquisition date) 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.
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.
60
BRIDGELINE DIGITAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share data)
HawkSearch 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 HawkSearch, 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 provided for additional consideration, in the event of achievement of
certain revenue targets, to the selling shareholders as an additional earn-out, payable in two installments, as amended and as follows; (i) on or before July 1, 2022, the aggregate
sum of $1,799 thousand (which was paid on July 1, 2022); and (ii) on or before October 3, 2022, the aggregate sum of $250 thousand (subsequently paid), as included within in the
Amendment to the Stock Purchase Agreement, dated June 15, 2022.
The Company accounted for the HawkSearch 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 HawkSearch.
The acquisition date fair value of consideration transferred was as follows:
WooRank
HawkSearch
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 acquisition date fair value of assets acquired, and liabilities assumed was as follows:
WooRank
HawkSearch
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
$
$
577 $
23
5
282
1,280
116
2,888
5,171
208
2,159
403
2,770
2,401 $
61
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
The average useful lives of the identifiable intangible assets acquired were as follows:
Acquired software
Customer relationships
Domain and trade names
WooRank
HawkSearch
(in years)
5
8
12
5
10
15
Total revenue from the WooRank and HawkSearch acquisitions from their respective date of acquisition through September 30, 2021 was $1.0 million and $1.9 million, respectively.
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 pro forma information assuming the acquisitions occurred on October 1, 2020:
(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
$
$
$
$
$
Year ended
September 30,
2021
16,381
(8,773)
(8,773)
(1.49)
(1.49)
5,935,981
5,935,981
Pro forma information for the year ended September 30, 2022, is not presented as the amount reported in the Consolidated Statements of Operations include the activities of these
acquisitions for the period then ended.
18. Related Party Transactions
In October 2013, Mr. Michael Taglich joined the Board of Directors. Michael Taglich is the Chairman and President of Taglich Brothers, Inc. (“Taglich Brothers”), a New York
based securities firm. 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, 2022, Michael Taglich beneficially owns approximately 3.6% 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 expired in May 9,
2022.
62
BRIDGELINE DIGITAL, INC.
NOTES TO 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.
19. 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.
63
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
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 recognized, 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.
As of September 30, 2022, 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 (as defined in Rule 13a-15(e) under the Exchange Act) 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 recognized 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, 2022. 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, 2022, our internal control over financial reporting (as defined in Rule 15d-15(e) under the Exchange Act) was 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, 2022 that have materially, or are
reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information
None.
64
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
Position
Director Class
67
71
52
57
53
44
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)
Class I
Class II
Class II
Class III
Class I
Expiration of
Class Term
2024 Annual Meeting
2025 Annual Meeting
2025 Annual Meeting
2023 Annual Meeting
2024 Annual Meeting
(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 Mark G.
Downey, our former Chief Financial Officer.
65
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.
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. In addition, Ms. Kahn also brings extensive leadership experience to our Board and our Audit Committee as an
experienced senior executive.
66
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 has been the Chief Executive Officer of Harver since January 2022. Harver is a volume hiring solution enabling
global enterprises to hire at scale. From 2016 to July 2021, he was President and Chief Executive Officer of Monotype Imaging Holdings, Inc., and he also 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
leading global provider of location intelligence solutions. From 1997 until September 2007, Mr. Landers held several senior finance positions 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.
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.
67
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of 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 to file certain reports regarding ownership of, and transactions in, the Company’s securities with the Securities and Exchange Commission. 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. Based solely on a
review of the copies of such forms and amendments thereto received by it, the Company believes that during the fiscal year ended September 30, 2022, all Section 16(a) filing
requirements applicable to our officers, directors, and greater than 10% beneficial owners have been met.
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.
Meetings of the Board of Directors
During fiscal 2022, the Board of Directors met 5 times and acted 4 times by unanimous written consent.
Committees of the Board of Directors
The Company has an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee.
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 2022, the Audit Committee met 4 times. Each member of the Audit Committee attended each such meeting. The Chairman of
the Audit Committee was present at all meetings.
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 2022, the Compensation Committee met 3 times and acted 1 time by unanimous written consent.
68
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 2022, the Nominating and Governance Committee met 2 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, 2022 and September 30, 2021 for our
principal executive officer and our other two most highly compensated executive officers who were serving as executive officers as of September 30, 2022. We refer to these officers
as our named executive officers.
Roger Kahn - President and Chief Executive Officer
Name and
Principal Position
Thomas R. Windhausen - Chief Financial Officer and Treasurer
Mark G. Downey - Former Executive Vice President and
Chief Financial Officer and Treasurer
Employment Agreements
Roger Kahn
Fiscal
Year End
2022
2021
2022
2022
2021
$
$
$
$
$
Salary
Bonus
Total
339,333 $
318,750 $
240,000 $
40,000 $
240,000 $
114,411 $
135,791 $
16,818 $
30,000 $
58,949 $
453,744
454,541
256,818
70,000
298,949
On August 24, 2015, Mr. Roger “Ari” Kahn joined Bridgeline Digital, Inc. 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.
On August 18, 2022, an amendment to the employment agreement between the Company and Mr. Kahn was made, effective August 14, 2022 (the “Second Amendment”). The
Second Amendment provides for the following: (i) an increase in Mr. Kahn’s annual salary to $400,000; (ii) the opportunity for Mr. Kahn to earn a periodic incentive bonus, subject
to his satisfaction of certain performance metrics; and (iii) the Company’s right, but not its obligation, to issue discretionary equity incentive awards to Mr. Kahn, subject to
applicable award agreements, equity incentive plans, and other such applicable terms, restrictions, and provisions. In connection with the Second Amendment, Mr. Kahn was
given the opportunity to earn a $100,000 bonus with respect to the second half of fiscal 2022 and was awarded 200,000 shares of restricted stock (the “Restricted Stock Award”),
pursuant to the Company’s 2016 Stock Incentive Plan. Mr. Kahn’s Restricted Stock Award vests in quarterly installments over a three year period. Mr. Kahn will also have the
opportunity to earn one or more future incentive bonuses aggregating $200,000 for each year. All other terms of Mr. Kahn’s employment agreement, as amended are unchanged.
69
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 $240,000 base salary and the ability to earn a bi-annual incentive bonus of $22,500, which incentive
bonus may be awarded to Mr. Windhausen at the discretion of the Company’s Compensation Committee. The Employment Agreement also provides that Mr. Windhausen will be
eligible to participate in all other employee benefits plans and programs, and, in the event Mr. Windhausen’s employment is terminated by the Company without cause, he is
entitled to receive severance benefits.
Mark G. Downey
On November 30, 2021, Mr. Mark G. Downey resigned from his position of Chief Financial Officer of Bridgeline Digital, Inc. to pursue new professional opportunities. Mr. Downey
continued to provide transition services to the Company as a consultant until January 30, 2022.
Outstanding Equity Awards at Fiscal 2022 Year-End
The following table sets forth information concerning outstanding stock options for each named executive officer as of September 30, 2022.
Name
Roger Kahn
Thomas R. Windhausen
Grant
Date
8/24/2015 (1)
8/19/2016 (1)
11/20/2019 (1)
4/14/2022 (2)
Total
09/30/2021 (1)
Number of
Securities
Underlying
Unexercised
Options
Exercisable (1)
Number of
Securities
Underlying
Unexercised
Options
Unexercisable (1)
Exercise
Price ($/sh)
Option
Expiration
Date
800
4,446
166,235
80,444
251,925
10,000
- $
- $
83,118 $
281,556 $
364,674
20,000 $
287.50
205.00
1.40
1.85
8/24/2025
8/19/2026
11/20/2029
4/14/2032
4.11
09/30/2031
(1) Shares vest in equal installments upon the anniversary date of the grant over three years.
(2) Shares vest in equal installments on a monthly basis over three years.
Roger Kahn also holds 200,000 shares of restricted stock granted which were granted in August 2022 and which vest in quarterly installments over a three year period. As of
September 30, 2022, all shares remained restricted.
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.
70
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, 2022.
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
350
350
(A)
Percent of Shares
Outstanding
100.00%
*
(A)
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
Roger Kahn
President, Chief Executive Officer, Director
Michael Taglich
Director
Kenneth Galaznik
Director
Scott Landers
Director
Joni Kahn
Director
Thomas R. Windhausen
Chief Financial Officer and Treasurer
All current executive officers and directors as a group
Number of
Shares
Owned
977,928
386,971
68,203
68,206
68,206
10,000
1,579,514
Percent of Shares
Outstanding
9.09%
3.61%
0.65%
0.65%
0.65%
0.10%
14.02%
(1)
(2)
(3)
(4)
(5)
(6)
(7)
71
(1)
(2)
(3)
(4)
(5)
(6)
(7)
Includes 335,043 shares of Common Stock subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2022).
Includes 200,000 shares of restricted stock. Includes 545 shares of common stock owned by Mr. Kahn’s spouse.
Includes 190,025 shares issuable upon the exercise of warrants, 38,889 shares issuable upon the exercise of Series C preferred stock, and 67,708 shares of Common Stock
subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2022). Also includes 35 shares of Common Stock
and 2 shares issuable upon the exercise of warrants owned by Mr. Taglich’s spouse.
Includes 67,604 shares of Common Stock subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2022).
Includes 67,644 shares of Common Stock subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2022).
Includes 8 shares of Common Stock owned by Mr. Lander’s children.
Includes 67,638 shares of Common Stock subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2022).
Includes 10,000 shares of Common Stock subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2022).
Includes 615,637 shares of Common Stock subject to currently exercisable options (includes options that will become exercisable within 60 days of September 30, 2022),
and 229,394 other issuable shares including warrants and preferred stock.
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, 2022, regarding the shares of our common stock available for grant or granted under our equity
compensation plans.
Equity Compensation Plan Information
Weighted average
exercise price of
outstanding
options,
warrants and
rights
Number of
securities
to be issued upon
exercise 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
1,157,927 $
1,757,629
2,915,556 $
3.49
3.64
-
239,074
-
239,074
(1) At September 30, 2022, there were 1,757,629 total Warrants outstanding.
72
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.
73
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 offering 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 offering 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.
74
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 (PCAOB ID No. 127). 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 for the fiscal year ended
September 30, 2022 and for both PKF O’Connor Davies LLP and Marcum LLP for the fiscal year ended September 30, 2021. The Company did not engage its independent registered
public accounting firms during either of the fiscal years ended September 30, 2022 or September 30, 2021 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, 2022
$
$
258,487 $
— $
—
258,487 $
September 30, 2021
261,951
68,544
—
330,495
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 $243,050 and $15,437, respectively, for the fiscal year ended September 30, 2022. PKF O’Connor Davies LLP and Marcum
LLP were $219,000 and $42,951, respectively, for the 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 the 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 and Marcum LLP in the fiscal years ended September 30, 2022 or September 30, 2021.
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, 2022, no services were provided to us
by our independent registered public accounting firm other than in accordance with the pre-approval procedures described herein.
75
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, 2022 and 2021
–Consolidated Statements of Operations for the years ended September 30, 2022 and 2021
–Consolidated Statements of Comprehensive Income/(Loss) for the years ended September 30, 2022 and 2021
–Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2022 and 2021
–Consolidated Statements of Cash Flows for the years ended September 30, 2022 and 2021
–Notes to Consolidated Financial Statements
2. Financial Statement Schedules
–Not applicable
76
(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.
Exhibit
No.
3.1
3.2
3.3
3.4
3.5
4.1
Incorporated by Reference
Exhibit
Amended and Restated Certificate of Incorporation, as amended
Amended and Restated By-Laws
Amendment to the Amended and Restated Bylaws of Bridgeline Digital, Inc.,
dated September 9, 2021
Certificate of Designation of the Series A Convertible Preferred Stock
Certificate of Designation of the Series B Convertible Preferred Stock
Registration Rights Agreement, dated November 3, 2016, by and between
Bridgeline Digital, Inc. and the Investors party thereto
Form
10-Q
8-K
8-K
8-K
8-K
8-K
Filing Date
May 15, 2013
December 14, 2018
September 10, 2021
November 4, 2014
October 19, 2018
Exhibit
No.
3.1
3.1
3.1
3.1
3.1
November 4, 2016
10.3
10.1
Amended and Restated Stock Incentive Plan, as amended
DEF 14 A
July 14, 2014 Appendix C
Filed
Herewith
77
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
Incorporated by Reference
Form
8-K
Filing Date
November 4, 2014
Exhibit No.
10.2
Filed
Herewith
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
8-K
10-Q
10-Q
10-Q
8-K
January 9, 2015
10.2
February 17, 2015
10.2
May 15, 2015
May 15, 2015
10.6
10.9
July 24, 2015
10.2
Bridgeline Digital Inc. 2016 Stock Incentive Plan
DEF 14 A
March 22, 2016 Appendix B
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
8-K
8-K
8-K
8-K
8-K
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
78
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
10.30
10.31
10.32
10.33
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
8-K
8-K
8-K
8-K
November 4, 2016
October 13, 2017
October 13, 2017
October 13, 2017
10.4
10.1
10.2
10.3
First Amendment to the Loan and Security Agreement between Bridgeline Digital,
Inc and Montage Capital II. LP, dated May 10, 2018
10-Q
May 15, 2018
10.2
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
8-K
8-K
8-K
8-K
September 11, 2018
September 11, 2018
September 11, 2018
October 24, 2018
10.1
10.2
10.3
10.1
First Amendment to the Bridgeline Digital Inc. 2016 Stock Incentive Plan
DEF 14 A
August 23, 2019 Appendix B
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 HawkSearch Inc.,
an Illinois corporation, dated May 11, 2021
8-K
8-K
8-K
8-K
8-K
8-K
February 3, 2021
10.1
February 9, 2021
February 9, 2021
September 19, 2018
10.1
10.2
10.1
March 2, 2021
10.1
May 12, 2021
10.1
Employment Agreement dated November 30, 2021 between Bridgeline Digital, Inc.
and Thomas R. Windhausen
10-K
December 20, 2021
10.29
Second Amendment to the Bridgeline Digital Inc. 2016 Stock Incentive Plan
DEF 14 A
February 14, 2022 Appendix A
Amendment to Stock Purchase Agreement, among Bridgeline Digital, Inc.,
Svanaco, Inc., Svanawar, Inc., and HawkSearch Inc., dated June 15, 2022.
Second Amendment to Roger “Ari” Kahn’s Employment Agreement, effective
August 14, 2022
8-K
8-K
June 22, 2022
10.1
August 24, 2022
10.1
79
Exhibit
No.
21.1
23.1
31.1
31.2
32.1
32.2
101.INS**
101.SCH**
101.CAL**
101.DEF**
101.LAB**
101.PRE**
104
Subsidiaries of the Registrant
Exhibit
Consent of PKF O’Connor Davies, 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
80
Incorporated by Reference
Form
Filing Date
Exhibit No.
Filed
Herewith
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, 2022
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
81
December 20, 2022
December 20, 2022
December 20, 2022
December 20, 2022
December 20, 2022
December 20, 2022
Exhibit No.
21.1
23.1
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
Subsidiaries of the Registrant
Consent of PKF O’Connor Davies, 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.
82
Subsidiaries of Bridgeline Digital, Inc.
EXHIBIT 21.1
Bridgeline Digital Pvt. Ltd.
Bridgeline Digital Canada, Inc.
Bridgeline Digital Belgium BV
Hawk Search, Inc.
Woorank SRL
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, 333-234771 and 333-264937) and Form S-3 (Nos. 333-214602, 333-230816, 333-239104, 333-256638 and 333-262764) of our report dated December 20, 2022, and
with respect to our audit of the consolidated financial statements of Bridgeline Digital, Inc. as of September 30, 2022 and 2021 and for the years then ended, which report is included
in this Annual Report on Form 10-K of Bridgeline Digital, Inc. for the year ended September 30, 2022.
/s/ PKF O’Connor Davies, LLP
New York, New York
December 20, 2022
EXHIBIT 31.1
I, Roger Kahn, certify that:
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
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 recognize, 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, 2022
/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
EXHIBIT 31.2
I, Thomas R. Windhausen, 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 recognize, 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, 2022
/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, 2022, 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, 2022
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, 2022 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, 2022
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.