10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

 (Mark One)

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

For the quarterly period ended March 31, 2015

OR

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

For the transition period from ______________ to ______________

Commission File Number 333-139298

Bridgeline Digital, Inc.

(Exact name of registrant as specified in its charter)

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

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  ☒     No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)   ☒  Yes    ☐  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  ☐ Accelerated filer  ☐ Non-accelerated filer  ☐ (Do not check if a smaller reporting company) Smaller reporting company ☒

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

The number of shares of Common Stock par value $0.001 per share, outstanding as of May 11, 2015 was 4,441,381.

1

Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended March 31, 2015

Index

		Page
Part I	Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2015 and September 30, 2014	4
	Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended March 31, 2015 and 2014	5
	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended March 31, 2015 and 2014	6
	Condensed Consolidated Statements of Cash Flows (unaudited) for the three and six months ended March 31, 2015 and 2014	7
	Notes to Unaudited Interim Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
Part II	Other Information
Item 1.	Legal Proceedings	37
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	37
Item 5.	Other Information	37
Item 6.	Exhibits	38
Signatures		39

2

Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended March 31, 2015

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 ability to maintain our listing on the NASDAQ Capital market, the ability to raise capital, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, the security of our software, our dependence on our management team and key personnel, our ability to hire and retain future key personnel, 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, 2014 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. Condensed Consolidated Financial Statements.

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

(Unaudited)

	March 31,			September 30,
	2015			2014
ASSETS
Current assets:
Cash and cash equivalents	$	1,126		$	1,256
Accounts receivable and unbilled receivables, net		3,989			3,342
Prepaid expenses and other current assets		765			747
Total current assets		5,880			5,345
Equipment and improvements, net		2,005			2,175
Intangible assets, net		1,276			1,582
Goodwill		23,141			23,141
Other assets		1,050			1,317
Total assets	$	33,352		$	33,560
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,507		$	1,126
Accrued liabilities		936			957
Accrued earnouts, current		464			487
Debt, current		759			985
Capital lease obligations, current		428			364
Deferred revenue		2,914			1,990
Total current liabilities		7,008			5,909
Accrued earnouts, net of current portion		226			381
Debt, net of current portion		7,048			5,935
Capital lease obligations, net of current portion		115			247
Other long term liabilities		1,222			1,155
Total liabilities		15,619			13,627
Commitments and contingencies
Stockholders’ equity:
Preferred stock - $0.001 par value; 1,000,000 shares authorized; 40,427 at March 31, 2015 and 0 at September 30, 2014, issued and outstanding (liquidation preference $2,051)		-			-
Common stock - $0.001 par value; 50,000,000 shares authorized; 4,441,381 at March 31, 2015 and 4,388,583 at September 30, 2014, issued and outstanding		22			22
Additional paid-in capital		49,829			47,773
Accumulated deficit		(31,763	)		(27,529	)
Accumulated other comprehensive loss		(355	)		(333	)
Total stockholders’ equity		17,733			19,933
Total liabilities and stockholders’ equity	$	33,352		$	33,560

      The accompanying notes are an integral part of these condensed 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						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Net revenue:
Digital engagement services	$	3,057		$	3,610		$	6,271		$	8,159
Subscription and perpetual licenses		1,359			1,307			2,755			2,884
Managed service hosting		371			385			773			772
Total net revenue		4,787			5,302			9,799			11,815
Cost of revenue:
Digital engagement services		2,513			2,669			5,076			5,172
Subscription and perpetual licenses		463			452			893			849
Managed service hosting		74			68			148			152
Total cost of revenue		3,050			3,189			6,117			6,173
Gross profit		1,737			2,113			3,682			5,642
Operating expenses:
Sales and marketing		1,534			1,928			3,344			4,038
General and administrative		1,136			1,167			2,129			2,198
Research and development		467			579			1,069			1,102
Depreciation and amortization		442			551			894			1,005
Total operating expenses		3,579			4,225			7,436			8,343
Loss from operations		(1,842	)		(2,112	)		(3,754	)		(2,701	)
Interest and other expense, net		(203	)		(167	)		(366	)		(334	)
Loss before income taxes		(2,045	)		(2,279	)		(4,120	)		(3,035	)
Provision for income taxes		28			35			63			56
Net loss		(2,073	)		(2,314	)		(4,183	)		(3,091	)
Dividends on convertible preferred stock		(30	)		-			(51	)		-
Net loss applicable to common shareholders	$	(2,103	)	$	(2,314	)	$	(4,234	)	$	(3,091	)
Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.49	)	$	(0.65	)	$	(0.98	)	$	(0.86	)
Number of weighted average shares outstanding:
Basic and diluted		4,271,508			3,558,922			4,307,265			3,578,885

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

5

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 (Dollars in thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Net Loss	$	(2,073	)	$	(2,314	)	$	(4,183	)	$	(3,091	)
Net change in foreign currency translation adjustment		(17	)		(93	)		(22	)		(125	)
Comprehensive loss	$	(2,090	)	$	(2,407	)	$	(4,205	)	$	(3,216	)

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

6

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (Dollars in thousands)

(Unaudited)

	Six Months Ended
	March 31,
	2015			2014
Cash flows from operating activities:
Net loss	$	(4,183	)	$	(3,091	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets		306			341
Depreciation		556			647
Other amortization		310			272
Stock-based compensation		162			167
Contingent earnout liability adjustment		131			-
Change in deferred taxes		45			-
Changes in operating assets and liabilities
Accounts receivable and unbilled receivables		(647	)		(251	)
Prepaid expenses and other assets		320			446
Accounts payable and accrued liabilities		(11	)		(621	)
Deferred revenue		924			426
Other liabilities		(106	)		5
Total adjustments		1,990			1,432
Net cash used in operating activities		(2,193	)		(1,659	)
Cash flows used in investing activities:
Purchase of equipment and improvements		(54	)		(224	)
Software development capitalization costs		(36	)		(106	)
Contingent acquisition payments		(309	)		(284	)
Net cash used in investing activities		(399	)		(614	)
Cash flows provided by financing activities:
Proceeds from issuance of common stock, net of issuance costs		-			2,753
Proceeds from issuance of convertible debt, net of issuance costs		-			913
Proceeds from exercise of employee stock options		-			185
Proceeds from employee stock purchase plan		2			13
Proceeds from issuance of 40,000 shares of preferred stock, net of issuance costs		1,776			-
Proceeeds from bank term loan		1,460			746
Proceeds from term note from stockholder		1,000			-
Borrowings on bank line of credit		625			-
Payments on bank term loan		(1,610	)		(273	)
Payments on bank line of credit		(515	)		(1,026	)
Payments on subordinated promissory notes		(14	)		(71	)
Principal payments on capital leases		(240	)		(217	)
Net cash provided by financing activities		2,484			3,023
Effect of exchange rate changes on cash and cash equivalents		(22	)		(125	)
Net (decrease)/increase in cash and cash equivalents		(130	)		625
Cash and cash equivalents at beginning of period		1,256			2,830
Cash and cash equivalents at end of period	$	1,126		$	3,455
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	114		$	104
Income taxes	$	18		$	44
Non cash investing and financing activities:
Equipment purchased under capital leases	$	172		$	89
Other assets included in accounts payable	$	19		$	22
Accrued dividends on convertible preferred stock	$	51			-

The accompanying notes are an integral part of these condensed 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, The Digital Engagement Company™, enables its customers to maximize the performance of their mission critical websites, intranets, and online stores. Bridgeline’s iAPPS® platform deeply integrates Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics to help marketers deliver online experiences that attract, engage and convert their customers across all digital channels. 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 product, iAPPSds (“distributed subscription”), a platform that empowers franchise and large dealer networks with state-of-the-art web engagement management while providing superior oversight of corporate branding. iAPPSds deeply integrates content management, eCommerce, eMarketing and web analytics and is a self-service web platform that is offered to each authorized franchise or dealer for a monthly subscription fee. On August 1, 2013, we acquired franchise web developer ElementsLocal, expanding Bridgeline Digital’s presence in the franchise market place.

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.

The iAPPS Platform is an award-winning application recognized around the globe. Our teams of Microsoft Gold© certified developers have won over 100 industry related awards. In recent years, our iAPPS Content Manager and iAPPS Commerce products were selected as finalists for the 2014, 2013, and 2012 CODiE Awards for Best Content Management Solution and Best Electronic Commerce Solution, globally. Most recently, in 2015, we were named a finalist for the 2015 SIIA CODiE Award for Best Web Content Management Platform. In 2014 and 2013, Bridgeline Digital won twenty-five Horizon Interactive Awards for outstanding development of web applications and websites. Also in 2013, the Web Marketing Association sponsored Internet Advertising Competition honored Bridgeline Digital with three awards for iAPPS customer websites and B2B Magazine selected Bridgeline Digital as one of the Top Interactive Technology companies in the United States. KMWorld Magazine Editors selected Bridgeline Digital as one of the 100 Companies That Matter in Knowledge Management and also selected iAPPS as a Trend Setting Product in 2013.

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

Locations

The Company’s corporate office is 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; San Diego, CA; San Luis Obispo, CA; and Tampa, FL.  The Company has one wholly-owned subsidiary, Bridgeline Digital Pvt. Ltd. located in Bangalore, India.

Reverse Stock Split

On May 4, 2015, the Company’s Shareholders and the Board of Directors approved a reverse stock split pursuant to which all classes of our issued and outstanding shares of common stock at the close of business on such date were combined and reconstituted into a smaller number of shares of common stock in a ratio of 1 share of common stock for every 5 shares of common stock (“1-for-5 reverse stock split”). The 1-for-5 reverse stock split is effective as of close of business on May 7, 2015 and the Company’s stock began trading on a split-adjusted basis on May 8, 2015.

8

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The reverse stock split reduces the number of shares of the Company’s common stock currently outstanding from approximately 22 million shares to approximately 4.4 million shares. Proportional adjustments have been made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants, restricted stock awards, convertible notes and stock options, and to the number of shares issued and issuable under the Company’s Amended and Restated Stock Incentive Plan. Upon the effectiveness of the 1-for-5 reverse stock split, each five shares of the Company’s issued and outstanding common stock have been automatically combined and converted into one issued and outstanding share of common stock, par value $.001. The Company did not issue any fractional shares in connection with the reverse stock split. Instead, fractional share interests were rounded up to the next largest whole share. The reverse stock split does not modify the rights or preferences of the common stock. The number of authorized shares of the Company’s common stock remains at 50 million shares and the par value remains $0.001.

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

Liquidity

The Company has incurred operating losses and used cash in its operating activities for the past several years. Cash was used to fund acquisitions to broaden our geographic footprint, develop new products, and build infrastructure, while also ramping down a lower margin services model. The Company is currently working on reducing operating expenses. The Company’s management believes it will have an appropriate cost structure for its anticipated sales in the second half of fiscal 2015. Management believes that operating expenses will be reduced to the point where the Company can drive positive Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization and stock-based compensation charges). As such, management believes that the Company will provide sufficient cash flows to fund its operations in the ordinary course of business through at least the next twelve months. However, there can be no assurance that the anticipated sales level will be achieved. The Company also maintains a Loan and Security Agreement with BridgeBank (the “BridgeBank Loan Agreement”) which provides for up to $5 million of revolving credit advances. Borrowing is limited to the lesser of the $5 million or 80% of eligible receivables. In May 2015, the Company extended the term of its BridgeBank Loan Agreement from an expiration date of March 31, 2016 to June 30, 2016. Additionally, the Company can borrow up to $1 million in out of formula borrowings, which are further guaranteed by a director/shareholder of the Company. Subsequent to the quarter end, the Company received $500 in a long-term note from a director/shareholder stockholder of the Company

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 in consolidation.

Unaudited Interim Financial Information

The accompanying interim Condensed Consolidated Balance Sheets as of March 31, 2015 and September 30, 2014, and the interim Condensed Consolidated Statements of Operations, Comprehensive Loss, and Cash Flows for the three and six months ended March 31, 2015 and 2014 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and with the same instructions to Form 10-Q and Regulation S-X, 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, 2014. These interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation of the Company’s financial position at March 31, 2015 and September 30, 2014 and its results of operations and cash flows for the three and six months ended March 31, 2015 and 2014. The results for the three and six months ended March 31, 2015 are not necessarily indicative of the results to be expected for the year ending September 30, 2015. The accompanying September 30, 2014 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, except as already disclosed in these financial statements.

9

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 2014, the Financial Accounting Standards Board (“FASB”) issued a standards update on accounting for share-based payments when the terms of the award provide that a performance target could be achieved after a requisite service period. The standard is effective beginning January 1, 2016, with early adoption permitted. Management does not expect it to have a material impact on our consolidated financial position, results of operations or cash flows. 

In May 2014, the FASB issued a standard on revenue recognition providing a single, comprehensive revenue recognition model for all contracts with customers. The revenue standard is based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective beginning January 1, 2017, with no early adoption permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. Management is currently evaluating the adoption method options and the impact of this new guidance on our condensed consolidated financial statements.

In April 2014, the FASB issued new accounting guidance on reporting discontinued operations and disclosures of disposals of components of an entity which clarifies the scope of what should be reported as discontinued operations and expands required disclosures. This new guidance is effective beginning October 1, 2015, with early adoption permitted. The impact of this guidance will be dependent on the nature and significance of any transactions within the scope of this new guidance.

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

3. Accounts Receivable and Unbilled Receivables

Accounts receivable and unbilled receivables consists of the following:

	As of			As of
	March 31, 2015			September 30, 2014
Accounts receivable	$	3,529		$	3,303
Unbilled receivables		662			229
Subtotal		4,191			3,532
Allowance for doubtful accounts		(202	)		(190	)
Accounts receivable and unbilled receivables, net	$	3,989		$	3,342

4. Fair Value Measurement and Fair Value of Financial Instruments

The Company’s other financial instruments consist principally of accounts receivable, accounts payable, and debt. The Company believes the recorded values for accounts receivable and accounts payable approximate current fair values as of March 31, 2015 and September 30, 2014 because of their nature and durations. The carrying value of debt instruments also approximates fair value as of March 31, 2015 and September 30, 2014 based on acceptable valuation methodologies which use market data of similar size and situated debt issues.

10

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Assets and liabilities of the Company measured at fair value on a recurring basis as of March 31, 2015 and September 30, 2014 are as follows:

		March 31, 2015
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent acquisition consideration	$	-	$	-	$	690	$	690
Warrant liability		-		-		98		98
Total Liabilities	$	-	$	-	$	788	$	788

		September 30, 2014
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent acquisition consideration	$	-	$	-	$	868	$	868
Warrant liability		-		-		39		39
Total Liabilities	$	-	$	-	$	907	$	907

The Company determines the fair value of acquisition-related contingent consideration based on assessment of the probability that the Company would be required to make such future payments. Changes to the fair value of contingent consideration are recorded in general and administrative expenses. The following table provides a rollforward of the fair value, as determined by Level 3 inputs, of the contingent consideration.

The following table summarizes the changes in contingent consideration for the three and six months ended March 31, 2015 and 2014:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Beginning balance	$	689		$	1,511		$	868		$	1,511
Adjustments		131			-			131			-
Payments		(130	)		(643	)		(309	)		(643	)
Ending balance	$	690		$	868		$	690		$	868

11

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The following table summarizes the changes in warrant liability for the three and six months ended March 31, 2015 and 2014:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Beginning balance	$	30		$	-		$	39		$	-
Warrant liability		95			72			95			72
Fair value adjustment		(27	)		(33	)		(36	)		(33	)
Ending balance	$	98		$	39		$	98		$	39

5. Intangible Assets

The components of intangible assets are as follows:

	As of		As of
	March 31, 2015		September 30, 2014
Domain and trade names	$	10	$	10
Customer related		1,014		1,284
Non-compete agreements		252		288
Balance at end of period	$	1,276	$	1,582

Total amortization expense related to intangible assets for the three months ended March 31, 2015 and 2014 was $154 and $216, and $306 and $341 for the six months ended March 31, 2015 and 2014, respectively, and are reflected in operating expenses on the Condensed Consolidated Statements of Operations. The estimated amortization expense for fiscal years 2015 (remaining), 2016, 2017, and 2018 and thereafter is $254, $428, $333, and $251, respectively.

6. Goodwill

Changes in the carrying amount of goodwill follows:

	As of		As of
	March 31, 2015		September 30, 2014
Balance at beginning of period	$	23,141	$	23,777
Purchase price allocation adjustments		-		(636	)
Balance at end of period	$	23,141	$	23,141

12

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

7. Debt

Debt consists of the following:

	As of			As of
	March 31, 2015			September 30, 2014
Line of credit borrowings	$	3,048		$	2,938
Bank term loan		850			1,000
Subordinated convertible debt		3,000			3,000
Term notes from shareholder		1,000			-
Subordinated promissory notes		7			21
Subtotal debt	$	7,905		$	6,959
Other (debt discount warrants)	$	(98	)	$	(39	)
Total debt	$	7,807		$	6,920
Less current portion	$	759		$	985
Long term debt, net of current portion	$	7,048		$	5,935

Line of Credit and Bank Term Loan

In December 2013, the Company entered into a Loan and Security Agreement with BridgeBank (the “BridgeBank Loan Agreement”). The BridgeBank Loan Agreement replaced the Company’s prior credit facility with Silicon Valley Bank (“SVB”), which expired on December 31, 2013. The Loan Agreement has a 27 month term which expires on March 31, 2016. In May 2015, the Company extended the term to June 30, 2016. The Loan Agreement provides for up to $5 million of revolving credit advances which may be used for acquisitions and working capital purposes. Borrowings are limited to the lesser of (i) $5 million and (ii) 80% of eligible receivables as defined. The Company can borrow up to $1.0 million in out of formula borrowings for specified periods of time.   Borrowings bear interest at BridgeBank’s prime plus 1.00% (4.25%).  The Company pays an annual commitment fee of 0.25%. Borrowings are secured by all of the Company’s assets and all of the Company’s intellectual property. The Company is also required to comply with certain financial and reporting covenants including an Asset Coverage Ratio. As of March 31, 2015, the Company had an outstanding balance under the BridgeBank Loan Agreement of $3.0 million. The Company was in compliance with all reporting covenants for the period ended March 31, 2015. At March 31, 2015, the Company also had an outstanding short term loan with BridgeBank of $850 which was repaid in April 2015.

In December 2014, the Company signed an Amendment to its Loan and Security Agreement with Bridge Bank (the “Amendment”). As part of the Amendment Mr. Michael Taglich, a member of the Board of Directors, signed an unconditional guaranty (the “Guaranty”) and promise to pay the Company’s lender, Bridge Bank, N.A all indebtedness in an amount not to exceed $1 million in connection with the out of formula borrowings. The Amendment also modified certain monthly financial reporting requirements and financial covenants on a prospective basis commencing as of the effective date of the Amendment.

Under the terms of the Guaranty, the Guarantor authorizes Lender, without notice or demand and without affecting its liability hereunder, from time to time to: (a) renew, compromise, extend, accelerate, or otherwise change the time for payment, or otherwise change the terms, of the Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon, or otherwise change the terms of the Indebtedness; (b) receive and hold security for the payment of this Guaranty or any Indebtedness and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security; (c) apply such security and direct the order or manner of sale thereof as Lender in its discretion may determine; and (d) release or substitute any Guarantor or any one or more of any endorsers or other guarantors of any of the Indebtedness.

13

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Subordinated Convertible Debt

On September 30, 2013, the Company entered into a Note Purchase Agreement (the "Purchase Agreement") with accredited investors pursuant to which Bridgeline Digital sold an aggregate of $2.0 million of 10% secured subordinated convertible notes (the "Notes"). The gross proceeds to Bridgeline Digital at the closing of this private placement were $2.0 million. The Notes accrue interest at a rate of ten percent (10%) per annum and mature on September 30, 2016. Interest on the Notes is payable quarterly in cash. The Notes are convertible at the election of the holder into shares of common stock of Bridgeline Digital at a conversion price equal to $6.50 per share at any time prior to the maturity date, provided that no holder may convert the Notes if such conversion would result in the holder beneficially owning more than 4.99% of the number of shares of Bridgeline Digital common stock outstanding at the time of conversion.

On November 6, 2013, the Company entered into an amendment (the "Amendment") to the Purchase Agreement by and among Bridgeline Digital and the accredited investors’ party thereto. The Amendment increased the aggregate amount of 10% secured subordinated convertible notes (the "New Notes") able to be sold by Bridgeline Digital to $3.0 million. On November 6, 2013, Bridgeline Digital sold an additional $1.0 million of New Notes (the "Second Closing"). The gross proceeds to Bridgeline Digital at the Second Closing of this private placement were $1.0 million. The Notes accrue interest at a rate of ten percent (10%) per annum and mature on November 6, 2016. Interest on the Notes is payable quarterly in cash. The Notes are convertible at the election of the holder into shares of common stock of Bridgeline Digital at a conversion price equal to $6.50 per share at any time prior to the maturity date, provided that no holder may convert the Notes if such conversion would result in the holder beneficially owning more than 4.99% of the number of shares of Bridgeline Digital common stock outstanding at the time of conversion.

The Notes are secured by all of Bridgeline Digital's assets. The security interest granted to the holders of the Notes is subordinate to the security interest held by Bridgeline Digital's senior lender, BridgeBank. Bridgeline Digital may prepay any portion of the principal amount of the outstanding Notes at any time, provided that if Bridgeline Digital prepays any principal on or before September 30, 2014, Bridgeline Digital will pay a penalty equal to 10% of the principal amount being prepaid. Under certain circumstances Bridgeline Digital has the right to force conversion of the Notes into shares of Bridgeline Digital common stock in the event the Bridgeline Digital common stock trades in excess of $13.00 per share for 20 trading days out of any 30 trading day period.

The Notes contain customary events of default. Upon the occurrence of any event of default the interest rate under the Notes will increase. In addition, upon the occurrence of a payment default under the Notes, Bridgeline Digital must pay a premium equal to 20% of the outstanding principal amount of the Notes. In the event of a change in control of Bridgeline Digital while the Notes are outstanding, Bridgeline Digital will provide the holders of the Notes with the opportunity to convert the Notes immediately prior to the change in control. In the event the holders of the Notes do not elect to convert the Notes, Bridgeline Digital may prepay all outstanding principal and accrued interest under the Notes.

The placement agent for both transactions was Taglich Brothers, Inc. As compensation for the initial transaction on September 30, 2013, Bridgeline Digital paid a fee of $160 and issued to Taglich Brothers, Inc., or its designees, five-year warrants to purchase an aggregate of 30,770 shares of common stock at an exercise price equal to $6.50 per share. The warrants are first exercisable on March 30, 2014, and provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision. As compensation for the Second Closing, Bridgeline Digital paid Taglich Brothers, Inc. a fee of $80 and issued to Taglich Brothers, Inc., or its designees, five-year warrants to purchase an aggregate of 15,385 shares of common stock at an exercise price equal to $6.50 per share. The warrants are first exercisable on May 6, 2014, provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision. Fair market value of the warrants are $49 and is included in current liabilities and non-current debt with the offsetting amount recorded to additional paid in capital in the Condensed Consolidated Balance Sheet. The fair market value of the warrants will be amortized on a straight-line basis over the estimated life of two years.

14

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

The shares of common stock issuable upon conversion of the Notes and upon exercise of the warrants are restricted securities and may be sold only pursuant to Rule 144 or in another transaction exempt from the registration requirements under the Securities Act of 1933. Pursuant to the terms of the Purchase Agreement, Bridgeline Digital has agreed to provide piggyback registration rights with respect to the shares of common stock issuable upon conversion of the Notes in the event Bridgeline Digital files a registration statement, with certain limited exceptions.

Term Notes from Shareholder

On January 7, 2015, Bridgeline issued a Term Note to Michael Taglich to document a loan by Michael Taglich to Bridgeline of $500. The funds were received in December 2014 and are reflected in Long Term Debt on the Balance Sheet. The terms of the Note provide that Bridgeline will pay interest at a rate of 7% per annum and the note will mature on June 30, 2016. On February 9, 2015, the Company entered into a second Term Note (“Second Note”) for $500 with Mr. Taglich. The terms of the Second Note provide that Bridgeline will pay interest at a rate of 7% per annum and the note will mature on September 1, 2016. Subsequent to the end of the quarter, the Company entered into a third Term Note (“Third Note”) for $500 with Mr. Taglich. The terms of the Third Note provide that Bridgeline will pay interest at a rate of 7% per annum and the note will mature on September 1, 2016.

In consideration of the loan by Michael Taglich and a personal guaranty delivered by Michael Taglich to Bridge Bank, N.A. for the benefit of Bridgeline on December 19, 2014 (the “Guaranty”), on January 7, 2015 the Company issued Michael Taglich a warrant to purchase 60,000 shares of Common Stock of the Company at a price equal to $4.00 per share. Mr. Taglich was also issued additional warrants in the amount of 60,000 in conjunction with the Second note of $500. The warrants have a term of five years and are exercisable six months after the date of issuance. Bridgeline agreed to provide piggyback registration rights with respect to the shares of common stock underlying the warrants. On January 7, 2015, Bridgeline also entered into a side letter with Michael Taglich pursuant to which Bridgeline agreed in the event the Guaranty remains outstanding for a period of more than 12 months, on each anniversary of the date of issuance of the Guaranty while the Guaranty remains outstanding Bridgeline will issue Michael Taglich a warrant to purchase 30,000 shares of common stock, which warrant shall contain the same terms as the warrant issued to Michael Taglich on January 7, 2015. In May 2015, Mr. Taglich was issued additional warrants in the amount of 60,000 at an exercise price of $4.00 in conjunction with the Third note of $500.

Subordinated 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 is payable in eight equal installments of $8, including interest accrued at 5%, and matured in May 2014. This note was paid in full as of September 30, 2014. The second Promissory Note in the amount of $80 is payable in twelve equal installments of $7, including interest accrued at 5%, and matures in May 2015.

15

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

8. Other Long Term Liabilities

Deferred Rent

In connection with the leases in Massachusetts, New York, and San Luis Obispo, the Company made investments in leasehold improvements at these locations of approximately $1.6 million, of which the respective landlords funded approximately $857. 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 March 31, 2015, $255 was reflected in Accrued Liabilities and $715 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. Shareholders’ Equity

Reverse Stock Split

On May 4, 2015, the Company’s Shareholders and the Board of Directors approved a reverse stock split pursuant to which all classes of our issued and outstanding shares of common stock at the close of business on such date were combined and reconstituted into a smaller number of shares of common stock in a ratio of 1 share of common stock for every 5 shares of common stock (“1-for-5 reverse stock split”). The 1-for-5 reverse stock split is effective as of close of business on May 7, 2015 and the Company’s stock began trading on a split-adjusted basis on May 8, 2015.

The reverse stock split reduces the number of shares of the Company’s common stock currently outstanding from approximately 22 million shares to approximately 4.4 million shares. Proportional adjustments have been made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants, restricted stock awards, convertible notes and stock options, and to the number of shares issued and issuable under the Company’s Amended and Restated Stock Incentive Plan. Upon the effectiveness of the 1-for-5 reverse stock split, each five shares of the Company’s issued and outstanding common stock have been automatically combined and converted into one issued and outstanding share of common stock, par value $.001. The Company will not issue any fractional shares in connection with the reverse stock split. Instead, fractional share interests were rounded up to the next largest whole share. The reverse stock split does not modify the rights or preferences of the common stock. The number of authorized shares of the Company’s common stock remains at 50 million shares and the par value remains $0.001.

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

Preferred Stock

On October 27, 2014, the Company sold 40,000 shares of Series A convertible preferred stock (the “Preferred Stock”) at a purchase price of $50.00 per share for gross proceeds of $2.0 million in a private placement. Net proceeds to the Company after offering expenses were approximately $1.8 million. The shares of Preferred Stock may be converted, at the option of the holder at any time, into such number of shares of common stock (“Conversion Shares”) equal (i) to the number of shares of Preferred Stock to be converted, multiplies by the stated value of $50.00 (the “Stated Value”) and (ii) divided by the conversion price in effect at the time of conversion. The initial conversion price is $3.25, and is subject to adjustment in the event of stock splits or stock dividends. Any accrued but unpaid dividends on the shares of Preferred Stock to be converted shall also be converted in common stock at the conversion price. A mandatory provision also may provide that the Company will have the right to require the holders to convert shares of Preferred Stock into Conversion Shares if (i) the Company’s common stock has closed at or above $6.50 per share for ten consecutive trading days and (ii) the Conversion Shares are (A) registered for resale on an effective registration statement or (B) may be resold pursuant to Rule 144.

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

16

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

Cumulative dividends are payable at a rate of 6% per year. If the Company does not pay the dividends in cash, then the Company may pay dividends in any quarter by delivery of additional shares of Preferred Stock (“PIK Election”). If the Company shall make the PIK Election with respect to the dividend payable, it shall deliver a number of shares of Preferred Stock equal to (A) the aggregate dividend payable to such holder as of the end of the quarter divided by (B) the lesser of (x) the then effective Conversion Price or (y) the average VWAP for the five (5) consecutive Trading Days prior to such dividend payment date. If, after two years, any Preferred Stock are outstanding the cash dividend rate will increase to 12.0% per year. The Company shall have the right to force conversion of the Preferred Stock into shares of Common Stock at any time after the Common Stock trades in excess of $6.50 per share. The Preferred Shares shall vote with the Common on an as converted basis.

In December 2014, the Company elected to declare a stock dividend (PIK election) for the first dividend payment date of January 2, 2015. The Company issued 427 preferred convertible shares in January 2015 to the preferred shareholders. In March 2015, the Company elected to declare a stock dividend (PIK election) for the second dividend payment date of April 1, 2015. The Company issued 600 preferred convertible shares in April 2015 to the preferred shareholders.

Common Stock

In June 2013, the Company sold 460,000 shares of common stock at $5.00 per share for gross proceeds of $2.3 million in a private placement. Net proceeds to the Company after offering expenses were approximately $2.1 million. In addition, the Company issued the investors and placement agent and its affiliates five year warrants to purchase an aggregate of 92,000 and 46,000 shares, respectively, of Bridgeline’s common stock at a price equal to $6.25 per share. There are no plans to register the common stock issued in this offering, however in the event the Company does register other Common stock, 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 January 2014, the Company issued 11,380 shares of common stock at $5.80 per share to four members of its Board of Directors in lieu of cash payments for their services as board members. The shares vested in equal installments on a monthly basis through the end of the service period of September 30, 2014. The aggregate fair value of the shares is $66 and was expensed over the service period. In March 2015, the Company issued 20,417 shares of common stock at $2.40 per share to four members of its Board of Directors in lieu of cash payments for their services as board members. The shares vested in equal installments on a monthly basis through the end of the service period of September 30, 2015. The aggregate fair value of the shares is $50 and is being expensed over the service period.

In March 2014, the Company sold 640,000 shares of common stock at $4.75 per share for gross proceeds of $3 million in a private placement. Net proceeds to the Company after offering expenses were approximately $2.7 million. In addition, the Company issued the placement agent five year warrants to purchase an aggregate of 64,000 shares of Bridgeline’s common stock at a price equal to $5.25 per share. There are no plans to register the common stock issued in this offering, however in the event the Company does register other common stock, 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 March 2015, the Company issued 40,834 shares of common stock at $2.40 per share to four members of our Board of Directors in lieu of cash payments for their services as board members. The shares vest in equal installments on a monthly basis through the end of the service period of September 30, 2015. The aggregate fair value of the shares is $98 and will be expensed over the service period. A total of $25 was recorded as expense in the three months ended March 31, 2015.

Contingent Consideration

In connection with the acquisition of ElementsLocal on August 1, 2013, the Company issued 105,288 common shares to the sellers of ElementsLocal. In addition, contingent consideration not to exceed 67,693 shares of Bridgeline Digital common stock is contingently issuable to the sellers of ElementsLocal. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain revenue targets. Through March 31, 2015, the stockholders of ElementsLocal earned 33,846 shares of common stock.

In connection with the acquisition of MarketNet on May 31, 2012, contingent consideration of 40,867 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. Through March 31, 2015, the sole stockholder of MarketNet earned 31,726 shares of common stock.

17

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

In connection with the acquisition of Magnetic Corporation on October 3, 2011, contingent consideration of 33,334 shares of Bridgeline Digital common stock was contingently issuable to the sole stockholder of Magnetic. The contingent consideration was payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain operating and revenue targets. As of March 31, 2015, the sole stockholder of Magnetic earned the full value or 33,334 shares of common stock.

Amended and Restated Stock Incentive Plan

Effective August 2014, the Company’s Amended and Restated Stock Incentive Plan (the “Plan”) provides for the issuance of up 900,000 million shares of common stock. The Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company. Options granted under the Plan may be granted with contractual lives of up to ten years. There were 781,228 options outstanding reserved under the Plan as of March 31, 2015 and 118,773 shares available for future issuance.

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 60,000 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 30,000 shares. During the six months ended March 31, 2015, employees purchased 485 shares for the most recent offering period.

Common Stock Warrants

On October 21, 2010, the Company issued 10,000 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, 5,000 are exercisable at an exercise price of $5.00 per share and 5,000 are exercisable at an exercise price of $10.00 per share.

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 43,587 shares of the Company’s common stock at a price equal to $7.00 per share.  

On June 19, 2013, the Company issued five year warrants to the investors and placement agent in the Company’s private placement. The warrants are exercisable to purchase 92,000 and 46,000 shares, respectively, of the Company’s common stock at a price equal to $6.25 per share.

On September 30, 2013, the Company issued five year warrants to the placement agent in the Company’s placement of subordinated convertible debt. The warrants are exercisable to purchase 30,770 of the Company’s common stock at a price equal to $6.50 per share.   The warrants are first exercisable on March 30, 2014, provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision.

On November 1, 2013, the Company issued five year warrants to the placement agent in the Company’s placement of subordinated convertible debt. The warrants are exercisable to purchase 15,385 shares of the Company’s common stock at a price equal to $6.50 per share. The warrants are first exercisable on May 6, 2014, provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision.

In March 2014, the Company issued five year warrants to the investors and 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 $5.25 per share.  

18

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

On October 28, 2014, the Company issued five year warrants to the placement agent in the Company’s private placement of series A convertible preferred stock. The warrants are exercisable to purchase 61,539 shares of the Company’s common stock at a price equal to $3.25 per share.

In connection with a $1 million term notes issued in the three months ended March 31, 2015, the Company issued warrants to an director/shareholder. The warrants are exercisable to purchase 120,000 shares of the Company’s common stock at a price equal to $4.00 per share. 

As of March 31, 2015: (i) placement agent warrants to purchase 43,587, 46,000, 46,154, 28,460, and 61,539 shares at an exercise price of $7.00, $6.25, $6.50, $5.25 and $3.25, respectively are outstanding; (ii) investor warrants to purchase 92,000, 35,540, and 120,000 shares at an exercise price of $6.25, $5.25, and $4.00,and (iii) warrants issued to a non-employee consultant to purchase 5,000 shares at an exercise price of $5.00 and 5,000 shares at an exercise price of $10.00 are outstanding.

Summary of Option and Warrant Activity and Outstanding Shares

	Stock Options					Stock Warrants
				Weighted				Weighted
				Average				Average
				Exercise				Exercise
	Options			Price		Warrants		Price
Outstanding, September 30, 2014		707,128		$	4.90		301,740	$	6.25
Granted		138,800		$	2.75		181,538	$	3.75
Forfeited or expired		(64,700	)	$	6.10		-		-
Outstanding, March 31, 2015		781,228		$	4.40		483,278	$	5.30

10. Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss for three and six months March 31, 2015 and 2014:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Balance at beginning of period	$	(338	)	$	(194	)	$	(333	)	$	(162	)
Foreign currency translation adjustment		(17	)		(93	)		(22	)		(125	)
Balance at end of period	$	(355	)	$	(287	)	$	(355	)	$	(287	)

19

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

11. Net Loss Per Share

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

	Three Months Ended						Six Months Ended
(in thousands, except per share data)	March 31,						March 31,
	2015			2014			2015			2014
Net loss	$	(2,073	)	$	(2,314	)	$	(4,183	)	$	(3,091	)
Dividends on convertible preferred stock		(30	)		-			(51	)		-
Net loss applicable to common shareholders	$	(2,103	)	$	(2,314	)	$	(4,234	)	$	(3,091	)
Weighted average common shares outstanding - basic		4,272			3,559			4,307			3,579
Effect of dilutive securities		-			-			-			-
Weighted average common shares outstanding - diluted		4,272			3,559			4,307			3,579
Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.49	)	$	(0.65	)	$	(0.98	)	$	(0.86	)

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding.  Diluted net income per share is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock options and warrants using the “treasury stock” method.  The computation of diluted earnings per share does not include the effect of outstanding stock options and warrants that are anti-dilutive.

For the three and six months ended March 31, 2015, all options were excluded from the computation of diluted net loss per share as the effect was anti-dilutive to the Company’s net loss. For the three and six months ended March 31, 2014, options to purchase shares of 141,242 and 118,038 were excluded from the computation of diluted net loss per share as the effect was anti-dilutive to the Company’s net loss. Warrants to purchase 483,278 shares of common stock and contingent shares to be issued in connection with prior acquisitions of Marketnet, Magnetic and ElementsLocal have also been excluded as they are anti-dilutive to the Company’s net loss. Also, excluded in the computation of diluted loss per share are the Series A convertible preferred stock shares as they are anti-dilutive to the Company’s net loss.

12. Income Taxes

Income tax expense was $28 and $35 for the three months ended March 31, 2015 and 2014 and $63 and $56 for the six months ended March 31, 2015 and 2014. 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.

13. Related Party Transactions

In October 2013, Mr. Michael Taglich joined the Board of Directors. Mr. Taglich is the Chairman and President of Taglich Brothers, Inc. a New York based securities firm. Taglich Brothers, Inc. was the agent for the private placement of convertible preferred stock in October 2014. Fees paid to Taglich Brothers, Inc. in connection with the October 2014 convertible preferred stock were $160. Mr. Taglich personally owns more than 5% of Bridgeline stock. Other employees, affiliates and clients of Taglich Brothers, Inc. own approximately 600,000 shares of Bridgeline common stock and 40,427 shares of convertible preferred stock.

20

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

14. Legal Proceedings

The Company is subject to ordinary routine litigation and claims incidental to its business. As of March 31, 2015 the Company was not engaged with any material legal proceedings.

21

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, 2014 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, The Digital Engagement Company™, enables its customers to maximize the performance of their mission critical websites, intranets, and online stores. Bridgeline’s iAPPS® platform deeply integrates Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics to help marketers deliver online experiences that attract, engage and convert their customers across all digital channels. 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 iAPPSds (“distributed subscription”), a platform that empowers franchise and large dealer networks with state-of-the-art web engagement management while providing superior oversight of corporate branding. iAPPSds deeply integrates content management, eCommerce, eMarketing and web analytics and is a self-service web platform that is offered to each authorized franchise or dealer for a monthly or annual subscription fee. On August 1, 2013, we acquired franchise web developer ElementsLocal, expanding Bridgeline Digital’s presence in the franchise market place.

In February 2015, we released iAPPSdsr, a customizable pre-templated, mobile-friendly web platform developed for growing franchises and distributed brand networks. Following the successful adoption of iAPPS ds, this product is scalable to the smaller multi-unit organizations.

In November 2014, we released iAPPS version 5.2 which includes enhancements to iAPPS Marketier, the platform's native email solution. Among the upgrades to the integrated email solution is a new Communication Dashboard with intuitive features that empower corporate marketing teams to develop, manage and execute effective email campaigns. Now, with the latest release customers can build campaigns with custom email designs or use new email templates available to them out-of-the-box. Additionally, new dynamic list segmentation capabilities allow customers to easily nurture specific audiences with targeted communications. Other lead-generation and CRM upgrades to iAPPS 5.2 include a brand new Form Builder.

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.

The iAPPS Platform is an award-winning application recognized around the globe. Our teams of Microsoft Gold© certified developers have won over 100 industry related awards. In recent years, our iAPPS Content Manager and iAPPS Commerce products were selected as finalists for the 2014, 2013, and 2012 CODiE Awards for Best Content Management Solution and Best Electronic Commerce Solution, globally. Most recently, in 2015, we were named a finalist for the 2015 SIIA CODiE Award for Best Web Content Management Platform. In 2014 and 2013, Bridgeline Digital won twenty-five Horizon Interactive Awards for outstanding development of web applications and websites. Also in 2013, the Web Marketing Association sponsored Internet Advertising Competition honored Bridgeline Digital with three awards for iAPPS customer websites and B2B Magazine selected Bridgeline Digital as one of the Top Interactive Technology companies in the United States. KMWorld Magazine Editors selected Bridgeline Digital as one of the 100 Companies That Matter in Knowledge Management and also selected iAPPS as a Trend Setting Product in 2013.

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

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Customer Information

We currently have over 2,500 customers, the majority of which are iAPPSds customers who pay a monthly subscription fee. For the three and six months ended March 31, 2015 and 2014 no customer represented 10% or more of total revenue.

Results of Operations for the Three and Six Months Ended March 31, 2015 compared to the Three and Six Months Ended March 31, 2014

Total revenue for the three months ended March 31, 2015 was $4.8 million compared with $5.3 million for the three months ended March 31, 2014.  We had a net loss of ($2.1) million for the three months ended March 31, 2015 compared with net loss of ($2.3) million for the three months ended March 31, 2014.  Net loss per share was ($0.49) for the three months ended March 31, 2015 and ($0.65) for the three months ended March 31, 2014.

Total revenue for the six months ended March 31, 2015 was $9.8 million compared with $11.8 million for the six months ended March 31, 2014.  We had a net loss of ($4.2) million for the six months ended March 31, 2015 compared with net loss of ($3.1) million for the six months ended March 31, 2014.  Net loss per share was ($0.98) for the six months ended March 31, 2015 and ($0.86) for the six months ended March 31, 2014.

Reverse Stock Split

On May 4, 2015, the Company’s Shareholders and the Board of Directors approved a reverse stock split pursuant to which all classes of our issued and outstanding shares of common stock at the close of business on such date were combined and reconstituted into a smaller number of shares of common stock in a ratio of 1 share of common stock for every 5 shares of common stock (“1-for-5 reverse stock split”). The 1-for-5 reverse stock split is effective as of close of business on May 7, 2015 and the Company’s stock began trading on a split-adjusted basis on May 8, 2015.

The reverse stock split reduces the number of shares of the Company’s common stock currently outstanding from approximately 22 million shares to approximately 4.4 million shares. Proportional adjustments have been made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants, restricted stock awards, convertible notes and stock options, and to the number of shares issued and issuable under the Company’s Amended and Restated Stock Incentive Plan. Upon the effectiveness of the 1-for-5 reverse stock split, each five shares of the Company’s issued and outstanding common stock have been automatically combined and converted into one issued and outstanding share of common stock, par value $.001. The Company will not issue any fractional shares in connection with the reverse stock split. Instead, fractional share interests were rounded up to the next largest whole share. The reverse stock split does not modify the rights or preferences of the common stock. The number of authorized shares of the Company’s common stock remains at 50 million shares and the par value remains $0.001.

All financial information has been retroactively adjusted to reflect the effects of the 1-for-5 reverse stock split.

Revenue

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

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	Three Months			Three Months									Six Months			Six Months
	Ended			Ended									Ended			Ended
	March 31,			March 31,			$			%			March 31,			March 31,			$			%
Net revenue:	2015			2014			Change			Change			2015			2014			Change			Change
Digital engagement services
iAPPS digital enagement services	$	2,819		$	3,089			(270	)		(9%	)	$	5,658		$	7,001			(1,343	)		(19%	)
% of total net revenue		59	%		58	%								58	%		59	%
Other digital engagement services		238			521			(283	)		(54%	)		613			1,158			(545	)		(47%	)
% of total net revenue		5	%		10	%								6	%		10	%
Subtotal digital engagement services		3,057			3,610			(553	)		(15%	)		6,271			8,159			(1,888	)		(23%	)
% of total net revenue		64	%		68	%								64	%		69	%
Subscription and perpetual licenses		1,359			1,307			52			4	%		2,755			2,884			(129	)		(4%	)
% of total net revenue		28	%		25	%								28	%		24	%
Managed service hosting		371			385			(14	)		(4%	)		773			772			1			0	%
% of total net revenue		8	%		7	%								8	%		7	%
Total net revenue	$	4,787		$	5,302		$	(515	)		(10%	)	$	9,799		$	11,815		$	(2,016	)		(17%	)

Digital Engagement Services

Digital engagement services revenue is comprised of iAPPS digital engagement related services and other digital engagement related services generated from non-iAPPS related engagements. Revenue from iAPPS digital engagement services decreased $270 thousand, or 9% to $2.8 million for the three months ended March 31, 2015 compared to $3.1 million for the three months ended March 31, 2014. The decrease in iAPPS digital engagements services is related to the timing in ramping up new engagements combined with project delays on existing engagements. Revenue from non-iAPPS digital engagement services decreased $283 thousand, or 54%, to $238 thousand for the three months ended March 31, 2015 compared to $521 thousand for the three months ended March 31, 2014. The decrease compared to the prior period is due to a decrease in non-iAPPS engagement services as we continue to concentrate on selling higher-margin iAPPS digital engagements to both new and existing customers. In total, revenue from digital engagement services decreased $553 thousand, or 15%, to $3.1 million for the three months ended March 31, 2015 compared to $3.6 million for the three months ended March 31, 2014.  

Revenue from iAPPS digital engagement services decreased $1.3 million, or 19% to $5.7 million for the six months ended March 31, 2015 compared to $7.0 million for the six months ended March 31, 2014. The decrease in iAPPS digital engagements services is related to the timing in ramping up new engagements combined with project delays on existing engagements. Revenue from non-iAPPS digital engagement services decreased $545 thousand, or 47%, to $613 thousand for the three months ended March 31, 2015 compared to $1.2 million for the six months ended March 31, 2014. The decrease compared to the prior period is due to a decrease in non-iAPPS engagement services as we continue to concentrate on selling higher-margin iAPPS digital engagements to both new and existing customers. In total, revenue from digital engagement services decreased $1.9 million, or 23%, to $6.3 million for the six months ended March 31, 2015 compared to $8.2 million for the six months ended March 31, 2014.  

Digital engagement services revenue as a percentage of total revenue decreased to 64% from 69% for the six months ended March 31, 2015 compared to the prior period.  The decrease is attributable to the decreases in both iAPPS and non iAPPS digital engagement services revenue.

Subscription and Perpetual Licenses

Revenue from subscription and perpetual licenses increased $52 thousand, or 4%, to $1.4 million for the three months ended March 31, 2015 compared to $1.3 million for the three months ended March 31, 2014.  The increase is primarily due to perpetual and SaaS license revenue recognized in the current quarter. Revenue from subscription and perpetual licenses decreased $129 thousand, or 4%, to $2.8 million for the six months ended March 31, 2015 compared to $2.9 million for the six months ended March 31, 2014.  The decrease is due to a decrease in perpetual license revenue recognized as compared to the previous quarter.

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Subscription and perpetual license revenue as a percentage of total revenue increased to 28% for the three months ended March 31, 2015 from 25% compared to the three months ended March 31, 2014. The increase as a percentage of revenues is attributable to the decreases in iAPPS digital engagement services revenues. Subscription and perpetual license revenue as a percentage of total revenue increased to 28% for the six months ended March 31, 2015 from 24% compared to the six months ended March 31, 2014. The increase as a percentage of revenues is attributable to the decreases in iAPPS digital engagement services revenues.

Managed Service Hosting

Revenue from managed service hosting decreased $14 thousand, or 4%, to $371 thousand for the three months ended March 31, 2015 compared to $385 thousand for the three months ended March 31, 2014. The decrease is due to proactively ending engagements with smaller hosting customers acquired through acquisitions. Revenue from managed service hosting remained relatively flat for the six months ended March 31, 2015 compared to $772 thousand for the six months ended March 31, 2014.  

Managed services revenue as a percentage of total revenue increased to 8% for the three months ended March 31, 2015 from 7% for three months ended March 31, 2014. The increase as a percentage of revenues is attributable to the decreases in iAPPS digital engagement services revenues. Managed services revenue as a percentage of total revenue increased to 8% for the six months ended March 31, 2015 from 7% for six months ended March 31, 2014. The increase as a percentage of revenues is attributable to the decreases in iAPPS digital engagement services revenues.

Costs of Revenue

Total cost of revenue decreased $139 thousand to $3.1 million for the three months ended March 31, 2015 compared to $3.2 million for the three months ended March 31, 2014. Total cost of revenue decreased $56 thousand to $6.1 million for the six months ended March 31, 2015 compared to $6.2 million for the six months ended March 31, 2014. The decreases for the three and six months ended March 31, 2015 compared to the three and six months ended March 31 2014 are attributable to fixed labor costs to deliver iAPPS digital engagement services.

	Three Months			Three Months									Six Months			Six Months
	Ended			Ended									Ended			Ended
	March 31,			March 31,			$			%			March 31,			March 31,			$			%
Cost of revenue:	2015			2014			Change			Change			2015			2014			Change			Change
Digital engagement services
iAPPS digital engagement costs		2,350			2,365			(15	)		(1%	)		4,688			4,480			208			5	%
% of iAPPS digital engagement services revenue		83	%		77	%								83	%		64	%
Other digital engagement costs		163			304			(141	)		(46%	)		388			692			(304	)		(44%	)
% of other digital engagement services revenue		68	%		58	%								63	%		60	%
Subtotal digital engagement costs		2,513			2,669			(156	)		(6%	)		5,076			5,172			(96	)		(2%	)
% of digital engagement services revenue		82	%		74	%								81	%		63	%
Subscription and perpetual licenses		463			452			11			2	%		893			849			44			5	%
% of subscription and perpetual revenue		34	%		35	%								32	%		29	%
Managed service hosting		74			68			6			9	%		148			152			(4	)		(3%	)
% of managed service hosting revenue		20	%		18	%								19	%		20	%
Total cost of revenue		3,050			3,189			(139	)		(4%	)		6,117			6,173			(56	)		(1%	)
Gross profit	$	1,737		$	2,113		$	(376	)		(18%	)	$	3,682		$	5,642		$	(1,960	)		(35%	)
Gross profit margin		36	%		40	%								38	%		48	%

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Cost of Digital Engagement Services

Cost of digital engagement services decreased $156 thousand, or 6%, to $2.5 million for the three months ended March 31, 2015 compared to $2.7 million for the three months ended March 31, 2014. The decrease in iAPPS and non-iAPPS digital related costs are attributable to decreases in labor in line with the decreases in revenue.

Cost of digital engagement services decreased $96 thousand, or 2%, to $5.1 million for the six months ended March 31, 2015 compared to $5.2 million for the six months ended March 31, 2014. The increase in iAPPS digital related costs is attributable to fixed labor costs to deliver iAPPS digital engagement services combined with some iAPPS ds projects sold at lower margins. Costs associated with non-iAPPS related engagements decreased in line with non-iAPPS digital engagement services.

Cost of Subscription and Perpetual License

Cost of subscription and perpetual licenses increased $11 thousand, or 2%, to $463 thousand for the three months ended March 31, 2015 compared to $452 thousand for the three months ended March 31, 2014. Cost of subscription and perpetual licenses increased $44 thousand, or 5%, to $893 thousand for the six months ended March 31, 2015 compared to $849 thousand for the six months ended March 31, 2014. The increases for the three and six months ended March 31, 2015 compared to the three and six months ended March 31, 2014 are attributable to fixed costs to support our network operations center.

The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue decreased to 34% from 35% compared to the three months ended March 31, 2014.  This is due to an increase in perpetual revenue recognized in the current quarter compared to the previous. The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue increased to 32% from 29% compared to the six months ended March 31, 2014.  This is due to an decrease in perpetual revenue recognized in the current quarter compared to the previous.

Cost of Managed Service Hosting

Cost of managed service hosting increased $6 thousand, or 9%, to $74 thousand for the three months ended March 31, 2015 compared to $68 thousand for the three months ended March 31, 2014. The cost of managed services as a percentage of managed services revenue increased to 20% from 18% compared to the three months ended March 31, 2014. The percentage decreases are attributable to fixed costs to support the network operations center.

Cost of managed service hosting decreased $4 thousand, or 3%, to $148 thousand for the six months ended March 31, 2015 compared to $152 thousand for the six months ended March 31, 2014. The cost of managed services as a percentage of managed services revenue decreased to 19% from 20% compared to the six months ended March 31, 2014. The percentage decreases are attributable to fixed costs to support the network operations center.

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Operating Expenses

	Three Months			Three Months									Six Months			Six Months
	Ended			Ended									Ended			Ended
	March 31,			March 31,			$			%			March 31,			March 31,			$			%
Operating expenses:	2015			2014			Change			Change			2015			2014			Change			Change
Sales and marketing		1,534			1,928			(394	)		(20%	)		3,344			4,038			(694	)		(17%	)
% of total revenue		32	%		36	%								34	%		34	%
General and administrative		1,136			1,167			(31	)		(3%	)		2,129			2,198			(69	)		(3%	)
% of total revenue		24	%		22	%								22	%		19	%
Research and development		467			579			(112	)		(19%	)		1,069			1,102			(33	)		(3%	)
% of total revenue		10	%		11	%								11	%		9	%
Depreciation and amortization		442			551			(109	)		(20%	)		894			1,005			(111	)		(11%	)
% of total revenue		9	%		10	%								9	%		9	%
Total operating expenses		3,579			4,225			(646	)		(15%	)		7,436			8,343			(907	)		(11%	)

Sales and Marketing Expenses

Sales and marketing expenses decreased $394 thousand to $1.5 million, or 20%, for the three months ended March 31, 2015 compared to $1.9 million for the three months ended March 31, 2014 and decreased 17% to $3.3 million for the three months ended March 31, 2015 compared to $4.0 million for the six months ended March 31, 2014.  Sales and marketing expenses represented 32% and 36% of total revenue for the three months ended March 31, 2015 and 2014, respectively, and 34% of total revenue for the six months ended March 31, 2015 and 2014. The decreases for the three months ended March 31, 2015 compared to the prior period is primarily attributable to decreases in headcount, sales commissions and marketing expenses.

General and Administrative Expenses

General and administrative expenses decreased $31 thousand, or 3%, to $1.1 million for the three months ended March 31, 2015 compared to $1.2 million for the three months ended March 31, 2014 and decreased $69 thousand, or 3%, to $2.1 million for the six months ended March 31, 2015 compared to $2.2 million for the six months ended March 31, 2014.  General and administrative expenses represented 24% and 22% of total revenue for the three months ended March 31, 2015 and 2014, respectively, and 22% and 19% of total revenue for the six months ended March 31, 2015 and 2014, respectively. The decreases in expense are due to decreases in headcount. Partially offsetting the overall decrease was a charge of $131 for an adjustment to an earnout accrual.

Research and Development

Research and development expense decreased by $112 thousand, or 19%, to $467 thousand for the three months ended March 31, 2015 compared to $579 thousand for the three months ended March 31, 2014 and decreased $33 thousand, or 3% to $1.1 million for the three months ended March 31, 2015 compared to the previous quarter. The decrease in research and development expense for the three and six months ended March 31, 2015 compared to the three and six months ended March 31, 2014 is due to decreases in headcount and personnel expenses.

Research and development expense represented 10% and 11% of total revenue for the three months ended March 31, 2015 and 2014, respectively, and 11% and 9% of total revenue for both the six months ended March 31, 2015 and 2014. The decrease in expense for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 is due to decreases in headcount. The increase in expense as a percentage of revenues for the six months ended March 31, 2015 compared to the six months ended March 31, 2014 is due to the decreases in overall revenue.

Depreciation and Amortization

Depreciation and amortization expense decreased $109 thousand, or 20%, to $442 thousand for the three months ended March 31, 2015 compared to $551 thousand for the three months ended March 31, 2014. Equipment related depreciation and amortization related to leasehold improvements declined due to retirements and assets reaching their expected useful lives. Depreciation and amortization represented 9% and 10% of revenue for the three months ended March 31, 2015 and 2014.   

Depreciation and amortization decreased $111 thousand, or 11%, to $894 thousand for the six months ended March 31, 2015 compared to $1.0 million for the six months ended March 31, 2014.  Equipment related depreciation and amortization related to leasehold improvements declined due to retirements and assets reaching their expected useful lives. Depreciation and amortization represented 9% of revenue for the six months ended March 31, 2015 and 2014.   

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Net Loss

	Three Months			Three Months									Six Months			Six Months
	Ended			Ended									Ended			Ended
	March 31,			March 31,			$			%			March 31,			March 31,			$			%
	2015			2014			Change			Change			2015			2014			Change			Change
Loss from operations		(1,842	)		(2,112	)		270			(13	%)		(3,754	)		(2,701	)		(1,053	)		39	%
Interest income (expense) net		(203	)		(167	)		(36	)		22	%		(366	)		(334	)		(32	)		10	%
Loss before income taxes		(2,045	)		(2,279	)		234			(10	%)		(4,120	)		(3,035	)		(1,085	)		36	%
Provision for income taxes		28			35			(7	)		(20	%)		63			56			7			13	%
Net loss	$	(2,073	)	$	(2,314	)	$	241			(10	%)	$	(4,183	)	$	(3,091	)	$	(1,092	)		35	%

Loss from operations

The loss from operations was ($1.8) million for three months ended March 31, 2015, compared to a loss of ($2.1) million in the prior period and a loss of ($3.8) million for the six months ended March 31, 2015 compared to ($2.7) million for the prior year. Contributing to the overall loss for the three and six months ended March 31, 2015 was a decrease in gross profit margin as we maintained fixed costs to support our revenue base. The decline in the gross profit margin for the three and six months ended March 31, 2015 was partially offset by a decrease in overall operating expenses, as we streamlined costs in line with the expected revenue shortfall.

Income Taxes

The provision for income tax expense was $28 thousand and $35 thousand for the three months ended March 31, 2015 and 2014, respectively, and $63 thousand and $56 thousand for the six months ended March 31, 2015 and 2014, respectively.  Income tax expense represents the estimated liability for federal and state income taxes owed, including the alternative minimum tax.  We have net operating loss carryforwards and other deferred tax benefits that are available to offset future taxable income.

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.

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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						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Net loss	$	(2,073	)	$	(2,314	)	$	(4,183	)	$	(3,091	)
Provision for income tax		28			35			63			56
Interest expense (income), net		203			167			366			334
Amortization of intangible assets		154			216			306			341
Depreciation		277			325			556			647
EBITDA		(1,411	)		(1,571	)		(2,892	)		(1,713	)
Other amortization		164			152			310			272
Stock-based compensation		73			125			162			167
Adjusted EBITDA	$	(1,174	)	$	(1,294	)	$	(2,420	)	$	(1,274	)

The increase in Adjusted EBITDA for the three months ended March 31, 2015 compared to the three months ended March 31, 2014 is primarily due to decreases in operating expenses, including depreciation and amortization, offset by decreases in revenue.

The decrease in Adjusted EBITDA for the six months ended March 31, 2015 compared to the six months ended March 31, 2014 is primarily due to the decrease in revenues and gross profit margin.

Liquidity and Capital Resources

Cash Flows

Operating Activities

Cash used in operating activities was $2.2 million for the six months ended March 31, 2015 compared to cash used in operating activities of $1.7 million for the six months ended March 31, 2014. This increase compared to the prior period was due to payments made to vendors in the current period, the adjustments for non-cash items such as amortization and depreciation for the period, and the higher net loss for the period.

Investing Activities

Cash used in investing activities was $399 thousand for the six months ended compared to $614 thousand for the six months ended March 31, 2014.   In the six months ended March 31, 2015, we purchased additional equipment to support our network operations center and made contingent acquisition payments.

Financing Activities

Cash provided by financing activities was $2.5 million for the six months ended March 31, 2015 compared to cash provided by financing activities of $3.0 million for the six months ended March 31, 2014.  During the six months ended March 31, 2015, the Company raised $1.8 million in connection with a private placement of 40,000 shares of Series A convertible preferred stock in October 2014, as well as $1 million received from Mr. Taglich for two term notes with maturity dates of June 2016 and September 2016, and short term loans from BridgeBank of $1.5 million. Offsetting these proceeds, were payments of $515 thousand on the Bridge Bank line of credit and $1.6 million on a short term loans from BridgeBank.

Capital Resources and Liquidity Outlook

In January 2015 and February 2015, we issued $1 million of term notes to Mr. Michael Taglich, a shareholder and investor. The January 2015 term note of $500,000 has a maturity date of June 30, 2016 and the February 2015 term note of $500,000 has a maturity date of September 1, 2016. Both notes accrue interest at 7% per annum. In May 2015, we issued another $500,000 of term notes to Mr. Michael Taglich. The May 2015 term note of $500,000 has a maturity date of September 1, 2016 and accrues interest at 7% per annum.

In May 2015, the Company extended the term of its BridgeBank Loan from an expiration date of March 31, 2016 to June 30, 2016.

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We believe that cash generated from operations, proceeds from the bank line of credit, the sale of common stock and sale of preferred stock, and term loans from shareholders will be sufficient to fund the Company’s working capital and capital expenditure needs in the foreseeable future. However, we currently have a borrowing facility with Bridge Bank from which we can borrow, and this line is subject to financial covenants that must be met. It is not certain that all or part of this line will be available to us in the future; and other sources of financing may not be available to us in a timely basis if at all, or on terms acceptable to us. If we fail to obtain acceptable funding when needed, we may not have sufficient resources to fund our normal operations, and this would have a material adverse effect on our business.

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

As of March 31, 2015, we had an accrued contingent earnout liability of $690 thousand from acquisitions completed in prior fiscal years, which are scheduled to be paid out through fiscal 2016. 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

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”).

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 digital engagement services (professional services), software licenses or combinations thereof.  Revenue is categorized into (i) digital engagement 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.

We maintain a reseller channel to supplement our direct sales force for our iAPPS platform.  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.

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Digital Engagement Services

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

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

Digital engagement services also include retained professional services contracted for on an “on call” basis or for a certain 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.

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.  

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.

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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 Revenue Arrangements (“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”).

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 proportional performance model. In those cases where perpetual licenses are sold in a multiple element arrangement that includes application development services where VSOE for the services has been established, the license revenue is recognized under the residual method and the application services are recognized upon delivery.  

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

When subscription arrangements are sold with application development services, the Company uses its judgment as to whether the application development services qualify as a separate unit of accounting. 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.

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Customer Payment Terms

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

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

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.

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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 2014, we performed the annual assessment of our goodwill during the fourth quarter of 2014, 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) Positive access to capital with two recent stock offerings totaling $5 million in capital; (ii) Positive market acceptance of our multi-unit products; and (iii) Fair market value of Company is in excess of book value.

Accounting for Stock-Based Compensation

At March 31, 2015, we maintained one stock-based compensation plan and one employee stock purchase plan which are more fully described in Note 12 to the Consolidated Financial Statements of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 29, 2014.

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.  

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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.

As of March 31, 2015 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 March 31, 2015 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 29, 2014.

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

The following summarizes all sales of our unregistered securities during the quarter ended March 31, 2015. The securities in the below-referenced transactions were (i) issued without registration and (ii) were subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(2), 4(6) and/or 3(b) of the Securities Act and on Regulation D promulgated there under, and in reliance on similar exemptions under applicable state laws as transactions not involving a public offering. Unless stated otherwise, no placement or underwriting fees were paid in connection with these transactions.

Stock Options

During the fiscal quarter ended March 31, 2015, the Company granted 108,800 stock options under its Amended and Restated Stock Incentive Plan at a weighted average exercise price of $2.55 per share.

In March 2015, we issued 40,834 shares of common stock at $2.40 per share to four members of our Board of Directors in lieu of cash payments for their services as board members. The shares vest in equal installments on a monthly basis through the end of the service period of September 30, 2015. The aggregate fair value of the shares is $98 thousand and will be expensed over the service period. A total of $25 thousand was recorded as expense in the three months ended March 31, 2015.

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. 

Warrants

During the fiscal quarter ended March 31, 2015, the Company issued five year warrants to purchase an aggregate of 120,000 shares of Common Stock with an exercise price of $4.00 per share. There are no plans to register the common stock issued in this offering, however in the event the Company does register other Common stock, we agreed to provide piggyback registration rights with respect to the shares of common stock sold in the offering and underlying the warrants.

The warrants were issued 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

Amendment to Bank Loan Agreement

On May 12, 2015, the Company entered into an amendment to its Loan Agreement with BridgeBank to extend the term of the loan from an expiration date of March 31, 2016 to June 30, 2016 (the “Loan Amendment”).

Entry into a Material Definitive Agreement; Creation of a Direct Financial Obligation

On May 12, 2015, the Company issued a Term Note (the “Note”) to Michael Taglich to document a loan by Mr. Taglich to the Company of $500,000. The terms of the Note provide that the Company will pay interest at a rate of 7% per annum and the note will mature on September 1, 2016.

In consideration of the loan by Mr. Taglich, on May 12, 2015 the Company issued Mr. Taglich a warrant to purchase 60,000 shares of Common Stock of the Company at a price equal to $4.00 per share. The warrant has a term of five years and is first exercisable six months after the date of issuance. The Company agreed to provide piggyback registration rights with respect to the shares of common stock underlying the warrant.

Mr. Taglich is a member of the Board of Directors of the Company.

The foregoing description of the Loan Amendment, Note and warrant does not purport to be complete and is qualified in its entirety by reference to the full text of such documents, copies of which are filed as exhibits to this Report on Form 10-Q. 

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Item 6. Exhibits.

Exhibit No.	Description of Document
3.1	Certificate of Amendment to Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on May 5, 2015)
10.1	Term Note in the principal amount of $500,000, dated January 7, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on January 9, 2015)
10.2	Common Stock Purchase Warrant issued by the Company to Michael Taglich, dated January 7, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on January 9, 2015)
10.3	Side Letter between the Company and Michael Taglich, dated January 7, 2015 (incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on January 9, 2015)
10.4	Term Note in the principal amount of $500,000, dated February 12, 2015 (incorporated by reference to Exhibit 10.1 to the Company’s Periodic Report on Form 10-Q for the quarter ended December 31, 2014)
10.5	Common Stock Purchase Warrant issued by the Company to Michael Taglich, dated February 12, 2015 (incorporated by reference to Exhibit 10.2 to the Company’s Periodic Report on Form 10-Q for the quarter ended December 31, 2014)
10.6	Form of Restricted Stock Agreement
10.7	Amendment to Loan and Security Agreement with BridgeBank
10.8	Term Note in principal amount of $500,000, dated May 12, 2015
10.9	Form of Common Stock Purchase Warrant issued by Company to Michael Taglich dated May 12, 2015
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)
May 15, 2015	/s/    Thomas L. Massie
Date	Thomas L. Massie President and Chief Executive Officer (Principal Executive Officer)
May 15, 2015	/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
10.6	Form of Restricted Stock Agreement
10.7	Amendment to Loan and Security Agreement with BridgeBank
10.8	Term Note in principal amount of $500,000, dated May 12, 2015
10.9	Form of Common Stock Purchase Warrant issued by Company to Michael Taglich dated May 12, 2015
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-10.6

Exhibit 10.6

BRIDGELINE DIGITAL, INC.

AMENDED AND RESTATED STOCK INCENTIVE PLAN

Restricted Stock Agreement

Bridgeline Digital, Inc. (the “Company”) hereby awards to you (the “Stockholder”) shares of Common Stock of the Company as follows:

Name of Stockholder:	_______________________
Total Number of Shares Awarded:	_______________________
Purchase Price per Share:	_______________________
Award Date:	_______________________
Vesting Commencement Date:	_______________________
Number of Shares Subject to Vesting Schedule:	_______________________
Vesting Schedule:      Each [Month/Quarter] Anniversary of Vesting      Commencement Date:      _____ Years from Grant Date:	____ Shares Vest All Shares Vested
Expiration Date:	_______________________

By your signature and the signature of the Company’s representative below, you and the Company agree that this Award is made under and governed by the terms of the Company’s Amended and Restated Stock Incentive Plan and this Restricted Stock Agreement (this “Agreement”), which includes the Incorporated Terms and Conditions attached to and made a part of this Agreement.

STOCKHOLDER:	BRIDGELINE DIGITAL, INC.
________________________________	By: ____________________________________
[Signature]
________________________________	Title: ___________________________________
[Printed Name]
________________________________
[Address]
________________________________

BRIDGELINE DITIGAL, INC.

Restricted Stock Agreement

under the Amended And Restated Stock Incentive Plan

Incorporated Terms and Conditions

1.     Issuance of Shares. On the terms and conditions set forth in this Agreement, the Company is issuing to the Stockholder on the Award Date, at the purchase price per share set forth on the signature page of this Agreement (the “Purchase Price”), the number of Shares of the Company’s Common Stock set forth on the signature page of this Agreement. The award of the Shares is made pursuant to and is governed by the Company’s Amended and Restated Stock Incentive Plan (the “Plan”), the terms of which are incorporated into this Agreement by this reference. Unless the context otherwise requires, capitalized terms used herein without definitions shall have the respective meanings assigned to them in the Plan. By signing this Agreement, the Stockholder acknowledges receipt of a copy of the Plan.

2.     Repurchase of Unvested Shares; Purpose and Waiver.

(a)     Repurchase of Shares if Service Terminates. If the Stockholder’s Service to the Company terminates for any reason (including, without limitation, death, disability, termination or voluntary resignation), the Company shall have the right and option but not the obligation (the “Purchase Option”) to purchase any of the Shares which have not vested in accordance with this Section 2 (the “Unvested Shares”) as of the effective date of such termination (the “Termination Date”) at a price per Share equal to the Purchase Price. Through and including the Termination Date, the Shares shall vest on a cumulative basis as provided on the vesting schedule set forth on the signature page of this Agreement. Notwithstanding the foregoing, the Board may, in its discretion, accelerate the date on which any portion of the Shares become vested.

(b)     Purpose and Waiver. The purpose of the Award of the Shares to the Stockholder is to encourage the Stockholder to enter into and/or maintain a continuing and long-term relationship with the Company. It is not a purpose of this Award to reward the Stockholder for the completion of any specific project or of any discrete period of Service which may fall between consecutive vesting periods. By signing this Agreement, the Stockholder hereby waives any claim to any Unvested Shares that are subject to repurchase upon the exercise of the Purchase Option.

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3.      Custody of Stock Certificates.

(a)      Delivery. Upon the execution of this Agreement, the Stockholder shall deliver to the Company one or more stock transfer powers, satisfactory in form and substance to the Company and duly executed in blank by the Stockholder, sufficient to transfer the Unvested Shares to the Company in the event that the Company exercises the Purchase Option. As soon as practicable after receipt of such stock transfer powers, the Company shall deliver such stock transfer powers, together with the certificate or certificates representing the Shares, to the Treasurer of the Company, as custodian (the “Custodian”). The certificate or certificates so delivered to the Custodian shall be held by the Custodian for the benefit and in favor of the Stockholder, subject to the provisions of this Section 3. Notwithstanding the escrow, the Stockholder shall retain the right to vote and enjoy all other rights and incidents of ownership of the Shares represented by said certificates. The Custodian shall issue a receipt to the Stockholder evidencing the delivery of the stock certificates and transfer powers. The Custodian shall arrange to keep any stock certificates and stock transfer powers delivered to him or her under this Section 3 in a secure place and shall keep true and accurate records of all such certificates and powers.

(b)      Concerning the Custodian. The Company shall indemnify and hold harmless the Custodian against any and all costs or expenses (including attorneys’ fees expenses), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any claim, action, suit, proceeding or investigation arising out of or pertaining to this Agreement. Any person succeeding to the office of Treasurer shall succeed to and assume the rights and obligations of Custodian hereunder.

(c)      Release. Following the close of each vesting date, upon the written request of the Stockholder, the Custodian shall deliver to the Stockholder stock certificates and stock transfer powers executed by the Stockholder representing such number of Shares as have ceased to be Unvested Shares hereunder as of such vesting date. The Stockholder shall execute such additional stock transfer powers and take such additional action as the Custodian shall request to enable the Custodian to maintain possession of stock certificates and stock transfer powers duly executed by the Stockholder representing the remainder of the Shares. After all of the Shares have vested, or at such time as the Company may elect in writing to waive the Purchase Option, the Custodian shall deliver to the Stockholder any stock certificates and stock transfer powers executed by the Stockholder representing Shares remaining in the possession of the Custodian.

4.      Exercise of Purchase Option and Closing.

(a)      Exercise. The Company may exercise the Purchase Option by delivering or mailing to the Stockholder and to the Custodian, in accordance with Section 12(d), written notice of exercise within 90 days after the Termination Date. Such notice shall specify the number of Shares to be purchased. The Company may exercise the Purchase Option in whole or in part. If and to the extent the Purchase Option is not so exercised before the close of such 90-day period, the Purchase Option shall automatically expire and terminate effective upon the expiration of such 90-day period, and the Unvested Shares with respect to which the Purchase Option is not exercised shall immediately cease to be Unvested Shares for any purpose under this Agreement.

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(b)      Closing of the Repurchase. Within 15 days after the Company’s exercise of its Purchase Option pursuant to subsection (a) above, (i) the Custodian shall deliver to the Company the certificates and stock powers representing the Shares which the Company has elected to purchase under its Purchase Option; (ii) the Company shall mail or deliver to the Stockholder a check in the amount payable to the Stockholder hereunder for such Shares; and (iii) the Custodian shall mail or deliver to the Stockholder any certificates and stock transfer powers held by the Custodian representing Shares not purchased by the Company.

(c)      Company as Owner. After the Company exercises its Purchase Option pursuant to subsection (a) above, the Company shall not pay any dividend to the Stockholder on account of the Shares purchased by the Company pursuant to the Purchase Option or permit the Stockholder to exercise any of the privileges or rights of a stockholder with respect to such Shares, but shall, insofar as permitted by law, treat the Company as the owner of such Shares.

(d)      Cancellation of Indebtedness. Notwithstanding any provision of this Section 4 to the contrary, the amount payable to the Stockholder hereunder may be paid, at the option of the Company, in cancellation of all or a portion of any outstanding indebtedness of the Stockholder to the Company, in cash, by check or in combination of any of the foregoing.

(e)     No Disclosure Duties. The Company shall have no duty or obligation to disclose to the Stockholder, and the Stockholder shall have no right to be advised of, any material information regarding the Company or any of its subsidiaries or Affiliates, at any time prior to, upon or in connection with the exercise of the Purchase Option by the Company.

(f)     Purchase Option Assignable. The Company’s Purchase Option under this Section 4 shall be freely assignable in whole or in part.

5.      Restrictions on Transfer.

(a)      Unvested Shares Not Transferable. The Stockholder shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of, by operation of law or otherwise (collectively “transfer”), any of the Unvested Shares, or any interest therein, except in compliance with Section 5(b)(iv) below.

(b)     Effect of Prohibited Transfer. Any transfer of Shares in violation of this Agreement shall be void. The Company shall not be required (i) to transfer on its books any of the Shares which shall have been transferred in violation of this Agreement or (ii) to treat as the owner of such Shares or pay dividends to any transferee to whom any such Shares shall have been so transferred.

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6.     Securities Law Restrictions on Resale.

(a)     Stockholder’s Representations and Agreements. The Stockholder represents and agrees that (i) unless and until registered under Securities Act, the Shares will be of an illiquid nature and will be deemed to be “restricted securities” for purposes of the Securities Act; (ii) the Shares are being acquired for investment, and not with a view to the sale or distribution thereof; and (iii) such Shares may not be sold except in compliance with the registration requirements of the Securities Act or an exemption therefrom.

(b)     Legends on Certificates. Unless the Shares have been registered under the Securities Act, each certificate evidencing any of the Shares shall bear a legend referring to the restrictions on transfer imposed by the Securities Act, and any applicable state securities laws, as well as the following legend:

The shares represented by this certificate have been issued pursuant to the terms of the Bridgeline Digital, Inc. Amended and Restated Stock Incentive Plan and may not be sold, pledged, transferred, assigned or otherwise encumbered in any manner except as is set forth in the terms of the Restricted Stock Agreement.

(c)     Removal of Legends. If, in the opinion of counsel to the Company, any legend placed on a stock certificate representing Shares issued under this Agreement is no longer required, then the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend.

(d)     Lock-up Agreement. The Stockholder agrees that, in the event that the Company effects any underwritten public offering of Common Stock registered under the Securities Act, neither the Shares nor any interest in the Shares may be sold, offered for sale, pledged or otherwise disposed of, directly or indirectly (including through the granting of options or any hedging transactions), without the prior written consent of the managing underwriter(s) of the offering, for the same period of time after the execution of an underwriting agreement in connection with such offering, and on the same terms, that all of the Company’s then directors and executive officers agree to be restricted.

7.      No Retention Rights. Nothing in the Plan or this Agreement confers upon the Stockholder any right to continue in the Service of the Company for any period of specific duration or shall be construed to interfere with or otherwise restrict in any way the rights of the Company or of the Stockholder, which rights are expressly reserved by each, to terminate the Stockholder’s Service at any time and for any reason, with or without cause.

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8.      Taxes. As a condition to the issuance of any Shares hereunder, the Stockholder hereby agrees that, if the Company in its discretion determines that it is or could be obligated to withhold any tax in connection with the issuance, vesting or transfer of such Shares, the Company may, in its discretion, withhold the appropriate amount of tax (i) in cash from the Stockholder’s wages or other remuneration or (ii) in kind from the Shares or other property otherwise deliverable to the Stockholder. The Stockholder further agrees that, if the Company has not previously withheld an amount sufficient to satisfy the withholding obligation of the Company, the Stockholder will on demand make reimbursement in cash for the amount underwithheld or, if permitted by the Board, provide such cash or other security as the Board deems adequate to meet the liability or potential liability of the Company for the withholding of tax, and to augment such cash or other security from time to time in any amount reasonably deemed necessary by the Board to preserve the adequacy of such cash or other security. The Stockholder understands that any election under Section 83(b) of the Code with regard to the Restricted Stock must be made within thirty (30) days of the Award Date and that, in the event of such election, the Stockholder will so notify the Company in writing on or before such date.

9.     Amendments. The Board may at any time or times amend the Plan or this Agreement for the purpose of satisfying the requirements of any changes in applicable laws or regulations or for any other purpose which at the time may be permitted by law. No termination or amendment of the Plan or amendment of this Agreement shall, without the Stockholder’s consent, materially adversely affect the Stockholder’s rights under this Agreement.

10.      Adjustments for Stock Splits, Stock Dividends, Etc. If from time to time while this Agreement remains in force and effect there is any stock split-up, stock dividend, stock distribution or other reclassification of the Common Stock of the Company, (a) any and all new, substituted or additional securities to which the Stockholder is entitled by reason of his or her ownership of Shares shall be immediately subject to the restrictions on transfer and other provisions of this Agreement in the same manner and to the same extent as such Shares and (b) appropriate adjustment shall be made to the Purchase Price.

11.     Consistency with Plan. If there is any inconsistency between the provisions of this Agreement and the provisions of the Plan, the latter shall control.

12.      Miscellaneous.

(a)     Severability; Governing Law. If any provisions of this Agreement shall be determined to be illegal or unenforceable by any court of law, the remaining provisions shall be severable and enforceable in accordance with their terms. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Delaware, without giving effect to the principles of the conflicts of laws thereof.

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(b)     Injunctive Relief. It is acknowledged that it will be impossible to measure the damages that would be suffered by the Company if the Stockholder fails to comply with the provisions of this Agreement and that, in the event of any such failure, the Company will not have an adequate remedy at law. The Company shall, therefore, be entitled to obtain specific performance of each of the Stockholder’s obligations hereunder and to obtain immediate injunctive relief. The Stockholder shall not urge, as a defense to any proceeding for such specific performance or injunctive relief, that the Company has an adequate remedy at law.

(c)     Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties and their respective heirs, executors, administrators, successors and permitted assigns.

(d)     Notices. All notices required or permitted hereunder shall be in writing and be effective upon personal delivery, upon deposit with the United States Post Office, by registered or certified mail, postage prepaid, or upon deposit with a recognized express overnight courier service, addressed, if to the Company, to its principal executive office at the time, Attention: President, and if to the Stockholder, to the address shown beneath his or her signature on the signature page of this Agreement, or at such other address or addresses as either party shall designate to the other in accordance with this Section 12(d).

(e)     Entire Agreement. This Agreement, together with the Plan, constitutes the entire agreement between the parties hereto pertaining to the subject matter hereof and supersedes all prior and contemporaneous agreements and understandings, whether oral or written, of the parties hereto concerning the subject matter hereof.

(f)     Waivers. Any provision contained in this Agreement may be waived, either generally or in any particular instance, by the Board, but no such waiver shall operate to the detriment of the Stockholder without the Stockholder’s consent.

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EX-10.7

Exhibit 10.7

 

EX-10.8

Exhibit 10.8

THIS SECURITY HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

IN ACCORDANCE WITH A CERTAIN SUBORDINATION AGREEMENT BY AND AMONG THE HOLDER, THE COMPANY AND THE SENIOR LENDER, THE HOLDER HAS SUBORDINATED THE INDEBTEDNESS OWED TO HOLDER UNDER THIS NOTE.

Original Issue Date: May 12, 2015

$500,000.00

TERM NOTE

DUE September 1, 2016

THIS TERM NOTE is duly authorized and validly issued by Bridgeline Digital, Inc., a Delaware corporation, (the “Company”), having its principal place of business at 80 Blanchard Rd, Burlington, MA 01803 (the “Note”).

FOR VALUE RECEIVED, the Company promises to pay to Michael N. Taglich or his registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $500,000.00 on September 1, 2016 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the then outstanding principal amount of this Note in accordance with the provisions hereof. This Note is subject to the following additional provisions:

Section 1.       Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, the following terms shall have the following meanings:

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Business Day” means any day except any Saturday, any Sunday, any day which is a federal legal holiday in the United States or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action to close.

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company, (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 66% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (or by those individuals who are serving as members of the Board of Directors on any date whose nomination to the Board of Directors was approved by a majority of the members of the Board of Directors who are members on the date hereof), or (e) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

“Event of Default” shall have the meaning set forth in Section 4(a).

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“Fundamental Transaction” means and one of the following: (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions (excluding specifically the license or other disposition of the Company’s intellectual property in the ordinary course of business), (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person or group of Persons whereby such other Person or group acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination).

“Late Fees” shall have the meaning set forth in Section 2(d).

“New York Courts” shall have the meaning set forth in Section 5(d).

“Note Register” shall have the meaning set forth in Section 2(b).

“Original Issue Date” means the date of the first issuance of the Note, regardless of any transfers of the Note and regardless of the number of instruments which may be issued to evidence such Note.

“Senior Lender” means BridgeBank and any of its successors and assigns.

Section 2.       Interest; Fees.

a)     Payment of Interest in Cash. The Company shall pay interest to the Holder on the then outstanding principal amount of this Note at the rate of 7% per annum, subject to adjustment as set forth herein, payable on the Maturity Date (if the Maturity Date is not a Business Day, then the payment shall be due on the next succeeding Business Day), in cash.

b)     Interest Calculations. Interest on the outstanding principal amount shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note (the “Note Register”).

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c)     Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 14% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full.

d)     Prepayment. The Company may prepay any portion of the principal amount of this Note without the prior written consent of the Holder, provided, however, that if the Company prepays any principal on or before the Maturity Date, the Company shall pay a prepayment penalty equal to $75,000.

e)     Origination Fee. The Company hereby agrees to pay an origination fee to Holder in the amount of $15,000 (the “Origination Fee”). The Origination Fee shall be due and payable in full on the date of this Note.

Section 3.     Registration of Transfers and Exchanges.

a)     Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

b)     Investment Representations. This Note has been issued subject to certain investment representations of the original Holder and may be transferred or exchanged only in compliance with applicable federal and state securities laws and regulations.

c)     Reliance on Note Register. Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

Section 4.       Events of Default.

a)     “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body) and except as shall have been effected with the consent of the Holder:

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i.       any default in the payment of (A) the principal amount of any Note or (B) interest and other amounts owing to a Holder on any Note, as and when the same shall become due and payable which default is not cured within 10 calendar days;

ii.      the Company shall fail to observe or perform any other covenant or agreement contained in the Note which failure is not cured, if possible to cure, within 10 calendar days after notice of such failure sent by the Holder to the Company;

iii.     the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

iv.     the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $150,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming (subject to any applicable cure period) or being declared due and payable prior to the date on which it would otherwise become due and payable;

v.      the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction and excluding specifically any license or other disposition involving continued royalty or similar payments of the Company’s intellectual property assets in the ordinary course of business); or

vi.     any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days.

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b)     Remedies Upon Event of Default. If an Event of Default occurs pursuant to Section 4(a)(i), the outstanding principal amount of this Note, plus accrued but unpaid interest, and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election and upon notice thereof to the Company, immediately due and payable in cash. If an Event of Default occurs pursuant to Sections 4(a)(ii) - 4(a)(vi), the outstanding principal amount of this Note, plus accrued but unpaid interest, and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election and upon notice thereof to the Company, immediately due and payable in cash. Commencing 5 days after the occurrence of any Event of Default that results in the eventual acceleration of this Note, the interest rate on this Note shall accrue at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted under applicable law. Upon the payment in full of this Note pursuant to this Section 4(b), the Holder shall promptly surrender this Note to or as directed by the Company. In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 4(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

Section 5.       Miscellaneous.

a)     Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 5(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears on the books of the Company, at the principal place of business of such Holder. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Business Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Business Day or later than 5:30 p.m. (New York City time) on any Business Day, (iii) the second Business Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

b)     Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company.      

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c)     Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.

d)     Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by the Note (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of the Note), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

e)     Amendments, Waivers. No provision of the Note may be waived, modified, supplemented or amended except in a written instrument signed by the Company and Holder. Any waiver by the Company or the Holder of a breach of any provision of the Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of the Note. The failure of the Company or the Holder to insist upon strict adherence to any term of the Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of the Note on any other occasion. Any waiver by the Company or the Holder must be in writing.

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f)     Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

g)     Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

h)     Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

i)     Subordination. This Note shall be subordinate in payment to the Company’s obligations, liabilities and indebtedness which may now or hereafter be owed to the Senior Lender. The Holder agrees to execute any and all documents required by the Senior Lender in connection with such subordination.

*********************

(Signature Pages Follow)

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.

Bridgeline Digital, inc.

By: /s/ Michael D. Prinn

     Name: Michael D. Prinn

     Title: Executive Vice President and Chief Financial Officer

Facsimile No. for delivery of Notices: (781) 497-3033

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EX-10.9

Exhibit 10.9

BRIDGELINE DIGITAL, INC.

Warrant No. 5/2015

WARRANT TO PURCHASE COMMON STOCK

VOID AFTER 5:00 P.M., EASTERN TIME,
ON THE EXPIRATION DATE

THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR WITHOUT DELIVERING AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

FOR VALUE RECEIVED, Bridgeline Digital, Inc., a Delaware corporation (the “Company”), hereby agrees to sell upon the terms and on the conditions hereinafter set forth, at any time commencing on November 12, 2015 (the “Initial Exercise Date”) but no later than 5:00 p.m., Eastern Time, on May 12, 2020 (the “Expiration Date”), to Michael N. Taglich, or his registered assigns (the “Holder”), under the terms as hereinafter set forth, Sixty Thousand (60,000) fully paid and non-assessable shares of the Company’s Common Stock, par value $0.001 per share (the “Common Stock”), at a purchase price per share of $4.00 (the “Warrant Price”), pursuant to the terms and conditions set forth in this warrant (this “Warrant”). The number of shares of Common Stock issued upon exercise of this Warrant (“Warrant Shares”) and the Warrant Price are subject to adjustment in certain events as hereinafter set forth.

This Warrant is issued to the Holder in return for financing provided to the Company by the Holder.

1.            Exercise of Warrant.

(a)     The Holder may exercise this Warrant according to the terms and conditions set forth herein by delivering to the Company (whether via facsimile or otherwise) at any time on or after the Initial Exercise Date and prior to the Expiration Date (such date of exercise, the “Exercise Date”) (i) the Exercise Notice attached hereto as Exhibit A (the “Exercise Notice”) (having then been duly executed by the Holder), and (ii) unless the Warrant is being exercised pursuant to a Cashless Exercise (as defined below), cash, a certified check, a bank draft or wire transfer in payment of the purchase price, in lawful money of the United States of America, for the number of Warrant Shares specified in the Exercise Form. The Holder shall not be required to deliver the original of this Warrant in order to affect an exercise hereunder. Execution and delivery of an Exercise Form with respect to less than all of the Warrant Shares shall have the same effect as cancellation of the original of this Warrant and issuance of a new Warrant evidencing the right to purchase the remaining number of Warrant Shares. Execution and delivery of an Exercise Form for all of the then-remaining Warrant Shares shall have the same effect as cancellation of the original of this Warrant after delivery of the Warrant Shares in accordance with the terms hereof.

(b)     On or before the third (3^rd) Trading Day following the later of (i) the date on which the Company has received an Exercise Notice or (ii) the date on which the Company receives payment of the exercise price (which shall not apply for cashless exercises), the Company shall transmit an acknowledgment of confirmation of receipt of such Exercise Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the fifth (5^th) Trading Day following the later of (i) the date on which the Company has received such Exercise Notice or (ii) the date on which the Company receives the exercise price (such later date, the “Delivery Date”), the Company shall (X) provided that the Transfer Agent is participating in The Depository Trust Company (“DTC”) Fast Automated Securities Transfer Program, upon the request of the Holder, credit such aggregate number of shares of Common Stock to which the Holder is entitled pursuant to such exercise to the Holder’s or its designee’s balance account with DTC through its Deposit/ Withdrawal at Custodian system, or (Y) if the Transfer Agent is not participating in the DTC Fast Automated Securities Transfer Program, issue and deliver to the Holder or, at the Holder’s instruction pursuant to the Exercise Notice, the Holder’s agent or designee, in each case, sent by reputable overnight courier to the address as specified in the applicable Exercise Notice, a certificate, registered in the Company’s share register in the name of the Holder or its designee (as indicated in the applicable Exercise Notice), for the number of shares of Common Stock to which the Holder is entitled pursuant to such exercise. Upon the later of (i) the date on which the Company has received the Exercise Notice or (ii) the date on which the Company receives the exercise price, the Holder shall be deemed for all corporate purposes to have become the holder of record of the Warrant Shares with respect to which this Warrant has been exercised, irrespective of the date such Warrant Shares are credited to the Holder’s DTC account or the date of delivery of the certificates evidencing such Warrant Shares (as the case may be). Notwithstanding the foregoing, if a Holder has not received certificates for all Warrant Shares prior to the tenth (10th) business day after the Delivery Date with respect to an exercise of any portion of this Warrant for any reason, then Holder shall have the right, but not the obligation, at any time thereafter until receipt of all the Warrant Shares relating to the Exercise Notice, to rescind the Exercise Notice by providing notice to the Company (the “Rescission Notice”). Upon delivery of a Rescission Notice to the Company, the Holder shall regain the rights of a Holder of this Warrant with respect to such unexercised portions of this Warrant and the Company shall, as soon as practicable, return such unexercised Warrant to the Holder or, if the Warrant has not been surrendered, adjust its records to reflect that such portion of this Warrant has not been exercised.

(c)     This Warrant may be exercised in whole or in part so long as any exercise in part hereof would not involve the issuance of fractional Warrant Shares. If exercised in part, at the request of the Holder and upon delivery of the original Warrant, the Company shall deliver to the Holder a new Warrant, identical in form to this Warrant, in the name of the Holder, evidencing the right to purchase the number of Warrant Shares as to which this Warrant has not been exercised, which new Warrant shall be signed by the President or Chief Executive Officer of the Company. The term Warrant as used herein shall include any subsequent Warrant issued as provided herein.

(d)     Notwithstanding any provisions herein to the contrary, in lieu of exercising this Warrant by cash payment in the manner set forth in Section 1(a), the Holder may, in its sole discretion, elect to exercise this Warrant, or a portion hereof, and to pay for the Warrant Stock by way of cashless exercise (a “Cashless Exercise”). If the Holder wishes to effect a cashless exercise, the Holder shall deliver the Exercise Notice duly executed by such Holder or by such Holder’s duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate in writing prior to the date of such exercise, in which event the Company shall issue to the Registered Holder the number of Warrant Shares computed according to the following equation:

X =	Y * (A - B)
	A

; where

X = the number of Warrant Shares to be issued to the Registered Holder.

Y = the Warrant Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant Shares being exercised.

A = the Fair Market Value (defined below) of one share of Common Stock on the Exercise Date.

B = the Exercise Price (as adjusted pursuant to the provisions of this Warrant).

For purposes of this Section 1(d), the “Fair Market Value” of one share of Common Stock on the Exercise Date shall have one of the following meanings:

(1)     if the Common Stock is traded on a national securities exchange registered with the Securities Exchange Commission pursuant to the Securities Exchange Act of 1934, as amended, the Fair Market Value shall be deemed to be the average of the Closing Prices over a five trading day period ending on the Exercise Date. For the purposes of this Warrant, “Closing Price” means the closing sale price of one share of Common Stock, as reported by Bloomberg; or

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(2)     if the Common Stock is not traded on a national securities exchange, the Fair Market Value shall be deemed to be the average of the closing bid prices price over the ten (10) trading day period ending on the Exercise Date; or

(3)     if neither (1) nor (2) is applicable, the Fair Market Value shall be at the commercially reasonable price per share which the Company could obtain on the Exercise Date from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by the Company’s Board of Directors.

For illustration purposes only, if this Warrant entitles the Holder the right to purchase 100,000 Warrant Shares and the Holder were to exercise this Warrant for 50,000 Warrant Shares at a time when the Exercise Price per share was $1.00 and the Fair Market Value of each share of Common Stock was $2.00 on the Exercise Date, as applicable, the cashless exercise calculation would be as follows:

X = 50,000 ($2.00-$1.00)

2.00

X = 25,000

Therefore, the number of Warrant Shares to be issued to the Holder after giving effect to the cashless exercise would be 25,000 Warrant Shares and the Company would issue the Holder a new Warrant to purchase 50,000 Warrant Shares, reflecting the portion of this Warrant not exercised by the Holder. For purposes of Rule 144 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), it is intended, understood and acknowledged that the Warrant Shares issued in the cashless exercise transaction described pursuant to Section 1(c) shall be deemed to have been acquired by the Holder, and the holding period for the shares of Warrant Shares shall be deemed to have commenced, on the date of the Holder’s acquisition of the Warrant.

(e)     No fractional Warrant Shares or scrip representing fractional Warrant Shares shall be issued upon the exercise of this Warrant. The Company shall pay cash in lieu of such fractional Warrant Shares. The price of a fractional Warrant Share shall equal the product of (i) the closing price of the Common Stock on the exchange or market on which the Common Stock is then traded (if the Common Stock is not then publicly traded, then upon the Fair Market Value per share of the Common Stock (as determined by the Company’s Board of Directors)), and (ii) the applicable fraction.

(f)     Except as provided in Section 4 hereof, the Company shall pay any and all documentary stamp or similar issue or transfer taxes payable in respect of the issue or delivery of Warrant Shares on exercise of this Warrant.

(g)     The Company will not close its stockholder books or records in any manner which prevents the timely exercise of this Warrant, pursuant to the terms hereof.

2.            Disposition of Warrant Shares and Warrant.

(a)     The Holder hereby acknowledges that: (i) this Warrant and any Warrant Shares purchased pursuant hereto are not being registered (A) under the Securities Act of 1933 (the “Act”) on the ground that the issuance of this Warrant is exempt from registration under Section 4(2) of the Act as not involving any public offering, or (B) under any applicable state securities law because the issuance of this Warrant does not involve any public offering; and (ii) that the Company’s reliance on the registration exemption under Section 4(2) of the Act and under applicable state securities laws is predicated in part on the representations hereby made to the Company by the Holder. The Holder represents and warrants that he, she or it is acquiring this Warrant and will acquire Warrant Shares for investment for his, her or its own account, with no present intention of dividing his, her or its participation with others or reselling or otherwise distributing this Warrant or Warrant Shares.

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(b)     The Holder hereby agrees that he, she or it will not sell, transfer, pledge or otherwise dispose of (collectively, “Transfer”) all or any part of this Warrant and/or Warrant Shares unless and until he, she or it shall have first obtained an opinion, reasonably satisfactory to counsel for the Company, of counsel (competent in securities matters, selected by the Holder and reasonably satisfactory to the Company) to the effect that the proposed Transfer may be made without registration under the Act and without registration or qualification under any state law.

(c)     If, at the time of issuance of Warrant Shares, no registration statement is in effect with respect to such shares under applicable provisions of the Act and the Warrant Shares may not be sold pursuant to Rule 144 of the Act, the Company may, at its election, require that any stock certificate evidencing Warrant Shares shall bear legends reading substantially as follows:

“THE SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE WARRANT PURSUANT TO WHICH THESE SHARES WERE PURCHASED FROM THE COMPANY. COPIES OF SUCH RESTRICTIONS ARE ON FILE AT THE PRINCIPAL OFFICES OF THE COMPANY. NO TRANSFER OF SUCH SHARES OR OF THIS CERTIFICATE (OR OF ANY SHARES OR OTHER SECURITIES (OR CERTIFICATES THEREFOR) ISSUED IN EXCHANGE FOR OR IN RESPECT OF SUCH SHARES) SHALL BE EFFECTIVE UNLESS AND UNTIL THE TERMS AND CONDITIONS SET FORTH IN THE WARRANT HAVE BEEN COMPLIED WITH.”

“THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (THE “ACT”) OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT.”

In addition, so long as the foregoing legend may remain on any stock certificate evidencing Warrant Shares, the Company may maintain appropriate “stop transfer” orders with respect to such certificates and the shares represented thereby on its books and records and with those to whom it may delegate registrar and transfer functions.

3.             Reservation of Shares. The Company hereby agrees that at all times there shall be reserved for issuance upon the exercise of this Warrant such number of shares of the Common Stock as shall be required for issuance upon exercise of this Warrant. The Company further agrees that all Warrant Shares will be duly authorized and will, upon issuance and payment of the exercise price therefor, be validly issued, fully paid and non-assessable, free from all taxes, liens, charges and encumbrances with respect to the issuance thereof, other than taxes, if any, in respect of any transfer occurring contemporaneously with such issuance and other than transfer restrictions imposed by federal and state securities laws.

Except and to the extent as waived or consented to in writing by the Holder, the Company shall not by any action, including, without limitation, amending its certificate or articles of incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Warrant. Without limiting the generality of the foregoing, the Company will (a) not increase the par value of any Warrant Shares above the amount payable therefor upon such exercise immediately prior to such increase in par value, (b) take all such action as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and nonassessable Warrant Shares upon the exercise of this Warrant, and (c) use commercially reasonable efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be necessary to enable the Company to perform its obligations under this Warrant.

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Before taking any action which would result in an adjustment in the number of Warrant Shares for which this Warrant is exercisable or in the Exercise Price, the Company shall obtain all such authorizations or exemptions thereof, or consents thereto, as may be necessary from any public regulatory body or bodies having jurisdiction thereof.

4.             Exchange, Transfer or Assignment of Warrant. Subject to Section 2, this Warrant is exchangeable, without expense, at the option of the Holder, upon presentation and surrender hereof to the Company or at the office of its stock transfer agent, if any, for other Warrants of the Company (“Warrants”) of different denominations, entitling the Holder or Holders thereof to purchase in the aggregate the same number of Warrant Shares purchasable hereunder. Subject to Section 2, upon surrender of this Warrant to the Company or at the office of its stock transfer agent, if any, with the Assignment Form attached hereto as Exhibit B (the “Assignment Form”) duly executed and funds sufficient to pay any transfer tax, the Company shall, without charge, execute and deliver a new Warrant in the name of the assignee named in the Assignment Form and this Warrant shall promptly be canceled. Subject to Section 2, this Warrant may be divided or combined with other Warrants that carry the same rights upon presentation hereof at the office of the Company or at the office of its stock transfer agent, if any, together with a written notice specifying the names and denominations in which new Warrants are to be issued and signed by the Holder hereof.

5.             Capital Adjustments. This Warrant is subject to the following further provisions:

(a)     Recapitalization, Reclassification and Succession. If any recapitalization of the Company or reclassification of its Common Stock or any merger or consolidation of the Company into or with a corporation or other business entity, or the sale or transfer of all or substantially all of the Company’s assets or of any successor corporation’s assets to any other corporation or business entity (any such corporation or other business entity being included within the meaning of the term “successor corporation”) shall be effected, at any time while this Warrant remains outstanding and unexpired, then, as a condition of such recapitalization, reclassification, merger, consolidation, sale or transfer, lawful and adequate provision shall be made whereby the Holder of this Warrant thereafter shall have the right to receive upon the exercise hereof as provided in Section 1 and in lieu of the Warrant Shares immediately theretofore issuable upon the exercise of this Warrant, such shares of capital stock, securities or other property as may be issued or payable with respect to or in exchange for the number of outstanding shares of Common Stock equal to the number of Warrant Shares immediately theretofore issuable upon the exercise of this Warrant had such recapitalization, reclassification, merger, consolidation, sale or transfer not taken place, and in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation.

(b)     Subdivision or Combination of Shares. If the Company at any time while this Warrant remains outstanding and unexpired shall subdivide or combine its Common Stock, the number of Warrant Shares purchasable upon exercise of this Warrant shall be proportionately adjusted.

(c)     Stock Dividends and Distributions. If the Company at any time while this Warrant is outstanding and unexpired shall issue or pay the holders of its Common Stock, or take a record of the holders of its Common Stock for the purpose of entitling them to receive, a dividend payable in, or other distribution of, Common Stock, then the number of Warrant Shares purchasable upon exercise of this Warrant shall be adjusted to the number of shares of Common Stock that Holder would have owned immediately following such action had this Warrant been exercised immediately prior thereto.

(d)     Price Adjustments. Whenever the number of Warrant Shares purchasable upon exercise of this Warrant is adjusted pursuant to Sections 5(a), 5(b) or 5(c), the then applicable Warrant Price shall be proportionately adjusted.

(e)     Certain Shares Excluded. The number of shares of Common Stock outstanding at any given time for purposes of the adjustments set forth in this Section 5 shall exclude any shares then directly or indirectly held in the treasury of the Company.

(f)     Deferral and Cumulation of De Minimis Adjustments. The Company shall not be required to make any adjustment pursuant to this Section 5 if the amount of such adjustment would be less than one percent (1%) of the Warrant Price in effect immediately before the event that would otherwise have given rise to such adjustment. In such case, however, any adjustment that would otherwise have been required to be made shall be made at the time of and together with the next subsequent adjustment which, together with any adjustment or adjustments so carried forward, shall amount to not less than one percent (1%) of the Warrant Price in effect immediately before the event giving rise to such next subsequent adjustment. All calculations under this Section 5 shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be, but in no event shall the Company be obligated to issue fractional Warrant Shares or fractional portions of any securities upon the exercise of the Warrant.

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(g)          Duration of Adjustment. Following each computation or readjustment as provided in this Section 5, the new adjusted Warrant Price and number of Warrant Shares purchasable upon exercise of this Warrant shall remain in effect until a further computation or readjustment thereof is required.

6.            Notice to Holders.

(a)           Notice of Record Date. In case:

(i)       the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of this Warrant) for the purpose of entitling them to receive any dividend (other than a cash dividend payable out of earned surplus of the Company) or other distribution, or any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right;

(ii)      of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation with or merger of the Company into another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation; or

(iii)     of any voluntary dissolution, liquidation or winding-up of the Company;

then, and in each such case, the Company will mail or cause to be mailed to the Holder hereof at the time outstanding a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is to take place, and the time, if any, is to be fixed, as of which the holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution or winding-up. Such notice shall be mailed at least ten (10) calendar days prior to the record date therein specified, or if no record date shall have been specified therein, at least ten (10) days prior to such specified date.

(b)          Certificate of Adjustment. Whenever any adjustment shall be made pursuant to Section 5 hereof, the Company shall promptly provide the Holder with prompt written notice, signed and certified by its Chairman, Chief Executive Officer, President or a Vice President, setting forth in reasonable detail the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated and the Warrant Price and number of Warrant Shares purchasable upon exercise of this Warrant after giving effect to such adjustment.

7.             Loss, Theft, Destruction or Mutilation. Upon receipt by the Company of evidence satisfactory to it, in the exercise of its reasonable discretion, of the ownership and the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, of indemnity reasonably satisfactory to the Company and, in the case of mutilation, upon surrender and cancellation thereof, the Company will execute and deliver in lieu thereof, without expense to the Holder, a new Warrant of like tenor dated the date hereof.

8.             Warrant Holder Not a Stockholder. The Holder of this Warrant, as such, shall not be entitled by reason of this Warrant to any rights whatsoever as a stockholder of the Company, including but not limited to voting rights. No provision hereof, in the absence of any affirmative action by Holder to exercise this Warrant to purchase Warrant Shares, and no enumeration herein of the rights or privileges of Holder, shall give rise to any liability of Holder for the purchase price of any Common Stock or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company.

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9.             Registration Rights. The Holder shall have the registration rights with respect to its Warrant Shares as set forth on Exhibit C attached hereto.

10.          Notices.   Any notice provided for in this Warrant must be in writing and must be either personally delivered, mailed by first class mail (postage prepaid and return receipt requested), or sent by reputable overnight courier service (charges prepaid) to the recipient at the address below indicated:

If to the Company:

Bridgeline Digital, Inc.
80 Blanchard Road
Burlington, Massachusetts 01803
Attention: Mr. Thomas L. Massie,
                   President and Chief Executive Officer

If to the Holder:

To the address of such Holder set forth on the books and records of the Company.

or such other address or to the attention of such other person as the recipient party shall have specified by prior written notice to the sending party. Any notice under this Warrant will be deemed to have been given (a) if personally delivered, upon such delivery, (b) if mailed, five days after deposit in the U.S. mail, or (c) if sent by reputable overnight courier service, one business day after such services acknowledges receipt of the notice.

11.          Choice of Law. THIS WARRANT IS ISSUED UNDER AND SHALL FOR ALL PURPOSES BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW RULES.

12.          Submission to Jurisdiction. EACH OF THE HOLDER AND THE COMPANY SUBMITS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT AND AGREES THAT ALL CLAIMS IN RESPECT OF THE ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT. EACH OF THE HOLDER AND THE COMPANY ALSO AGREE NOT TO BRING ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS WARRANT IN ANY OTHER COURT. EACH OF THE PARTIES WAIVES ANY DEFENSE OF INCONVENIENT FORUM TO THE MAINTENANCE OF ANY ACTION OR PROCEEDING SO BROUGHT AND WAIVES ANY BOND, SURETY, OR OTHER SECURITY THAT MIGHT BE REQUIRED OF ANY OTHER PARTY WITH RESPECT THERETO.

13.          Warrant Register. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the “Warrant Register”), in the name of the record Holder hereof from time to time. The Company may deem and treat the registered Holder of this Warrant as the absolute owner hereof for the purpose of any exercise hereof or any distribution to the Holder, and for all other purposes, absent actual notice to the contrary.

14.          Miscellaneous.

(a)     Remedies. Holder, in addition to being entitled to exercise all rights granted by law, including recovery of damages, will be entitled to specific performance of its rights under this Warrant. The Company agrees that monetary damages would not be adequate compensation for any loss incurred by reason of a breach by it of the provisions of this Warrant and hereby agrees to waive and not to assert the defense in any action for specific performance that a remedy at law would be adequate.

(b)     Successors and Assigns. Subject to applicable securities laws, this Warrant and the rights and obligations evidenced hereby shall inure to the benefit of and be binding upon the successors of the Company and the successors and permitted assigns of Holder. The provisions of this Warrant are intended to be for the benefit of all Holders from time to time of this Warrant and shall be enforceable by any such Holder or holder of Warrant Shares.

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(c)     Amendment. This Warrant may be modified or amended or the provisions hereof waived with the written consent of the Company and the Holder.

(d)     Severability. Wherever possible, each provision of this Warrant shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Warrant shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, without invalidating the remainder of such provisions or the remaining provisions of this Warrant.

[Remainder of page intentionally left blank]

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IN WITNESS WHEREOF, the Company has duly caused this Warrant to be signed on its behalf, in its corporate name and by a duly authorized officer, as of this 12^th day of May 2015.

BRIDGELINE DIGITAL, INC.

By:   /s/Michael D. Prinn
Executive Vice President and Chief Financial Officer

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EXHIBIT A

EXERCISE NOTICE

TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS

WARRANT TO PURCHASE COMMON STOCK

Bridgeline Digital, Inc.

The undersigned holder hereby exercises the right to purchase _________________ of the shares of Common Stock (“Warrant Shares”) of Bridgeline Digital, Inc., a Delaware corporation (the “Company”), evidenced by Warrant to Purchase Common Stock No. _______ (the “Warrant”). Capitalized terms used herein and not otherwise defined shall have the respective meanings set forth in the Warrant.

1.              Form of Exercise Price. The Holder intends that payment of the Exercise Price shall be made as:

____________ a “Cash Exercise” with respect to _________________ Warrant Shares; and/or

____________ a “Cashless Exercise” with respect to _______________ Warrant Shares.

2.              Payment of Exercise Price. In the event that the Holder has elected a Cash Exercise with respect to some or all of the Warrant Shares to be issued pursuant hereto, the Holder shall pay the exercise price in the sum of $___________________ to the Company in accordance with the terms of the Warrant.

3.              Delivery of Warrant Shares. The Company shall deliver to Holder, or its designee or agent as specified below, __________ Warrant Shares in accordance with the terms of the Warrant. Delivery shall be made to Holder, or for its benefit, to the following address:

_______________________

_______________________

_______________________

_______________________

4.     Fractional Shares. In lieu of receipt of a fractional share of Common Stock, the undersigned will receive a check representing payment therefor.

Date: _______________ __, ______

_________________________________

Name of Registered Holder

By:                                                                       

Name:

Title:

A-1

EXHIBIT B

ASSIGNMENT FORM

Bridgeline Digital, Inc.
80 Blanchard Road
Burlington, Massachusetts 01803
Attention: Mr. Thomas L. Massie,
                   President and Chief Executive Officer

FOR VALUE RECEIVED,                                hereby sells, assigns and transfers unto

(Please print assignee’s name, address and Social Security/Tax Identification Number)

________________________________________________

________________________________________________

________________________________________________

the right to purchase shares of common stock, par value $0.001 per share, of Bridgeline Digital, Inc., a Delaware corporation (the “Company”), represented by this Warrant to the extent of shares as to which such right is exercisable and does hereby irrevocably constitute and appoint ____________________________, Attorney, to transfer the same on the books of the Company with full power of substitution in the premises.

Dated: _______________________________________
	PRINT WARRANT HOLDER NAME
	Name: Title:
Witness: _____________________________________________

B-1

EXHIBIT C

Registration Rights

1.1.          Participation in Registrations. Whenever the Company proposes to register any of its securities under the Securities Act, whether for its own account or for the account of another stockholder (except for the registration of securities (A) to be offered pursuant to an employee benefit plan on Form S-8 or (B) pursuant to a registration made on Form S-4, or any successor forms then in effect) at any time and the registration form to be used may be used for the registration of the Registrable Securities (a “Piggyback Registration”), it will so notify in writing the Holder no later than the earlier to occur of (i) the tenth (10^th) day following the Company’s receipt of notice of exercise of other demand registration rights, or (ii) thirty (30) days prior to the anticipated filing date. Subject to the provisions of this Agreement, the Company will include in the Piggyback Registration all Registrable Securities, on a pro rata basis based upon the total number of Registrable Securities with respect to which the Company has received written requests for inclusion within ten (10) business days after the applicable holder’s receipt of the Company’s notice.

1.2.          Expenses. All fees and expenses incident to the performance of or compliance with this Agreement by the Company shall be borne by the Company, whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the trading market on which the Common Stock is then listed for trading, and (B) in compliance with applicable state securities or Blue Sky laws, (ii) processing expenses of a placement agent, not to exceed $20,000 without the Company’s approval, including, but not limited to, printing expenses, messenger, telephone and delivery expenses and customary marketing expenses, (iii) fees and disbursements of counsel and independent public accountants for the Company, (iv) fees and disbursements of one counsel to the placement agent not to exceed $30,000, and (v) filing fees and counsel fees of the placement agent if a determination is made that a FINRA Rule 5110 filing is required to be made with respect to the Registration Statement.

1.3.          Indemnification.

(a)     Indemnification by the Company. The Company will indemnify and hold harmless each Holder and its officers, directors, members, shareholders, partners, representatives, employees and agents, successors and assigns, and each other person, if any, who controls such Holder within the meaning of the Securities Act, against any losses, obligations, claims, damages, liabilities, contingencies, judgments, fines, penalties, charges, costs (including, without limitation, court costs, reasonable attorneys’ fees and costs of defense and investigation), amounts paid in settlement or expenses, joint or several, (collectively, “Claims”) incurred in investigating, preparing or defending any action, claim, suit, inquiry, proceeding, investigation or appeal taken from the foregoing by or before any court or governmental, administrative or other regulatory agency, body or the SEC, whether pending or threatened, whether or not an indemnified party is or may be a party thereto, to which any of them may become subject insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon: (i) any untrue statement or alleged untrue statement of any material fact contained in any Registration Statement, any preliminary prospectus or final prospectus contained therein, or any amendment or supplement thereof; (ii) any blue sky application or other document executed by the Company specifically for that purpose or based upon written information furnished by the Company filed in any state or other jurisdiction in order to qualify any or all of the Registrable Securities under the securities laws thereof (any such application, document or information herein called a “Blue Sky Application”); (iii) the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading; (iv) any violation by the Company or its agents of any rule or regulation promulgated under the Securities Act applicable to the Company or its agents and relating to action or inaction required of the Company in connection with such registration; or (v) any failure to register or qualify the Registrable Securities included in any such Registration Statement in any state where the Company or its agents has affirmatively undertaken or agreed in writing that the Company will undertake such registration or qualification on an Holder’s behalf and will reimburse such Holder, and each such officer, director or member and each such controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such Claim or action; provided, however, that the Company will not be liable in any such case if and to the extent that any such loss, claim, damage or liability arises out of or is based upon an untrue statement or alleged untrue statement or omission or alleged omission so made in conformity with information furnished by such Holder or any such controlling person in writing specifically for use in such Registration Statement or Prospectus.

C-1

(b)     Indemnification by the Holders. Each Holder agrees, severally but not jointly, to indemnify and hold harmless, to the fullest extent permitted by law, the Company, its directors, officers, employees, stockholders, partner, representatives and each person who controls the Company (within the meaning of the Securities Act) against any Claims resulting from any untrue statement of a material fact or any omission of a material fact required to be stated in the Registration Statement or Prospectus or preliminary prospectus or amendment or supplement thereto or necessary to make the statements therein not misleading, to the extent, but only to the extent that such untrue statement or omission is contained in any information furnished in writing by such Holder to the Company specifically for inclusion in such Registration Statement or Prospectus or amendment or supplement thereto. In no event shall the liability of an Holder be greater in amount than the dollar amount of the proceeds (net of all expense paid by such Holder in connection with any claim relating to this Section 1.3 and the amount of any damages such Holder has otherwise been required to pay by reason of such untrue statement or omission) received by such Holder upon the sale of the Registrable Securities included in the Registration Statement giving rise to such indemnification obligation.

(c)     Conduct of Indemnification Proceedings. Any person entitled to indemnification hereunder shall (i) give prompt notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party; provided that any person entitled to indemnification hereunder shall have the right to employ separate counsel and to participate in the defense of such claim, but the fees and expenses of such counsel shall be at the expense of such person unless (a) the indemnifying party has agreed to pay such fees or expenses, or (b) the indemnifying party shall have failed to assume the defense of such claim or employ counsel reasonably satisfactory to such person or (c) in the reasonable judgment of any such person, based upon written advice of its counsel, a conflict of interest exists between such person and the indemnifying party with respect to such claims (in which case, if the person notifies the indemnifying party in writing that such person elects to employ separate counsel at the expense of the indemnifying party, the indemnifying party shall not have the right to assume the defense of such claim on behalf of such person); and provided, further, that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations hereunder, except to the extent that such failure to give notice shall materially adversely affect the indemnifying party in the defense of any such claim or litigation. It is understood that the indemnifying party shall not, in connection with any proceeding in the same jurisdiction, be liable for fees or expenses of more than one separate firm of attorneys at any time for all such indemnified parties. No indemnifying party will, except with the consent of the indemnified party, which consent shall not be unreasonably withheld or delayed, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect of such claim or litigation.

C-2

(d)     Contribution. If for any reason the indemnification provided for in the preceding paragraphs (a) and (b) is unavailable to an indemnified party or insufficient to hold it harmless, other than as expressly specified therein, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such Claim in such proportion as is appropriate to reflect the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Securities Act shall be entitled to contribution from any person not guilty of such fraudulent misrepresentation. In no event shall the contribution obligation of a holder of Registrable Securities be greater in amount than the dollar amount of the proceeds (net of all expenses paid by such holder in connection with any claim relating to this Section 1.3 and the amount of any damages such holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission) received by it upon the sale of the Registrable Securities giving rise to such contribution obligation.

1.4.          Cooperation by Holder. Each Holder shall furnish to the Company or the Underwriter, as applicable, such information regarding the Holder and the distribution proposed by it as the Company may reasonably request in connection with any registration or offering referred to in this Section 1. Each Holder shall cooperate as reasonably requested by the Company in connection with the preparation of the registration statement with respect to such registration, and for so long as the Company is obligated to file and keep effective such registration statement, shall provide to the Company, in writing, for use in the registration statement, all such information regarding the Holder and its plan of distribution of the Shares included in such registration as may be reasonably necessary to enable the Company to prepare such registration statement, to maintain the currency and effectiveness thereof and otherwise to comply with all applicable requirements of law in connection therewith.

1.5           Definitions.

“Registrable Securities” shall mean the Warrant Shares; provided, that a security shall cease to be a Registrable Security upon (A) sale pursuant to a Registration Statement or Rule 144 under the Securities Act, or (B) such security becoming eligible for sale by the Holder without any restriction pursuant to Rule 144 (including, without limitation, volume restrictions) and without the need for current public information required by Rule 144(c)(1) (or Rule 144(i)(2), if applicable).

“Registration Statement” shall mean any registration statement of the Company filed under the Securities Act that covers the resale of any of the Registrable Securities pursuant to the provisions of this Agreement, amendments and supplements to such Registration Statement, including post-effective amendments, all exhibits and all material incorporated by reference in such Registration Statement.

“Underwriter” shall mean any entity engaged by the Company to serve as an underwriter in connection with a registration or offering of securities referred to in Section 1.

C-3

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: May 15, 2015	/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: May 15, 2015

	/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  March 31, 2015, 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: May 15, 2015		/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 March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Michael D. Prinn, Executive 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: May 15, 2015		/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 (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended	6 Months Ended	1 Months Ended			0 Months Ended
	Apr. 30, 2015	Mar. 31, 2015	May 31, 2012	Dec. 31, 2013	Dec. 31, 2014	Nov. 06, 2013	Sep. 30, 2013	Jan. 07, 2015	Feb. 09, 2015	May 31, 2015	Apr. 05, 2015
Proceeds from Issuance of Long-term Debt	$ 500	$ 1,000
First Promissory Note [Member]
Noncash or Part Noncash Acquisition, Debt Assumed			63
Debt Instrument, Frequency of Periodic Payment			eight
Bridge Bank Loan Agreement [Member]
Debt Instrument, Term				2 years 90 days
Line of Credit Facility, Maximum Borrowing Capacity				5,000
Line of Credit Facility, Percent of Eligible Receivables				80.00%
Maximum Out of Formula Borrowings if Available Borrowing Is Less Than 5 Million				1,000
Debt Instrument, Basis Spread on Variable Rate				4.25%
Line of Credit Facility, Commitment Fee Percentage				0.25%
Long-term Line of Credit		3,000
Short-term Debt		850
Term Note [Member] | Micheal Taglich [Member]
Debt Instrument, Interest Rate, Stated Percentage		7.00%
Proceeds from Issuance of Long-term Debt					500
Term Note 2 [Member] | Micheal Taglich [Member]
Debt Instrument, Interest Rate, Stated Percentage									7.00%
Class of Warrant or Right, Number of Securities Called by Warrants or Rights								60,000
Debt Instrument, Face Amount									500
Term Note 3 [Member] | Micheal Taglich [Member] | Subsequent Event [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights										60,000
Class of Warrant or Right, Exercise Price of Warrants or Rights										$ 4
Debt Instrument, Face Amount											500
First Promissory Note Assumed [Member]
Debt Instrument, Interest Rate, Stated Percentage			5.00%
Debt Instrument, Periodic Payment			8
Second Promissory Note Assumed [Member]
Noncash or Part Noncash Acquisition, Debt Assumed			80
Debt Instrument, Interest Rate, Stated Percentage			5.00%
Debt Instrument, Periodic Payment			7
Convertible Subordinated Debt [Member]
Convertible Notes Payable						3,000	2,000
Proceeds from Issuance of Private Placement						1,000	2,000
Debt Instrument, Interest Rate, Stated Percentage						10.00%	10.00%
Debt Instrument, Convertible, Conversion Price						$ 6.50	$ 6.50
Debt Instrument, Convertible, Conversion Limit, Percentage of Common Shares Outstanding						4.99%	4.99%
Early Payment Penalty, Percentage of Prepaid Principle						10.00%
Debt Instrument, Convertible, Stock Price Trigger						$ 13
Debt Instrument, Convertible, Threshold Trading Days						20
Debt Instrument, Convertible, Threshold Consecutive Trading Days						30 days
Payment Required Upon Default, Percentage of Outstanding Principal						20.00%
Taglich Brothers [Member]
Payments for Brokerage Fees						80	160
Class of Warrant or Right, Number of Securities Called by Warrants or Rights						15,385	30,770
Class of Warrant or Right, Exercise Price of Warrants or Rights						$ 6.50	$ 6.50
Warrants and Rights Outstanding		$ 49
Warrant Amortization, Number of Years		2 years
Micheal Taglich [Member] | To be Issued in the Event the Guaranty Remains Outstanding [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights								30,000
Micheal Taglich [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights								60,000
Class of Warrant or Right, Exercise Price of Warrants or Rights								$ 4
Warrants Term								5 years
Warrants Exercisable Term								180 days

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Note 13 - Related Party Transactions (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended	0 Months Ended
	Oct. 31, 2014	Nov. 06, 2013	Sep. 30, 2013	Mar. 31, 2015	Sep. 30, 2014	Dec. 31, 2014
Common Stock, Shares, Outstanding				4,441,381	4,388,583
Preferred Stock, Shares Outstanding				40,427	0
Mr. Taglich [Member]
Related Party, Ownership Percentage Of Stock						5.00%
Taglich Brothers [Member] | Convertible Preferred Stock Offering [Member]
Payments for Brokerage Fees	$ 160
Taglich Brothers [Member]
Payments for Brokerage Fees		$ 80	$ 160
Employee Affiliates and Clients of Taglich Brother [Member] | Series A Convertible Preferred Stock [Member]
Preferred Stock, Shares Outstanding				40,427
Employee Affiliates and Clients of Taglich Brother [Member]
Common Stock, Shares, Outstanding				600,000

XML

Note 11 - Basic and Diluted Net Loss Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
Net Loss	$ (2,073)	$ (2,314)	$ (4,183)	$ (3,091)
Dividends on convertible preferred stock	(30)		(51)
Net loss applicable to common shareholders	$ (2,103)	$ (2,314)	$ (4,234)	$ (3,091)
Weighted average common shares outstanding - basic (in shares)	4,272,000	3,559,000	4,307,000	3,579,000
Weighted average common shares outstanding - diluted (in shares)	4,272	3,559	4,307	3,579
Basic and diluted (in dollars per share)	$ (0.49)	$ (0.65)	$ (0.98)	$ (0.86)

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Note 4 - Assets and Liabilities Measured at Fair Values on a Recurring Basis (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Sep. 30, 2014
Liabilities:
Contingent acquisition consideration	$ 690	$ 868
Warrant liability	98	39
Total Liabilities	788	907
Fair Value, Inputs, Level 3 [Member]
Liabilities:
Contingent acquisition consideration	690	868
Warrant liability	98	39
Total Liabilities	$ 788	$ 907

XML

Note 5 - Intangible Assets (Tables)

6 Months Ended

Mar. 31, 2015

Notes Tables

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

	As of		As of
	March 31, 2015		September 30, 2014
Domain and trade names	$	10	$	10
Customer related		1,014		1,284
Non-compete agreements		252		288
Balance at end of period	$	1,276	$	1,582

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Note 9 - Shareholders' Equity (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended	6 Months Ended	0 Months Ended	1 Months Ended	6 Months Ended	0 Months Ended	1 Months Ended	0 Months Ended	1 Months Ended			0 Months Ended	1 Months Ended	0 Months Ended	1 Months Ended		3 Months Ended	0 Months Ended
	Jun. 30, 2013	Mar. 31, 2014	May 04, 2015	Apr. 30, 2015	Mar. 31, 2015	Oct. 27, 2014	Jan. 31, 2015	Jun. 19, 2013	Mar. 31, 2014	May 31, 2012	Oct. 21, 2010	Nov. 02, 2013	Sep. 30, 2013	Oct. 28, 2014	Mar. 31, 2015	Jan. 31, 2014	Mar. 31, 2015	Aug. 02, 2013	May 31, 2012	Oct. 03, 2011	Apr. 12, 2012	Sep. 30, 2014	Aug. 31, 2014
Common Stock, Shares, Outstanding					4,441,381										4,441,381		4,441,381					4,388,583
Common Stock, Par or Stated Value Per Share					0.001										$ 0.001		$ 0.001					$ 0.001
Common Stock, Shares Authorized					50,000,000										50,000,000		50,000,000					50,000,000
Proceeds from Issuance of Common Stock	$ 2,100	$ 2,753
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number					781,228										781,228		781,228					707,128
Employee Stock Purchase Plan Percent Of Market Value																					85.00%
Reverse Stock Split [Member] | Subsequent Event [Member]
Stockholders' Equity Note, Stock Split, Conversion Ratio			5
Subsequent Event [Member] | Series A Convertible Preferred Stock [Member]
Preferred Stock Dividends, Shares				600
Subsequent Event [Member]
Common Stock, Shares, Outstanding			4,400,000
Common Stock, Par or Stated Value Per Share			0.001
Common Stock, Shares Authorized			50,000,000
Pre Reverse Stock Split [Member]
Common Stock, Shares, Outstanding					22,000,000										22,000,000		22,000,000
Increased Divided Percentage After Two Years [Member] | Series A Convertible Preferred Stock [Member]
Preferred Stock, Dividend Rate, Percentage					12.00%
Series A Convertible Preferred Stock [Member]
Stock Issued During Period, Shares, New Issues						40,000
Share Price						$ 50
Gross Proceeds From Sale of Stock						2,000
Proceeds from Issuance of Private Placement						1,800
Preferred Stock Conversion Price						$ 3.25
Minimum Common Stock Price Allowing Company to Force Convert Preferred Stock						$ 6.50
Preferred Stock, Dividend Rate, Percentage					6.00%
Preferred Stock Dividends, Shares							427
Common Stock [Member]
Stock Issued During Period, Shares, New Issues	460,000
Share Price	$ 5
Gross Proceeds From Sale of Stock	2,300
Investors and Placement Agent [Member]
Warrants Term	5 years							5 years	5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		64,000							64,000
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 6.25	$ 5.25						$ 6.25	$ 5.25
Investors [Member] | Exercisable at $6.25 per Share [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					92,000										92,000		92,000
Class of Warrant or Right, Exercise Price of Warrants or Rights					6.25										$ 6.25		$ 6.25
Investors [Member] | Exercisable at $5.25 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					35,540										35,540		35,540
Class of Warrant or Right, Exercise Price of Warrants or Rights					5.25										$ 5.25		$ 5.25
Investors [Member] | Exercisable at $4.00 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					120,000										120,000		120,000
Class of Warrant or Right, Exercise Price of Warrants or Rights					4										$ 4		$ 4
Investors [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	92,000				120,000			92,000							120,000		120,000
Class of Warrant or Right, Exercise Price of Warrants or Rights					4										$ 4		$ 4
Placement Agent Warrants [Member] | Exercisable at $7.00 per Share [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					43,587										43,587		43,587
Class of Warrant or Right, Exercise Price of Warrants or Rights					7										$ 7		$ 7
Placement Agent Warrants [Member] | Exercisable at $6.25 per Share [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					46,000										46,000		46,000
Class of Warrant or Right, Exercise Price of Warrants or Rights					6.25										$ 6.25		$ 6.25
Placement Agent Warrants [Member] | Exercisable at $6.50 per Share [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					46,154										46,154		46,154
Class of Warrant or Right, Exercise Price of Warrants or Rights					6.50										$ 6.50		$ 6.50
Placement Agent Warrants [Member] | Exercisable at $5.25 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					28,460										28,460		28,460
Class of Warrant or Right, Exercise Price of Warrants or Rights					5.25										$ 5.25		$ 5.25
Placement Agent Warrants [Member] | Exercisable at $3.25 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					61,539										61,539		61,539
Class of Warrant or Right, Exercise Price of Warrants or Rights					3.25										$ 3.25		$ 3.25
Placement Agent Warrants [Member]
Warrants Term									5 years	5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	46,000	64,000						46,000	64,000	43,587									43,587
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 5.25							$ 5.25	$ 7									7
Issued to Non-Employee Consultant [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights											10,000
Vesting Period For Warrants											1 year
Exercisable at $5.00 Per Share [Member] | Non-Employee Consultant [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights											5,000
First 25,000 Shares [Member] | Non-Employee Consultant [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights											5
Exercisable at $10.00 Per Share [Member] | Non-Employee Consultant [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights											5,000
Remaining 25,000 Shares [Member] | Non-Employee Consultant [Member]
Class of Warrant or Right, Exercise Price of Warrants or Rights											10
Subordinated Convertible Debt [Member]
Warrants Term												5 years	5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights												15,385	30,770
Class of Warrant or Right, Exercise Price of Warrants or Rights												$ 6.50	$ 6.50
Series A Convertible Preferred Stock [Member]
Warrants Term														5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights														61,539
Class of Warrant or Right, Exercise Price of Warrants or Rights														$ 3.25
Non-Employee Consultant [Member] | Exercisable at $5.00 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					5,000										5,000		5,000
Class of Warrant or Right, Exercise Price of Warrants or Rights					5										$ 5		$ 5
Non-Employee Consultant [Member] | Exercisable at $10.00 [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					5,000										5,000		5,000
Class of Warrant or Right, Exercise Price of Warrants or Rights					10										$ 10		$ 10
Board of Directors [Member]
Share Price					2.40										$ 2.40	$ 5.80	$ 2.40
Stock Issued During Period, Shares, Issued for Services															40,834	11,380	20,417
Stock Issued During Period, Value, Issued for Services					50										98	66
Allocated Share-based Compensation Expense															25
Private Placement [Member]
Stock Issued During Period, Shares, New Issues									640,000
Share Price		$ 4.75							$ 4.75
Gross Proceeds From Sale of Stock									3,000
Proceeds from Issuance of Common Stock									$ 2,700
Elements Local [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares																		105,288
Business Acquisition Contingent Consideration Maximum Shares Issuable					33,846													67,693
Market Net, Inc. [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares																			40,867
Common Stock, Shares Earned for Achievement of Revenue Targets					31,726										31,726		31,726
Magnetic Corporation [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares																				33,334
Common Stock, Shares Earned for Achievement of Revenue Targets					33,334										33,334		33,334
Amended and Restated Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized																							900,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number					781,228										781,228		781,228
Common Stock, Capital Shares Reserved for Future Issuance					118,773										118,773		118,773
Employee Stock Purchase Plan [Member] | Maximum Number of Shares Purchased in Any Purchase Period [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized																					30,000
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized																					60,000
Offering Period																					180 days
Shares That Have Been Issued Under Employee Stock Purchase Plan					485										485		485

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Note 5 - Changes in the Carrying Amount of Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Sep. 30, 2014
Domain and trade names	$ 1,276	$ 1,582
Domain And Trade Names [Member]
Domain and trade names	10	10
Customer-Related Intangible Assets [Member]
Domain and trade names	1,014	1,284
Noncompete Agreements [Member]
Domain and trade names	$ 252	$ 288

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Note 12 - Income Taxes (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
Income Tax Expense (Benefit)	$ 28	$ 35	$ 63	$ 56

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Note 2 - Summary of Significant Accounting Policies

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

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 in consolidation.

Unaudited Interim Financial Information

The accompanying interim Condensed Consolidated Balance Sheets as of March 31, 2015 and September 30, 2014, and the interim Condensed Consolidated Statements of Operations, Comprehensive Loss, and Cash Flows for the three and six months ended March 31, 2015 and 2014 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and with the same instructions to Form 10-Q and Regulation S-X, 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, 2014. These interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation of the Company’s financial position at March 31, 2015 and September 30, 2014 and its results of operations and cash flows for the three and six months ended March 31, 2015 and 2014. The results for the three and six months ended March 31, 2015 are not necessarily indicative of the results to be expected for the year ending September 30, 2015. The accompanying September 30, 2014 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, except as already disclosed in these financial statements.

Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (“FASB”) issued a standards update on accounting for share-based payments when the terms of the award provide that a performance target could be achieved after a requisite service period. The standard is effective beginning January 1, 2016, with early adoption permitted. Management does not expect it to have a material impact on our consolidated financial position, results of operations or cash flows. 

In May 2014, the FASB issued a standard on revenue recognition providing a single, comprehensive revenue recognition model for all contracts with customers. The revenue standard is based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective beginning January 1, 2017, with no early adoption permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. Management is currently evaluating the adoption method options and the impact of this new guidance on our condensed consolidated financial statements.

In April 2014, the FASB issued new accounting guidance on reporting discontinued operations and disclosures of disposals of components of an entity which clarifies the scope of what should be reported as discontinued operations and expands required disclosures. This new guidance is effective beginning October 1, 2015, with early adoption permitted. The impact of this guidance will be dependent on the nature and significance of any transactions within the scope of this new guidance.

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

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Note 9 - Shareholders' Equity - Summary of Option and Warrant Activity and Outstanding Shares (Details) (USD $)	Warrants1 Member	Total
Outstanding, September 30, 2014 (in shares) at Sep. 30, 2014	301,740
Outstanding, September 30, 2014 (in shares) at Sep. 30, 2014		707,128
Outstanding, September 30, 2014 (in dollars per share) at Sep. 30, 2014	6.25
Outstanding, September 30, 2014 (in dollars per share) at Sep. 30, 2014		4.90
Granted (in shares)		138,800
Granted (in dollars per share)		2.75
Granted (in shares)	181,538
Granted (in dollars per share)	3.75
Forfeited or expired (in shares)		64,700
Forfeited or expired (in dollars per share)		6.10
Outstanding, March 31, 2015 (in shares) at Mar. 31, 2015	483,278
Outstanding, March 31, 2015 (in shares) at Mar. 31, 2015		781,228
Outstanding, March 31, 2015 (in dollars per share) at Mar. 31, 2015	5.30
Outstanding, March 31, 2015 (in dollars per share) at Mar. 31, 2015		4.40

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Note 10 - Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Mar. 31, 2015

Notes Tables

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

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Balance at beginning of period	$	(338	)	$	(194	)	$	(333	)	$	(162	)
Foreign currency translation adjustment		(17	)		(93	)		(22	)		(125	)
Balance at end of period	$	(355	)	$	(287	)	$	(355	)	$	(287	)

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Note 9 - Shareholders' Equity (Tables)

6 Months Ended

Mar. 31, 2015

Notes Tables

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

	Stock Options					Stock Warrants
				Weighted				Weighted
				Average				Average
				Exercise				Exercise
	Options			Price		Warrants		Price
Outstanding, September 30, 2014		707,128		$	4.90		301,740	$	6.25
Granted		138,800		$	2.75		181,538	$	3.75
Forfeited or expired		(64,700	)	$	6.10		-		-
Outstanding, March 31, 2015		781,228		$	4.40		483,278	$	5.30

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Note 10 - Accumulated Other Comprehensive Loss (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
Balance at beginning of period	$ (338)	$ (194)	$ (333)	$ (162)
Net change in foreign currency translation adjustment	(17)	(93)	(22)	(125)
Balance at end of period	$ (355)	$ (287)	$ (355)	$ (287)

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Note 11 - Net Loss Per Share (Tables)

6 Months Ended

Mar. 31, 2015

Notes Tables

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

	Three Months Ended						Six Months Ended
(in thousands, except per share data)	March 31,						March 31,
	2015			2014			2015			2014
Net loss	$	(2,073	)	$	(2,314	)	$	(4,183	)	$	(3,091	)
Dividends on convertible preferred stock		(30	)		-			(51	)		-
Net loss applicable to common shareholders	$	(2,103	)	$	(2,314	)	$	(4,234	)	$	(3,091	)
Weighted average common shares outstanding - basic		4,272			3,559			4,307			3,579
Effect of dilutive securities		-			-			-			-
Weighted average common shares outstanding - diluted		4,272			3,559			4,307			3,579
Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.49	)	$	(0.65	)	$	(0.98	)	$	(0.86	)

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Note 1 - Description of Business (Details Textual) (USD $)	1 Months Ended	6 Months Ended	0 Months Ended
	Apr. 30, 2015	Mar. 31, 2015	May 04, 2015	Sep. 30, 2014
Common Stock, Shares, Outstanding		4,441,381		4,388,583
Common Stock, Par or Stated Value Per Share		$ 0.001		$ 0.001
Common Stock, Shares Authorized		50,000,000		50,000,000
Proceeds from Issuance of Long-term Debt	$ 500,000	$ 1,000,000
Reverse Stock Split [Member] | Subsequent Event [Member]
Stockholders' Equity Note, Stock Split, Conversion Ratio			5
Subsequent Event [Member]
Common Stock, Shares, Outstanding			4,400,000
Common Stock, Par or Stated Value Per Share			0.001
Common Stock, Shares Authorized			50,000,000
Pre Reverse Stock Split [Member]
Common Stock, Shares, Outstanding		22,000,000
Revolving Credit Facility [Member]
Line of Credit Facility, Maximum Borrowing Capacity		5,000,000
Line Of Credit Facility Maximum Borrowing Capacity Percentage		80.00%
Line of Credit Facility Maximum Out of Formula Borrowings		$ 1,000,000

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Note 1 - Description of Business

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

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

1. Description of Business

Overview

Bridgeline Digital, The Digital Engagement Company™, enables its customers to maximize the performance of their mission critical websites, intranets, and online stores. Bridgeline’s iAPPS® platform deeply integrates Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics to help marketers deliver online experiences that attract, engage and convert their customers across all digital channels. 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 product, iAPPSds (“distributed subscription”), a platform that empowers franchise and large dealer networks with state-of-the-art web engagement management while providing superior oversight of corporate branding. iAPPSds deeply integrates content management, eCommerce, eMarketing and web analytics and is a self-service web platform that is offered to each authorized franchise or dealer for a monthly subscription fee. On August 1, 2013, we acquired franchise web developer ElementsLocal, expanding Bridgeline Digital’s presence in the franchise market place.

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.

The iAPPS Platform is an award-winning application recognized around the globe. Our teams of Microsoft Gold© certified developers have won over 100 industry related awards. In recent years, our iAPPS Content Manager and iAPPS Commerce products were selected as finalists for the 2014, 2013, and 2012 CODiE Awards for Best Content Management Solution and Best Electronic Commerce Solution, globally. Most recently, in 2015, we were named a finalist for the 2015 SIIA CODiE Award for Best Web Content Management Platform. In 2014 and 2013, Bridgeline Digital won twenty-five Horizon Interactive Awards for outstanding development of web applications and websites. Also in 2013, the Web Marketing Association sponsored Internet Advertising Competition honored Bridgeline Digital with three awards for iAPPS customer websites and B2B Magazine selected Bridgeline Digital as one of the Top Interactive Technology companies in the United States

.

KMWorld Magazine Editors selected Bridgeline Digital as one of the 100 Companies That Matter in Knowledge Management and also selected iAPPS as a Trend Setting Product in 2013.

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

Locations

The Company’s corporate office is 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; San Diego, CA; San Luis Obispo, CA; and Tampa, FL.  The Company has one wholly-owned subsidiary, Bridgeline Digital Pvt. Ltd. located in Bangalore, India.

Reverse Stock Split

On May 4, 2015, the Company’s Shareholders and the Board of Directors approved a reverse stock split pursuant to which all classes of our issued and outstanding shares of common stock at the close of business on such date were combined and reconstituted into a smaller number of shares of common stock in a ratio of 1 share of common stock for every 5 shares of common stock (“1-for-5 reverse stock split”). The 1-for-5 reverse stock split is effective as of close of business on May 7, 2015 and the Company’s stock began trading on a split-adjusted basis on May 8, 2015.

The reverse stock split reduces the number of shares of the Company’s common stock currently outstanding from approximately 22 million shares to approximately 4.4 million shares. Proportional adjustments have been made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants, restricted stock awards, convertible notes and stock options, and to the number of shares issued and issuable under the Company’s Amended and Restated Stock Incentive Plan.

Upon the effectiveness of the 1-for-5 reverse stock split, each five shares of the Company’s issued and outstanding common stock have been automatically combined and converted into one issued and outstanding share of common stock, par value $.001. The Company did not issue any fractional shares in connection with the reverse stock split. Instead, fractional share interests were rounded up to the next largest whole share. The reverse stock split does not modify the rights or preferences of the common stock. The number of authorized shares of the Company’s common stock remains at 50 million shares and the par value remains $0.001.

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

Liquidity

The Company has incurred operating losses and used cash in its operating activities for the past several years. Cash was used to fund acquisitions to broaden our geographic footprint, develop new products, and build infrastructure, while also ramping down a lower margin services model. The Company is currently working on reducing operating expenses. The Company’s management believes it will have an appropriate cost structure for its anticipated sales in the second half of fiscal 2015. Management believes that operating expenses will be reduced to the point where the Company can drive positive Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization and stock-based compensation charges)

. As such, management believes that the Company will provide sufficient cash flows to fund its operations in the ordinary course of business through at least the next twelve months. However, there can be no assurance that the anticipated sales level will be achieved. The Company also maintains a Loan and Security Agreement with BridgeBank (the “BridgeBank Loan Agreement”) which provides for up to $5 million of revolving credit advances. Borrowing is limited to the lesser of the $5 million or 80% of eligible receivables. In May 2015, the Company extended the term of its BridgeBank Loan Agreement from an expiration date of March 31, 2016 to June 30, 2016. Additionally, the Company can borrow up to $1 million in out of formula borrowings, which are further guaranteed by a director/shareholder of the Company. Subsequent to the quarter end, the Company received $500 in a long-term note from a director/shareholder stockholder of the Company

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Note 3 - Accounts Receivable and Unbilled Receivables (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Sep. 30, 2014
Accounts receivable	$ 4,191	$ 3,532
Allowance for doubtful accounts	(202)	(190)
Accounts receivable and unbilled receivables, net	3,989	3,342
Trade Accounts Receivable [Member]
Accounts receivable	3,529	3,303
Unbilled Receivables Member
Accounts receivable	$ 662	$ 229

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Note 7 - Debt - Summary of Debt (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Sep. 30, 2014
Line of credit borrowings	$ 7,807	$ 6,920
Less current portion	759	985
Long term debt, net of current portion	7,048	5,935
Line Of Credit Borrowings Member
Line of credit borrowings	3,048	2,938
Bank Term Loan Member
Line of credit borrowings	850	1,000
Subordinated Convertible Debt [Member]
Line of credit borrowings	3,000	3,000
Term Note [Member]
Line of credit borrowings	1,000
Subordinated Promissory Note Member
Line of credit borrowings	7	21
Subtotal of All Debt Excluding Debt Warrants [Member]
Line of credit borrowings	7,905	6,959
Debt Warrants [Member]
Line of credit borrowings	$ (98)	$ (39)

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Condensed Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Sep. 30, 2014
Current assets:
Cash and cash equivalents	$ 1,126	$ 1,256
Accounts receivable and unbilled receivables, net	3,989	3,342
Prepaid expenses and other current assets	765	747
Total current assets	5,880	5,345
Equipment and improvements, net	2,005	2,175
Intangible assets, net	1,276	1,582
Goodwill	23,141	23,141
Other assets	1,050	1,317
Total assets	33,352	33,560
Current liabilities:
Accounts payable	1,507	1,126
Accrued liabilities	936	957
Less current portion	759	985
Capital lease obligations, current	428	364
Deferred revenue	2,914	1,990
Total current liabilities	7,008	5,909
Debt, net of current portion	7,048	5,935
Capital lease obligations, net of current portion	115	247
Other long term liabilities	1,222	1,155
Total liabilities	15,619	13,627
Stockholders’ equity:
Common stock - $0.001 par value; 50,000,000 shares authorized; 4,441,381 at March 31, 2015 and 4,388,583 at September 30, 2014, issued and outstanding	22	22
Additional paid-in capital	49,829	47,773
Accumulated deficit	(31,763)	(27,529)
Accumulated other comprehensive loss	(355)	(333)
Total stockholders’ equity	17,733	19,933
Total liabilities and stockholders’ equity	33,352	33,560
Other Current Liabilities [Member]
Current liabilities:
Accrued earnouts, current	464	487
Other Noncurrent Liabilities [Member]
Current liabilities:
Accrued earnouts, net of current portion	$ 226	$ 381

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Note 11 - Net Loss Per Share (Details Textual)	3 Months Ended	6 Months Ended	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2014	Mar. 31, 2015
Equity Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	141,242	118,038
Warrant [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount			483,278

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Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014
Cash flows from operating activities:
Net loss	$ (4,183)	$ (3,091)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangible assets	306	341
Depreciation	556	647
Other amortization	310	272
Stock-based compensation	162	167
Contingent earnout liability adjustment	131
Change in deferred taxes	45
Changes in operating assets and liabilities
Accounts receivable and unbilled receivables	(647)	(251)
Prepaid expenses and other assets	320	446
Accounts payable and accrued liabilities	(11)	(621)
Deferred revenue	924	426
Other liabilities	(106)	5
Total adjustments	1,990	1,432
Net cash used in operating activities	(2,193)	(1,659)
Cash flows used in investing activities:
Purchase of equipment and improvements	(54)	(224)
Software development capitalization costs	(36)	(106)
Contingent acquisition payments	(309)	(284)
Net cash used in investing activities	(399)	(614)
Cash flows provided by financing activities:
Proceeds from issuance of common stock, net of issuance costs		2,753
Proceeds from issuance of convertible debt, net of issuance costs		913
Proceeds from exercise of employee stock options		185
Proceeds from employee stock purchase plan	2	13
Proceeds from issuance of 40,000 shares of preferred stock, net of issuance costs	1,776
Proceeeds from bank term loan	1,460	746
Proceeds from term note from stockholder	1,000
Borrowings on bank line of credit	625
Payments on bank term loan	(1,610)	(273)
Payments on bank line of credit	(515)	(1,026)
Payments on subordinated promissory notes	(14)	(71)
Principal payments on capital leases	(240)	(217)
Net cash provided by financing activities	2,484	3,023
Effect of exchange rate changes on cash and cash equivalents	(22)	(125)
Net (decrease)/increase in cash and cash equivalents	(130)	625
Cash and cash equivalents at beginning of period	1,256	2,830
Cash and cash equivalents at end of period	1,126	3,455
Supplemental disclosures of cash flow information:
Interest	114	104
Income taxes	18	44
Non cash investing and financing activities:
Equipment purchased under capital leases	172	89
Other assets included in accounts payable	19	22
Accrued dividends on convertible preferred stock	$ 51

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Note 4 - Summary of Changes in Warrant Liability (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
Beginning balance	$ 30		$ 39
Warrant liability	95	72	95	72
Fair value adjustment	(27)	(33)	(36)	(33)
Ending balance	$ 98	$ 39	$ 98	$ 39

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Significant Accounting Policies (Policies)

6 Months Ended

Mar. 31, 2015

Accounting Policies [Abstract]

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 in consolidation.

Basis of Accounting, Policy [Policy Text Block]

Unaudited Interim Financial Information

The accompanying interim Condensed Consolidated Balance Sheets as of March 31, 2015 and September 30, 2014, and the interim Condensed Consolidated Statements of Operations, Comprehensive Loss, and Cash Flows for the three and six months ended March 31, 2015 and 2014 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and with the same instructions to Form 10-Q and Regulation S-X, 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, 2014. These interim condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation of the Company’s financial position at March 31, 2015 and September 30, 2014 and its results of operations and cash flows for the three and six months ended March 31, 2015 and 2014. The results for the three and six months ended March 31, 2015 are not necessarily indicative of the results to be expected for the year ending September 30, 2015. The accompanying September 30, 2014 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, except as already disclosed in these financial statements.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In June 2014, the Financial Accounting Standards Board (“FASB”) issued a standards update on accounting for share-based payments when the terms of the award provide that a performance target could be achieved after a requisite service period. The standard is effective beginning January 1, 2016, with early adoption permitted. Management does not expect it to have a material impact on our consolidated financial position, results of operations or cash flows. 

In May 2014, the FASB issued a standard on revenue recognition providing a single, comprehensive revenue recognition model for all contracts with customers. The revenue standard is based on the principle that revenue should be recognized to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard is effective beginning January 1, 2017, with no early adoption permitted. The amendments may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of initial application. Management is currently evaluating the adoption method options and the impact of this new guidance on our condensed consolidated financial statements.

In April 2014, the FASB issued new accounting guidance on reporting discontinued operations and disclosures of disposals of components of an entity which clarifies the scope of what should be reported as discontinued operations and expands required disclosures. This new guidance is effective beginning October 1, 2015, with early adoption permitted. The impact of this guidance will be dependent on the nature and significance of any transactions within the scope of this new guidance.

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

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Note 5 - Intangible Assets (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
Amortization of Intangible Assets	$ 154	$ 216	$ 306	$ 341
Finite-Lived Intangible Assets, Amortization Expense, Remainder of Fiscal Year	254		254
Finite-Lived Intangible Assets, Amortization Expense, Year Two	428		428
Finite-Lived Intangible Assets, Amortization Expense, Year Three	333		333
Finite-Lived Intangible Assets, Amortization Expense, Year Four	$ 251		$ 251

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Note 4 - Fair Value Measurement and Fair Value of Financial Instruments (Tables)

6 Months Ended

Mar. 31, 2015

Notes Tables

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

		March 31, 2015
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent acquisition consideration	$	-	$	-	$	690	$	690
Warrant liability		-		-		98		98
Total Liabilities	$	-	$	-	$	788	$	788

		September 30, 2014
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent acquisition consideration	$	-	$	-	$	868	$	868
Warrant liability		-		-		39		39
Total Liabilities	$	-	$	-	$	907	$	907

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Beginning balance	$	689		$	1,511		$	868		$	1,511
Adjustments		131			-			131			-
Payments		(130	)		(643	)		(309	)		(643	)
Ending balance	$	690		$	868		$	690		$	868

Schedule of Changes in Warrant Liability [Table Text Block]

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Beginning balance	$	30		$	-		$	39		$	-
Warrant liability		95			72			95			72
Fair value adjustment		(27	)		(33	)		(36	)		(33	)
Ending balance	$	98		$	39		$	98		$	39

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Condensed Consolidated Statements of Cash Flows (Unaudited) (Parentheticals)	Mar. 31, 2015	Sep. 30, 2014
Preferred stock, shares issued (in shares)	40,427	0

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Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) (USD $)	Mar. 31, 2015	Sep. 30, 2014
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)	40,427	0
Preferred stock, shares outstanding (in shares)	40,427	0
Preferred Stock, Liquidation Preference	$ 2,051
Common Stock, Par Value (in dollars per share)	$ 0.001	$ 0.001
Common Stock, Shares Authorized (in shares)	50,000,000	50,000,000
Common Stock, Shares Issued (in shares)	4,441,381	4,388,583
Common Stock, Shares Outstanding (in shares)	4,441,381	4,388,583

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Note 10 - Accumulated Other Comprehensive Loss

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

10 . Accumulated Other Comprehensive Loss

The following table presents changes in accumulated other comprehensive loss for three and six months March 31, 2015 and 2014:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Balance at beginning of period	$	(338	)	$	(194	)	$	(333	)	$	(162	)
Foreign currency translation adjustment		(17	)		(93	)		(22	)		(125	)
Balance at end of period	$	(355	)	$	(287	)	$	(355	)	$	(287	)

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Document And Entity Information	6 Months Ended
	Mar. 31, 2015	May 11, 2015
Entity Registrant Name	Bridgeline Digital, Inc.
Entity Central Index Key	0001378590
Current Fiscal Year End Date	--09-30
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		4,441,381
Document Type	10-Q
Document Period End Date	Mar. 31, 2015
Document Fiscal Year Focus	2015
Document Fiscal Period Focus	Q2
Amendment Flag	false

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Note 11 - Net Loss Per Share

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Earnings Per Share [Text Block]

1 1 . Net Loss Per Share

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

	Three Months Ended						Six Months Ended
(in thousands, except per share data)	March 31,						March 31,
	2015			2014			2015			2014
Net loss	$	(2,073	)	$	(2,314	)	$	(4,183	)	$	(3,091	)
Dividends on convertible preferred stock		(30	)		-			(51	)		-
Net loss applicable to common shareholders	$	(2,103	)	$	(2,314	)	$	(4,234	)	$	(3,091	)
Weighted average common shares outstanding - basic		4,272			3,559			4,307			3,579
Effect of dilutive securities		-			-			-			-
Weighted average common shares outstanding - diluted		4,272			3,559			4,307			3,579
Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.49	)	$	(0.65	)	$	(0.98	)	$	(0.86	)

Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding.  Diluted net income per share is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock options and warrants using the “treasury stock” method.  The computation of diluted earnings per share does not include the effect of outstanding stock options and warrants that are anti-dilutive

.

For the three and six months ended March 31, 2015, all options were

excluded from the computation of diluted net loss per share as the effect was anti-dilutive to the Company’s net loss. For the three and six months ended March 31, 2014, options to purchase shares of 141,242 and 118,038 were excluded from the computation of diluted net loss per share as the effect was anti-dilutive to the Company’s net loss.

Warrants to purchase 483,278 shares of common stock and contingent shares to be issued in connection with prior acquisitions of Marketnet, Magnetic and ElementsLocal have also been excluded as they are anti-dilutive to the Company’s net loss. Also, excluded in the computation of diluted loss per share are the Series A convertible preferred stock shares as they are anti-dilutive to the Company’s net loss.

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Condensed Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
Net revenue:
Digital engagement services	$ 3,057	$ 3,610	$ 6,271	$ 8,159
Subscription and perpetual licenses	1,359	1,307	2,755	2,884
Managed service hosting	371	385	773	772
Total net revenue	4,787	5,302	9,799	11,815
Cost of revenue:
Digital engagement services	2,513	2,669	5,076	5,172
Subscription and perpetual licenses	463	452	893	849
Managed service hosting	74	68	148	152
Total cost of revenue	3,050	3,189	6,117	6,173
Gross profit	1,737	2,113	3,682	5,642
Operating expenses:
Sales and marketing	1,534	1,928	3,344	4,038
General and administrative	1,136	1,167	2,129	2,198
Research and development	467	579	1,069	1,102
Depreciation and amortization	442	551	894	1,005
Total operating expenses	3,579	4,225	7,436	8,343
Loss from operations	(1,842)	(2,112)	(3,754)	(2,701)
Interest and other expense, net	(203)	(167)	(366)	(334)
Loss before income taxes	(2,045)	(2,279)	(4,120)	(3,035)
Provision for income taxes	28	35	63	56
Net loss	(2,073)	(2,314)	(4,183)	(3,091)
Dividends on convertible preferred stock	(30)		(51)
Net loss applicable to common shareholders	$ (2,103)	$ (2,314)	$ (4,234)	$ (3,091)
Net loss per share attributable to common shareholders:
Basic and diluted (in dollars per share)	$ (0.49)	$ (0.65)	$ (0.98)	$ (0.86)
Number of weighted average shares outstanding:
Basic and diluted (in shares)	4,271,508	3,558,922	4,307,265	3,578,885

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Note 5 - Intangible Assets

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

5 . Intangible Assets

The components of intangible assets are as follows:

	As of		As of
	March 31, 2015		September 30, 2014
Domain and trade names	$	10	$	10
Customer related		1,014		1,284
Non-compete agreements		252		288
Balance at end of period	$	1,276	$	1,582

Total amortization expense related to intangible assets for the three months ended March 31, 2015 and 2014 was $154 and $216, and $306 and $341 for the six months ended March 31, 2015 and 2014, respectively, and are reflected in operating expenses on the Condensed Consolidated Statements of Operations. The estimated amortization expense for fiscal years 2015 (remaining), 2016, 2017, and 2018 and thereafter is $254, $428, $333, and $251, respectively.

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Note 4 - Fair Value Measurement and Fair Value of Financial Instruments

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Fair Value Disclosures [Text Block]

4 . Fair Value Measurement and Fair Value of Financial Instruments

The Company’s other financial instruments consist principally of accounts receivable, accounts payable, and debt. The Company believes the recorded values for accounts receivable and accounts payable approximate current fair values as of March 31, 2015 and September 30, 2014 because of their nature and durations. The carrying value of debt instruments also approximates fair value as of March 31, 2015 and September 30, 2014 based on acceptable valuation methodologies which use market data of similar size and situated debt issues.

Assets and liabilities of the Company measured at fair value on a recurring basis as of March 31, 2015 and September 30, 2014 are as follows:

		March 31, 2015
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent acquisition consideration	$	-	$	-	$	690	$	690
Warrant liability		-		-		98		98
Total Liabilities	$	-	$	-	$	788	$	788

		September 30, 2014
	Level 1		Level 2		Level 3		Total
Liabilities:
Contingent acquisition consideration	$	-	$	-	$	868	$	868
Warrant liability		-		-		39		39
Total Liabilities	$	-	$	-	$	907	$	907

The Company determines the fair value of acquisition-related contingent consideration based on assessment of the probability that the Company would be required to make such future payments. Changes to the fair value of contingent consideration are recorded in general and administrative expenses. The following table provides a rollforward of the fair value, as determined by Level 3 inputs, of the contingent consideration.

The following table summarizes the changes in contingent consideration for the three and six months ended March 31, 2015 and 2014:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Beginning balance	$	689		$	1,511		$	868		$	1,511
Adjustments		131			-			131			-
Payments		(130	)		(643	)		(309	)		(643	)
Ending balance	$	690		$	868		$	690		$	868

The following table summarizes the changes in warrant liability for the three and six months ended March 31, 2015 and 2014:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2015			2014			2015			2014
Beginning balance	$	30		$	-		$	39		$	-
Warrant liability		95			72			95			72
Fair value adjustment		(27	)		(33	)		(36	)		(33	)
Ending balance	$	98		$	39		$	98		$	39

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Note 3 - Accounts Receivable and Unbilled Receivables (Tables)

6 Months Ended

Mar. 31, 2015

Notes Tables

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

	As of			As of
	March 31, 2015			September 30, 2014
Accounts receivable	$	3,529		$	3,303
Unbilled receivables		662			229
Subtotal		4,191			3,532
Allowance for doubtful accounts		(202	)		(190	)
Accounts receivable and unbilled receivables, net	$	3,989		$	3,342

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Note 12 - Income Taxes

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Income Tax Disclosure [Text Block]

12. Income Taxes

Income tax expense was $28 and $35 for the three months ended March 31, 2015 and 2014 and $63 and $56 for the six months ended March 31, 2015 and 2014. 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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Note 8 - Other Long Term Liabilities

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

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

8 . Other Long Term Liabilities

Deferred Rent

In connection with the leases in Massachusetts, New York, and San Luis Obispo, the Company made investments in leasehold improvements at these locations of approximately $1.6 million, of which the respective landlords funded approximately $857. 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 March 31, 2015,

$255 was reflected in Accrued Liabilities and $715 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 6 - Goodwill

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Goodwill Disclosure [Text Block]

6 . Goodwill

Changes in the carrying amount of goodwill follows:

	As of		As of
	March 31, 2015		September 30, 2014
Balance at beginning of period	$	23,141	$	23,777
Purchase price allocation adjustments		-		(636	)
Balance at end of period	$	23,141	$	23,141

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Note 7 - Debt

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Debt Disclosure [Text Block]

7 . Debt

Debt consists of the following:

	As of			As of
	March 31, 2015			September 30, 2014
Line of credit borrowings	$	3,048		$	2,938
Bank term loan		850			1,000
Subordinated convertible debt		3,000			3,000
Term notes from shareholder		1,000			-
Subordinated promissory notes		7			21
Subtotal debt	$	7,905		$	6,959
Other (debt discount warrants)	$	(98	)	$	(39	)
Total debt	$	7,807		$	6,920
Less current portion	$	759		$	985
Long term debt, net of current portion	$	7,048		$	5,935

Line of Credit and Bank Term Loan

In December 2013, the Company entered into a Loan and Security Agreement with BridgeBank (the “BridgeBank Loan Agreement”). The BridgeBank Loan Agreement replaced the Company’s prior credit facility with Silicon Valley Bank (“SVB”), which expired on December 31, 2013. The Loan Agreement has a 27 month term which expires on March 31, 2016. In May 2015, the Company extended the term to June 30, 2016. The Loan Agreement provides for up to $5 million of revolving credit advances which may be used for acquisitions and working capital purposes. Borrowings are limited to the lesser of (i) $5 million and (ii) 80% of eligible receivables as defined. The Company can borrow up to $1.0 million in out of formula borrowings for specified periods of time.   Borrowings bear interest at BridgeBank’s prime plus 1.00% (4.25%).  The Company pays an annual commitment fee of 0.25%. Borrowings are secured by all of the Company’s assets and all of the Company’s intellectual property. The Company is also required to comply with certain financial and reporting covenants including an Asset Coverage Ratio. As of March 31, 2015, the Company had an outstanding balance under the BridgeBank Loan Agreement of $3.0 million. The Company was in compliance with all reporting covenants for the period ended March 31, 2015. At March 31, 2015, the Company also had an outstanding short term loan with BridgeBank of $850 which was repaid in April 2015

.

In December 2014, the Company signed an Amendment to its Loan and Security Agreement with Bridge Bank (the “Amendment”). As part of the Amendment Mr. Michael Taglich, a member of the Board of Directors, signed an unconditional guaranty (the “Guaranty”) and promise to pay the Company’s lender, Bridge Bank, N.A all indebtedness in an amount not to exceed $1 million in connection with the out of formula borrowings. The Amendment also modified certain monthly financial reporting requirements and financial covenants on a prospective basis commencing as of the effective date of the Amendment.

Under the terms of the Guaranty, the Guarantor authorizes Lender, without notice or demand and without affecting its liability hereunder, from time to time to: (a) renew, compromise, extend, accelerate, or otherwise change the time for payment, or otherwise change the terms, of the Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon, or otherwise change the terms of the Indebtedness; (b) receive and hold security for the payment of this Guaranty or any Indebtedness and exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any such security; (c) apply such security and direct the order or manner of sale thereof as Lender in its discretion may determine; and (d) release or substitute any Guarantor or any one or more of any endorsers or other guarantors of any of the Indebtedness.

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

Subordinated Convertible Debt

On September 30, 2013, the Company entered into a Note Purchase Agreement (the "Purchase Agreement") with accredited investors pursuant to which Bridgeline Digital sold an aggregate of $2.0 million of 10% secured subordinated convertible notes (the "Notes"). The gross proceeds to Bridgeline Digital at the closing of this private placement were $2.0 million. The Notes accrue interest at a rate of ten percent (10%) per annum and mature on September 30, 2016. Interest on the Notes is payable quarterly in cash. The Notes are convertible at the election of the holder into shares of common stock of Bridgeline Digital at a conversion price equal to $6.50 per share at any time prior to the maturity date, provided that no holder may convert the Notes if such conversion would result in the holder beneficially owning more than 4.99% of the number of shares of Bridgeline Digital common stock outstanding at the time of conversion.

On November 6, 2013, the Company entered into an amendment (the "Amendment") to the Purchase Agreement by and among Bridgeline Digital and the accredited investors’ party thereto. The Amendment increased the aggregate amount of 10% secured subordinated convertible notes (the "New Notes") able to be sold by Bridgeline Digital to $3.0 million. On November 6, 2013, Bridgeline Digital sold an additional $1.0 million of New Notes (the "Second Closing"). The gross proceeds to Bridgeline Digital at the Second Closing of this private placement were $1.0 million. The Notes accrue interest at a rate of ten percent (10%) per annum and mature on November 6, 2016. Interest on the Notes is payable quarterly in cash. The Notes are convertible at the election of the holder into shares of common stock of Bridgeline Digital at a conversion price equal to

$6.50 per share at any time prior to the maturity date, provided that no holder may convert the Notes if such conversion would result in the holder

beneficially owning more than 4.99% of the number of shares of Bridgeline Digital common stock outstanding at the time of conversion.

The Notes are secured by all of Bridgeline Digital's assets. The security interest granted to the holders of the Notes is subordinate to the security interest held by Bridgeline Digital's senior lender, BridgeBank. Bridgeline Digital may prepay any portion of the principal amount of the outstanding Notes at any time, provided that if Bridgeline Digital prepays any principal on or before September 30, 2014, Bridgeline Digital will pay a penalty equal to 10% of the principal amount being prepaid. Under certain circumstances Bridgeline Digital has the right to force conversion of the Notes into shares of Bridgeline Digital common stock in the event the Bridgeline Digital common stock trades in excess of $13.00 per share for 20 trading days out of any 30 trading day period.

The Notes contain customary events of default. Upon the occurrence of any event of default the interest rate under the Notes will increase. In addition, upon the occurrence of a payment default under the Notes, Bridgeline Digital must pay a premium equal to 20% of the outstanding principal amount of the Notes. In the event of a change in control of Bridgeline Digital while the Notes are outstanding, Bridgeline Digital will provide the holders of the Notes with the opportunity to convert the Notes immediately prior to the change in control. In the event the holders of the Notes do not elect to convert the Notes, Bridgeline Digital may prepay all outstanding principal and accrued interest under the Notes.

The placement agent for both transactions was Taglich Brothers, Inc. As compensation for the initial transaction on September 30, 2013, Bridgeline Digital paid a fee of $160 and issued to Taglich Brothers, Inc., or its designees, five-year warrants to purchase an aggregate of 30,770 shares of common stock at an exercise price equal to $6.50 per share. The warrants are first exercisable on March 30, 2014, and provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision. As compensation for the Second Closing, Bridgeline Digital paid Taglich Brothers, Inc. a fee of $80 and issued to Taglich Brothers, Inc., or its designees, five-year warrants to purchase an aggregate of 15,385 shares of common stock at an exercise price equal to $6.50 per share. The warrants are first exercisable on May 6, 2014, provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision. Fair market value of the warrants are $49 and is included in current liabilities and non-current debt with the offsetting amount recorded to additional paid in capital in the Condensed Consolidated Balance Sheet. The fair market value of the warrants will be amortized on a straight-line basis over the estimated life of two years.

The shares of common stock issuable upon conversion of the Notes and upon exercise of the warrants are restricted securities and may be sold only pursuant to Rule 144 or in another transaction exempt from the registration requirements under the Securities Act of 1933. Pursuant to the terms of the Purchase Agreement, Bridgeline Digital has agreed to provide piggyback registration rights with respect to the shares of common stock issuable upon conversion of the Notes in the event Bridgeline Digital files a registration statement, with certain limited exceptions.

Term Note

s

from Shareholder

On January 7, 2015, Bridgeline issued a Term Note to Michael Taglich to document a loan by Michael Taglich to Bridgeline of $500. The funds were received in December 2014 and are reflected in Long Term Debt on the Balance Sheet. The terms of the Note provide that Bridgeline will pay interest at a rate of 7% per annum and the note will mature on June 30, 2016. On February 9, 2015, the Company entered into a second Term Note (“Second Note”) for $500 with Mr. Taglich. The terms of the Second Note provide that Bridgeline will pay interest at a rate of 7% per annum and the note will mature on September 1, 2016. Subsequent to the end of the quarter, the Company entered into a third Term Note (“Third Note”) for $500 with Mr. Taglich. The terms of the Third Note provide that Bridgeline will pay interest at a rate of 7% per annum and the note will mature on September 1, 2016.

In consideration of the loan by Michael Taglich and a personal guaranty delivered by Michael Taglich to Bridge Bank, N.A. for the benefit of Bridgeline on December 19, 2014 (the “Guaranty”), on January 7, 2015 the Company issued Michael Taglich a warrant to purchase 60,000 shares of Common Stock of the Company at a price equal to $4.00 per share. Mr. Taglich was also issued additional warrants in the amount of 60,000 in conjunction with the Second note of $500. The warrants have a term of five years and are exercisable six months after the date of issuance. Bridgeline agreed to provide piggyback registration rights with respect to the shares of common stock underlying the warrants. On January 7, 2015, Bridgeline also entered into a side letter with Michael Taglich pursuant to which Bridgeline agreed in the event the Guaranty remains outstanding for a period of more than 12 months, on each anniversary of the date of issuance of the Guaranty while the Guaranty remains outstanding Bridgeline will issue Michael Taglich a warrant to purchase 30,000 shares of common stock, which warrant shall contain the same terms as the warrant issued to Michael Taglich on January 7, 2015. In May 2015, Mr. Taglich was issued additional warrants in the amount of 60,000 at an exercise price of $4.00 in conjunction with the Third note of $500.

Subordinated 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 is payable in eight equal installments of $8, including interest accrued at 5%, and matured in May 2014. This note was paid in full as of September 30, 2014. The second Promissory Note in the amount of $80 is payable in twelve equal installments of $7, including interest accrued at 5%, and matures in May 2015.

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Note 9 - Shareholders' Equity

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

9. Shareholder s ’ Equity

Reverse Stock Split

On May 4, 2015, the Company’s Shareholders and the Board of Directors approved a reverse stock split pursuant to which all classes of our issued and outstanding shares of common stock at the close of business on such date were combined and reconstituted into a smaller number of shares of common stock in a ratio of 1 share of common stock for every 5 shares of common stock (“1-for-5 reverse stock split”). The 1-for-5 reverse stock split is effective as of close of business on May 7, 2015 and the Company’s stock began trading on a split-adjusted basis on May 8, 2015.

The reverse stock split reduces the number of shares of the Company’s common stock currently outstanding from approximately 22 million shares to approximately 4.4 million shares. Proportional adjustments have been made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants, restricted stock awards, convertible notes and stock options, and to the number of shares issued and issuable under the Company’s Amended and Restated Stock Incentive Plan.

Upon the effectiveness of the 1-for-5 reverse stock split, each five shares of the Company’s issued and outstanding common stock have been automatically combined and converted into one issued and outstanding share of common stock, par value $.001. The Company will not issue any fractional shares in connection with the reverse stock split. Instead, fractional share interests were rounded up to the next largest whole share. The reverse stock split does not modify the rights or preferences of the common stock. The number of authorized shares of the Company’s common stock remains at 50 million shares and the par value remains $0.001.

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

Preferred

Stock

On October 27, 2014, the Company sold 40,000 shares of Series A convertible preferred stock (the “Preferred Stock”) at a purchase price of $50.00 per share for gross proceeds of $2.0 million in a private placement. Net proceeds to the Company after offering expenses were approximately $1.8 million. The shares of Preferred Stock may be converted, at the option of the holder at any time, into such number of shares of common stock (“Conversion Shares”) equal (i) to the number of shares of Preferred Stock to be converted, multiplies by the stated value of $50.00 (the “Stated Value”) and (ii) divided by the conversion price in effect at the time of conversion. The initial conversion price is $3.25, and is subject to adjustment in the event of stock splits or stock dividends. Any accrued but unpaid dividends on the shares of Preferred Stock to be converted shall also be converted in common stock at the conversion price. A mandatory provision also may provide that the Company will have the right to require the holders to convert shares of Preferred Stock into Conversion Shares if (i) the Company’s common stock has closed at or above $6.50 per share for ten consecutive trading days and (ii) the Conversion Shares are (A) registered for resale on an effective registration statement or (B) may be resold pursuant to Rule 144.

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

.

Cumulative dividends are payable at a rate of 6% per year. If the Company does not pay the dividends in cash, then the Company may pay dividends in any quarter by delivery of additional shares of Preferred Stock (“PIK Election”).

If the Company shall make the PIK Election with respect to the dividend payable, it shall deliver a number of shares of Preferred Stock equal to (A) the aggregate dividend payable to such holder as of the end of the quarter

divided by

(B) the lesser of (x) the then effective Conversion Price or (y) the average VWAP for the five (5) consecutive Trading Days prior to such dividend payment date. If, after two years, any Preferred Stock are outstanding the cash dividend rate will increase to 12.0% per year. The Company shall have the right to force conversion of the Preferred Stock into shares of Common Stock at any time after the Common Stock trades in excess of $6.50 per share. The Preferred Shares shall vote with the Common on an as converted basis.

In December 2014, the Company elected to declare a stock dividend (PIK election) for the first dividend payment date of January 2, 2015. The Company issued 427 preferred convertible shares in January 2015 to the preferred shareholders. In March 2015, the Company elected to declare a stock dividend (PIK election) for the second dividend payment date of April 1, 2015. The Company issued 600 preferred convertible shares in April 2015 to the preferred shareholders.

Common Stock

In June 2013, the Company sold 460,000 shares of common stock at $5.00 per share for gross proceeds of $2.3 million in a private placement. Net proceeds to the Company after offering expenses were approximately $2.1 million. In addition, the Company issued the investors and placement agent and its affiliates five year warrants to purchase an aggregate of 92,000 and 46,000 shares, respectively, of Bridgeline’s common stock at a price equal to $6.25 per share. There are no plans to register the common stock issued in this offering, however in the event the Company does register other Common stock, 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 January 2014, the Company issued 11,380 shares of common stock at $5.80 per share to four members of its Board of Directors in lieu of cash payments for their services as board members. The shares vested in equal installments on a monthly basis through the end of the service period of September 30, 2014. The aggregate fair value of the shares is $66 and was expensed over the service period. In March 2015, the Company issued 20,417 shares of common stock at $2.40 per share to four members of its Board of Directors in lieu of cash payments for their services as board members. The shares vested in equal installments on a monthly basis through the end of the service period of September 30, 2015. The aggregate fair value of the shares is $50 and is being expensed over the service period.

In March 2014, the Company sold 640,000 shares of common stock at $4.75 per share for gross proceeds of $3 million in a private placement. Net proceeds to the Company after offering expenses were approximately $2.7 million. In addition, the Company issued the placement agent five year warrants to purchase an aggregate of 64,000 shares of Bridgeline’s common stock at a price equal to $5.25 per share. There are no plans to register the common stock issued in this offering, however in the event the Company does register other common stock, 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 March 2015, the Company issued 40,834 shares of common stock at $2.40 per share to four members of our Board of Directors in lieu of cash payments for their services as board members. The shares vest in equal installments on a monthly basis through the end of the service period of September 30, 2015. The aggregate fair value of the shares is $98 and will be expensed over the service period. A total of $25 was recorded as expense in the three months ended March 31, 2015.

Contingent Consideration

In connection with the acquisition of ElementsLocal on August 1, 2013, the Company issued 105,288 common shares to the sellers of ElementsLocal. In addition, contingent consideration not to exceed 67,693 shares of Bridgeline Digital common stock is contingently issuable to the sellers of ElementsLocal. The contingent consideration is payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain revenue targets.

Through March 31, 2015, the stockholders of ElementsLocal earned 33,846 shares of common stock.

In connection with the acquisition of MarketNet on May 31, 2012, contingent consideration of 40,867 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. Through March 31, 2015, the sole stockholder of MarketNet earned 31,726 shares of common stock.

In connection with the acquisition of Magnetic Corporation on October 3, 2011, contingent consideration of 33,334 shares of Bridgeline Digital common stock was contingently issuable to the sole stockholder of Magnetic. The contingent consideration was payable quarterly over the 12 consecutive calendar quarters following the acquisition, contingent upon the acquired business achieving certain operating and revenue targets. As of March 31, 2015, the sole stockholder of Magnetic earned the full value or 33,334 shares of common stock.

Amended and Restated Stock Incentive Plan

Effective August 2014, the Company’s Amended and Restated Stock Incentive Plan (the “Plan”) provides for the issuance of up 900,000 million shares of common stock. The Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company. Options granted under the Plan may be granted with contractual lives of up to ten years. There were 781,228 options outstanding reserved under the Plan as of March 31, 2015 and 118,773 shares available for future issuance.

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 60,000 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 30,000 shares

. During the six months ended March 31, 2015, employees purchased 485 shares for the most recent offering period.

Common Stock Warrants

On October 21, 2010, the Company issued 10,000 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, 5,000 are exercisable at an exercise price of $5.00 per share and 5,000 are exercisable at an exercise price of $10.00 per share.

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 43,587 shares of the Company’s common stock at a price equal to $7.00 per share.  

On June 19, 2013, the Company issued

five year warrants to the investors and placement agent in the Company’s private placement. The warrants are exercisable to purchase 92,000 and 46,000 shares, respectively, of the Company’s common stock at a price equal to $6.25 per share.

On September 30, 2013, the Company issued

five year warrants to the placement agent in the Company’s placement of subordinated convertible debt. The warrants are exercisable to purchase 30,770 of the Company’s common stock at a price equal to $6.50 per share.  

The warrants are first exercisable on March 30, 2014, provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision.

On November 1, 2013, the Company issued

five year warrants to the placement agent in the Company’s placement of subordinated convertible debt. The warrants are exercisable to purchase

15,385 shares of the Company’s common stock at a price equal to $6.50 per share. The warrants are first exercisable on May 6, 2014, provide the holders piggyback registration rights with respect to the shares of common stock underlying the warrants and contain a cashless exercise provision.

In March 2014, the Company issued five year warrants to the investors and 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 $5.25 per share.  

On October 28, 2014, the Company issued

five year warrants to the placement agent in the Company’s private placement of series A convertible preferred stock. The warrants are exercisable to purchase

61,539 shares of the Company’s common stock at a price equal to $3.25 per share.

In connection with a $1 million term notes issued in the three months ended March 31, 2015, the Company issued warrants to an director/shareholder. The warrants are exercisable to purchase 120,000 shares of the Company’s common stock at a price equal to $4.00 per share. 

As of March 31, 2015: (i)

placement agent warrants to purchase 43,587, 46,000, 46,154, 28,460, and 61,539 shares at an exercise price of $7.00, $6.25, $6.50, $5.25 and $3.25, respectively are outstanding; (ii) investor warrants to purchase 92,000, 35,540, and 120,000 shares at an exercise price of $6.25, $5.25, and $4.00,and (iii) warrants issued to a non-employee consultant to purchase 5,000 shares at an exercise price of $5.00 and 5,000 shares at an exercise price of $10.00 are outstanding.

Summary of Option and Warrant Activity and Outstanding Shares

	Stock Options					Stock Warrants
				Weighted				Weighted
				Average				Average
				Exercise				Exercise
	Options			Price		Warrants		Price
Outstanding, September 30, 2014		707,128		$	4.90		301,740	$	6.25
Granted		138,800		$	2.75		181,538	$	3.75
Forfeited or expired		(64,700	)	$	6.10		-		-
Outstanding, March 31, 2015		781,228		$	4.40		483,278	$	5.30

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Note 4 - Changes in Fair Value of Contingent Consideration (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
Beginning balance	$ 689	$ 1,511	$ 868	$ 1,511
Adjustments	131		131
Payments	(130)	(643)	(309)	(643)
Ending balance	$ 690	$ 868	$ 690	$ 868

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Note 14 - Legal Proceedings

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Legal Matters and Contingencies [Text Block]

1 4 . Legal Proceedings

The Company is subject to ordinary routine litigation and claims incidental to its business. As of March 31, 2015 the Company was not engaged with any material legal proceedings.

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Note 6 - Goodwill (Tables)

6 Months Ended

Mar. 31, 2015

Notes Tables

Schedule of Goodwill [Table Text Block]

	As of		As of
	March 31, 2015		September 30, 2014
Balance at beginning of period	$	23,141	$	23,777
Purchase price allocation adjustments		-		(636	)
Balance at end of period	$	23,141	$	23,141

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Note 8 - Other Long Term Liabilities (Details Textual) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2015	Sep. 30, 2014
Leasehold Improvements, Gross	$ 1,600
Other Liabilities, Noncurrent	1,222	1,155
Paid By Landlord Member
Leasehold Improvements, Gross	857
Leasehold Improvements [Member]
Accrued Liabilities	255
Other Liabilities, Noncurrent	$ 715

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Condensed Consolidated Statements of Comprehensive Loss (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Mar. 31, 2015	Mar. 31, 2014	Mar. 31, 2015	Mar. 31, 2014
Net Loss	$ (2,073)	$ (2,314)	$ (4,183)	$ (3,091)
Net change in foreign currency translation adjustment	(17)	(93)	(22)	(125)
Comprehensive loss	$ (2,090)	$ (2,407)	$ (4,205)	$ (3,216)

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Note 3 - Accounts Receivable and Unbilled Receivables

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

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
	March 31, 2015			September 30, 2014
Accounts receivable	$	3,529		$	3,303
Unbilled receivables		662			229
Subtotal		4,191			3,532
Allowance for doubtful accounts		(202	)		(190	)
Accounts receivable and unbilled receivables, net	$	3,989		$	3,342

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Note 7 - Debt (Tables)

6 Months Ended

Mar. 31, 2015

Notes Tables

Schedule of Debt [Table Text Block]

	As of			As of
	March 31, 2015			September 30, 2014
Line of credit borrowings	$	3,048		$	2,938
Bank term loan		850			1,000
Subordinated convertible debt		3,000			3,000
Term notes from shareholder		1,000			-
Subordinated promissory notes		7			21
Subtotal debt	$	7,905		$	6,959
Other (debt discount warrants)	$	(98	)	$	(39	)
Total debt	$	7,807		$	6,920
Less current portion	$	759		$	985
Long term debt, net of current portion	$	7,048		$	5,935

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Note 6 - Changes in the Carrying Amount of Goodwill (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Mar. 31, 2015	Sep. 30, 2014
Balance at beginning of period	$ 23,141	$ 23,777
Purchase price allocation adjustments		(636)
Balance at end of period	$ 23,141	$ 23,141

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Note 13 - Related Party Transactions

6 Months Ended

Mar. 31, 2015

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

1 3 . Related Party Transactions

In October 2013, Mr. Michael Taglich joined the Board of Directors. Mr. Taglich is the Chairman and President of Taglich Brothers, Inc. a New York based securities firm. Taglich Brothers, Inc. was the agent for the private placement of convertible preferred stock in October 2014. Fees paid to Taglich Brothers, Inc. in connection with the October 2014 convertible preferred stock were $160. Mr. Taglich personally owns more than 5% of Bridgeline stock. Other employees, affiliates and clients of Taglich Brothers, Inc. own approximately 600,000 shares of Bridgeline common stock and 40,427 shares of convertible preferred stock.