10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 (Mark One)

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

For the quarterly period ended December 31, 2012

OR

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

For the transition period from ______________ to ______________

Commission File Number 333-139298

Bridgeline Digital, Inc.

(Exact name of registrant as specified in its charter)

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

80 Blanchard Road
Burlington, Massachusetts	01803
(Address of Principal Executive Offices)	(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)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x        No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    x  Yes     o  No

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

Large accelerated filer  o Accelerated filer  o Non-accelerated filer  o (Do not check if a smaller reporting company) Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o     No   x

The number of shares of Common Stock par value $0.001 per share, outstanding as of February 11, 2013 was 15,332,768

1

Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended December 31, 2012

Index

		Page
Part I	Financial Information
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets (unaudited) as of December 31, 2012 and September 30, 2011	4
	Condensed Consolidated Statements of Operations (unaudited) for the three months ended December 31, 2012 and 2011	5
	Condensed Consolidated Statements of Comprehensive Income (unaudited) for the three months ended December 31, 2012 and 2011	6
	Condensed Consolidated Statements of Cash Flows (unaudited) for the three months ended December 31, 2012 and 2011	7
	Notes to Interim Condensed Consolidated Financial Statements (unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
Part II	Other Information
Item 1.	Legal Proceedings	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	31
Signatures		32

2

Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended December 31, 2012

Statements contained in this Report on Form 10-Q that are not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements may be identified by the use of forward-looking terminology such as “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intends,” “continue,” or similar terms or variations of those terms or the negative of those terms.  These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc. Forward-looking statements are merely our current predictions of future events. Investors are cautioned that any such forward-looking statements are inherently uncertain, are not guaranties of future performance and involve risks and uncertainties. Actual results may differ materially from our predictions. Important factors that could cause actual results to differ from our predictions include the impact of the 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 volatility of the market price of our common stock, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, the security of our software, our dependence on our management team and key personnel, our ability to hire and retain future key personnel, or our ability to maintain an effective system of internal controls.  Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to what extent, any of such risks may be realized, nor is there any assurance that we have identified all possible issues which we might face. We assume no obligation to update our forward-looking statements to reflect new information or developments. We urge readers to review carefully the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012 as well as in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

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

3

PART I—FINANCIAL INFORMATION

Item 1.       Financial Statements.

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

ASSETS	December 31,			September 30,
	2012			2012
Current assets:
Cash and cash equivalents	$	2,395		$	2,126
Accounts receivable and unbilled receivables, net		4,488			3,977
Prepaid expenses and other current assets		677			648
Total current assets		7,560			6,751
Equipment and improvements, net		2,673			2,735
Intangible assets, net		1,375			1,527
Goodwill		21,724			21,545
Other assets		1,395			1,132
Total assets	$	34,727		$	33,690
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	988		$	1,132
Accrued liabilities		903			1,306
Accrued earnouts, current		354			375
Debt, current		1,383			1,424
Capital lease obligations, current		262			230
Deferred revenue		2,852			1,144
Total current liabilities		6,742			5,611
Accrued earnouts, net of current portion		990			990
Debt, net of current portion		3,271			2,988
Capital lease obligations, net of current portion		126			127
Other long term liabilities		991			1,004
Total liabilities	$	12,120		$	10,720
Commitments and contingencies
Stockholders’ equity:
Preferred stock - $0.001 par value; 1,000,000 shares authorized; none issued and outstanding		-			-
Common stock -$0.001 par value; 20,000,000 shares authorized; 15,332,768 and 15,203,538 shares issued and outstanding, respectively		15			15
Additional paid-in capital		41,087			40,847
Accumulated deficit		(18,358	)		(17,716	)
Accumulated other comprehensive loss		(137	)		(176	)
Total stockholders’ equity		22,607			22,970
Total liabilities and stockholders’ equity	$	34,727		$	33,690

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

4

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)

	Three Months Ended
	December 31,
	2012			2011
Revenue:
Web application development services	$	4,850		$	5,308
Managed service hosting		556			616
Subscription and perpetual licenses		787			593
Total revenue		6,193			6,517
Cost of revenue:
Web application development services		2,754			2,855
Managed service hosting		72			106
Subscription and perpetual licenses		168			120
Total cost of revenue		2,994			3,081
Gross profit		3,199			3,436
Operating expenses:
Sales and marketing		1,834			1,715
General and administrative		1,354			1,000
Research and development		132			403
Depreciation and amortization		424			415
Impairment of intangible asset		-			281
Total operating expenses		3,744			3,814
Loss from operations		(545	)		(378	)
Interest income (expense), net		(76	)		(64	)
Loss before income taxes		(621	)		(442	)
Provision for income taxes		21			21
Net loss	$	(642	)	$	(463	)
Net loss per share:
Basic and diluted	$	(0.04	)	$	(0.04	)
Number of weighted average shares:
Basic and diluted		14,782,615			12,319,643

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

5

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

 (Dollars in thousands)

(Unaudited)

	Three Months Ended
	December 31,
	2012			2011
Net Loss	$	(642	)	$	(463	)
Other comprehensive income (loss):
Net change in foreign currency translation adjustment		39			(6	)
Other comprehensive income (loss):		39			(6	)
Comprehensive loss	$	(603	)	$	(469	)

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

6

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Dollars in thousands)

(Unaudited)

	Three Months Ended
	December 31,
	2012			2011
Cash flows from operating activities:
Net loss	$	(642	)	$	(463	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of intangible assets		156			195
Impairment of intangible asset		-			281
Depreciation		268			220
Other amortization		44			50
Stock-based compensation		127			60
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable and unbilled receivables		(511	)		281
Prepaid expenses and other assets		(37	)		(199	)
Accounts payable and accrued liabilities		(694	)		(674	)
Deferred revenue		1,689			210
Other liabilities		(14	)		134
Total adjustments		1,028			558
Net cash provided by operating activities		386			95
Cash flows from investing activities:
Equipment and improvements		(62	)		(523	)
Acquisitions, net of cash acquired		-			(134	)
Software development capitalization costs		(272	)		-
Contingent acquisition payments		(104	)		(83	)
Net cash used in investing activities		(438	)		(740	)
Cash flows from financing activities:
Proceeds from exercise of employee stock options		67			-
Proceeds from employee stock purchase plan		46			-
Borrowings from bank term loan		-			1,500
Borrowings from bank line of credit		500			375
Payments on bank term loan		(91	)		-
Payments on bank line of credit		(110	)		(1,835	)
Payments on acquired debt		-			(120	)
Payments on subordinated promissory notes		(56	)		(42	)
Principal payments on capital leases		(74	)		(71	)
Net cash provided by/(used in) financing activities		282			(193	)
Effect of exchange rate changes on cash and cash equivalents		39			(6	)
Net increase/(decrease) in cash and cash equivalents		269			(844	)
Cash and cash equivalents at beginning of period		2,126			2,528
Cash and cash equivalents at end of period	$	2,395		$	1,684
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	54		$	60
Income taxes	$	13		$	1
Non cash activities:
Equipment purchased under capital leases	$	85		$	76
Equipment and other assets included in accounts payable	$	46		$	166
Accrued contingent consideration (earnouts)	$	83		$	600
Common stock issued in connection with acquisition	$	-		$	150

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

7

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

1.   Description of Business

Overview

Bridgeline Digital enables its customers to maximize the performance of their mission critical websites, intranets, and online stores. Bridgeline is the developer of the award-winning iAPPS Web Engagement Management (WEM) product platform and related digital solutions. The iAPPS platform deeply integrates Web Content Management, eCommerce, eMarketing, and web Analytics capabilities within the heart of websites or eCommerce web stores to help marketers deliver online experiences that attract, engage, and convert their customers across all digital channels. Bridgeline’s iAPPS platform combined with its digital services assists customers in maximizing on-line revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs.

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

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 Burlington, Massachusetts.  The Company maintains regional field offices serving the following geographical locations: Atlanta, GA; Baltimore, MD; Boston, MA; Chicago, IL; Dallas, TX; Denver, CO; New York, NY; Philadelphia, PA; and Tampa, FL.  The Company has one wholly-owned subsidiary, Bridgeline Digital Pvt. Ltd. located in Bangalore, India.

2.   Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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

Unaudited Interim Financial Information

The accompanying interim Condensed Consolidated Balance Sheet as of December 31, 2012, the Condensed Consolidated Statements of Operations for the three ended December 31, 2012 and 2011, respectively, and the Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2012 and 2011, respectively, are unaudited. The unaudited interim condensed consolidated statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and in the opinion of the Company’s management have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended September 30, 2012. These condensed financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation of the Company’s financial position at December 31, 2012 and its results of operations for the three months ended December 31, 2012 and 2011, respectively, and its cash flows for the three months ended December 31, 2012 and 2011, respectively. The results for the three months ended December 31, 2012 are not necessarily indicative of the results to be expected for the year ending September 30, 2013. The accompanying September 30, 2012 Condensed Consolidated Balance Sheet has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by US GAAP for complete financial statements.

Subsequent Events

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

8

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Recent Accounting Pronouncements

In June 2011, the Financil Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05 (“ASU 2011-05”), Presentation of Comprehensive Income, which amends ASC Topic 220, Comprehensive Income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as a part of the statement of stockholders’ equity and requires other comprehensive income to be presented as part of a single continuous statement of comprehensive income or in a statement of other comprehensive income immediately following the statement of operations. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income. ASU 2011-05 is effective for fiscal years beginning after December 15, 2011 and must be retrospectively applied to all reporting periods presented. The Company adopted ASU 2011-05 on October 1, 2012. The adoption of ASU 2011-05 will not have an impact on the Company’s financial condition, results of operations or cash flows.

3. Accounts Receivable and Unbilled Receivables

Accounts receivable and unbilled receivables consists of the following:

	As of			As of
	December 31, 2012			September 30, 2012
Accounts receivable	$	4,074		$	3,794
Unbilled receivables		508			381
Subtotal		4,582			4,175
Allowance for doubtful accounts		(94	)		(198	)
Accounts receivable and unbilled receivables, net	$	4,488		$	3,977

4.   Acquisitions

MarketNet, Inc.

On May 31, 2012, the Company completed the acquisition of MarketNet, Inc. (“MarketNet”), an interactive technology company that provides web application development based in Dallas, Texas. The Company acquired all of the outstanding capital stock of MarketNet for consideration consisting of (i) $20 thousand in cash, (ii) assumption of debt of $244 thousand and (ii) contingent consideration of up to $650 thousand in cash and 204,331 shares of Bridgeline Digital common stock, valued at $250 thousand ($1.22 per share). The cash consideration was reduced by $58 thousand due to the Seller’s inability to meet an agreed upon target for working capital at the time of acquisition. This contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain quarterly revenue and quarterly operating income targets during the period. To the extent that either the quarterly revenue target or the quarterly operating income target is not met in a particular quarter, the earn-out period will be extended for up to four additional quarters. MarketNet is also eligible to earn additional bonus equity consideration of 200,000 shares, if annual net revenues of the acquired business exceed a certain threshold in any fiscal year through September 30, 2015. The Company is required to assess the probability of the acquired business achieving the contingent cash and stock payments which requires management to make estimates and judgments based on forecasts of future performance. As a result, the Company estimated and accrued $607 thousand of the contingent cash consideration to be achieved and $262 thousand of the contingent stock consideration to be achieved. MarketNet achieved its quarterly revenue and operating income targets for all periods since the acquisition date.The contingent common stock has been issued and is being held in escrow pending satisfaction of the applicable targets.  MarketNet’s operating results are reflected in the Company’s condensed consolidated financial statements as of the acquisition date.

9

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Magnetic Corporation

On October 3, 2011, the Company completed the acquisition of Magnetic Corporation (“Magnetic”), a web technology company based in Tampa, Florida. Bridgeline acquired all of the outstanding capital stock of Magnetic for consideration consisting of (i) $150 thousand in cash and (ii) contingent consideration of up to $600 thousand in cash and 166,666 shares of Bridgeline Digital common stock, valued at $150 thousand ($0.90 per share). The cash consideration was reduced by $100 thousand due to the Seller’s inability to meet an agreed upon target for working capital at the time of acquisition. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain quarterly revenue and quarterly operating income targets during the period. The contingent common stock has been issued and is being held in escrow pending satisfaction of the applicable targets.  To the extent that either the quarterly revenue target or the quarterly operating income target is not met in a particular quarter, the earn-out period will be extended for up to four additional quarters. The Company is required to assess the probability of the acquired business achieving the contingent cash and stock payments which requires management to make estimates and judgments based on forecasts of future performance. As a result, the Company estimated and accrued $600 thousand of the contingent cash consideration to be achieved and $150 thousand of the contingent stock consideration to be achieved. Magnetic achieved its quarterly revenue and operating income targets for all periods since the acquisition date.. Magnetic’s operating results are reflected in the Company’s condensed consolidated financial statements as of the acquisition date, which corresponds to the Company’s commencement of fiscal 2012.

The estimated fair value of net assets acquired from the MarketNet and Magnetic acquisitions are summarized as follows:

Net assets acquired:	Amount
Cash	$	35
Accounts Receivable, net		327
Other Assets		181
Fixed Assets		91
Intangible Assets		1,030
Goodwill		1,311
Total Assets		2,975
Current Liabilities		1,215
Liabilities, net of current		73
Total liabilities assumed		1,288
Net assets acquired:	$	1,687
Purchase Price:
Cash Paid	$	70
Contingent earnouts - payable in cash		1,206
Contingent earnouts - payable in common stock		411
	$	1,687

As part of the Magnetic acquisition, of the $430 thousand allocated to intangible assets, $350 thousand is allocated to customer relationships and $80 thousand is allocated to non-compete agreements, with an average useful life of five years.

As part of the MarketNet acquisition, of the $600 thousand allocated to intangible assets, $440 thousand is allocated to customer relationships and $160 thousand is allocated to non-compete agreements, with an average useful life of five years. These amounts are preliminary and will be adjusted when the formal valuations are completed.

The goodwill recorded as a result of the Magnetic and MarketNet acquisitions is nondeductible for tax purposes.

10

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following unaudited pro forma financial information reflects the combined results of operations for Bridgeline for the three months ended December 31, 2011, including certain adjustments, as if the acquisition of MarketNet had occurred on October 1, 2011.  This information does not necessarily reflect the results of operations that would have occurred had the acquisitions taken place at the beginning of the period, and is not necessarily indicative of the results which may be obtained in the future (in thousands, except per share data):

	Three Months Ended December 31, 2011
Total revenue	$	7,170
Net loss	$	(532	)
Net loss per share:
Basic and diluted	$	(0.04	)
Number of weighted average shares:
Basic and diluted		12,336,671

Contingent earnout liabilities for acquisitions completed after September 30, 2009 were recorded at fair value based on valuation models that utilize relevant factors such as estimated probabilities of the acquisitions achieving the performance targets throughout the earnout period. The following table summarizes the changes in earnout liabilities for the three months ended December 31, 2012:

Balance at September 30, 2012	$	1,365
Contingent earnout liability accruals		83
Contingent earnout liability payments		(104	)
Balance at December 31, 2012	$	1,344

5.   Intangible Assets

Changes in the carrying amount of intangible assets are as follows:

	As of December 31, 2012
	Gross		Accumulated						Net
	Amount		Amortization			Impairment			Amount
Intangible assets:
Domain and trade names	$	26	$	(26	)	$	-		$	-
Customer related		4,191		(2,780	)		(281	)		1,130
Non-compete agreements		877		(632	)		-			245
Acquired software		362		(362	)		-			-
Total intangible assets	$	5,456	$	(3,800	)	$	(281	)	$	1,375

11

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

	As of September 30, 2012
	Gross		Accumulated						Net
	Amount		Amortization			Impairment			Amount
Intangible assets:
Domain and trade names	$	26	$	(26	)	$	-		$	-
Customer related		4,187		(2,654	)		(281	)		1,252
Non-compete agreements		877		(602	)		-			275
Acquired software		362		(362	)		-			-
Total intangible assets	$	5,452	$	(3,644	)	$	(281	)	$	1,527

Total amortization expense related to intangible assets for the three months ended December 31, 2012 and 2011 was $156 thousand and $195 thousand, respectively, and are reflected in operating expenses on the Condensed Consolidated Statements of Operations.

6.  Goodwill

Changes in the carrying amount of goodwill follows:

	As of		As of
	December 31, 2012		September 30, 2012
Balance at beginning of period	$	21,545	$	20,122
Acquisitions		96		1,175
Contingent acquisition payments		83		248
Balance at end of period	$	21,724	$	21,545

7.   Debt

Bank Term Loan

In March 2010, the Company entered into an Amended and Restated Loan and Security Agreement SVB (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Loan Agreement has a two year term which expires on March 31, 2012. In May 2011, the Company amended its loan arrangement (the “Amendment”) with SVB, extending the maturity date of the line of credit for one year to March 31, 2013. The Amendment also revised certain financial covenants and amended the out of formula borrowings to be structured as a $2 million term loan and interest on the term loan will be at SVB’s prime rate plus 1.75%.  In May 2012, the Company amended its loan agreement (the “2012 Amendment”) with SVB, extending the maturity date of the line of credit for one year to March 31, 2014. The 2012 Amendment also revised certain financial covenants. In February 2013, the Company amended its loan agreement (the “2013 Amendment”) with SVB, extending the maturity date of the line of credit for one year to March 31, 2015. The 2013 Amendment also revised certain financial covenants, including the covenants for the three months ended December 31, 2012. The Company would not have been in compliance with one of its prior financial covenants for the three months ended December 31, 2012 if the amendment was not completed.

Promissory Notes

In May 2012, the Company assumed two Promissory Notes in connection with the acquisition of MarketNet, Inc. The first Promissory Note in the amount of $63 thousand is payable in eight equal installments of $8 thousand, including interest accrued at 5%, and matures in May 2014. The first installment was due in July 2012. The second Promissory Note in the amount of $80 thousand is payable in twelve equal installments of $7 thousand, including interest accrued at 5%, and matures in May 2015. The first installment was due in July 2012.

12

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Debt consists of the following:

	As of		As of
	December 31, 2012		September 30, 2012
Line of credit borrowings	$	2,771	$	2,382
Bank term loan		1,601		1,692
Subordinated promissory notes		282		338
Total debt	$	4,654	$	4,412
Less current portion	$	1,383	$	1,424
Long term debt, net of current portion	$	3,271	$	2,988

8.   Other Long Term Liabilities

Deferred Rent

In connection with new leases for the Company’s headquarters in Burlington, Massachusetts and a new location in New York, the Company made investments in leasehold improvements at these locations of approximately $1.4 million, of which the respective landlords funded approximately $857 thousand.  The capitalized leasehold improvements are being amortized over the initial lives of each lease. The improvements funded by the landlords are treated as lease incentives.  Accordingly, the funding received from the landlords was recorded as fixed asset additions and a deferred rent liability on the Condensed Consolidated Balance Sheet. As of December 31, 2012, $121 thousand was reflected in Accrued Liabilities and $609 thousand is reflected in Other Long Term Liabilities. The deferred rent liability is being amortized as a reduction of rent expense over the lives of the leases.

9.   Shareholder’s Equity

Common Stock

On May 31, 2012, the Company sold 2,173,913 shares of common stock at $1.15 per share for gross proceeds of $2.5 million in a private placement. Net proceeds to the Company after offering expenses were approximately $2.3 million. In addition, the Company issued the placement agent and its affiliates five year warrants to purchase an aggregate of 217,913 shares of Bridgeline’s common stock at a price equal to $1.40 per share. The Company agreed to provide piggyback registration rights with respect to the shares of common stock sold in the offering and underlying the warrants.

In connection with the acquisition of MarketNet on May 31, 2012, contingent consideration of 204,331 shares of Bridgeline Digital common stock is contingently issuable to the sole stockholder of MarketNet. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain operating and revenue targets. The common stock has been issued and is being held in escrow pending satisfaction of the applicable earnout targets.  In addition, MarketNet is also eligible to earn additional bonus equity consideration of 200,000 shares of Bridgeline Digital common stock if a certain annual revenue threshold is met in any fiscal year during the next three years. As of December 31, 2012, the sole stockholder of MarketNet had earned 34,056 shares of common stock.

In connection with the acquisition of Magnetic Corporation on October 3, 2011, contingent consideration of 166,666 shares of Bridgeline Digital common stock is contingently issuable to the sole stockholder of Magnetic. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain operating and revenue targets. The common stock has been issued and is being held in escrow pending satisfaction of the applicable earnout targets.  As of December 31, 2012, the sole stockholder of Magnetic had earned 69,445 shares of common stock.

13

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Employee Stock Purchase Plan

On April 12, 2012, the Company’s stockholders approved and adopted the Bridgeline Digital, Inc. 2012 Employee Stock Purchase Plan (the “ESPP”).  Under the terms of the ESPP, the Company will grant eligible employees the right to purchase shares of Bridgeline common stock through payroll deductions at a price equal to 85% of the fair market value of Bridgeline common stock on the purchase termination date of defined offering or purchase periods. Each offering period is six months in duration. The ESPP permits the Company to offer up to 300,000 shares of common stock. The maximum number of shares of common stock that may be purchased by all participants in any purchase period may not exceed 150,000 shares.   During the three months ended December 31, 2012, 24,964 shares were purchased by employees.

Common Stock Warrants

On October 21, 2010, the Company issued 50,000 common stock warrants to purchase shares of the Company’s common stock to a non-employee consultant as compensation for services rendered. The warrants vested over a one year period and expire on October 15, 2015.  Of the warrants issued, 25,000 are exercisable at an exercise price of $1.00 per share and 25,000 are exercisable at an exercise price of $2.00 per share.  

On October 29, 2010, the Company issued four year warrants to the placement agent in the Company’s private placement.  The warrants are exercisable to purchase 64,000 shares of the Company’s common stock at a price equal to $1.45 per share.   In return for such warrants, the placement agent agreed to cancel 71,231 warrants issued to the placement agent in April 2006 and 57,000 IPO Warrants.  In December 2012 all 64,000 warrants were exercised using a cashless feature where the holders forfeited 41,401 shares in lieu of paying the exercise price.

On May 31, 2012, the Company issued five year warrants to the placement agent in the Company’s private placement.  The warrants are exercisable to purchase 217,931 shares of the Company’s common stock at a price equal to $1.40 per share.  

Summary of Option and Warrant Activity and Outstanding Shares

	Stock Options					Stock Warrants
	Options			Weighted Average Exercise Price		Warrants			Weighted Average Exercise Price
Outstanding, September 30, 2012		2,989,620		$	0.86		331,931		$	1.42
Granted		265,000		$	1.77		-			-
Exercised		(75,367	)	$	0.90		(22,599	)	$	1.45
Forfeited or expired		(83,334	)	$	1.26		(41,401	)	$	1.45
Outstanding, December 31, 2012		3,095,919		$	0.93		267,931		$	1.42

14

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

10.  Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss for three months ended December 31, 2012 (in thousands):

	Cumulative Foreign Currency Translation Adjustment
Balance at September 30, 2012	$	(176	)
Current period other comprehensive income		39
Balance at December 31, 2012	$	(137	)

11.   Net Loss Per Share

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

	Three Months Ended
(in thousands, except per share data)	December 31,
	2012			2011
Net loss	$	(642	)	$	(463	)
Weighted average common shares outstanding - basic		14,783			12,320
Effect of dilutive securities (primarily stock options)		-			-
Weighted average common shares outstanding - diluted		14,783			12,320
Net loss per share - basic and diluted	$	(0.04	)	$	(0.04	)

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted net income per share is computed by 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.

For the three months ended December 31, 2011, options to purchase shares of the Company’s common stock of 162,619 were excluded from the computation of diluted net loss per share as the effect was anti-dilutive to the Company’s net loss.  Also, excluded were 589,000 contingent shares to be issued in connection with the prior acquisitions. 

For the three months ended December 31, 2012, options to purchase shares of the Company’s common stock of 1,519,978 were excluded from the computation of diluted net loss per share as the effect was anti-dilutive to the Company’s net loss.  Also excluded for the three months ended December 31, 2012 were 1,055,496 contingent shares to be issued in connection with prior acquisitions.

12.  Income Taxes

Income tax expense was $21 thousand for the three months ended December 31, 2012 and 2011. Income tax expense consists of the estimated liability for federal and state income taxes owed by the Company, including the alternative minimum tax.  Net operating loss carry forwards are estimated to be sufficient to offset additional taxable income for all periods presented.

The Company does not provide for U.S. income taxes on the undistributed earnings of its Indian subsidiary, which the Company considers to be a permanent investment.

15

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

13.  Related Party Transactions

In 2012 the Company retained the services of one of its outside directors as a management consultant to assist the executive management team. The term of the engagement was one year, expiring in January 2013, at a rate of $4,000 per month. In January 2013 the agreement was extended for another 12 months at the same rate. The consulting arrangement may be terminated by either party with thirty days written notice.

As part of the Magnetic acquisition, the Company entered into an operating lease for the Bridgeline Tampa location with the previous owner of Magnetic who now serves as the Senior Vice President and General Manager of Bridgeline Tampa. The lease term is three years and rent is $85 thousand per year.

14.  Legal Proceedings

Bridgeline Digital, Inc. vs. e.Magination network, LLC and its principal owner, Daniel Roche.

In August 2010, Bridgeline initiated a lawsuit against e.Magination network, LLC and its principal owner, Daniel Roche, in the Federal District Court of Massachusetts.  Bridgeline seeks damages for accounts receivable allegedly collected by Mr. Roche and e.Magination and used to pay obligations of e.Magination and Mr. Roche (accounts receivable contractually belonging to Bridgeline).  e.Magination and Mr. Roche have asserted counterclaims against Bridgeline and Thomas Massie alleging that Bridgeline has breached Mr. Roche’s employment agreement by improperly terminating Mr. Roche for cause and also alleging breach of the Asset Purchase Agreement by Bridgeline. This lawsuit remains unresolved as of December 31, 2012.

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Item 2.   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 risks described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2012 as well as in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

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

Overview

Bridgeline Digital enables its customers to maximize the performance of their mission critical websites, intranets, and online stores. Bridgeline is the developer of the award-winning iAPPS® Web Engagement Management (WEM) product platform and related digital solutions. The iAPPS platform deeply integrates Web Content Management, eCommerce, eMarketing, and web Analytics capabilities within the heart of websites or eCommerce web stores to help marketers deliver online experiences that attract, engage, and convert their customers across all digital channels. Bridgeline’s iAPPS platform combined with its digital services assists customers in maximizing on-line revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs.

In fiscal 2012 Bridgeline Digital announced the release of a new poduct, iAPPS distributed subscription (“iAPPS ds”), a platform that empowers large franchise and dealer networks with state-of-the-art web engagement management while providing superior oversight of corporate branding. iAPPS ds deeply integrates content management, eCommerce, eMarketing and web analytics and is a self-service web platform that is offered to each authorized franchise or dealer for a monthly subscription fee. During the fourth quarter of fiscal 2012 Bridgeline Digital signed a multi-year agreement with a national franchise network of over 4,300 locations who can license the iAPPS ds platform.

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

In 2012, KMWorld Magazine Editors selected Bridgeline Digital as one of the 100 Companies That Matter in Knowledge Management and also selected iAPPS as a Trend Setting Product in 2012. iAPPS Content Manager and iAPPS Commerce were selected as finalists for the 2011 and 2012 CODiE Awards for Best Content Management Solution and Best Electronic Commerce Solution, globally. iAPPS Content Manager was the winner of the 2010 CODiE Award for Best Content Management Solution, globally. B2B Interactive has selected Bridgeline Digital as one of the Top Interactive Technology companies in the United States.

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

Customer Information

We currently have over 2,000 customers, the majority of which are iAPPS ds customers who pay a monthly subscription fee. For the three months ended December 31, 2012 and 2011 no customer represented 10% or more of total revenue.

17

Acquisitions

MarketNet, Inc.

On May 31, 2012, we completed the acquisition of MarketNet, Inc. (“MarketNet”), an interactive technology company that provides web application development based in Dallas, Texas. Bridgeline acquired all of the outstanding capital stock of MarketNet for consideration consisting of (i) $20 thousand in cash (ii) assumption of debt of $244 thousand and (ii) contingent consideration of up to $650 thousand in cash and 204,331 shares of Bridgeline Digital common stock, valued at $250 thousand ($1.22 per share). The cash consideration was reduced by $58 thousand due to the Seller’s inability to meet an agreed upon target for working capital at the time of the acquisition. This contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain quarterly revenue and quarterly operating income targets during the period. To the extent that either the quarterly revenue target or the quarterly operating income target is not met in a particular quarter, the earn-out period will be extended for up to four additional quarters. MarketNet is also eligible to earn additional bonus equity consideration of 200,000 shares, if annual net revenues of the acquired business exceed a certain threshold in any fiscal year through September 30, 2015. We are required to assess the probability of the acquired business achieving the contingent cash and stock payments which requires management to make estimates and judgments based on forecasts of future performance. As a result, we estimated and accrued $607 thousand of the contingent cash consideration to be achieved and $262 thousand of the contingent stock consideration to be achieved. MarketNet achieved its quarterly revenue and operating income targets for all periods since the acquisition date. The contingent common stock has been issued and is being held in escrow pending satisfaction of the applicable targets.  MarketNet’s operating results are reflected in the Company’s condensed consolidated financial statements as of the acquisition date.

Magnetic Corporation

On October 3, 2011, we completed the acquisition of Magnetic Corporation (“Magnetic”), a web technology company based in Tampa, Florida. Bridgeline acquired all of the outstanding capital stock of Magnetic for consideration consisting of (i) $150 thousand in cash and (ii) contingent consideration of up to $600 thousand in cash and 166,666 shares of Bridgeline Digital common stock, valued at $150 thousand ($0.90 per share). The cash consideration was reduced by $100 thousand due to the Seller’s inability to meet an agreed upon target for working capital at the time of acquisition. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain quarterly revenue and quarterly operating income targets during the period. The contingent common stock has been issued and is being held in escrow pending satisfaction of the applicable targets.  To the extent that either the quarterly revenue target or the quarterly operating income target is not met in a particular quarter, the earn-out period will be extended for up to four additional quarters. We are required to assess the probability of the acquired business achieving the contingent cash and stock payments which requires management to make estimates and judgments based on forecasts of future performance. As a result, we estimated and accrued $600 thousand of the contingent cash consideration to be achieved and $150 thousand of the contingent stock consideration to be achieved. Magnetic achieved its quarterly revenue and operating income targets for all periods since the acquisition date.. Magnetic’s operating results are reflected in the Company’s condensed consolidated financial statements as of the acquisition date, which corresponds to the Company’s commencement of fiscal 2012.

Results of Operations for the Three Months Ended December 31, 2012 compared to the Three Months Ended December 31, 2011

Total revenue for the three months ended December 31, 2012 was $6.2 million compared with $6.5 million for the three months ended December 31, 2011.  We had a net loss of ($642) thousand for the three months ended December 31, 2012 compared with net loss of ($463) thousand for the three months ended December 31, 2011.  Net loss per share was ($0.04) for the three months ended December 31, 2012 and 2011

18

The following table sets forth the percentages of revenue for items included in our unaudited condensed consolidated statement of operations presented in our Quarterly Reports on Form 10-Q for the periods presented.

Revenue:	Three Months Ended December 31, 2012			Three Months Ended December 31, 2011			$ Change			% Change
Web application development services
iAPPS application development services	$	3,413		$	3,015			398			13	%
% of total revenue		55	%		46	%
Other application development services		1,437			2,293			(856	)		(37	%)
% of total revenue		23	%		35	%
Subtotal web application development services		4,850			5,308			(458	)		(9	%)
% of total revenue		78	%		81	%
Managed service hosting		556			616			(60	)		(10	%)
% of total revenue		9	%		9	%
Subscription and perpetual licenses		787			593			194			33	%
% of total revenue		13	%		9	%
Total revenue		6,193			6,517			(324	)		(5	%)
Cost of revenue:
Web application development services
iAPPS application development costs		1,779			1,447			332			23	%
% of iAPPS application development revenue		52	%		48	%
Other application development costs		975			1,408			(433	)		(31	%)
% of other application development revenue		68	%		61	%
Subtotal web application development costs		2,754			2,855			(101	)		(4	%)
% of web application development services revenue		57	%		54	%
Managed service hosting		72			106			(34	)		(32	%)
% of managed service hosting revenue		13	%		17	%
Subscription and perpetual licenses		168			120			48			40	%
% of subscription and perpetual revenue		21	%		20	%
Total cost of revenue		2,994			3,081			(87	)		(3	%)
Gross profit		3,199			3,436			(237	)		(7	%)
Gross profit margin		52	%		53	%
Operating expenses:
Sales and marketing		1,834			1,715			119			7	%
% of total revenue		30	%		26	%
General and administrative		1,354			1,000			354			35	%
% of total revenue		22	%		15	%
Research and development		132			403			(271	)		(67	%)
% of total revenue		2	%		6	%
Depreciation and amortization		424			415			9			2	%
% of total revenue		7	%		6	%
Impairment of intangible asset		-			281			(281	)		-
% of total revenue		-			4	%
Total operating expenses		3,744			3,814			(70	)		-2	%
Loss from operations		(545	)		(378	)		(167	)		44	%
Interest income (expense) net		(76	)		(64	)		(12	)		19	%
Loss before income taxes		(621	)		(442	)		(179	)		40	%
Provision for income taxes		21			21			-			0	%
Net loss	$	(642	)	$	(463	)	$	(179	)		39	%
Adjusted EBITDA	$	50		$	428		$	(378	)		(88	%)

19

Revenue

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

Web Application Development Services

Web application development services revenue is comprised of iAPPS development related services and other web development related services generated from non iAPPS related engagements. Revenue from iAPPS application development increased $398 thousand, or 13% to $3.4 million compared to the three months ended December 31, 2011.  Revenue from non-iAPPS application development services decreased $856 thousand, or 37%, compared to the three months ended December 31, 2011. In total, revenue from web application development services decreased $458 thousand, or 9%, to $4.9 million for the three months ended December 31, 2012.   The decrease compared to the prior period is due to a decrease in non-iAPPS application development services as we continue to concentrate on selling higher-margin iAPPS engagements to both new and existing customers and delays to multiple iAPPS projects due to hurricane Sandy.

Web application development services revenue as a percentage of total revenue decreased to 78% from 81% for the three months ended December 31, 2012 compared to the prior period.  The decrease is attributable to the decrease in web application development services revenue discussed above and an increase in iAPPS license related revenue.

Managed Service Hosting

Revenue from managed service hosting decreased $60 thousand, or 10%, to $556 thousand compared to the three months ended December 31, 2011.   The decrease is due to our efforts to engage with customers that are aligned with our core competencies and proactively end our engagements with a number of smaller hosting customers obtained through previous acquisitions. This decrease was partially offset by an increase in iAPPS related hosting arrangements for perpetual licenses.

Managed services revenue as a percentage of total revenue was 9% for three months ended December 31, 2012 and 2011.

Subscription and Perpetual Licenses

Revenue from subscription and perpetual licenses increased $194 thousand, or 33%, to $787 thousand compared to the three months ended December 31, 2011.  The increase is due the inclusion of license revenues from our new product, iAPPS ds, increases in iAPPS SaaS licenses sold, incremental non-iAPPS SaaS licenses from our acquisition of MarketNet and incremental annual maintenance revenue.

Subscription and perpetual license revenue as a percentage of total revenue increased to 13% from 9% compared to the three months ended December 31, 2011.

Costs of Revenue

Total cost of revenue decreased $87 thousand, or 3%, to $3.0 million for the three months ended December 31, 2012 compared to December 31, 2011. This decrease is due to a reduction of labor costs and, to a lesser extent, efficiencies in costs for managed service hosting as we continue to make investments in our co-managed network operation center to support our core iAPPS customer base and a decrease in cost of web application development services. These reductions in cost were offset by an increase in costs of subscription and perpetual licenses.

Cost of Web Application Development Services

Cost of web application development decreased $101 thousand, or 4%, to $2.8 million for the three months ended December 31, 2012 compared to December 31, 2011. This decrease was due to reduced labor costs for the three months ended December 31, 2012. Though costs associated with non-iAPPS related engagements decreased in line with non-iAPPS web application development services, our costs associated with iAPPS related engagements outpaced iAPPS related service revenue growth as multiple iAPPS projects were delayed due to hurricane Sandy.

Cost of Managed Service Hosting

Cost of managed service hosting decreased $34 thousand, or 32%, for the three months ended December 31, 2012 compared to December 31, 2011. The cost of managed services as a percentage of managed services revenue decreased to 13% from 17% compared to the three months ended December 31, 2011.

20

The decreases in managed service hosting costs for the three months ended December 31, 2012 is due to cost efficiencies as we continue consolidate hosting engagements on to our co-managed network operations center, saving us 3rd party hosting costs.

Cost of Subscription and Perpetual License

Cost of subscription and perpetual licenses increased $48 thousand, or 40%, compared to December 31, 2011. This increase is due to incremental non-iAPPS SaaS license costs related to the acquisition of MarketNet, offset by cost efficiencies realized on our iAPPS SaaS environment and a decrease in amortization of software costs associated with the development of iAPPS. We expect amortization of software costs to increase in fiscal 2013 due to costs capitalized in the three months ended December 31, 2012 and the fourth quarter of fiscal 2012.  These costs are related to significant enhancements to our iAPPS platform that will be released in fiscal 2013 and to a lesser extent costs associated with the development of iAPPS ds.

The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue increased to 21% from 20% compared to the three months ended December 31, 2011.  This is due to acquired non-iAPPS SaaS license costs which have a lower margin than our iAPPS SaaS licenses.
 

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expenses increased $119 thousand, or 7%, to $1.8 million compared to the three months ended December 31, 2011.  Sales and marketing expenses represented 30% and 26% of total revenue for the three months ended December 31, 2012 and 2011, respectively.

The increases for the three months ended December 31, 2012 compared to the prior period is primarily attributable to incremental sales and marketing expenses from the acquisition of MarketNet and an increase in marketing related expenses as we continue to focus on marketing our iAPPS products, including our new product, iAPPS ds.

General and Administrative Expenses

General and administrative expenses increased $354 thousand, or 35%, to $1.4 million compared to the three months ended December 31, 2011.   General and administrative expenses represented 22% of total revenue compared to 15% in the prior period. The increase in expense was due to increases in various general and administrative expenses; the most significant being personnel costs, increases in staffing and an increase in legal expenses.

Research and Development

Research and development expense decreased by $271 thousand, or 67%, to $132 thousand compared to the three months ended December 31, 2011. 

The decrease in research and development expense is due to the capitalization of $276 thousand of software development costs related to enhancements to our iAPPS product platform in the three months ended December 31, 2012. No software development costs were capitalized in the prior period. We expect research and development expense will increase to between $400 -$425 thousand per quarter in the second half of fiscal 2013 after the significant enhancements to our iAPPS product platform are completed.

Depreciation and Amortization

Depreciation and amortization expense remained flat, increasing by $9 thousand, or 2%, compared to the three months ended December 31, 2011.  Depreciation and amortization represented 7% and 6% of revenue for the three months ended December 31, 2012 and 2011, respectively.   

Impairment of Intangible Assets

During the three months ended December 31, 2011 we incurred a charge to operations of $281 thousand for impairment charges related to an intangible asset assumed from our fiscal 2010 acquisition ofe.Magination and its wholly-owned subsidiary eMagination IG, LLC. In the first quarter of fiscal 2012, the Company stopped servicing low margin non-iAPPS opportunities acquired from e.Magination IG, LLC. It was therefore determined that a portion of the customer list was impaired.

Income Taxes

The provision for income tax expense was $21 thousand for the three months ended December 31, 2012 and 2011.  Income tax expense represents the estimated liability for federal and state income taxes owed by the Company, including the alternative minimum tax.  The Company has net operating loss carryforwards and other deferred tax benefits that are available to offset future taxable income.

21

Loss from Operations

The loss from operations was ($545) thousand for three months ended December 31, 2012, compared to a loss of ($378) thousand in the prior period. This decrease was due to the decrease in web application development services due to a decrease in non-iAPPS related web application development services and delays to multiple iAPPS projects as a result of hurricane Sandy.

Adjusted EBITDA

We also measure our performance based on a non-GAAP (“Generally Accepted Accounting Principles”) measurement of earnings before interest, taxes, depreciation, and amortization and before stock-based compensation expense and impairment of goodwill and intangible assets (“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 provide a tool for evaluating our ongoing operations.

Adjusted EBITDA, however, is not a measure of operating performance under GAAP and should not be considered as an alternative or substitute for 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 GAAP. Adjusted EBITDA as an operating performance measure has material limitations since it excludes the financial statement impact of income taxes, net interest expense, amortization of intangibles, depreciation, other amortization 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 for a complete analysis of our profitability, as net income includes the financial statement impact of these items and is the most directly comparable 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 GAAP.

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

	Three Months Ended
	December 31,
	2012			2011
Net loss	$	(642	)	$	(463	)
Provision for income tax		21			21
Interest expense (income), net		76			64
Amortization of intangible assets		156			195
Impairment of intangible asset		-			281
Depreciation		268			220
EBITDA		(121	)		318
Other amortization		44			50
Stock based compensation		127			60
Adjusted EBITDA	$	50		$	428

The decrease in Adjusted EBITDA is primarily due to the decrease in non-iAPPS related web application development services and delays to multiple iAPPS projects as a result of hurricane Sandy.

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Liquidity and Capital Resources

Cash Flows

Operating Activities

Cash provided by operating activities was $386 thousand for the three months ended December 31, 2012 compared to cash provided by operating activities of $95 thousand for the three months ended December 31, 2011.  The increase in cash provided by operating activities is due to an increase in deferred revenue as the majority of our iAPPS ds customers elect annual subscriptions. This increase was offset by lower net income, adjusted for non-cash items such as amortization and depreciation, for the period and an increase in accounts receivable for the three months ending December 31, 2012 as compared to the prior period.

Investing Activities

Cash used in investing activities was $438 thousand for the three months ended December 31, 2012 compared to $740 thousand for the three months ended December 31, 2011.   The decrease is due to a $461 thousand decrease in spending on equipment and improvements for the three months ended December 31, 2012 as we had two office relocations in the three months ended December 31, 2011, and, to a lesser extent, increased payments related to acquisitions occurring during the three months ended December 31, 2011. This was offset by an increase of $272 thousand in software development expenditures related to significant enhancements of our iAPPS platform.

Financing Activities

Cash provided by financing activities was $282 thousand for the three months ended December 31, 2012 compared to cash used by financing activities $193 thousand for the three months ended December 31, 2011.  The increase in cash provided by financing activities is due to $0.3 million in net borrowings on our credit facilities, proceeds from stock option exercises and the employee stock purchase plan of $113 thousand and the payment of $120 thousand in acquired debt in Magnetic acquisition during the prior period.

Capital Resources and Liquidity Outlook

We believe that cash generated from operations and our bank line of credit will be sufficient to fund the company’s working capital and capital expenditure needs in the foreseeable future.

In February 2013, the Company amended its loan arrangement (the “2013 Amendment”) with Silicon Valley Bank extending the maturity date of the line of credit for one year to March 31, 2015. The 2013 Amendment also revised certain financial covenants, including the covenants for the three months ending December 31, 2012.  We would not have complied with one of our prior financial covenants had the amendment not been completed.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons, other than our operating leases and contingent acquisition payments.

We currently do not have any variable interest entities. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

Commitments and Contingencies

New contractual obligations as of December 31, 2012 that include equipment acquired under capitalized lease agreements were valued at less than $10 thousand with payments extending through December 2015.

As of December 31, 2012, we had an accrued contingent earnout liability of $1.3 million from acquisitions completed in prior fiscal years, which are scheduled to be paid out through fiscal 2015.  Contingent earnout payments related to acquisitions are paid when and if certain revenue and earnings targets are achieved.

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Critical Accounting Policies

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 accounting principles generally accepted in the United States of America (“US GAAP”) that are included in our Annual Report on Form 10-K and filed with the Securities and Exchange Commission on December 5, 2012.

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

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

· Revenue recognition;

· Allowance for doubtful accounts;

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

· Accounting for goodwill and other intangible assets; and

· Accounting for stock-based compensation.

Revenue Recognition

Overview

We enter into arrangements to sell web application development services (professional services), software licenses or combinations thereof.  Revenue is categorized into (i) Web Application Development Services (ii) Managed Service Hosting, and (iii) Subscriptions and Perpetual Licenses.

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

During fiscal 2010, we began to develop a reseller channel to supplement our direct sales force for our iAPPS Product Suite. We continued to develop this reseller channel in fiscal 2013.  Resellers are generally located in territories where we do not have a direct sales force.  Customers generally sign a license agreement directly with us. Revenue from perpetual licenses sold through resellers is recognized upon delivery to the end user as long as evidence of an arrangement exists, collectability is probable, and the fee is fixed and determinable. Revenue for subscription licenses is recognized monthly as the services are delivered.

Web Application Development Services

Web application development services include professional services primarily related to the Company’s web development solutions that address specific customer needs such as information architecture and usability engineering, interface configuration, application development, rich media development, back end integration, search engine optimization, and project management.

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

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

Managed Service Hosting

Managed service hosting includes hosting arrangements that provide for the use of certain hardware and infrastructure for those customers who do not wish to host our applications independently.  Hosting agreements are either annual or month-to-month arrangements that provide for termination for convenience by either party generally upon 30-days notice.  Revenue is recognized monthly as the hosting services are delivered.   Set up fees paid by customers in connection with managed hosting services are deferred and recognized ratably over the longer of the life of the hosting period or the expected lives of customer relationships.  We continue to evaluate the length of the amortization period of the set up fees as we gain more experience with customer contract renewals.

Subscriptions and Perpetual Licenses

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

Customers may also license the software on a subscription basis, which can be described as “Software as a Service” or “SaaS”.  SaaS is a model of software deployment where an application is hosted as a service provided to customers across the Internet.  Subscription agreements include access to the Company’s software application via an internet connection, the related hosting of the application, and PCS.  Customers receive automatic updates and upgrades, and new releases of the products as soon as they become available. Customers cannot take possession of the software.  Subscription agreements are either annual or month-to-month arrangements that provide for termination for convenience by either party upon 90 days notice.  Revenue is recognized monthly as the services are delivered.  Set up fees paid by customers in connection with subscription services are deferred and recognized ratably over the longer of the life of subscription period or the expected lives of customer relationships.  We continue to evaluate the length of the amortization period of the set up fees as we gain more experience with customer contract renewals.  

Multiple Element Arrangements

In accounting for multiple element arrangements, we follow either ASC Topic 605-985 Revenue Recognition Software or ASC Topic 605-25 Revenue Recognition Multiple Element Arrangements, as applicable.

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

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

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

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

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

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 web application development services are either monthly or upon achievement of milestones and payment terms for such billings are within the standard terms described above. Invoicing for subscriptions and hosting are typically issued monthly and are generally due in the month of service.

Our 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 concerns over delivered products or services, we have endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.

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Warranty

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

Reimbursable Expenses

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

Allowance for Doubtful Accounts

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

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

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

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

Accounting for Goodwill and Intangible Assets

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

For fiscal 2012 we performed the annual assessment of our goodwill during the fourth quarter of fiscal 2012, using the qualitative approach described above. Based on our qualitative assessment, we concluded that it was not more likely than not that the fair values of any of our reporting units were less than their carrying amounts, and therefore it was not necessary to perform the quantitative two-step impairment test. The key qualitative factors that led to our conclusion included the following: (i) our stock price more than doubled to $1.20 as of September 30, 2012. (ii) our strategic alliance with UPS Logistics and the successful launch of iAPPS ds with our first iAPPS ds customer, a franchisor with over 4,000 locations, has improved the predictability of our forecasts and (iii) inputs from recent transactions within the technology sector, such a revenue multiples used to value transactions, have either remained steady or improved since the fiscal 2011 assessment. We did not have an impairment of goodwill in fiscal 2012 or 2011.

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The factors the Company considers important that could indicate impairment include its stock price, significant under performance relative to prior operating results, change in projections, significant changes in the manner of the Company’s use of assets or the strategy for the Company’s overall business, and significant negative industry or economic trends. To the extent there are unfavorable changes in assumptions used to determine the Company’s fair value there can be no assurance that the Company will not have an impairment charge in the future.

During the three months ended December 31, 2012 the carrying value of goodwill increased as a result of a final contingent acquisition payment related to an acquisition completed prior to September 30, 2009, which was recorded as an increase to goodwill in the period it was earned, and the acquisition of MarketNet.

Accounting for Stock-Based Compensation

At December 31, 2012, we maintained one stock-based compensation plan and one employee stock purchase plan which are more fully described in Note 11 to the Consolidated Financial Statements of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 5, 2012.

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

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

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

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

Item 3.                Qualitative and Quantitative Disclosures About Market Risk.

Not required.

Item 4.                Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

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

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As of December 31, 2012 we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in enabling us to record, process, summarize and report information required to be included in our periodic filings with the Securities and Exchange Commission within the required time period.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal controls over financial reporting that occurred during the quarter ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1.                 Legal Proceedings.

From time to time we are subject to ordinary routine litigation and claims incidental to our business. We are not currently involved in any legal proceedings that we believe are material beyond those previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 5, 2012.

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

The following summarizes all sales of our unregistered securities during the quarter ended December 31, 2012. The securities in the below-referenced transactions were (i) issued without registration and (ii) were subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated there under, and in reliance on similar exemptions under applicable state laws as transactions not involving a public offering. Unless stated otherwise, no placement or underwriting fees were paid in connection with these transactions.

During the fiscal quarter ended December 31, 2012, the Company granted 265,000 stock options under its Amended and Restated Stock Incentive Plan at a weighted average exercise price of $1.77 per share.

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

Item 5.                Other Information.

On February 11, 2013, the Bridgeline Digital amended its loan arrangement with Silicon Valley Bank ("2013 Amendment"). The 2013 Amendment extends the maturity date of the line of credit for one year to March 31, 2015 and also revises certain financial covenants.

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Item 6.                Exhibits.

Exhibit No.	Description of Document
10.1	Seventh Loan Modification Agreement dated February 11, 2013 between Bridgeline Digital, Inc., Bridgeline Intelligence Group, Inc. and Silicon Valley Bank.
31.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
31.2	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
32.1	Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).
32.2	Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).
101.INS*	XBRL Instance
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation
101.DEF*	XBRL Taxonomy Extension Definition
101.LAB*	XBRL Taxonomy Extension Labels
101.PRE*	XBRL Taxonomy Extension Presentation

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

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SIGNATURES

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

	Bridgeline Digital, Inc.
	(Registrant)
February 14, 2013	/s/    Thomas L. Massie
Date	Thomas L. Massie President and Chief Executive Officer (Principal Executive Officer)
February 14, 2013	/s/    Michael D. Prinn
Date	Michael D. Prinn Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

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INDEX OF EXHIBITS

Exhibit No.	Description of Document
10.1	Seventh Loan Modification Agreement dated February 11, 2013 between Bridgeline Digital, Inc., Bridgeline Intelligence Group, Inc. and Silicon Valley Bank.
31.1	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
31.2	Certification required by Rule 13a-14(a) or Rule 15d-14(a).
32.1	Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).
32.2	Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).
101.INS*	XBRL Instance
101.SCH*	XBRL Taxonomy Extension Schema
101.CAL*	XBRL Taxonomy Extension Calculation
101.DEF*	XBRL Taxonomy Extension Definition
101.LAB*	XBRL Taxonomy Extension Labels
101.PRE*	XBRL Taxonomy Extension Presentation

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

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EX-10.1

Exhibit 10.1

SEVENTH LOAN MODIFICATION AGREEMENT

This Seventh Loan Modification Agreement (this “Loan Modification Agreement”) is entered into as of February 11, 2013, with an effective date as of January 30, 2013 (the “Seventh Loan Modification Effective Date”), by and between (i) SILICON VALLEY BANK, a California corporation, with its principal place of business at 3003 Tasman Drive, Santa Clara, California 95054 and with a loan production office located at 275 Grove Street, Suite 2-200, Newton, Massachusetts 02466 (“Bank”) and (ii) BRIDGELINE DIGITAL, INC., a Delaware corporation with its chief executive office located at 80 Blanchard Road, Burlington, Massachusetts 01803 (“Bridgeline”) and BRIDGELINE INTELLIGENCE GROUP, INC., a Delaware corporation, with offices located at 6711 Columbia Gateway Drive, Suite 550, Columbia, Maryland 21046 (“Intelligence Group”).

1.           DESCRIPTION OF EXISTING INDEBTEDNESS AND OBLIGATIONS. Among other indebtedness and obligations which may be owing by Borrower to Bank, Borrower is indebted to Bank pursuant to a certain Amended and Restated Loan and Security Agreement dated as of March 31, 2010, as amended by a certain First Loan Modification Agreement, dated as of June 22, 2010, as further amended by a certain Second Loan Modification Agreement, dated as of July 7, 2010, as further amended by a certain Joinder, Waiver and Third Loan Modification Agreement, dated as of November 5, 2010, as further amended by a certain Fourth Loan Modification Agreement, dated as of May 6, 2011, as further amended by a certain Joinder, Fifth Loan Modification and Waiver Agreement, dated as of December 16, 2011 and as further amended by a certain Sixth Loan Modification Agreement, dated as of May 11, 2012 (as amended, the “Loan Agreement”).  Capitalized terms used but not otherwise defined herein shall have the same meaning as in the Loan Agreement.

2.           DESCRIPTION OF COLLATERAL.  Repayment of the Obligations is secured by the Collateral as described in the Loan Agreement and in a certain Amended and Restated Intellectual Property Security Agreement, dated as of March 31, 2010 between Bank and Bridgeline and a certain Intellectual Property Security Agreement dated as of December 16, 2011 between Bank and Intelligence Group (together, the “IP Agreement”, and together with any other collateral security granted to Bank, the “Security Documents”).  Hereinafter, the Security Documents, together with all other documents evidencing or securing the Obligations shall be referred to as the “Existing Loan Documents”.

3.           DESCRIPTION OF CHANGES IN TERMS.

A. Modifications to Loan Agreement.

1. The Loan Agreement shall be amended by deleting the following text appearing as Section 6.9(a) thereof:

“(a)           EBITDA. EBITDA, measured quarterly on a trailing three-month basis as of the last day of each fiscal quarter listed below, of no less than the corresponding amounts listed below:

Quarterly Period Ending	Minimum EBITDA
March 31, 2011	$200,000
June 30, 2011	$300,000
September 30, 2011, and as of the last day of each quarterly period ending thereafter	$400,000”

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and inserting in lieu thereof the following:

“(a)           EBITDA. EBITDA, measured quarterly on a trailing three-month basis as of the last day of each fiscal quarter listed below, of no less than the corresponding amounts listed below:

Quarterly Period Ending	Minimum EBITDA
December 31, 2012	$1.00
March 31, 2013	$1.00
June 30, 2013	$50,000
September 30, 2013	$125,000
December 31, 2013	$175,000
March 31, 2014, and as of the last day of each quarterly period ending thereafter	$250,000

2. The Loan Agreement shall be amended by deleting the following text appearing as Section 6.9(b) thereof:

“(b)           Minimum Liquidity.  Unrestricted cash at Bank (excluding drawn Non-formula Advances held at Bank) plus the unused Availability Amount (excluding any undrawn availability with respect to Non-formula Advances) of not less than (i) prior to receipt by Bank of the Permitted Term Loan Prepayment Amount, One Million Dollars ($1,000,000); and (ii) commencing on the date that Bank applies the Permitted Term Loan Prepayment Amount to the outstanding principal balance of the Term Loan, and at all times thereafter, One Million Two Hundred Fifty Thousand Dollars ($1,250,000).”

and inserting in lieu thereof the following:

“(b)           Minimum Liquidity.  Unrestricted cash at Bank (excluding drawn Non-formula Advances held at Bank) plus the unused Availability Amount (excluding any undrawn availability with respect to Non-formula Advances) of not less than (i) from the Seventh Loan Modification Effective Date through and including June 30, 2013, One Million Two Hundred Fifty Thousand Dollars ($1,250,000); and (ii) commencing July 1, 2013 and thereafter, One Million Dollars ($1,000,000).”

3. The Loan Agreement shall be amended by deleting the following text appearing in Section 10 thereof:

“If to Borrower:	Bridgeline Digital, Inc.
	e.Magination IG, LLC
	c/o Bridgeline Digital, Inc.
	10 Sixth Road
	Woburn, Massachusetts 01801
	Attn: Michael Prinn, CAO
	Fax:        (781) 376-0533
	Email:     mprinn@blinedigital.com

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with a copy to:	Morse, Barnes-Brown & Pendleton, P.C.
	1601 Trapelo Road
	Waltham, Massachusetts 02451
	Attn:     Joseph C. Marrow, Esquire
	Fax:       (781) 622-5933
	Email:    jmarrow@mbbp.com
If to Bank:	Silicon Valley Bank
	275 Grove Street, Suite 2-200
	Newton, Massachusetts 02466
	Attn:     Mr. Benjamin Johnston
	Fax:       (617) 969-4395
	Email:    bjohnston@svb.com
with a copy to:	Riemer & Braunstein, LLP
	Three Center Plaza
	Boston, Massachusetts 02108
	Attn:     Charles W. Stavros, Esquire
	Fax:       (617) 880-3477
	Email:    cstavros@riemerlaw.com”
and inserting in lieu thereof the following:
“If to Borrower:	Bridgeline Digital, Inc.
	80 Blanchard Street
	Burlington, Massachusetts 01803
	Attn:     Michael Prinn, CFO
	Fax:       (781) 376-0533
	Email:    mprinn@blinedigital.com
with a copy to:	Morse, Barnes-Brown & Pendleton, P.C.
	230 Third Avenue, 4th Floor
	Waltham, Massachusetts 02451
	Attn:     Joseph C. Marrow, Esquire
	Fax:       (781) 622-5933
	Email:    jmarrow@mbbp.com
If to Bank:	Silicon Valley Bank
	275 Grove Street, Suite 2-200
	Newton, Massachusetts 02466
	Attn:     Mr. Steve Lyons
	Fax:       (617) 969-4395
	Email:    slyons@svb.com
with a copy to:	Riemer & Braunstein, LLP
	Three Center Plaza
	Boston, Massachusetts 02108
	Attn:     Charles W. Stavros, Esquire
	Fax:       (617) 880-3477
	Email:    cstavros@riemerlaw.com”

3

4. The Loan Agreement shall be amended by deleting the following definition appearing in Section 13.1 thereof:

““Revolving Line Maturity Date” is March 31, 2014.”

and inserting in lieu thereof the following:

““Revolving Line Maturity Date” is March 31, 2015.”

5. The Loan Agreement shall be amended by inserting the following new definition in Section 13.1 thereof, in its appropriate alphabetical order:

““Seventh Loan Modification Effective Date” is January 30, 2013.”

6. The Compliance Certificate attached as Exhibit B to the Loan Agreement is hereby deleted and replaced with Exhibit B attached hereto.

4.           CONDITIONS PRECEDENT.  As a condition precedent to the effectiveness of this Loan Modification Agreement and the Bank’s obligation to make further Credit Extensions, the Bank shall have received the following documents or payments prior to or concurrently with this Agreement, each in form and substance satisfactory to the Bank:

A. copies, certified by a duly authorized officer of each Borrower, to be true and complete as of the date hereof, of each of (i) the governing documents of each Borrower, respectively, as in effect on the date hereof (but only to the extent modified since last delivered to the Bank), (ii) the resolutions of each Borrower, respectively, authorizing the execution and delivery of this Loan Modification Agreement, the other documents executed in connection herewith and each Borrower’s respective performance of all of the transactions contemplated hereby (but only to the extent required since last delivered to Bank), and (iii) an incumbency certificate giving the name and bearing a specimen signature of each individual who shall be so authorized (but only to the extent any signatories have changed since such incumbency certificate was last delivered to Bank);

B. a certificate of the Secretary of State (or similar entity) of the applicable jurisdiction of organization of a recent date as to each Borrower’s respective existence and good standing;

C. results of UCC searches and other searches as necessary with respect to the Collateral indicating no Liens (other than the Liens of Bank or Permitted Liens) and otherwise in form and substance satisfactory to the Bank;

D. an Acknowledgement and Reaffirmation of Subordination Agreement from TMX Interactive, Inc., together with the duly executed signature pages thereto;

E. updated evidence of insurance;

F. updated/ supplements to the Perfection Certificate for each Borrower, as necessary; and

G. such other documents as Bank may reasonably request.

4

5.           FEES.  Borrower shall pay to Bank (i) a fully earned, non-refundable modification fee equal to Ten Thousand Dollars ($10,000), which fee shall be due and payable on or prior to the Seventh Loan Modification Effective Date; and (ii) a fully earned, non-refundable extension fee equal to Twenty Five Thousand Dollars ($25,000), which fee shall be due and payable on or prior to the Seventh Loan Modification Effective Date (such extension fee is in lieu of the Twenty Five Thousand Dollar ($25,000) anniversary fee described in the Sixth Loan Modification Agreement).  In addition, Borrower shall also pay to Bank an annual renewal fee equal to Twenty Five Thousand Dollars ($25,000), which fee shall be due and payable on February [], 2014 and shall be deemed fully earned as of that date. Borrower shall also reimburse Bank for all legal fees and expenses incurred in connection with the Existing Loan Documents and this Loan Modification Agreement.

6.           RATIFICATION OF PERFECTION CERTIFICATE.  Bridgeline hereby ratifies, confirms and reaffirms, all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of March 31, 2010, as amended as of the date hereof and acknowledges, confirms and agrees that, except as amended, the disclosures and information Bridgeline provided to Bank in the Perfection Certificate, as supplemented through the date hereof, have not changed.  In addition, Intelligence Group hereby ratifies, confirms and reaffirms all and singular, the terms and disclosures contained in a certain Perfection Certificate dated as of the date hereof, as supplemented through the date hereof.  Each Borrower acknowledges, confirms and agrees the disclosures and information provided to Bank in such Perfection Certificates, as supplemented through the date hereof, have not changed.

7.           CONSISTENT CHANGES.  The Existing Loan Documents are hereby amended wherever necessary to reflect the changes described above.

8.           RATIFICATION OF LOAN DOCUMENTS.  Borrower hereby ratifies, confirms, and reaffirms all terms and conditions of the Existing Loan Documents and of all security or other collateral granted to the Bank, and confirms that the indebtedness secured thereby includes, without limitation, the Obligations.

9.           NO DEFENSES OF BORROWER.  Borrower hereby acknowledges and agrees that Borrower has no offsets, defenses, claims, or counterclaims against Bank with respect to the Obligations, or otherwise, and that if Borrower now has, or ever did have, any offsets, defenses, claims, or counterclaims against Bank, whether known or unknown, at law or in equity, all of them are hereby expressly WAIVED and Borrower hereby RELEASES Bank from any liability thereunder.

10.           CONTINUING VALIDITY.  Borrower understands and agrees that in modifying the existing Obligations, Bank is relying upon Borrower’s representations, warranties, and agreements, as set forth in the Existing Loan Documents.  Except as expressly modified pursuant to this Loan Modification Agreement, the terms of the Existing Loan Documents remain unchanged and in full force and effect.  Bank’s agreement to modifications to the existing Obligations pursuant to this Loan Modification Agreement in no way shall obligate Bank to make any future modifications to the Obligations.  Nothing in this Loan Modification Agreement shall constitute a satisfaction of the Obligations.  It is the intention of Bank and Borrower to retain as liable parties all makers of Existing Loan Documents, unless the party is expressly released by Bank in writing.  No maker will be released by virtue of this Loan Modification Agreement.

5

11.           RIGHT OF SET OFF.  Borrower hereby grants to Bank, a lien, security interest and right of set off as security for all Obligations to Bank, whether now existing or hereafter arising upon and against all deposits, credits, collateral and property, now or hereafter in the possession, custody, safekeeping or control of Bank or any entity under the control of Bank (including a Bank subsidiary) or in transit to any of them.  At any time after the occurrence and during the continuance of an Event of Default, without demand or notice, Bank may set off the same or any part thereof and apply the same to any liability or obligation of Borrower even though unmatured and regardless of the adequacy of any other collateral securing the Obligations.  ANY AND ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER COLLATERAL WHICH SECURES THE OBLIGATIONS, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.

12.           CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER.  Section 11 of the Loan Agreement is hereby incorporated by reference.

13.           COUNTERSIGNATURE.  This Loan Modification Agreement shall become effective only when it shall have been executed by Borrower and Bank.

[The remainder of this page is intentionally left blank]

6

This Loan Modification Agreement is executed as a sealed instrument under the laws of the Commonwealth of Massachusetts, as of the Seventh Loan Modification Effective Date.

BORROWER:	BANK:
BRIDGELINE DIGITAL, INC. By:  /s/Michael D. Prinn                                                                                                        Name: Michael D. Prinn Title:  Chief Financial Officer	SILICON VALLEY BANK By:    /s/Steve Lyons                                                                       Name: Steve Lyons Title:  Vice President
BRIDGELINE INTELLIGENCE GROUP, INC. By: /s/Michael D. Prinn                                                                                                            Name: Michael D. Prinn Title:  Treasurer

[Seventh Loan Modification Agreement Signature Page]

EXHIBIT A- COMPLIANCE CERTIFICATE

TO:	SILICON VALLEY BANK	Date:
FROM:	BRIDGELINE DIGITAL, INC.
	BRIDGELINE INTELLIGENCE GROUP, INC.

The undersigned authorized officer of Bridgeline Digital, Inc. and Bridgeline Intelligence Group, Inc. (individually and collectively, jointly and severally, the “Borrower”) certifies that under the terms and conditions of the Amended and Restated Loan and Security Agreement between Borrower and Bank (as amended, the “Agreement”), (1) Borrower is in complete compliance for the period ending _______________ with all required covenants except as noted below, (2) there are no Events of Default, (3) all representations and warranties in the Agreement are true and correct in all material respects on this date except as noted below; provided, however, that such materiality qualifier shall not be applicable to any representations and warranties that already are qualified or modified by materiality in the text thereof; and provided, further that those representations and warranties expressly referring to a specific date shall be true, accurate and complete in all material respects as of such date, (4) Borrower, and each of its Subsidiaries, has timely filed all required tax returns and reports, and Borrower has timely paid all foreign, federal, state and local taxes, assessments, deposits and contributions owed by Borrower except as otherwise permitted pursuant to the terms of Section 5.9 of the Agreement, and (5) no Liens have been levied or claims made against Borrower or any of its Subsidiaries relating to unpaid employee payroll or benefits of which Borrower has not previously provided written notification to Bank.  Attached are the required documents supporting the certification.  The undersigned certifies that these are prepared in accordance with GAAP consistently applied from one period to the next except as explained in an accompanying letter or footnotes.  The undersigned acknowledges that no borrowings may be requested at any time or date of determination that Borrower is not in compliance with any of the terms of the Agreement, and that compliance is determined not just at the date this certificate is delivered.  Capitalized terms used but not otherwise defined herein shall have the meanings given them in the Agreement.

Please indicate compliance status by circling Yes/No under “Complies” column.
Reporting Covenant	Required	Complies
Monthly financial statements with Compliance Certificate	Monthly within 30 days	Yes   No
Annual financial statement (CPA Audited)	FYE within 150 days	Yes   No
10-Q, 10-K and 8-K	Within 5 days after filing with SEC	Yes   No
A/R & A/P Agings and Deferred Revenue reports	Monthly within 30 days	Yes   No
Board-approved projections	Annually, w/in 45 days of approval and as amended	Yes   No
Transaction Reports	Monthly within 30 days and with each request for a  Credit Extension	Yes   No

Financial Covenant	Required	Actual	Complies
Maintain at all times:
Minimum EBITDA (tested quarterly, on a trailing three-month basis)	*		Yes   No
December 31, 2012	$1.00	$_________	Yes   No
March 31, 2013	$1.00	$_________	Yes   No
June 30, 2013	$50,000	$_________	Yes   No
September 30, 2013	$125,000	$_________	Yes   No
December 31, 2013	$175,000	$_________	Yes   No
March 31, 2014 and thereafter	$250,000	$_________	Yes   No
Minimum Liquidity (certified monthly)	**	$_________	Yes   No

*           See Section 6.9(a) of the Loan Agreement

**           See Section 6.9(b) of the Loan Agreement

The following Intellectual Property was registered after the Effective Date (if no registrations, state “None”):

 ____________________________________________________________________________.

There were no held checks as of the end of such month there except as follows (if no held checks, state “None”):

____________________________________________________________________________.

The following financial covenant analyses and information set forth in Schedule 1 attached hereto are true and accurate as of the date of this Certificate.

The following are the exceptions with respect to the certification above:  (If no exceptions exist, state “No exceptions to note.”)

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

BRIDGELINE DIGITAL, INC. BRIDGELINE INTELLIGENCE GROUP, INC.     By:     Name:   Title:     BANK USE ONLY   Received by: ____________________________ authorized signer Date:           _____________________________   Verified: _______________________________  authorized signer Date:           _____________________________   Compliance Status:                                Yes     No

Schedule 1 to Compliance Certificate

Financial Covenants of Borrower

In the event of a conflict between this Schedule and the Loan Agreement, the terms of the Loan Agreement shall govern.

Dated:  ____________________

I.           Minimum EBITDA (Section 6.9(a))

Required:                      Achieve EBITDA, measured quarterly on a trailing three-month basis as of the last day of each fiscal quarter listed below, of no less than the corresponding amounts listed below:

Quarterly Period Ending	Minimum EBITDA
December 31, 2012	$1.00
March 31, 2013	$1.00
June 30, 2013	$50,000
September 30, 2013	$125,000
December 31, 2013	$175,000
March 31, 2014, and as of the last day of each quarterly period ending thereafter	$250,000

Actual: All amounts measured on a trailing three month basis:

A.	Net Income	$
B.	Interest Expense	$
C.	To the extent deducted from the calculation of Net Income, non-cash stock compensation expense, depreciation expense and amortization expense (including, without limitation, goodwill)	$
D.	Other one-time non-cash expenses approved by Bank, on a case-by-case basis, in its sole discretion	$
E.	EBITDA (line A plus line B plus line C plus line D)	$

Is line E equal to or greater than $[]?

   No, not in compliance                                                                                Yes, in compliance

II.           Minimum Liquidity (Section 6.9(b))

Required:                Maintain, at all times, unrestricted cash at Bank (excluding drawn Non-formula Advances held at Bank) plus the unused Availability Amount (excluding any undrawn availability with respect to Non-formula Advances) of not less than (i) from the Seventh Loan Modification Effective Date through and including June 30, 2013, One Million Two Hundred Fifty Thousand Dollars ($1,250,000); and (ii) commencing July 1, 2013 and thereafter, One Million Dollars ($1,000,000).

Actual:

A.	Unrestricted Cash at Bank (excluding drawn Non-formula Advances held at Bank)	$
B.	unused Availability Amount (but excluding any undrawn availability with respect to Non-formula Advances)	$
C.	Liquidity (line A plus line B)	$

Is line C equal to or greater than $[]?

  No, not in compliance                                                                                Yes, in compliance

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas L. Massie, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Bridgeline Digital, Inc.;
2.	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;
3.	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;
4.	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)	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;
	(b)	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;
	(c)	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; and
	(d)	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 registrant’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)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
	(b)	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: February 14, 2013

	/s/ Thomas L. Massie
Name:	Thomas L. Massie
Title:	President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I,  Michael D. Prinn, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q of Bridgeline Digital, Inc.;
2.	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;
3.	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;
4.	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)	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;
	(b)	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;
	(c)	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;
	(d)	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)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and
	(b)	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: February 14, 2013

	/s/ Michael D. Prinn
Name:	Michael D. Prinn
Title:	Executive President and Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bridgeline Digital, Inc. (the “Company”) on Form 10-Q for the period ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Thomas L. Massie, 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(a) 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 financial condition and result of operations of the Company.

Date: February  14, 2013		/s/ Thomas L. Massie
	Name:	Thomas L. Massie
	Title:	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.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Bridgeline Digital, Inc. (the “Company”) on Form 10-Q for the period ended December 31, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Michael D. Prinn, Vice President Finance and Chief Accounting 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(a) 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 financial condition and result of operations of the Company.

Date: February ­ ­14, 2013		/s/ Michael D. Prinn
	Name:	Michael D. Prinn
	Title:	Executive Vice President and Chief Financial Officer (Principal Financial and Accounting 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.

XML

Note 7. Debt (Detail) - Debt (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Sep. 30, 2012
Debt	$ 4,654	$ 4,412
Less current portion	1,383	1,424
Long term debt, net of current portion	3,271	2,988
Line of Credit Borrowings [Member]
Debt	2,771	2,382
Bank Term Loan [Member]
Debt	1,601	1,692
Subordinated Promissory Note [Member]
Debt	$ 282	$ 338

XML

Note 12. Income Taxes (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Income Tax Expense (Benefit)	$ 21	$ 21

XML

Note 4. Acquisitions (Detail) - Unaudited Pro Forma Financial Information (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Total revenue	$ 6,193	$ 6,517
Net loss	(642)	(463)
Net loss per share:
Basic and diluted (in Dollars per share)	$ (0.04)	$ (0.04)
Number of weighted average shares:
Basic and diluted (in Shares)	14,782,615	12,319,643
Pro Forma [Member]
Total revenue	7,170
Net loss	$ (532)
Net loss per share:
Basic and diluted (in Dollars per share)	$ (0.04)
Number of weighted average shares:
Basic and diluted (in Shares)	12,336,671

XML

Note 6. Goodwill (Tables)

3 Months Ended

Dec. 31, 2012

Schedule of Goodwill [Table Text Block]

	As of		As of
	December 31, 2012		September 30, 2012
Balance at beginning of period	$	21,545	$	20,122
Acquisitions		96		1,175
Contingent acquisition payments		83		248
Balance at end of period	$	21,724	$	21,545

XML

Note 9. Shareholder's Equity (Detail) - Summary of Option and Warrant Activity and Outstanding Shares (USD $)	3 Months Ended
	Dec. 31, 2012
Outstanding, September 30, 2012	2,989,620
Outstanding, September 30, 2012 (in Dollars per share)	$ 0.86
Outstanding, December 31, 2012	3,095,919
Outstanding, December 31, 2012 (in Dollars per share)	$ 0.93
Granted	265,000
Granted (in Dollars per share)	$ 1.77
Exercised	(75,367)
Exercised (in Dollars per share)	$ 0.90
Forfeited or expired	(83,334)
Forfeited or expired (in Dollars per share)	$ 1.26
Warrants [Member]
Outstanding, September 30, 2012	331,931
Outstanding, September 30, 2012 (in Dollars per share)	$ 1.42
Outstanding, December 31, 2012	267,931
Outstanding, December 31, 2012 (in Dollars per share)	$ 1.42
Exercised	(22,599)
Exercised (in Dollars per share)	$ 1.45
Forfeited or expired	(41,401)
Forfeited or expired (in Dollars per share)	$ 1.45

XML

Note 6. Goodwill (Detail) - Changes in the Carrying Amount of Goodwill (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2012	Sep. 30, 2012
Balance at beginning of period	$ 21,545	$ 20,122
Acquisitions	96	1,175
Contingent acquisition payments	83	248
Balance at end of period	$ 21,724	$ 21,545

XML

Note 13. Related Party Transactions (Detail) (USD $)	15 Months Ended	13 Months Ended
	Dec. 31, 2012	Jan. 31, 2013 Monthly Management Fees [Member]
Related Party Transaction, Amounts of Transaction		$ 4,000
Related Party Transaction, Expenses from Transactions with Related Party	$ 85,000

XML

Note 3. Accounts Receivable and Unbilled Receivables

3 Months Ended

Dec. 31, 2012

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

3. Accounts Receivable and Unbilled Receivables

Accounts receivable and unbilled receivables consists of the following:

	As of			As of
	December 31, 2012			September 30, 2012
Accounts receivable	$	4,074		$	3,794
Unbilled receivables		508			381
Subtotal		4,582			4,175
Allowance for doubtful accounts		(94	)		(198	)
Accounts receivable and unbilled receivables, net	$	4,488		$	3,977

XML

Note 10. Comprehensive Income (Detail) - Comprehensive Loss (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Balance	$ (176)
Current period other comprehensive income	39	(6)
Balance	$ (137)

XML

Note 11. Net Loss Per Share (Tables)

3 Months Ended

Dec. 31, 2012

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended
(in thousands, except per share data)	December 31,
	2012			2011
Net loss	$	(642	)	$	(463	)
Weighted average common shares outstanding - basic		14,783			12,320
Effect of dilutive securities (primarily stock options)		-			-
Weighted average common shares outstanding - diluted		14,783			12,320
Net loss per share - basic and diluted	$	(0.04	)	$	(0.04	)

XML

Note 10. Comprehensive Income (Tables)

3 Months Ended

Dec. 31, 2012

Schedule of Comprehensive Income (Loss) [Table Text Block]

	Cumulative Foreign Currency Translation Adjustment
Balance at September 30, 2012	$	(176	)
Current period other comprehensive income		39
Balance at December 31, 2012	$	(137	)

XML

Note 11. Net Loss Per Share (Detail)	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,519,978	162,619
Shares to be Issued in Connection with eMagination Acquisition [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	1,055,496	589,000

XML

Note 3. Accounts Receivable and Unbilled Receivables (Detail) - Accounts Receivable and Unbilled Receivables (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Sep. 30, 2012
Receivables	$ 4,582	$ 4,175
Allowance for doubtful accounts	(94)	(198)
Accounts receivable and unbilled receivables, net	4,488	3,977
Trade Accounts Receivable [Member]
Receivables	4,074	3,794
Unbilled Receivables [Member]
Receivables	$ 508	$ 381

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Note 4. Acquisitions (Detail) (USD $) In Thousands, except Share data, unless otherwise specified					1 Months Ended	2 Months Ended	3 Months Ended				0 Months Ended		3 Months Ended	15 Months Ended
	Dec. 31, 2012	Oct. 03, 2010	Jun. 30, 2012 MarketNet, Inc. [Member] Customer Relationships [Member]	Jun. 30, 2012 MarketNet, Inc. [Member] Noncompete Agreements [Member]	May 31, 2012 MarketNet, Inc. [Member]	Jun. 30, 2012 MarketNet, Inc. [Member]	Dec. 31, 2012 MarketNet, Inc. [Member]	Jun. 30, 2012 MarketNet, Inc. [Member]	Jun. 30, 2012 Magnetic Corporation [Member] Customer Relationships [Member]	Jun. 30, 2012 Magnetic Corporation [Member] Noncompete Agreements [Member]	Oct. 03, 2011 Magnetic Corporation [Member]	Oct. 03, 2010 Magnetic Corporation [Member]	Jun. 30, 2012 Magnetic Corporation [Member]	Dec. 31, 2012 Magnetic Corporation [Member]
Business Acquisition, Cost of Acquired Entity, Cash Paid	$ 70				$ 20						$ 150
Noncash or Part Noncash Acquisition, Debt Assumed					244
Business Acquisition, Contingent Consideration, Potential Cash Payment					650						600
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares (in Shares)					204,331		34,056				166,666			69,445
Business Acquisition, Equity Interest Issued or Issuable, Value Assigned		150			250							150
Equity Issuance, Per Share Amount (in Dollars per share)					$ 1.22
Business Acquisition, Contingent Consideration, Shares Issuable (in Shares)					200,000	200,000						166,666
Business Combination, Contingent Consideration Arrangements, Change in Amount of Contingent Consideration, Liability					607							(100)
Business Acquisition, Contingent Consideration, at Fair Value					262							600
Contingent Consideration Price Per Share (in Dollars per share)												$ 0.90
Business Acquisition, Purchase Price Allocation, Intangible Assets Other than Goodwill	$ 1,030		$ 440	$ 160		$ 600		$ 600	$ 350	$ 80			$ 430
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life								5 years					5 years

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Note 2. Summary of Significant Accounting Policies

3 Months Ended

Dec. 31, 2012

Significant Accounting Policies [Text Block]

2.   Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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

Unaudited Interim Financial Information

The accompanying interim Condensed Consolidated Balance Sheet as of December 31, 2012, the Condensed Consolidated Statements of Operations for the three ended December 31, 2012 and 2011, respectively, and the Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2012 and 2011, respectively, are unaudited. The unaudited interim condensed consolidated statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and in the opinion of the Company’s management have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended September 30, 2012. These condensed financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation of the Company’s financial position at December 31, 2012 and its results of operations for the three months ended December 31, 2012 and 2011, respectively, and its cash flows for the three months ended December 31, 2012 and 2011, respectively. The results for the three months ended December 31, 2012 are not necessarily indicative of the results to be expected for the year ending September 30, 2013. The accompanying September 30, 2012 Condensed Consolidated Balance Sheet has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by US GAAP for complete financial statements.

Subsequent Events

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

Recent Accounting Pronouncements

In June 2011, the Financil Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05 (“ASU 2011-05”), Presentation of Comprehensive Income, which amends ASC Topic 220, Comprehensive Income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as a part of the statement of stockholders’ equity and requires other comprehensive income to be presented as part of a single continuous statement of comprehensive income or in a statement of other comprehensive income immediately following the statement of operations. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income. ASU 2011-05 is effective for fiscal years beginning after December 15, 2011 and must be retrospectively applied to all reporting periods presented. The Company adopted ASU 2011-05 on October 1, 2012. The adoption of ASU 2011-05 will not have an impact on the Company’s financial condition, results of operations or cash flows.

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Note 4. Acquisitions (Detail) - Fair Value of Net Assets Acquired from the Magnetic Acquisition (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Cash	$ 35
Accounts Receivable, net	327
Other Assets	181
Fixed Assets	91
Intangible Assets	1,030
Goodwill	1,311
Total Assets	2,975
Current Liabilities	1,215
Liabilities, net of current	73
Total liabilities assumed	1,288
Net assets acquired:	1,687
Cash Paid	70
	1,687
Payable In Cash [Member]
Contingent earnouts	1,206
Payable in Common Stock [Member]
Contingent earnouts	$ 411

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Note 8. Other Long Term Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Sep. 30, 2012
Leasehold Improvements, Gross	$ 1,400
Other Liabilities, Noncurrent	991	1,004
Paid By Landlord [Member]
Leasehold Improvements, Gross	857
Leasehold Improvements [Member]
Accrued Liabilities	121
Other Liabilities, Noncurrent	$ 609

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Sep. 30, 2012
Current assets:
Cash and cash equivalents	$ 2,395	$ 2,126
Accounts receivable and unbilled receivables, net	4,488	3,977
Prepaid expenses and other current assets	677	648
Total current assets	7,560	6,751
Equipment and improvements, net	2,673	2,735
Intangible assets, net	1,375	1,527
Goodwill	21,724	21,545
Other assets	1,395	1,132
Total assets	34,727	33,690
Current liabilities:
Accounts payable	988	1,132
Accrued liabilities	903	1,306
Accrued earnouts, current	354	375
Debt, current	1,383	1,424
Capital lease obligations, current	262	230
Deferred revenue	2,852	1,144
Total current liabilities	6,742	5,611
Accrued earnouts, net of current portion	990	990
Debt, net of current portion	3,271	2,988
Capital lease obligations, net of current portion	126	127
Other long term liabilities	991	1,004
Total liabilities	12,120	10,720
Commitments and contingencies
Stockholders’ equity:
Preferred stock - $0.001 par value; 1,000,000 shares authorized; none issued and outstanding	0	0
Common stock -$0.001 par value; 20,000,000 shares authorized; 15,332,768 and 15,203,538 shares issued and outstanding, respectively	15	15
Additional paid-in capital	41,087	40,847
Accumulated deficit	(18,358)	(17,716)
Accumulated other comprehensive loss	(137)	(176)
Total stockholders’ equity	22,607	22,970
Total liabilities and stockholders’ equity	$ 34,727	$ 33,690

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Note 11. Net Loss Per Share (Detail) - Basic and Diluted Net Loss Per Share (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Net loss (in Dollars)	$ (642)	$ (463)
Weighted average common shares outstanding - basic	14,783	12,320
Effect of dilutive securities (primarily stock options)	0	0
Weighted average common shares outstanding - diluted	14,783	12,320
Net loss per share - basic and diluted (in Dollars per share)	$ (0.04)	$ (0.04)

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net loss	$ (642)	$ (463)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of intangible assets	156	195
Impairment of intangible asset		281
Depreciation	268	220
Other amortization	44	50
Stock-based compensation	127	60
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable and unbilled receivables	(511)	281
Prepaid expenses and other assets	(37)	(199)
Accounts payable and accrued liabilities	(694)	(674)
Deferred revenue	1,689	210
Other liabilities	(14)	134
Total adjustments	1,028	558
Net cash provided by operating activities	386	95
Cash flows from investing activities:
Equipment and improvements	(62)	(523)
Acquisitions, net of cash acquired		(134)
Software development capitalization costs	(272)
Contingent acquisition payments	(104)	(83)
Net cash used in investing activities	(438)	(740)
Cash flows from financing activities:
Proceeds from exercise of employee stock options	67
Proceeds from employee stock purchase plan	46
Borrowings from bank term loan		1,500
Borrowings from bank line of credit	500	375
Payments on bank term loan	(91)
Payments on bank line of credit	(110)	(1,835)
Payments on acquired debt		(120)
Payments on subordinated promissory notes	(56)	(42)
Principal payments on capital leases	(74)	(71)
Net cash provided by/(used in) financing activities	282	(193)
Effect of exchange rate changes on cash and cash equivalents	39	(6)
Net increase/(decrease) in cash and cash equivalents	269	(844)
Cash and cash equivalents at beginning of period	2,126	2,528
Cash and cash equivalents at end of period	2,395	1,684
Cash paid for:
Interest	54	60
Income taxes	13	1
Non cash activities:
Equipment purchased under capital leases	85	76
Equipment and other assets included in accounts payable	46	166
Accrued contingent consideration (earnouts)	83	600
Common stock issued in connection with acquisition		$ 150

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Note 5. Intangible Assets (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Amortization of Intangible Assets	$ 156	$ 195

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Note 3. Accounts Receivable and Unbilled Receivables (Tables)

3 Months Ended

Dec. 31, 2012

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

	As of			As of
	December 31, 2012			September 30, 2012
Accounts receivable	$	4,074		$	3,794
Unbilled receivables		508			381
Subtotal		4,582			4,175
Allowance for doubtful accounts		(94	)		(198	)
Accounts receivable and unbilled receivables, net	$	4,488		$	3,977

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Note 5. Intangible Assets (Detail) - Changes in the Carrying Amount of Intangible Assets (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Dec. 31, 2012	Sep. 30, 2012
Intangible assets:
Intangible Assets Gross	$ 5,456	$ 5,452
Intangible Assets Accumulated Amortization	(3,800)	(3,644)
Impairment	(281)	(281)
Intangible Assets Net	1,375	1,527
Domain and Trade Names [Member]
Intangible assets:
Intangible Assets Gross	26	26
Intangible Assets Accumulated Amortization	(26)	(26)
Customer Related [Member]
Intangible assets:
Intangible Assets Gross	4,191	4,187
Intangible Assets Accumulated Amortization	(2,780)	(2,654)
Impairment	(281)	(281)
Intangible Assets Net	1,130	1,252
Noncompete Agreements [Member]
Intangible assets:
Intangible Assets Gross	877	877
Intangible Assets Accumulated Amortization	(632)	(602)
Intangible Assets Net	245	275
Acquired Software [Member]
Intangible assets:
Intangible Assets Gross	362	362
Intangible Assets Accumulated Amortization	$ (362)	$ (362)

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Note 5. Intangible Assets (Tables)

3 Months Ended

Dec. 31, 2012

Schedule of Finite-Lived Intangible Assets [Table Text Block]

	As of December 31, 2012
	Gross		Accumulated						Net
	Amount		Amortization			Impairment			Amount
Intangible assets:
Domain and trade names	$	26	$	(26	)	$	-		$	-
Customer related		4,191		(2,780	)		(281	)		1,130
Non-compete agreements		877		(632	)		-			245
Acquired software		362		(362	)		-			-
Total intangible assets	$	5,456	$	(3,800	)	$	(281	)	$	1,375

	As of September 30, 2012
	Gross		Accumulated						Net
	Amount		Amortization			Impairment			Amount
Intangible assets:
Domain and trade names	$	26	$	(26	)	$	-		$	-
Customer related		4,187		(2,654	)		(281	)		1,252
Non-compete agreements		877		(602	)		-			275
Acquired software		362		(362	)		-			-
Total intangible assets	$	5,452	$	(3,644	)	$	(281	)	$	1,527

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Note 1. Description of Business

3 Months Ended

Dec. 31, 2012

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1.   Description of Business

Overview

Bridgeline Digital enables its customers to maximize the performance of their mission critical websites, intranets, and online stores. Bridgeline is the developer of the award-winning iAPPS Web Engagement Management (WEM) product platform and related digital solutions. The iAPPS platform deeply integrates Web Content Management, eCommerce, eMarketing, and web Analytics capabilities within the heart of websites or eCommerce web stores to help marketers deliver online experiences that attract, engage, and convert their customers across all digital channels. Bridgeline’s iAPPS platform combined with its digital services assists customers in maximizing on-line revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs.

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

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 Burlington, Massachusetts.  The Company maintains regional field offices serving the following geographical locations: Atlanta, GA; Baltimore, MD; Boston, MA; Chicago, IL; Dallas, TX; Denver, CO; New York, NY; Philadelphia, PA; and Tampa, FL.  The Company has one wholly-owned subsidiary, Bridgeline Digital Pvt. Ltd. located in Bangalore, India.

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Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)	Dec. 31, 2012	Sep. 30, 2012
Preferred stock par value (in Dollars per share)	$ 0.001	$ 0.001
Preferred stock, shares authorized (in Shares)	1,000,000	1,000,000
Preferred stock, shares issued (in Shares)	0	0
Preferred stock, shares outstanding (in Shares)	0	0
Common stock par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in Shares)	20,000,000	20,000,000
Common stock, shares issued (in Shares)	15,332,768	15,203,538
Common stock, shares outstanding (in Shares)	15,332,768	15,203,538

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Note 11. Net Loss Per Share

3 Months Ended

Dec. 31, 2012

Earnings Per Share [Text Block]

11.   Net Loss Per Share

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

	Three Months Ended
(in thousands, except per share data)	December 31,
	2012			2011
Net loss	$	(642	)	$	(463	)
Weighted average common shares outstanding - basic		14,783			12,320
Effect of dilutive securities (primarily stock options)		-			-
Weighted average common shares outstanding - diluted		14,783			12,320
Net loss per share - basic and diluted	$	(0.04	)	$	(0.04	)

Basic net income per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding. Diluted net income per share is computed by 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.

For the three months ended December 31, 2011, options to purchase shares of the Company’s common stock of 162,619 were excluded from the computation of diluted net loss per share as the effect was anti-dilutive to the Company’s net loss.  Also, excluded were 589,000 contingent shares to be issued in connection with the prior acquisitions. 

For the three months ended December 31, 2012, options to purchase shares of the Company’s common stock of 1,519,978 were excluded from the computation of diluted net loss per share as the effect was anti-dilutive to the Company’s net loss.  Also excluded for the three months ended December 31, 2012 were 1,055,496 contingent shares to be issued in connection with prior acquisitions.

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Document And Entity Information	6 Months Ended
	Dec. 31, 2012	Feb. 11, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	Bridgeline Digital, Inc.
Document Type	10-Q
Current Fiscal Year End Date	--09-30
Entity Common Stock, Shares Outstanding		15,332,768
Amendment Flag	false
Entity Central Index Key	0001378590
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Dec. 31, 2012
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q2

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Note 12. Income Taxes

3 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Text Block]

12.  Income Taxes

Income tax expense was $21 thousand for the three months ended December 31, 2012 and 2011. Income tax expense consists of the estimated liability for federal and state income taxes owed by the Company, including the alternative minimum tax.  Net operating loss carry forwards are estimated to be sufficient to offset additional taxable income for all periods presented.

The Company does not provide for U.S. income taxes on the undistributed earnings of its Indian subsidiary, which the Company considers to be a permanent investment.

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Revenue:
Web application development services	$ 4,850	$ 5,308
Managed service hosting	556	616
Subscription and perpetual licenses	787	593
Total revenue	6,193	6,517
Cost of revenue:
Web application development services	2,754	2,855
Managed service hosting	72	106
Subscription and perpetual licenses	168	120
Total cost of revenue	2,994	3,081
Gross profit	3,199	3,436
Operating expenses:
Sales and marketing	1,834	1,715
General and administrative	1,354	1,000
Research and development	132	403
Depreciation and amortization	424	415
Impairment of intangible asset		281
Total operating expenses	3,744	3,814
Loss from operations	(545)	(378)
Interest income (expense), net	(76)	(64)
Loss before income taxes	(621)	(442)
Provision for income taxes	21	21
Net loss	$ (642)	$ (463)
Net loss per share:
Basic and diluted (in Dollars per share)	$ (0.04)	$ (0.04)
Number of weighted average shares:
Basic and diluted (in Shares)	14,782,615	12,319,643

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Note 6. Goodwill

3 Months Ended

Dec. 31, 2012

Goodwill Disclosure [Text Block]

6.  Goodwill

Changes in the carrying amount of goodwill follows:

	As of		As of
	December 31, 2012		September 30, 2012
Balance at beginning of period	$	21,545	$	20,122
Acquisitions		96		1,175
Contingent acquisition payments		83		248
Balance at end of period	$	21,724	$	21,545

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Note 5. Intangible Assets

3 Months Ended

Dec. 31, 2012

Intangible Assets Disclosure [Text Block]

5.   Intangible Assets

Changes in the carrying amount of intangible assets are as follows:

	As of December 31, 2012
	Gross		Accumulated						Net
	Amount		Amortization			Impairment			Amount
Intangible assets:
Domain and trade names	$	26	$	(26	)	$	-		$	-
Customer related		4,191		(2,780	)		(281	)		1,130
Non-compete agreements		877		(632	)		-			245
Acquired software		362		(362	)		-			-
Total intangible assets	$	5,456	$	(3,800	)	$	(281	)	$	1,375

	As of September 30, 2012
	Gross		Accumulated						Net
	Amount		Amortization			Impairment			Amount
Intangible assets:
Domain and trade names	$	26	$	(26	)	$	-		$	-
Customer related		4,187		(2,654	)		(281	)		1,252
Non-compete agreements		877		(602	)		-			275
Acquired software		362		(362	)		-			-
Total intangible assets	$	5,452	$	(3,644	)	$	(281	)	$	1,527

Total amortization expense related to intangible assets for the three months ended December 31, 2012 and 2011 was $156 thousand and $195 thousand, respectively, and are reflected in operating expenses on the Condensed Consolidated Statements of Operations.

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Note 4. Acquisitions (Tables)

3 Months Ended

Dec. 31, 2012

Schedule of Purchase Price Allocation [Table Text Block]

Net assets acquired:	Amount
Cash	$	35
Accounts Receivable, net		327
Other Assets		181
Fixed Assets		91
Intangible Assets		1,030
Goodwill		1,311
Total Assets		2,975
Current Liabilities		1,215
Liabilities, net of current		73
Total liabilities assumed		1,288
Net assets acquired:	$	1,687
Purchase Price:
Cash Paid	$	70
Contingent earnouts - payable in cash		1,206
Contingent earnouts - payable in common stock		411
	$	1,687

Business Acquisition, Pro Forma Information [Table Text Block]

	Three Months Ended December 31, 2011
Total revenue	$	7,170
Net loss	$	(532	)
Net loss per share:
Basic and diluted	$	(0.04	)
Number of weighted average shares:
Basic and diluted		12,336,671

Schedule of Business Acquisitions by Acquisition, Contingent Consideration [Table Text Block]

Balance at September 30, 2012	$	1,365
Contingent earnout liability accruals		83
Contingent earnout liability payments		(104	)
Balance at December 31, 2012	$	1,344

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Note 13. Related Party Transactions

3 Months Ended

Dec. 31, 2012

Related Party Transactions Disclosure [Text Block]

13.  Related Party Transactions

In 2012 the Company retained the services of one of its outside directors as a management consultant to assist the executive management team. The term of the engagement was one year, expiring in January 2013, at a rate of $4,000 per month. In January 2013 the agreement was extended for another 12 months at the same rate. The consulting arrangement may be terminated by either party with thirty days written notice.

As part of the Magnetic acquisition, the Company entered into an operating lease for the Bridgeline Tampa location with the previous owner of Magnetic who now serves as the Senior Vice President and General Manager of Bridgeline Tampa. The lease term is three years and rent is $85 thousand per year.

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Note 9. Shareholder's Equity

3 Months Ended

Dec. 31, 2012

Stockholders' Equity Note Disclosure [Text Block]

9.   Shareholder’s Equity

Common Stock

On May 31, 2012, the Company sold 2,173,913 shares of common stock at $1.15 per share for gross proceeds of $2.5 million in a private placement. Net proceeds to the Company after offering expenses were approximately $2.3 million. In addition, the Company issued the placement agent and its affiliates five year warrants to purchase an aggregate of 217,913 shares of Bridgeline’s common stock at a price equal to $1.40 per share. The Company agreed to provide piggyback registration rights with respect to the shares of common stock sold in the offering and underlying the warrants.

In connection with the acquisition of MarketNet on May 31, 2012, contingent consideration of 204,331 shares of Bridgeline Digital common stock is contingently issuable to the sole stockholder of MarketNet. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain operating and revenue targets. The common stock has been issued and is being held in escrow pending satisfaction of the applicable earnout targets.  In addition, MarketNet is also eligible to earn additional bonus equity consideration of 200,000 shares of Bridgeline Digital common stock if a certain annual revenue threshold is met in any fiscal year during the next three years. As of December 31, 2012, the sole stockholder of MarketNet had earned 34,056 shares of common stock.

In connection with the acquisition of Magnetic Corporation on October 3, 2011, contingent consideration of 166,666 shares of Bridgeline Digital common stock is contingently issuable to the sole stockholder of Magnetic. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain operating and revenue targets. The common stock has been issued and is being held in escrow pending satisfaction of the applicable earnout targets.  As of December 31, 2012, the sole stockholder of Magnetic had earned 69,445 shares of common stock.

Employee Stock Purchase Plan

On April 12, 2012, the Company’s stockholders approved and adopted the Bridgeline Digital, Inc. 2012 Employee Stock Purchase Plan (the “ESPP”).  Under the terms of the ESPP, the Company will grant eligible employees the right to purchase shares of Bridgeline common stock through payroll deductions at a price equal to 85% of the fair market value of Bridgeline common stock on the purchase termination date of defined offering or purchase periods. Each offering period is six months in duration. The ESPP permits the Company to offer up to 300,000 shares of common stock. The maximum number of shares of common stock that may be purchased by all participants in any purchase period may not exceed 150,000 shares.   During the three months ended December 31, 2012, 24,964 shares were purchased by employees.

Common Stock Warrants

On October 21, 2010, the Company issued 50,000 common stock warrants to purchase shares of the Company’s common stock to a non-employee consultant as compensation for services rendered. The warrants vested over a one year period and expire on October 15, 2015.  Of the warrants issued, 25,000 are exercisable at an exercise price of $1.00 per share and 25,000 are exercisable at an exercise price of $2.00 per share.  

On October 29, 2010, the Company issued four year warrants to the placement agent in the Company’s private placement.  The warrants are exercisable to purchase 64,000 shares of the Company’s common stock at a price equal to $1.45 per share.   In return for such warrants, the placement agent agreed to cancel 71,231 warrants issued to the placement agent in April 2006 and 57,000 IPO Warrants.  In December 2012 all 64,000 warrants were exercised using a cashless feature where the holders forfeited 41,401 shares in lieu of paying the exercise price.

On May 31, 2012, the Company issued five year warrants to the placement agent in the Company’s private placement.  The warrants are exercisable to purchase 217,931 shares of the Company’s common stock at a price equal to $1.40 per share.  

Summary of Option and Warrant Activity and Outstanding Shares

	Stock Options					Stock Warrants
	Options			Weighted Average Exercise Price		Warrants			Weighted Average Exercise Price
Outstanding, September 30, 2012		2,989,620		$	0.86		331,931		$	1.42
Granted		265,000		$	1.77		-			-
Exercised		(75,367	)	$	0.90		(22,599	)	$	1.45
Forfeited or expired		(83,334	)	$	1.26		(41,401	)	$	1.45
Outstanding, December 31, 2012		3,095,919		$	0.93		267,931		$	1.42

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Note 7. Debt

3 Months Ended

Dec. 31, 2012

Debt Disclosure [Text Block]

7.   Debt

Bank Term Loan

In March 2010, the Company entered into an Amended and Restated Loan and Security Agreement SVB (the “Loan Agreement”) with Silicon Valley Bank (“SVB”). The Loan Agreement has a two year term which expires on March 31, 2012. In May 2011, the Company amended its loan arrangement (the “Amendment”) with SVB, extending the maturity date of the line of credit for one year to March 31, 2013. The Amendment also revised certain financial covenants and amended the out of formula borrowings to be structured as a $2 million term loan and interest on the term loan will be at SVB’s prime rate plus 1.75%.  In May 2012, the Company amended its loan agreement (the “2012 Amendment”) with SVB, extending the maturity date of the line of credit for one year to March 31, 2014. The 2012 Amendment also revised certain financial covenants. In February 2013, the Company amended its loan agreement (the “2013 Amendment”) with SVB, extending the maturity date of the line of credit for one year to March 31, 2015. The 2013 Amendment also revised certain financial covenants, including the covenants for the three months ended December 31, 2012. The Company would not have been in compliance with one of its prior financial covenants for the three months ended December 31, 2012 if the amendment was not completed.

Promissory Notes

In May 2012, the Company assumed two Promissory Notes in connection with the acquisition of MarketNet, Inc. The first Promissory Note in the amount of $63 thousand is payable in eight equal installments of $8 thousand, including interest accrued at 5%, and matures in May 2014. The first installment was due in July 2012. The second Promissory Note in the amount of $80 thousand is payable in twelve equal installments of $7 thousand, including interest accrued at 5%, and matures in May 2015. The first installment was due in July 2012.

Debt consists of the following:

	As of		As of
	December 31, 2012		September 30, 2012
Line of credit borrowings	$	2,771	$	2,382
Bank term loan		1,601		1,692
Subordinated promissory notes		282		338
Total debt	$	4,654	$	4,412
Less current portion	$	1,383	$	1,424
Long term debt, net of current portion	$	3,271	$	2,988

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Note 8. Other Long Term Liabilities

3 Months Ended

Dec. 31, 2012

Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Noncurrent [Text Block]

8.   Other Long Term Liabilities

Deferred Rent

In connection with new leases for the Company’s headquarters in Burlington, Massachusetts and a new location in New York, the Company made investments in leasehold improvements at these locations of approximately $1.4 million, of which the respective landlords funded approximately $857 thousand.  The capitalized leasehold improvements are being amortized over the initial lives of each lease. The improvements funded by the landlords are treated as lease incentives.  Accordingly, the funding received from the landlords was recorded as fixed asset additions and a deferred rent liability on the Condensed Consolidated Balance Sheet. As of December 31, 2012, $121 thousand was reflected in Accrued Liabilities and $609 thousand is reflected in Other Long Term Liabilities. The deferred rent liability is being amortized as a reduction of rent expense over the lives of the leases.

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Note 10. Comprehensive Income

3 Months Ended

Dec. 31, 2012

Comprehensive Income (Loss) Note [Text Block]

10.  Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss for three months ended December 31, 2012 (in thousands):

	Cumulative Foreign Currency Translation Adjustment
Balance at September 30, 2012	$	(176	)
Current period other comprehensive income		39
Balance at December 31, 2012	$	(137	)

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Note 4. Acquisitions (Detail) - Summary of Earnout Liabilities (Earnout Liabilities [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2012
Earnout Liabilities [Member]
Balance	$ 1,365
Contingent earnout liability accruals	83
Contingent earnout liability payments	(104)
Balance	$ 1,344

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Accounting Policies, by Policy (Policies)

3 Months Ended

Dec. 30, 2012

Dec. 31, 2012

Consolidation, Policy [Policy Text Block]

Basis of Presentation and Principles of Consolidation

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

Basis of Accounting, Policy [Policy Text Block]

Unaudited Interim Financial Information

The accompanying interim Condensed Consolidated Balance Sheet as of December 31, 2012, the Condensed Consolidated Statements of Operations for the three ended December 31, 2012 and 2011, respectively, and the Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2012 and 2011, respectively, are unaudited. The unaudited interim condensed consolidated statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and in the opinion of the Company’s management have been prepared on the same basis as the audited consolidated financial statements as of and for the year ended September 30, 2012. These condensed financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation of the Company’s financial position at December 31, 2012 and its results of operations for the three months ended December 31, 2012 and 2011, respectively, and its cash flows for the three months ended December 31, 2012 and 2011, respectively. The results for the three months ended December 31, 2012 are not necessarily indicative of the results to be expected for the year ending September 30, 2013. The accompanying September 30, 2012 Condensed Consolidated Balance Sheet has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by US GAAP for complete financial statements.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

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

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In June 2011, the Financil Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2011-05 (“ASU 2011-05”), Presentation of Comprehensive Income, which amends ASC Topic 220, Comprehensive Income. ASU 2011-05 eliminates the option to present the components of other comprehensive income as a part of the statement of stockholders’ equity and requires other comprehensive income to be presented as part of a single continuous statement of comprehensive income or in a statement of other comprehensive income immediately following the statement of operations. While the new guidance changes the presentation of comprehensive income, there are no changes to the components that are recognized in net income or other comprehensive income. ASU 2011-05 is effective for fiscal years beginning after December 15, 2011 and must be retrospectively applied to all reporting periods presented. The Company adopted ASU 2011-05 on October 1, 2012. The adoption of ASU 2011-05 will not have an impact on the Company’s financial condition, results of operations or cash flows.

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Note 7. Debt (Tables)

3 Months Ended

Dec. 31, 2012

Schedule of Debt [Table Text Block]

	As of		As of
	December 31, 2012		September 30, 2012
Line of credit borrowings	$	2,771	$	2,382
Bank term loan		1,601		1,692
Subordinated promissory notes		282		338
Total debt	$	4,654	$	4,412
Less current portion	$	1,383	$	1,424
Long term debt, net of current portion	$	3,271	$	2,988

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Note 9. Shareholder's Equity (Detail) (USD $) In Millions, except Share data, unless otherwise specified	1 Months Ended	27 Months Ended												27 Months Ended	0 Months Ended		1 Months Ended	15 Months Ended	1 Months Ended	2 Months Ended	3 Months Ended
	May 31, 2012	Dec. 31, 2012	Oct. 29, 2010	Dec. 31, 2012 Employee Stock Purchase Plan [Member] Maximum Number of Shares Purchased in any Purchase Period [Member]	Dec. 31, 2012 Employee Stock Purchase Plan [Member]	Dec. 31, 2012 IPO Warrants [Member]	Mar. 31, 2012 IPO Warrants [Member]	Mar. 31, 2012 Placement Agent Warrants [Member]	Oct. 21, 2010 Issued to Non-employee Consultant [Member]	Oct. 21, 2010 Exercisable at $1 Per Share [Member]	Oct. 21, 2010 First 25,000 Shares [Member]	Oct. 21, 2010 Exercisable at $2 Per Share [Member]	Oct. 21, 2010 Remaining 25,000 Shares [Member]	Dec. 31, 2012 Warrant [Member]	Oct. 03, 2011 Magnetic Corporation [Member]	Oct. 03, 2010 Magnetic Corporation [Member]	May 31, 2012 Magnetic Corporation [Member]	Dec. 31, 2012 Magnetic Corporation [Member]	May 31, 2012 MarketNet, Inc. [Member]	Jun. 30, 2012 MarketNet, Inc. [Member]	Dec. 31, 2012 MarketNet, Inc. [Member]
Stock Issued During Period, Shares, New Issues																	2,173,913
Sale of Stock, Price Per Share (in Dollars per share)	$ 1.15
Stock Issued During Period, Value, New Issues (in Dollars)	$ 2.5
Proceeds from Issuance of Common Stock (in Dollars)	$ 2.3
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	217,931	64,000	64,000				217,913		50,000	25,000		25,000
Class of Warrant or Right, Exercise Price of Warrants or Rights (in Dollars per Item)	1.40		1.45					1.40			1.00		2.00
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares															166,666			69,445	204,331		34,056
Business Acquisition, Contingent Consideration, Shares Issuable																166,666			200,000	200,000
Employee Stock Purchase Plan Percent of Market Value		85.00%
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized				150,000	300,000
Class of Warrant or Right, Outstanding						24,964
Vesting Period For Warrants			4 years						1 year
Warrants Cancelled		71,231
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Forfeitures and Expirations														41,401

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Condensed Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Net Loss	$ (642)	$ (463)
Other comprehensive income (loss):
Net change in foreign currency translation adjustment	39	(6)
Other comprehensive income (loss):	39	(6)
Comprehensive loss	$ (603)	$ (469)

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Note 4. Acquisitions

3 Months Ended

Dec. 31, 2012

Business Combination Disclosure [Text Block]

4.   Acquisitions

MarketNet, Inc.

On May 31, 2012, the Company completed the acquisition of MarketNet, Inc. (“MarketNet”), an interactive technology company that provides web application development based in Dallas, Texas. The Company acquired all of the outstanding capital stock of MarketNet for consideration consisting of (i) $20 thousand in cash, (ii) assumption of debt of $244 thousand and (ii) contingent consideration of up to $650 thousand in cash and 204,331 shares of Bridgeline Digital common stock, valued at $250 thousand ($1.22 per share). The cash consideration was reduced by $58 thousand due to the Seller’s inability to meet an agreed upon target for working capital at the time of acquisition. This contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain quarterly revenue and quarterly operating income targets during the period. To the extent that either the quarterly revenue target or the quarterly operating income target is not met in a particular quarter, the earn-out period will be extended for up to four additional quarters. MarketNet is also eligible to earn additional bonus equity consideration of 200,000 shares, if annual net revenues of the acquired business exceed a certain threshold in any fiscal year through September 30, 2015. The Company is required to assess the probability of the acquired business achieving the contingent cash and stock payments which requires management to make estimates and judgments based on forecasts of future performance. As a result, the Company estimated and accrued $607 thousand of the contingent cash consideration to be achieved and $262 thousand of the contingent stock consideration to be achieved. MarketNet achieved its quarterly revenue and operating income targets for all periods since the acquisition date.The contingent common stock has been issued and is being held in escrow pending satisfaction of the applicable targets.  MarketNet’s operating results are reflected in the Company’s condensed consolidated financial statements as of the acquisition date.

Magnetic Corporation

On October 3, 2011, the Company completed the acquisition of Magnetic Corporation (“Magnetic”), a web technology company based in Tampa, Florida. Bridgeline acquired all of the outstanding capital stock of Magnetic for consideration consisting of (i) $150 thousand in cash and (ii) contingent consideration of up to $600 thousand in cash and 166,666 shares of Bridgeline Digital common stock, valued at $150 thousand ($0.90 per share). The cash consideration was reduced by $100 thousand due to the Seller’s inability to meet an agreed upon target for working capital at the time of acquisition. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain quarterly revenue and quarterly operating income targets during the period. The contingent common stock has been issued and is being held in escrow pending satisfaction of the applicable targets.  To the extent that either the quarterly revenue target or the quarterly operating income target is not met in a particular quarter, the earn-out period will be extended for up to four additional quarters. The Company is required to assess the probability of the acquired business achieving the contingent cash and stock payments which requires management to make estimates and judgments based on forecasts of future performance. As a result, the Company estimated and accrued $600 thousand of the contingent cash consideration to be achieved and $150 thousand of the contingent stock consideration to be achieved. Magnetic achieved its quarterly revenue and operating income targets for all periods since the acquisition date.. Magnetic’s operating results are reflected in the Company’s condensed consolidated financial statements as of the acquisition date, which corresponds to the Company’s commencement of fiscal 2012.

The estimated fair value of net assets acquired from the MarketNet and Magnetic acquisitions are summarized as follows:

Net assets acquired:	Amount
Cash	$	35
Accounts Receivable, net		327
Other Assets		181
Fixed Assets		91
Intangible Assets		1,030
Goodwill		1,311
Total Assets		2,975
Current Liabilities		1,215
Liabilities, net of current		73
Total liabilities assumed		1,288
Net assets acquired:	$	1,687
Purchase Price:
Cash Paid	$	70
Contingent earnouts - payable in cash		1,206
Contingent earnouts - payable in common stock		411
	$	1,687

As part of the Magnetic acquisition, of the $430 thousand allocated to intangible assets, $350 thousand is allocated to customer relationships and $80 thousand is allocated to non-compete agreements, with an average useful life of five years.

As part of the MarketNet acquisition, of the $600 thousand allocated to intangible assets, $440 thousand is allocated to customer relationships and $160 thousand is allocated to non-compete agreements, with an average useful life of five years. These amounts are preliminary and will be adjusted when the formal valuations are completed.

The goodwill recorded as a result of the Magnetic and MarketNet acquisitions is nondeductible for tax purposes.

The following unaudited pro forma financial information reflects the combined results of operations for Bridgeline for the three months ended December 31, 2011, including certain adjustments, as if the acquisition of MarketNet had occurred on October 1, 2011.  This information does not necessarily reflect the results of operations that would have occurred had the acquisitions taken place at the beginning of the period, and is not necessarily indicative of the results which may be obtained in the future (in thousands, except per share data):

	Three Months Ended December 31, 2011
Total revenue	$	7,170
Net loss	$	(532	)
Net loss per share:
Basic and diluted	$	(0.04	)
Number of weighted average shares:
Basic and diluted		12,336,671

Contingent earnout liabilities for acquisitions completed after September 30, 2009 were recorded at fair value based on valuation models that utilize relevant factors such as estimated probabilities of the acquisitions achieving the performance targets throughout the earnout period. The following table summarizes the changes in earnout liabilities for the three months ended December 31, 2012:

Balance at September 30, 2012	$	1,365
Contingent earnout liability accruals		83
Contingent earnout liability payments		(104	)
Balance at December 31, 2012	$	1,344

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Note 9. Shareholder's Equity (Tables)

3 Months Ended

Dec. 31, 2012

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

	Stock Options					Stock Warrants
	Options			Weighted Average Exercise Price		Warrants			Weighted Average Exercise Price
Outstanding, September 30, 2012		2,989,620		$	0.86		331,931		$	1.42
Granted		265,000		$	1.77		-			-
Exercised		(75,367	)	$	0.90		(22,599	)	$	1.45
Forfeited or expired		(83,334	)	$	1.26		(41,401	)	$	1.45
Outstanding, December 31, 2012		3,095,919		$	0.93		267,931		$	1.42

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Note 7. Debt (Detail) (USD $)	25 Months Ended	37 Months Ended
	May 31, 2014	May 31, 2015	Dec. 31, 2012
Line of Credit Facility, Maximum Borrowing Capacity			$ 2,000,000
Debt Instrument, Basis Spread on Variable Rate			1.75%
Notes Payable	63,000	80,000
Debt Instrument, Periodic Payment	$ 8,000	$ 7,000
Debt Instrument, Interest Rate, Stated Percentage	5.00%	5.00%

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Note 14. Legal Proceedings

3 Months Ended

Dec. 31, 2012

Legal Matters and Contingencies [Text Block]

14.  Legal Proceedings

Bridgeline Digital, Inc. vs. e.Magination network, LLC and its principal owner, Daniel Roche.

In August 2010, Bridgeline initiated a lawsuit against e.Magination network, LLC and its principal owner, Daniel Roche, in the Federal District Court of Massachusetts.  Bridgeline seeks damages for accounts receivable allegedly collected by Mr. Roche and e.Magination and used to pay obligations of e.Magination and Mr. Roche (accounts receivable contractually belonging to Bridgeline).  e.Magination and Mr. Roche have asserted counterclaims against Bridgeline and Thomas Massie alleging that Bridgeline has breached Mr. Roche’s employment agreement by improperly terminating Mr. Roche for cause and also alleging breach of the Asset Purchase Agreement by Bridgeline. This lawsuit remains unresolved as of December 31, 2012.