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, 2018

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, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☐	Accelerated filer  ☐	Non-accelerated filer  ☐	Smaller reporting company ☒
		(Do not check if a smaller reporting company)
Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

The number of shares of Common Stock par value $0.001 per share, outstanding as of May 10, 2018 was 4,241,225.

1

Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended March 31, 2018

Index

		Page
Part I	Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2018 and September 30, 2017	4
	Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended March 31, 2018 and 2017	5
	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and six months ended March 31, 2018 and 2017	6
	Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended March 31, 2018 and 2017	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
Part II	Other Information
Item 1.	Legal Proceedings	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 6.	Exhibits	31
Signatures		32

2

Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended March 31, 2018

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, 2017 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

 (in thousands, except share and per share data)

(Unaudited)

	March 31,			September 30,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	756		$	748
Accounts receivable and unbilled receivables, net		2,879			3,026
Prepaid expenses and other current assets		429			352
Total current assets		4,064			4,126
Property and equipment, net		98			209
Intangible assets, net		120			263
Goodwill		12,641			12,641
Other assets		273			334
Total assets	$	17,196		$	17,573
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,787		$	1,241
Accrued liabilities		718			920
Debt, current		120			-
Deferred revenue		1,193			1,466
Total current liabilities		3,818			3,627
Debt, net of current portion		2,591			2,500
Other long term liabilities		380			172
Total liabilities		6,789			6,299
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock - $0.001 par value; 1,000,000 shares authorized; 258,494 at March 31, 2018 and 243,536 at September 30, 2017, issued and outstanding (liquidation preference $2,624, as of March 31, 2018)		-			-
Common stock - $0.001 par value; 50,000,000 shares authorized; 4,241,225 at March 31, 2018 and 4,200,219 at September 30, 2017, issued and outstanding		4			4
Additional paid-in capital		66,265			65,869
Accumulated deficit		(55,511	)		(54,249	)
Accumulated other comprehensive loss		(351	)		(350	)
Total stockholders’ equity		10,407			11,274
Total liabilities and stockholders’ equity	$	17,196		$	17,573

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

4

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (in thousands, except share and per share data)

(Unaudited)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2018			2017			2018			2017
Net revenue:
Digital engagement services	$	1,921		$	2,151		$	3,981		$	4,177
Subscription and perpetual licenses		1,499			1,582			3,105			3,307
Managed service hosting		293			261			596			501
Total net revenue		3,713			3,994			7,682			7,985
Cost of revenue:
Digital engagement services		1,292			1,144			2,689			2,272
Subscription and perpetual licenses		513			499			993			995
Managed service hosting		86			73			166			144
Total cost of revenue		1,891			1,716			3,848			3,411
Gross profit		1,822			2,278			3,834			4,574
Operating expenses:
Sales and marketing		950			1,174			2,054			2,468
General and administrative		795			803			1,531			1,594
Research and development		408			422			815			782
Depreciation and amortization		104			157			212			342
Restructuring charges		181			169			181			200
Total operating expenses		2,438			2,725			4,793			5,386
Loss from operations		(616	)		(447	)		(959	)		(812	)
Interest and other expense, net		(64	)		(82	)		(150	)		(113	)
Loss before income taxes		(680	)		(529	)		(1,109	)		(925	)
Provision for income taxes		-			1			1			13
Net loss		(680	)		(530	)		(1,110	)		(938	)
Dividends on convertible preferred stock		(77	)		(68	)		(152	)		(136	)
Net loss applicable to common shareholders	$	(757	)	$	(598	)	$	(1,262	)	$	(1,074	)
Net loss per share attributable to common shareholders:
Basic and diluted		(0.18	)		(0.14	)		(0.30	)		(0.26	)
Number of weighted average shares outstanding:
Basic and diluted	$	4,227,101		$	4,180,818		$	4,213,660		$	4,096,271

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

5

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

 (in thousands)

(Unaudited)

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2018			2017			2018			2017
Net Loss	$	(680	)	$	(530	)	$	(1,110	)	$	(938	)
Other Comprehensive Income: Net change in foreign currency translation adjustment		-			1			1			3
Comprehensive loss	$	(680	)	$	(529	)	$	(1,109	)	$	(935	)

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

6

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (in thousands)

(Unaudited)

	Six Months Ended
	March 31,
	2018			2017
Cash flows from operating activities:
Net loss	$	(1,110	)	$	(938	)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of property and equipment		60			48
Amortization of intangible assets		143			143
Depreciation		65			163
Other amortization		33			66
Debt discount amortization		50			-
Change in fair value of warrant		(20	)		-
Stock-based compensation		247			272
Changes in operating assets and liabilities
Accounts receivable and unbilled receivables		147			331
Prepaid expenses and other assets		(3	)		(5	)
Accounts payable and accrued liabilities		312			(466	)
Deferred revenue		(273	)		279
Other liabilities		(80	)		(48	)
Total adjustments		681			783
Net cash used in operating activities		(429	)		(155	)
Cash flows used in investing activities:
Software development capitalization costs		-			(41	)
Purchase of property and equipment		(13	)		(8	)
Net cash used in investing activities		(13	)		(49	)
Cash flows provided by financing activities:
Proceeds from issuance of common stock, net of issuance costs		-			853
Proceeds from term loan		953			-
Borrowing on bank line of credit		388			1,097
Payments on bank line of credit		(890	)		(980	)
Contingent acquisition payments		-			(75	)
Principal payments on capital leases		-			(24	)
Net cash provided by financing activities		451			871
Effect of exchange rate changes on cash and cash equivalents		(1	)		3
Net increase in cash and cash equivalents		8			670
Cash and cash equivalents at beginning of period		748			661
Cash and cash equivalents at end of period	$	756		$	1,331
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	110		$	65
Income taxes	$	2			-
Non cash investing and financing activities:
Dividends on convertible preferred stock	$	152		$	136

7

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

1.   Description of Business

Overview

Bridgeline Digital, The Digital Engagement Company™, helps customers with their digital experience from websites and intranets to online stores. Bridgeline’s Unbound platform integrates Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics to deliver digital experiences to its customers. The Bridgeline Unbound platform is delivered through a cloud-based SaaS (“Software as a Service”) multi-tenant business model, providing maintenance, daily technical operation and support; or via a traditional perpetual licensing business model, in which the software resides on a dedicated server in either the customer’s facility or hosted by Bridgeline via a cloud-based hosted services model.

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

Locations

The Company’s corporate office is located in Burlington, Massachusetts.  The Company has one wholly-owned subsidiary, Bridgeline Digital Pvt. Ltd. located in Bangalore, India.

Reverse Stock Split

On June 29, 2017, 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 was effective as of close of business on July 24, 2017 and the Company’s stock began trading on a split-adjusted basis on July 25, 2017.

The reverse stock split reduced the number of shares of the Company’s common stock currently outstanding as of March 31, 2017 from approximately 21 million shares to approximately 4.2 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, and stock options, and to the number of shares issued and issuable under the Company’s Stock Incentive Plans. Upon the effectiveness of the 1-for-5 reverse stock split, each five shares of the Company’s issued and outstanding common stock were 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 condensed consolidated financial statements and footnotes have been retroactively adjusted to reflect the effects of the 1-for-5 reverse stock split.

Liquidity and Management’s Plans

The Company has a Loan and Security Agreement (“Heritage Agreement”) with Heritage Bank of Commerce (“Heritage Bank”) which has a maturity date of June 15, 2019. The Heritage Agreement currently provides for $2.5 million of revolving credit advances and may be used for acquisitions and working capital purposes. The credit advances may not exceed the monthly borrowing base capacity, which will fluctuate based on monthly accounts receivable balances. The Company may request credit advances if the borrowing capacity is more than the current outstanding loan advance, and must pay down the outstanding loan advance if it exceeds the borrowing capacity. As of March 31, 2018, the Company had an outstanding balance under the Heritage Agreement of $2.0 million and the ability to borrow up to $2.5 million.

8

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

On October 10, 2017, the Company entered into a Loan and Security Agreement (the “Montage Loan” or “Loan Agreement”) with Montage Capital II, L.P. (“Montage”). The Montage Loan has a thirty-six (36) month term which expires on October 10, 2020. The Loan Agreement provides for up to $1.5 million of borrowing in the form of a non-revolving term loan which may be used by the Company for working capital purposes. $1 million of borrowing was advanced on the date of closing (the “First Tranche”). An additional $500 thousand of borrowing will be available through May 31, 2018 at the Company’s option in the event that the Company achieves certain financial milestones and is otherwise in compliance with its loan covenants (the “Second Tranche”).

On May 19, 2017, the Company filed a Registration Statement on Form S-3 with the Securities and Exchange Commission in relation to the registration of securities of the Company having an aggregate public offering price of up to $10 million. The determinate number of shares of common stock, preferred stock, warrants, and units of any combination thereof (collectively, the “Securities”) may be offered and sold from time to time, but shall not exceed $10 million in total. There have been no securities sold as of March 31, 2018.

Historically, the Company has had operating losses and working capital deficiencies, but has undertaken a long term cost reduction plan that included staff reductions and office lease consolidations to compensate for the shortfalls. The Company will continue to follow through with its plan and closely monitor and adjust such expenditures throughout the next twelve months. While there can be no assurance that anticipated sales will be achieved for future periods, the Company’s management believes it has an appropriate cost structure in place to support the revenues that will be achieved under the Company’s operating plan. Management believes that it is probable that working capital, capital expenditure and debt repayment needs for the next twelve months from the financial statement date of issuance will be met. The cash balance as of March 31, 2018 of $756 thousand, as well as, collections from accounts receivable and borrowings on the Heritage Line of Credit will be sufficient to meet the Company’s obligations for a minimum of twelve months from the financial statement issuance date. Based on the accounts receivable borrow capacity as of March 31, 2018, the Company was able to borrow $500 in April 2018, which it used to fund current operation. While not currently included in the Company’s operating plan and forecast, it may raise additional capital in order to fund future operations. The ability to raise funds through these means may be helpful to the Company if the anticipated sales levels are not achieved or it cannot reduce operating expenses to account for any shortfalls.

2.   Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

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

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and with the instructions to Form 10-Q and Regulation S-X, and in the opinion of the Company’s management these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation. The operating results for the three and six months ended March 31, 2018 are not necessarily indicative of the results to be expected for the year ending September 30, 2018. The accompanying September 30, 2017 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. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended September 30, 2017.

9

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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.

Pending Accounting Pronouncements

Revenue Recognition

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the Company in the first quarter of fiscal 2019. Companies may adopt ASU 2014-09 using either the retrospective method, under which each prior reporting period is presented under ASU 2014-09, with the option to elect certain permitted practical expedients, or the modified retrospective method, under which a company adopts ASU 2014-09 from the beginning of the year of initial application with no restatement of comparative periods, with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application, with certain additional required disclosures. The Company plans to adopt the standard using the full retrospective method to restate each prior reporting period presented. Additionally, as the Company continues to assess the new standard along with industry trends and additional interpretive guidance, the Company may adjust its implementation plan accordingly.

As the Company is continuing to assess all potential impacts of the new standard, it currently believes that the impact will not be significant. A large portion of the Company’s business is for the licensing of Software-as-a-Service (SaaS) term-based software licenses bundled with maintenance and support. Under current GAAP, the revenue attributable to these software licenses is recognized ratably over the term of the arrangement because VSOE does not exist for the undelivered maintenance and support element as it is not sold separately. To apply the revenue standard, a company must first determine whether a contract includes a promise of a license of intellectual property. A separate promise of a license exists when (1) the customer has the contractual right to take possession of the software at any time without significant penalty and (2) the customer can run the software on its own hardware or contract with another party unrelated to the vendor to host of the software. Neither of these criteria are met with our current SaaS licensing arrangements, therefore, revenue recognition will continue to be recognized over the period of service. Revenue recognition related to our professional services is expected to remain substantially unchanged.

Another significant provision under ASU 2014-09 includes the capitalization and amortization of costs associated with obtaining a contract, such as sales commissions. Currently, the Company expenses sales commissions in the period incurred. Under ASU 2014-09, direct and incremental costs to acquire a contract are capitalized and amortized using a systematic basis over the pattern of transfer of the goods and services to which the asset relates. While we are continuing to assess the impact of this provision of ASU 2014-09, we likely will be required to capitalize incremental costs such as commissions and amortize those costs over the period the capitalized assets are expected to contribute to future cash flows. Due to the complexity of certain of our contracts, the actual accounting treatment required under the new standard for these arrangements may be dependent on contract-specific terms and therefore may vary in some instances.

Leases

In February 2016, the FASB issued ASU No. 2016-02, which is guidance on accounting for leases. ASU No, 2016-02 requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after December 15, 2018. Early adoption is permitted. The guidance requires the use of a modified retrospective approach. The Company is evaluating the impact of the guidance on its consolidated financial position, results of operations and related disclosures.

10

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Income Tax

Deferred income taxes are provided on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and on net operating loss and tax credit carry forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for that portion of deferred tax assets not expected to be realized.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending September 30, 2018, including, but not limited to, reducing the U.S. federal corporate tax rate.  For taxable years after December 31, 2017, the Tax Act reduces the federal corporate tax rate to 21 percent and as such will impact the Company’s fiscal 2018 tax calculations. For the six months ended March 31, 2018, the U.S. federal statutory rate is a blended rate based upon the number of days in fiscal 2018 that the Company will be taxed at the former rate of 34 percent and the number of days that it will be taxed at the new rate of 21 percent. Amounts recorded where a provisional estimate that has been determined for the six months ended March 31, 2018 principally relate to the tax reduction in the U.S. corporate income tax rate to 21 percent effective January 1, 2018. The reduction of the corporate tax rate will cause the Company to reduce its deferred tax assets to the lower federal base rate and adjust the allowance against the deferred tax asset by the same amount. The Company has not yet determined the impact the rate reduction will have on its gross deferred tax asset and liabilities and offsetting valuation allowance. The Company has a full allowance against the deferred tax asset and as a result there was no impact to income tax expense for the three and six month periods ended March 31, 2018. The Tax Act also contains a provision requiring companies to repatriate all aggregate post 1986 earnings and profits of foreign corporations. The Company has estimated that the repatriation will be zero because the foreign subsidiary has no income.

The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impact. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company will continue to analyze the Tax Act to assess the full effects on its financial results, including disclosures, and anticipates finalizing and recording any resulting adjustments by the end of our current fiscal year ending September 30, 2018.

Cash Flows

In August 2016, the FASB issued ASU 2016-15, which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows, specifically certain cash receipts and cash payments. The standard is effective for public business entities financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective method. Management does not expect the adoption of this Standard to have a material impact on its consolidated cash flows.

In November 2016, the FASB issued ASU No. 2016-18 which requires entities to include in their cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. As a result, companies will no longer present transfers between cash and cash equivalents, and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for annual and interim periods beginning after December 15, 2017. Early adoption of ASU 2016-18 is permitted, including adoption in an interim period. Management is currently evaluating the adoption of ASU 2016-18 on its consolidated cash flows.

Goodwill

In January 2017, the FASB issued ASU No. 2017-04 to simplify the accounting for goodwill impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance will be applied prospectively and is effective for annual reporting periods ending December 31, 2020 and thereafter with early adoption permitted. Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

Business Combinations

In January 2017, the FASB issued ASU No. 2017-01, which amended the existing FASB Accounting Standards Codification Topic 805 Business Combinations. The standard provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU 2017-01 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods, with early adoption permitted. Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

In July 2017, the FASB issued ASU No. 2017-11, which simplifies the accounting for certain financial instruments with down round features. This new standard will reduce income statement volatility for many companies that issue warrants and convertible instruments containing such features. ASU 2017-11 is effective for public companies in 2019 and all other entities in 2020. Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

11

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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, 2018			September 30, 2017
Accounts receivable	$	2,788		$	3,174
Unbilled receivables		284			41
Subtotal		3,072			3,215
Allowance for doubtful accounts		(193	)		(189	)
Accounts receivable and unbilled receivables, net	$	2,879		$	3,026

As of March 31, 2018, two customers represented 21% and 10% of accounts receivable. As of September 30, 2017, two customers represented 23% and 14% of accounts receivable. Unbilled receivables represent amounts recognized as revenue for which invoices have not yet been sent.

4.   Fair Value Measurement and Fair Value of Financial Instruments

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, companies are required to provide disclosure and categorize assets and liabilities measured at fair value into one of three different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 1 provides the most reliable measure of fair value while Level 3 generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

Level 1—Valuations are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 2—Valuations are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are not active for which significant inputs are observable, either directly or indirectly.

Level 3—Valuations are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

The Company believes the carrying values for accounts receivable and accounts payable and short term debt approximate current fair values as of March 31, 2018 and September 30, 2017 because of their short-term nature and durations. The carrying value of long term debt also approximates fair value as of March 31, 2018 and September 30, 2017 based upon the Company’s ability to acquire similar debt at similar maturities. In October 2017, the Company recorded a liability associated with a warrant to purchase common stock issued to Montage Capital. The fair value of the warrant liability will utilize a Level 3 input. To determine the value of the warrant liability, the Company used a Monte Carlo option-pricing model, which takes into consideration the market values of comparable public companies, considering among other factors, the use of multiples of earnings, and adjusted to reflect the restrictions on the ability of our shares to trade in an active market. The Monte Carlo option-valuation model also uses certain assumptions to determine the fair value, including expected life and annual volatility. Such inputs used to value the warrant liability include an expected life of eight (8) years, annual volatility of 80%, and a risk-free interest rate of 2.24%.

12

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The fair value of the warrant liability was valued at the loan execution date in the amount of $341 and will be revalued at the end of each reporting period to fair value. The fair value of the warrant is included in Other long term liabilities in the Condensed Consolidated Balance Sheet. Changes in fair value are included in interest expense in the Condensed Statement of Operations in the period the change occurs. In total, the Company has recorded a change in fair value of ($23) since the original valuation in October 2017. The fair value of the warrant at March 31, 2018 is $318.

Assets and liabilities of the Company measured at fair value on a recurring basis as of March 31, 2018 are as follows:

			As of March 31, 2018
	Level 1		Level 2		Level 3		Total
Liabilities:
Warrant liability	$	-	$	-	$	318	$	318
Total Liabilities	$	-	$	-	$	318	$	318

Warrant liability is reflected in Other long term liabilities on the Condensed Consolidated Balance Sheet.

The following table provides a rollforward of the fair value, as determined by Level 3 inputs, of the warrant liability.

	Six Months Ended March 31,
	2018
Balance at beginning of period, October 1, 2017	$	-
Additions		341
Adjustment to fair value		(3	)
Balance at end of period, December 31, 2017	$	338
Additions		-
Adjustment to fair value		(20	)
Balance at end of period, March 31, 2018	$	318

5.   Intangible Assets

The components of intangible assets are as follows:

	As of		As of
	March 31, 2018		September 30, 2017
Domain and trade names	$	10	$	10
Customer related		71		179
Non-compete agreements		39		74
Balance at end of period	$	120	$	263

Total amortization expense related to intangible assets for the three months ended March 31, 2018 and 2017 was $71 and $72, respectively, and $143 for the both the six months ended March 31, 2018 and 2017. Amortization expense is reflected in operating expenses on the Condensed Consolidated Statements of Operations. The estimated amortization expense for fiscal years 2018 (remaining) and 2019 is $100 and $20, respectively.

13

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

6.   Restructuring

Commencing in fiscal 2015 and through the current fiscal year, the Company’s management approved, committed to and initiated plans to restructure and further improve efficiencies by implementing cost reductions in line with expected decreases in revenue. The Company renegotiated several office leases and relocated to smaller space, while also negotiating sub-leases for the original space. In addition, the Company executed a general work-force reduction and recognized costs for severance and termination benefits. These restructuring charges and accruals require estimates and assumptions, including contractual rental commitments or lease buy-outs for vacated office space and related costs, and estimated sub-lease income. The Company’s sub-lease assumptions include the rates to be charged to a sub-tenant and the timing of the sub-lease arrangement. All of the vacated lease space is currently contractually occupied by a new sub-tenant for the remaining life of the lease. In the second quarter of fiscal 2017, the Company initiated a plan to shut down its operations in India. In the second quarter of fiscal 2018, the Company restructured the office lease for its Corporate headquarters. All of these estimates and assumptions will be monitored on a quarterly basis for changes in circumstances with the corresponding adjustments reflected in the Condensed Consolidated Statement of Operations.

The following table summarizes the restructuring activity for the three and six months ended March 31, 2018:

	Facility Closures and Other Costs
Balance at beginning of period, October 1, 2017	$	176
Charges to operations		-
Cash disbursements		(67	)
Changes in estimates		-
Balance at end of period, December 31, 2017	$	109
Charges to operations		140
Cash disbursements		(121	)
Changes in estimates		(20	)
Balance at end of period, March 31, 2018	$	108

The components of the accrued restructuring liabilities is as follows:

	As of		As of
	March 31, 2018		September 30, 2017
Facilities and related	$	106	$	133
Other		2		43
Total	$	108	$	176

As of March 31, 2018, $80 was reflected in Accrued Liabilities and $28 in Other Long Term Liabilities in the Condensed Consolidated Balance Sheet. As of September 30, 2017, $119 is reflected in Accrued Liabilities and $57 is reflected in Other Long Term liabilities in the Condensed Consolidated Balance Sheet.

14

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

7.   Debt

Debt at March 31, 2018 and September 30, 2017 consists of the following:

	As of			As of
	March 31, 2018			September 30, 2017
Line of credit borrowings	$	1,998		$	2,500
Term loan - Montage Capital		1,000			-
Subtotal debt	$	2,998		$	2,500
Other (debt discount)		(287	)		-
Total debt	$	2,711		$	2,500
Less current portion		120			-
Long term debt, net of current portion	$	2,591		$	2,500

Heritage Line of Credit

In June 2016, the Company entered into a new Loan and Security Agreement with Heritage Bank of Commerce (“Heritage Agreement” or “Loan Agreement”). The Heritage Agreement had an original a term of 24 months but was amended in 2017 to a maturity date of June 9, 2019. The Company paid an annual commitment fee of 0.4% of the commitment amount in the first year and 0.2% in the second year.  The facility fee is $6 on each anniversary thereafter. Borrowings are secured by all of the Company’s assets and all of the Company’s intellectual property. The Company is required to comply with certain financial and reporting covenants including an Asset Coverage Ratio and an Adjusted EBITDA metric. The Company and Heritage mutually agree upon minimum quarterly Adjusted EBITDA amounts for each fiscal year within thirty days following the beginning of each fiscal year. The Company was not in compliance with the EBITDA financial covenants as of March 31, 2018, but received a waiver (“Seventh Amendment”).

The Heritage Agreement provides for up to $2.5 million of revolving credit advances which may be used for acquisitions and working capital purposes. Borrowings are limited to the lesser of (i) $2.5 million and (ii) 75% of eligible receivables as defined. The Company can borrow up to $1.0 million in out of formula borrowings for specified periods of time. The borrowings or credit advances may not exceed the monthly borrowing base capacity, which will fluctuate based on monthly accounts receivable balances. The Company may request credit advances if the borrowing capacity is more than the current outstanding loan advance, and must pay down the outstanding loan advance if it exceeds the borrowing capacity.  Borrowings accrue interest at Wall Street Journal Prime Rate plus 1.75%, (currently 6%). As of March 31, 2018, the Company had an outstanding balance under the Loan Agreement of $2.0 million, with the availability to borrow up to the maximum of $2.5 million.

A Director and Shareholder of the Company, Michael Taglich, signed an unconditional guaranty (the “Guaranty”) and promise to pay Heritage Bank all indebtedness in an amount not to exceed $1.5 million in connection with the out of formula borrowings. 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.

15

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Amendments – Heritage Bank

On October 6, 2017, a fourth amendment to the Heritage Agreement (“Fourth Amendment”) was executed. The Fourth Amendment included a consent to the Company’s incurrence of additional indebtedness from Montage Capital (“Montage”) and the grant of a second position lien to Montage (See Subsequent Events). In addition, Heritage and Montage entered into an Intercreditor Agreement dated October 10, 2017, and acknowledged by the Company.

On November 27, 2017, a fifth amendment to the Heritage Agreement (“Fifth Amendment”) was executed. The Fifth Amendment included the Adjusted EBITDA metrics for the second half of fiscal 2017 and the first six months of fiscal 2018. Thereafter, the Company and Heritage shall mutually agree upon minimum quarterly Adjusted EBITDA amounts for each fiscal year within thirty days following the beginning of each fiscal year.

On February 1, 2018, a sixth amendment to the Heritage Agreement (“Sixth Amendment”) was executed. The Sixth Amendment amended the definition of Eligible Foreign Accounts.

On May 10, 2018, a seventh amendment to the Heritage Agreement (“Seventh Amendment”) was executed. The Seventh Amendment included the Adjusted EBITDA metrics for the third and fourth quarter of fiscal 2018 and a waiver for not achieving the Adjusted EBITDA metric for the quarter ended March 31, 2018.

Montage Capital II, L.P. Loan Agreement

On October 10, 2017, the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Montage Capital II, L.P. (“Montage”). The Loan Agreement has a thirty-six (36) month term which expires on October 10, 2020. The Loan Agreement provides for up to $1.5 million of borrowing in the form of a non-revolving term loan which may be used by the Company for working capital purposes. $1 million of borrowing was advanced on the date of closing (the “First Tranche”). An additional $500 thousand of borrowing will be available at the Company’s option through May 31, 2018 in the event that the Company achieves certain financial milestones and is otherwise in compliance with its loan covenants (the “Second Tranche”). Borrowings bear interest at the rate of 12.75% per annum. The Company paid a fee of $47 to Montage at closing. Interest only payments are due and payable during the first nine months of the Loan. Commencing on July 1, 2018, the Company shall be obligated to make principal payments of $26 per month if only the First Tranche has been received and $39 if the Company has received both the First Tranche and the Second Tranche. All remaining principal and interest shall be due and payable at maturity. Borrowings are secured by a second position lien on all of the Company’s assets including intellectual property and general intangibles. Pursuant to the Loan Agreement, the Company is also required to comply with certain financial covenants.  The Loan is subordinate to the Company’s senior debt facility with Heritage Bank of Commerce (“Heritage”). Heritage consented to the Company’s incurrence of additional indebtedness from Montage and the grant of a second position lien to Montage. In addition, Heritage and Montage entered into an intercreditor agreement dated October 10, 2017, and acknowledged by the Company. The Company was not in compliance with the EBITDA financial covenants as of March 31, 2018, but received a waiver (“First Amendment”). On May 10, 2018, the first amendment to the Montage Agreement (“First Amendment”) was executed. The First Amendment included the Adjusted EBITDA metrics for the third quarter of fiscal 2018 and a waiver for not achieving the Adjusted EBITDA metrics for the quarter ended March 31, 2018.

As additional consideration for the Loan, the Company issued to Montage an eight-year warrant (the “Warrant”) to purchase 66,315 shares of the Company’s common stock at a price equal to $2.65 per share which may increase to an aggregate of 100,082 shares of the Company’s common stock in the event that Montage advances the Second Tranche. The Warrant contains an equity buy-out provision upon the earlier of (1) dissolution or liquidation of the Company, (2) any sale or distribution of all or substantially all of the assets of the Company or (3) a “Change in Control” as defined within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934. Montage shall have the right to receive an equity buy-out of either $250 if only the First Tranche has been advanced or $375 if both the First Tranche and the Second Tranche have been advanced. If the equity buy-out is exercised, the Warrant will be surrendered to the Company for cancellation. The fair value of the Warrant was initially valued at $341 at the loan execution. The fair value as of March 31, 2018 is $318. The Warrant is classified as a liability with an offsetting entry to debt discounts, which will be amortized over the life of the Loan Agreement. Total amortization of the debt discount for the three and six months ended March 31, 2018 was $28 and $54. As of March 31, 2018, the total adjustments to fair value are ($23), recorded as interest expense in the Condensed Consolidated Statement of Operations.

16

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

8.   Other Long Term Liabilities

Deferred Rent

In connection with the lease in Massachusetts, the Company made an investment in leasehold improvements at this location of approximately $1.4 million, of which approximately $657 was funded by the landlord. The capitalized leasehold improvements were being amortized over the initial life of the lease. The improvements funded by the landlord were treated as lease incentives. Accordingly, the funding received from the landlord was recorded as a fixed asset addition and a deferred rent liability on the Condensed Consolidated Balance Sheets. The Company terminated this lease effective March 1, 2018 and reversed the remaining deferred rent liability of $118. As of March 31, 2018, deferred rent of $14 was reflected in Accrued Liabilities on the Condensed Consolidated Balance Sheet related to the Company’s Chicago office. As of September 30, 2017, deferred rent of $154 was reflected in Accrued Liabilities and $43 was reflected in Other long term liabilities on the Condensed Consolidated Balance Sheet.

Warrant Liability

The warrant issued to Montage Capital is included in Other Long Term Liabilities in the Condensed Consolidated Balance Sheet. The fair value of the warrant was valued at the loan execution date in the amount of $341 and is revalued at the end of each reporting period to fair value. The fair value at March 31, 2018 was $318, a reduction of $23. Changes in fair value are recorded as expense in the period the change occurs.

9.   Shareholders’ Equity

Preferred Stock

In October 2014, the Company sold 200,000 shares of Series A convertible preferred stock (the “Preferred Stock”) at a purchase price of $10.00 per share for gross proceeds of $2.0 million in a private placement. 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, multiplied by the stated value of $10.00 (the “Stated Value”) and (ii) divided by the conversion price in effect at the time of conversion. The current conversion price is $16.25, 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 $32.50 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. As of March 31, 2018, a total of 1,636 shares of preferred stock have been converted to 1,007 shares of common stock.

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.

The Company may pay dividends in cash or Preferred Stock. Effective January 1, 2017, cumulative dividends are payable at a rate of 12% per year, as after two years, any Preferred Stock dividends increase from 6% to 12% 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”) up to 64,000 shares cumulatively. 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. 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 $32.50 per share. The Preferred Shares shall vote with the Common on an as converted basis.

17

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

As of March 31, 2018, the Company has issued 58,494 shares of Preferred Stock as PIK dividend to the preferred shareholders. The Company elected to declare a partial PIK dividend and partial cash dividend for the next quarterly payment due April 1, 2018. The total PIK dividend declared for April 1, 2018 is 3,870 preferred stock shares at a dividend rate of 12%. The cash dividend declared for April 1, 2018 was $38. All future dividends payments will be cash dividends, as the cumulative PIK dividends of 64,000 has been realized.

Stock Incentive Plans

The Company has granted common stock, common stock warrants, and common stock option awards (the “Equity Awards”) to employees, consultants, advisors and debt holders of the Company and to former owners and employees of acquired companies that have become employees of the Company. On April 29, 2016, the stockholders approved a new stock incentive plan, The 2016 Stock Incentive Plan (the “2016 Plan”). The 2016 Plan replaced an older plan that had expired in August 2016. New option grants are only issued from the new 2016 Plan, but the Company still maintains options under the older plan. The 2016 Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company. Initially, a total of 500,000 shares of the Company’s Common Stock is reserved for issuance under this new plan. As of March 31, 2018, there were 462,846 options outstanding under both plans and 258,334 shares available for future issuance. 

Common Stock Warrants

The Company typically issues warrants to individual investors and placement agents to purchase shares of the Company’s common stock in connection with private placement fund raising activities. Warrants may also be issued to individuals or companies in exchange for services provided for the Company. The warrants are typically exercisable six months after the issue date, expire in five years, and contain a cashless exercise provision and piggyback registration rights.

As of March 31, 2018, the total warrants outstanding were issued as follows: 227,655 warrants were issued to the placement agents in connection with private placements, 317,938 warrants were issued to individual investors in connection with private placements, debt issuances and bank guarantees, and 66,315 warrants were issued to Montage Capital. Certain of the Company’s officers and directors have also been issued warrants. Included in the total warrants outstanding are warrants to purchase 8,600 shares of common stock issued to the Company’s CEO and President, Roger Kahn, in connection with the November 2016 Private Placement, in which he purchased shares of common stock. Also included in the total warrants outstanding are warrants to purchase 156,912 shares of common stock issued to Michael Taglich. Michael Taglich is a member of the Board of Directors and a shareholder. Michael Taglich has been issued warrants in connection with his participation as an investor in private offerings and issuance of loans to the Company. He has also guaranteed $1.5 million in connection with the Company’s out of formula borrowings on its credit facility with Heritage Bank for which he received warrants totaling 86,000. Michael Taglich is also a principal of Taglich Brothers, Inc who have been the placement agents for many of the Company’s private placements.

On January 7, 2015, Bridgeline also entered into a side letter with Michael Taglich pursuant to which Bridgeline agreed in the event the Bank 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. Since the Guaranty was still outstanding at December 31, 2017, a warrant to purchase 6,000 shares of common stock was issued to Michael Taglich in January 2018 at a price of $20.00.

18

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Total warrants outstanding as March 31, 2018 were as follows:

	Issue
Type	Date	Shares		Price		Expiration
Investors	6/19/2013		18,400	$	31.25	6/19/2018
Placement Agent	6/19/2013		9,200	$	31.25	6/19/2018
Placement Agent	9/30/2013		6,157	$	32.50	9/30/2018
Placement Agent	11/6/2013		3,078	$	32.50	11/6/2018
Placement Agent	3/28/2014		12,800	$	26.25	3/28/2019
Placement Agent	10/28/2014		12,308	$	16.25	10/28/2019
Director/Shareholder	12/31/2014		12,000	$	20.00	12/31/2019
Director/Shareholder	2/12/2015		12,000	$	20.00	2/12/2020
Director/Shareholder	5/12/2015		12,000	$	20.00	5/12/2020
Director/Shareholder	7/21/2015		32,000	$	8.75	7/21/2018
Director/Shareholder	12/31/2015		6,000	$	20.00	12/31/2020
Placement Agent	5/17/2016		86,778	$	3.75	5/17/2021
Placement Agent	5/11/2016		53,334	$	3.75	5/11/2021
Placement Agent	7/15/2016		44,000	$	4.60	7/15/2021
Investors	11/9/2016		213,538	$	3.50	5/22/2022
Director/Shareholder	12/31/2016		6,000	$	20.00	12/31/2021
Financing	10/10/2017		66,315	$	2.65	10/10/2025
Director/Shareholder	12/31/2017		6,000	$	20.00	12/31/2021
Total			611,908

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, 2017		450,646		$	7.02			539,593	$	8.18
Granted		19,900		$	2.47			72,315	$	4.46
Exercised		-		$	-			-	$	-
Forfeited or expired		(7,700	)	$	(9.22	)		-	$	-
Outstanding, March 31, 2018		462,846		$	6.78			611,908	$	7.77

The fair value of each stock option grant was estimated on the date of grant using a Black-Scholes option pricing model with the following assumptions and fair value per share:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2018			2017			2018			2017
Number of options granted		19,100			8,200			19,900			10,200
Volatility		80.39	%		84.71	%		80.52	%		84.60	%
Estimated life (years)		6			6			6			6
Risk-free interest rate		2.52	%		2.02	%		2.50	%		1.99	%
Weighted-average fair value per share of grants	$	1.72		$	2.29		$	1.73		$	2.20

19

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

10.   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,
	2018			2017			2018			2017
Net loss	$	(680	)	$	(530	)	$	(1,110	)	$	(938	)
Accrued dividends on convertible preferred stock		(77	)		(68	)		(152	)		(136	)
Net loss applicable to common shareholders	$	(757	)	$	(598	)	$	(1,262	)	$	(1,074	)
Weighted average common shares outstanding - basic and diluted		4,227			4,181			4,214			4,096
Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.18	)	$	(0.14	)	$	(0.30	)	$	(0.26	)

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 and convertible preferred stock using the “treasury stock” method. For the three and six months ended March 31, 2018 and 2017, the computation of diluted loss per share does not include all of stock options, warrants and convertible preferred stock as they are anti-dilutive.

11.  Income Taxes

There was no income tax expense recorded for the three months ended March 31, 2018. Income tax expense was $1 for the three months ended 2017 and $1 and $13 for the six months ended March 31, 2018 and 2017, respectively. Income tax expense consists of the estimated liability for state income taxes owed by the Company.  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. The Tax Act contains a provision requiring companies to repatriate all aggregate post 1986 earnings and profits of foreign corporations. The Company has estimated that the repatriation will be zero because the foreign subsidiary has no income.

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending September 30, 2018, including, but not limited to, reducing the U.S. federal corporate tax rate. For taxable years after December 31, 2017, the Tax Act reduces the federal corporate tax rate to 21 percent and as such will impact the Company’s fiscal 2018 tax calculations. For the six months ended March 31, 2018, the U.S. federal statutory rate is a blended rate based upon the number of days in fiscal 2018 that the Company will be taxed at the former rate of 34 percent and the number of days that it will be taxed at the new rate of 21 percent. The reduction of the corporate tax rate will cause the Company to reduce its deferred tax assets to the lower federal base rate and adjust the allowance against the deferred tax asset by the same amount. The Company has not yet determined the impact the rate reduction will have on its gross deferred tax asset and liabilities and offsetting valuation allowance. The Company has a full allowance against the deferred tax asset and as a result there was no impact to income tax expense for the three and six month periods ended March 31, 2018. 

The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impact. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company will continue to analyze the Tax Act to assess the full effects on its financial results, including disclosures, and anticipates finalizing and recording any resulting adjustments by the end of our current fiscal year ending September 30, 2018.

12.  Related Party Transactions

In October 2013, Mr. Michael Taglich joined the Board of Directors. Michael Taglich is the Chairman and President of Taglich Brothers, Inc. a New York based securities firm. Taglich Brothers, Inc were the Placement Agents for many of the Company’s private offerings in 2012, 2013, 2014, and 2016. They were also the Placement Agent for the Company’s $3 million subordinated debt offering in 2013 and the Series A Preferred stock sale in 2015. Michael Taglich beneficially owns approximately 22% of Bridgeline common stock. Michael Taglich has also guaranteed $1.5 million in connection with the Company’s out of formula borrowings on its credit facility with Heritage Bank. Michael Taglich’s brother, Robert Taglich is a former member of the Company’s Board of Directors and beneficially owns approximately 8% of the Company’s common and convertible preferred stock.

13.  Legal Proceedings

The Company is subject to ordinary routine litigation and claims incidental to its business. As of March 31, 2018, the Company was not engaged with any material legal proceedings.

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

This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors and risks including 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 ability to maintain our listing on the NASDAQ Capital Market, the volatility of the market price of our common stock, the ability to raise capital, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, the security of our software and response to cyber security risks, our ability to meet our financial obligations and commitments, our dependence on our management team and key personnel, our ability to hire and retain future key personnel,our ability to maintain an effective system of internal controls, or our ability to respond to government regulations. These and other risks are more fully described herein and in our other filings with the Securities and Exchange Commission.

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

Overview

Bridgeline Digital, The Digital Engagement Company™, helps customers maximize the performance of their complete digital experience from websites and intranets to online stores and marketing campaigns. Bridgeline’s Unbound platform deeply integrates Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics (now known as Insights) to ensure marketers deliver digital experiences that attract, engage, nurture, and convert their customers across all channels. Bridgeline’s Unbound platform combined with its digital services assists customers in maximizing on-line revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs. The Bridgeline Unbound franchise product is a platform that empowers franchise and large dealer networks with state-of-the-art web engagement management while providing superior oversight of corporate branding. Bridgeline’s Unbound franchise product also deeply integrates content management, eCommerce, eMarketing and web analytics on one unified plaform.  

The Bridgeline Unbound 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 software resides on a dedicated server in either the customer’s facility or by Bridgeline via cloud-based hosted services model.

The Bridgeline Unbound 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 2017, our Marketing Automation platform was named a 2017 SIIA CODiE Award finalist in the Best Marketing Solution category. In 2016, CIO Review selected Bridgeline Unbound (formerly iAPPS) as one of the 20 Most Promising Digital Marketing Solution Providers. This followed accolades from the SIIA (Software and Information Industry Association) which recognized Content Manager with the 2015 SIIA CODiE Award for Best Web Content Management Platform. Also in 2015, EContent magazine named Bridgeline's Unbound Digital Engagement Platform to its Trendsetting Products list. The list of 75 products and platforms was compiled by EContent’s editorial staff, and selections were based on each offering’s uniqueness and importance to digital publishing, media, and marketing. We were also recognized in 2015 as a strong performer by Forrester Research, Inc in its independence report, “The Forrester Wave ™: Through-Channel Marketing Automation Platforms, Q3 2015.” In recent years, our Content Manager and 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. 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 Bridgeline's Unbound (formerly 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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Locations

The Company’s corporate office is located in Burlington, Massachusetts. The Company has one wholly-owned subsidiary, Bridgeline Digital Pvt. Ltd. located in Bangalore, India.

Reverse Stock Split

On June 29, 2017, 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 was effective as of close of business on July 24, 2017 and the Company’s stock began trading on a split-adjusted basis on July 25, 2017.

The reverse stock split reduced the number of shares of the Company’s common stock outstanding as of March 31, 2017 from approximately 21 million shares to approximately 4.2 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, and stock options, and to the number of shares issued and issuable under the Company’s Stock Incentive Plans. Upon the effectiveness of the 1-for-5 reverse stock split, each five shares of the Company’s issued and outstanding common stock were 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. Our consolidated financial statements have been retroactively adjusted to reflect the effects of the 1-for-5 reverse stock split.

Customer Information

We currently have over 3,000 active customers. For the three months ended March 31, 2018, two customers represented 19% and 14% of the Company’s total revenue, respectively, and for the six months ended March 31, 2018, two customers represented 15% and 12% of the Company’s total revenue, respectively. For the three months ended March 31, 2017, two customers represented 13% and 11% of the Company’s total revenue, respectively, and for the six months ended March 31, 2017, two customers represented 11% and 10% of the Company’s total revenue, respectively.

The Tax Cut and Jobs Act

The effects of the Tax Cuts and Jobs Act on our business have not yet been fully analyzed and could have an adverse effect on our net income.

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into law. We are in the process of analyzing the Act and its possible effects on the Company. The Act reduces the corporate tax rate to 21 percent from 35 percent, among other things. It could also require us to write down our deferred tax assets.The reduction of the corporate tax rate will cause the Company to reduce its deferred tax assets to the lower federal base rate with resulting adjustments to the allowance against the deferred tax asset. The Company has not yet determined the impact the rate reduction will have on its gross deferred tax assets and liabilities and the offsetting valuation allowance. Historically, the Company has a full allowance against the deferred tax assets.

The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act may differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impact. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending September 30, 2018.

Results of Operations for the Three and Six Months Ended March 31, 2018 compared to the Three and Six Months Ended March 31, 2017

Total revenue for the three months ended March 31, 2018 was $3.7 million compared with $4.0 million for the three months ended March 31, 2017.  We had a net loss of ($680) thousand for the three months ended March 31, 2018 compared with net loss of ($529) thousand for the three months ended March 31, 2017.  Net loss per share applicable to common shareholders was ($0.18) for the three months ended March 31, 2018 and ($0.14) for the three months ended March 31, 2017.

Total revenue for the six months ended March 31, 2018 was $7.7 million compared with $8.0 million for the six months ended March 31, 2017.  We had a net loss of ($1.1) million for the six months ended March 31, 2018 compared with net loss of ($938) thousand for the six months ended March 31, 2017.  Net loss per share applicable to common shareholders was ($0.30) for the six months ended March 31, 2018 and ($0.26) for the six months ended March 31, 2017.

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Results of Operations

	Three Months			Three Months									Six Months			Six Months
	Ended			Ended									Ended			Ended
	March 31,			March 31,			$			%			March 31,			March 31,			$			%
	2018			2017			Change			Change			2018			2017			Change			Change
Net revenue:
Digital enagement services	$	1,921		$	2,151			(230	)		(11	%)	$	3,981		$	4,177			(196	)		(5	%)
% of total net revenue		52	%		54	%								52	%		52	%
Subscription and perpetual licenses		1,499			1,582			(83	)		(5	%)		3,105			3,307			(202	)		(6	%)
% of total net revenue		40	%		40	%								40	%		41	%
Managed service hosting		293			261			32			12	%		596			501			95			19	%
% of total net revenue		8	%		6	%								8	%		7	%
Total net revenue	$	3,713		$	3,994		$	(281	)		(7	%)	$	7,682		$	7,985		$	(303	)		(4	%)
Cost of revenue:
Digital engagement costs		1,292			1,144			148			13	%		2,689			2,272			417			18	%
% of digital engagement services revenue		67	%		53	%								68	%		54	%
Subscription and perpetual licenses		513			499			14			3	%		993			995			(2	)		(0	%)
% of subscription and perpetual revenue		34	%		32	%								32	%		30	%
Managed service hosting		86			73			13			18	%		166			144			22			15	%
% of managed service hosting revenue		29	%		28	%								28	%		29	%
Total cost of revenue		1,891			1,716			175			10	%		3,848			3,411			437			13	%
Gross profit	$	1,822		$	2,278		$	(456	)		(20	%)	$	3,834		$	4,574		$	(740	)		(16	%)
Gross profit margin		49	%		57	%								50	%		57	%
Operating expenses:
Sales and marketing		950			1,174			(224	)		(19	%)		2,054			2,468			(414	)		(17	%)
% of total revenue		26	%		29	%								27	%		31	%
General and administrative		795			803			(8	)		(1	%)		1,531			1,594			(63	)		(4	%)
% of total revenue		21	%		20	%								20	%		20	%
Research and development		408			422			(14	)		(3	%)		815			782			33			4	%
% of total revenue		11	%		11	%								11	%		10	%
Depreciation and amortization		104			157			(53	)		(34	%)		212			342			(130	)		(38	%)
% of total revenue		3	%		4	%								3	%		4	%
Restructuring charges		181			169			(12	)		7	%		181			200			(19	)		(10	%)
% of total revenue		5	%		4	%								2	%		3	%
Total operating expenses		2,438			2,725			(287	)		(11	%)		4,793			5,386			(593	)		(11	%)
Loss from operations		(616	)		(447	)		(169	)		38	%		(959	)		(812	)		(147	)		18	%
Interest and other income (expense) net		(64	)		(82	)		(18	)		(22)	%		(150	)		(113	)		(37	)		33	%
Loss before income taxes		(680	)		(529	)		(151	)		29	%		(1,109	)		(925	)		(184	)		20	%
Provision for income taxes		-			1			(1	)		(100	%)		1			13			(12	)		(92	%)
Net loss	$	(680	)	$	(530	)	$	(150	)		28	%	$	(1,110	)	$	(938	)	$	(172	)		18	%
Non-GAAP Measure:
Adjusted EBITDA	$	(185	)	$	22		$	(207	)		(941	%)	$	(279	)	$	32		$	(311	)		(972	%)

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Revenue

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

Digital Engagement Services

Digital engagement services revenue is comprised of implementation and retainer related services. In total, revenue from digital engagement services decreased $230 thousand, or 11%, for the three months ended March 31, 2018 compared to three months ended March 31, 2017 and decreased $196 thousand, or 5%, for the six months ended March 31, 2018 compared to the six months ended March 31, 2017.  Digital engagement services revenue as a percentage of total revenue decreased to 52% from 54% for the three months ended March 31, 2018 and was 52% for both the six months ended March 31, 2018 and March 31, 2017.  The decrease as a percentage of total revenue is attributable to the decreases in new engagements from new license sales for the three and six months ended March 31, 2018 compared to the prior period.

Subscription and Perpetual Licenses

Revenue from subscription and perpetual licenses decreased $83 thousand, or 5%, to $1.5 million for the three months ended March 31, 2018 compared to $1.6 million for the three months ended March 31, 2017 and decreased $202 thousand, or 6%, to $3.1 million for the six months ended March 31, 2018 compared to $3.3 million for the six months ended March 31, 2017. The decrease for the three months ended March 31, 2018 compared to the prior period is attributable to a decline in SaaS licenses and Perpetual licenses. Subscription and perpetual license revenue as a percentage of total revenue was 40% for both the three months ended March 31, 2018 and March 31, 2017 and decreased to 40% for the six months ended March 31, 2018 from 41% compared to the six months ended March 31, 2017. The decrease as a percentage of revenues is attributable to the decreases in new license sales.

Managed Service Hosting

Revenue from managed service hosting increased $32 thousand, or 12%, to $293 thousand for the three months ended March 31, 2018 compared to $261 thousand for the three months ended March 31, 2017 and increased $95 thousand, or 19%, to $596 thousand for the six months ended March 31, 2018 compared to $501 thousand for the six months ended March 31, 2017. The increase is due to new hosting contracts for perpetual licenses sold in the second half of fiscal 2017. Managed services revenue as a percentage of total revenue increased to 8% for the three months ended March 31, 2018 from 6% compared to the three months ended March 31, 2017 and increased to 8% for the six months ended March 31, 2018 from 7% compared to the six months ended March 31, 2017. The increase as a percentage of revenue is attributable to the increase in customer hosting contracts.

Costs of Revenue

Total cost of revenue increased $175 thousand, or 10%, to $1.9 million for the three months ended March 31, 2018 compared to $1.7 million for the three months ended March 31, 2017 and increased $437 thousand, or 13%, to $3.8 million for the six months ended March 31, 2018 compared to $3.4 million for the six months ended March 31, 2017. The gross profit margin declined to 49% for the three months ended March 31, 2018 compared to 57% for the three months ended March 31, 2017 and declined to 50% for the six months ended March 31, 2018 compared to 57% for the six months ended March 31, 2017. The decline in the gross profit margin for the three and months ended March 31, 2018 compared to the three and six months ended March 31, 2017 is attributable to a decrease in digital engagement services and lower margin services.

Cost of Digital Engagement Services

Cost of digital engagement services increased $148 thousand, or 13%, to $1.3 million for the three months ended March 31, 2018 compared to $1.1 million for the three months ended March 31, 2017 and increased $417 thousand, or 18%, to $2.7 million for the six months ended March 31, 2018 compared to $2.3 million for the six months ended March 31, 2017. The cost of digital engagement services as a percentage of digital engagement services revenue increased to 67% from 53% for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 and increased to 68% from 54% for the six months ended March 31, 2018 compared to the six months ended March 31, 2017.  The increases are due to an increase in both internal costs and third party subcontractor that were incurred at a lower gross margin in order to complete a project for a strategic customer.  

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Cost of Subscription and Perpetual License

Cost of subscription and perpetual licenses increased $14 thousand, or 3%, to $513 thousand for the three months ended March 31, 2018 compared to $499 thousand for the three months ended March 31, 2017 and decreased $2 thousand to $993 thousand for the six months ended March 31, 2018 compared to $995 thousand for the six months ended March 31, 2017. The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue increased to 34% from 32% for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 and increased to 32% from 30% for the six months ended March 31, 2018 compared to the six months ended March 31, 2017. Costs to support SaaS licenses are primarily fixed costs.

Cost of Managed Service Hosting

Cost of managed service hosting increased $13 thousand, or 18%, to $86 thousand for the three months ended March 31, 2018 compared to $73 thousand for the three months ended March 31, 2017 and increased $22 thousand, or 15%, to $166 thousand for the six months ended March 31, 2018 compared to $144 thousand for the six months ended March 31, 2017. The cost of managed services as a percentage of managed services revenue increased to 29% from 28% for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 and decreased to 28% from 29% for the six months ended March 31, 2018 compared to the six months ended March 31, 2017. The costs to support our network operations center have primarily increased with our transition to a cloud-based model with Amazon Web Services, however this infrastructure does not require investment in capital equipment. We transitioned to Amazon Web Services during the second and third quarter of fiscal 2017.

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expenses decreased $224 thousand, or 19%, to $950 thousand for the three months ended March 31, 2018 compared to $1.2 million for the three months ended March 31, 2017 and decreased $414 thousand, or 17%, to $2.1 million for the six months ended March 31, 2018 compared to $2.5 million for the six months ended March 31, 2017.  Sales and marketing expenses represented 26% and 29% of total revenue for the three months ended March 31, 2018 and 2017, respectively, and 27% and 31% of total revenue for the six months ended March 31, 2018 and 2017, respectively. The decreases for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 is attributable to decreases in sales personnel and related compensation expenses. The decreases for the six months ended March 31, 2018 compared to the six months ended March 31, 2017 is attributable to decreases in sales personnel and related compensation expenses and marketing expenses.

Administrative Expenses

General and administrative expenses decreased $8 thousand, or 1%, to $795 thousand for the three months ended March 31, 2018 compared to $803 thousand for the three months ended March 31, 2017 and decreased $63 thousand, or 4%, to $1.5 million for the six months ended March 31, 2018 compared to $1.6 million for the six months ended March 31, 2017. General and administrative expenses represented 21% and 20% of total revenue for the three months ended March 31, 2018 and 2017, respectively, and 20% of total revenue for both the six months ended March 31, 2018 and 2017. The decreases for the three and six months ended March 31, 2018 compared to the three and six months ended March 31, 2017 is attributable to decreases in headcount and personnel expenses.

Research and Development

Research and development expense decreased $14 thousand, or 3%, to $408 thousand for the three months ended March 31, 2018 compared to $422 thousand for the three months ended March 31, 2017 and increased $33 thousand, or 4%, to $815 thousand for the six months ended March 31, 2018 compared to $782 thousand for the six months ended March 31, 2017.  Research and development expenses represented 11% of total revenue for both the three months March 31, 2018 and 2017 and 11% and 10% of total revenue for the six months ended March 31, 2018 and 2017, respectively. The decrease in research and development expense for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 is due to a decrease in facilities costs. The increase in research and development expense for the six months ended March 31, 2018 compared to the six months ended March 31, 2017 is due to an increase in compensation expense.

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Depreciation and Amortization

Depreciation and amortization expense decreased $53 thousand, or 34%, to $104 thousand for the three months ended March 31, 2018 compared to $157 thousand for the three months ended March 31, 2017 and decreased $130 thousand, or 38%, to $212 thousand for the six months ended March 31, 2018 compared to $342 thousand for the six months ended March 31, 2017.  Depreciation and amortization has decreased due to asset retirements related to the termination of leases and closing offices, as well as reductions in capital expenditures. Depreciation and amortization represented 3% and 4% of revenue for the three months ended March 31, 2018 and 2017 and 3% and 4% of revenue for the six months ended March 31, 2018 and 2017.   

Restructuring Expenses

Commencing in fiscal 2015, the Company’s management approved, committed to and initiated plans to restructure and further improve efficiencies by implementing cost reductions. As part of these restructuring initiatives, we recorded $181 thousand and $169 thousand for the three months ended March 31, 2018 and 2017, respectively, and $181 and $200 thousand for the six months ended March 31, 2018 and 2017, respectively. Included in the three and six months ended March 31, 2018, were costs to terminate and restructure our Burlington, Massachusetts corporate headquarters and costs to dispose of property and equipment at this location.

Net Loss

Loss from operations

The loss from operations was ($616) thousand for three months ended March 31, 2018 compared to a loss of ($447) thousand in the prior period. Operating expenses decreased $287 thousand to $2.4 million from $2.7 million, or 11%, for the three months ended March 31, 2018 compared to March 31, 2017 and decreased $593 thousand to $4.8 million from $5.4 million, or 11%, for the six months ended March 31, 2018 compared to March 31, 2017. We have made concerted efforts to decrease operating expenses in line with the decline in revenues.

Income Taxes

There was no provision for income tax recorded for the three months ended March 31, 2018. The provision for income tax expense was $1 thousand and $13 thousand for the six months ended March 31, 2018 and 2017, respectively.  Income tax expense represents the estimated liability for state income taxes owed. We have net operating loss carryforwards and other deferred tax benefits that are available to offset future taxable income. However, due to the Tax Cuts and Jobs Act (the “Tax Act”), the deferred tax benefits may be diminished. For taxable years after December 31, 2017, the Tax Act reduces the federal corporate tax rate to 21 percent and as such will impact the Company’s fiscal 2018 tax calculations. The reduction of the corporate tax rate may cause the Company to reduce its deferred tax assets to the lower federal base rate with resulting adjustments to the allowance against the deferred tax asset. Historically, the Company has a full allowance against its deferred tax assets. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. We currently anticipate finalizing and recording any resulting adjustments by the end of our current fiscal year ending September 30, 2018.

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, restructuring charges, 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 (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,
	2018			2017			2018			2017
Net loss	$	(680	)	$	(530	)	$	(1,110	)	$	(938	)
Provision for income tax		-			1			1			13
Interest expense, net		75			34			161			65
Amortization of intangible assets		71			72			143			143
Depreciation		29			74			65			163
Restructuring charges		181			217			181			248
Other amortization		17			27			33			66
Stock based compensation		122			127			247			272
Adjusted EBITDA	$	(185	)	$	22		$	(279	)	$	32

Adjusted EBITDA for the three and six months ended March 31, 2018 decreased compared to the three and six months ended March 31, 2017. The decreases were due primarily to decreases in revenues.

Liquidity and Capital Resources

Cash Flows

Operating Activities

Cash used in operating activities was $429 thousand for the six months ended March 31, 2018 compared to cash used in operating activities of $155 thousand for the six months ended March 31, 2017. This increase in the use of cash compared to the prior period was primarily to the decrease in accounts receivable and increase in net loss.

Investing Activities

Cash used in investing activities was $13 thousand for the six months ended March 31, 2018 compared to $49 thousand for the six months ended March 31, 2017.  We do not expect to expend significant dollars for computer equipment or to capitalize any software in the next twelve months.

Financing Activities

Cash provided by financing activities was $451 thousand for the six months ended March 31, 2018 compared to $871 thousand for the six months ended March 31, 2017. Cash provided by financing activities for the six months ended March 31, 2018 is primarily attributable to a new term loan for gross proceeds of $1.0 million with Montage Capital II, L.P, offset by net payments on the Heritage Line of Credit of $502.

Capital Resources and Liquidity Outlook

We have a borrowing facility (line of credit) with Heritage Bank of up to $2.5 million from which we can borrow, and this line is subject to financial covenants that must be met. We were not in compliance with the Adjusted EBITDA metric as of March 31, 2018, but we received a waiver. Based on the borrowing capacity of our outstanding accounts receivable balance as of March 31, 2018, we were able to borrow $500 thousand in April 2018 to fund current operations. We expect our accounts receivable balances to be adequate to cover the majority of the outstanding balance. We should not be required to pay down any significant portion of the outstanding line of credit unless we choose to do or we have unforeseen collection issues. Also, in the first quarter of fiscal 2018, we entered into a Loan and Security Agreement with Montage Capital II, L.P. (“Montage Loan”). The Montage Loan has a thirty-six (36) month term which expires on October 10, 2020. The Montage Loan provides for up to $1.5 million of borrowing in the form of a non-revolving term loan which may be used by the Company for working capital purposes. $1 million of borrowing was advanced on the date of closing. An additional $500 thousand of borrowing may be available at the Company’s option through May 31, 2018 subject to compliance and certain loan covenants. The Company has not yet determined if it will request the additional $500 thousand. The Montage Loan is subordinate to the Company’s senior debt facility with Heritage Bank of Commerce (“Heritage Bank”).

27

We believe that the cash balance as of March 31, 2018 of $756 thousand, as well as, collections from accounts receivable will be sufficient to meet the Company’s obligations for a minimum of twelve months from the financial statement issuance date. Our borrowing facility with Heritage Bank 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, 2018, we have no material commitments or contingencies.

Critical Accounting Policies

There have been no changes to our critical accounting policies and estimates described in the Annual Report on Form 10-K for the year ended September 30, 2017, filed with the Securities and Exchange Commission ("SEC") on December 21, 2017, that have had a material impact on our condensed consolidated financial statements and related notes.

See Note 2 to the Unaudited Condensed Consolidated Financial Statements pertaining to the new accounting standard for income tax reporting. 

28

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, 2018 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, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

29

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 21, 2017.

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, 2018. 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, 2018, the Company granted 19,100 stock options under The 2016 Stock Incentive Plan at a weighted average exercise price of $2.47 per share.

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

Stock Warrants

In connection with a bank Guaranty provided by Michael Taglich on behalf of the Company to Heritage Bank, if 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. Since the Guaranty was still outstanding at December 31, 2017, a warrant to purchase 6,000 shares of common stock was issued to Michael Taglich in January 2018 at a price of $20.00.

30

Item 6. Exhibits.

Exhibit No.	Description of Document
3.1(i)	Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q filed on May 15, 2013)
3.1(ii)	Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated May 4, 2015 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on May 5, 2015)
3.1(iii)	Certificate of Designations of the Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on November 4, 2014)
3.1(iv)	Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to our current Report on Form 8-K filed on July 24, 2017)
4.1(i)	Registration Rights Agreement, dated November 3, 2016, by and between Bridgeline Digital, Inc. and the Investors party thereto (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K Filed on November 4, 2016)
4.1 (ii)	Registration Rights Agreement, as amended on June 30, 2017 filed with the Securities and Exchange Commission on May 19, 2017
10.1	Seventh Amendment to the Loan and Security Amendment between Bridgeline Digital, Inc. and Heritage Bank of Commerce, dated May 10, 2018
10.2	First Amendment to the Loan and Security Amendment between Bridgeline Digital, Inc. and Montage Capital II LP, dated May 10, 2018
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

*Management compensatory plan

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

31

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, 2018	/s/    Roger Kahn
Date	Roger Kahn President and Chief Executive Officer  (Principal Executive Officer)
May 15, 2018	/s/    Michael Prinn
Date	Michael Prinn Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

32

EX-10.1

Exhibit 10.1

SEVENTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT

This Seventh Amendment to Loan and Security Agreement is entered into as of May 10, 2018 (the “Amendment”), by and between HERITAGE BANK OF COMMERCE (“Bank”) and BRIDGELINE DIGITAL, INC. (“Borrower”).

RECITALS

Borrower and Bank are parties to that certain Loan and Security Agreement dated as of June 9, 2016 and as amended from time to time, including pursuant to that certain First Amendment to Loan and Security Agreement dated as of August 15, 2016, that certain Second Amendment to Loan and Security Agreement dated as of December 12, 2016, that certain Third Amendment to Loan and Security Agreement dated as of August 10, 2017, that certain Fourth Amendment to Loan and Security Agreement dated as of October 6, 2017, that certain Fifth Amendment to Loan and Security Agreement dated as of November 27, 2017 and that certain Sixth Amendment to Loan and Security Agreement dated as of February 1, 2018 (collectively, the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.

NOW, THEREFORE, the parties agree as follows:

1.     Borrower acknowledges that there is an existing and uncured Event of Default arising from Borrower’s failure to comply with the Adjusted EBITDA covenant set forth in Section 6.9(b) of the Agreement for the period ended March 31, 2018 (the “Covenant Default”). Subject to the conditions contained herein and performance by Borrower of all of the terms of the Agreement after the date hereof, Bank waives the Covenant Default. Bank does not waive Borrower’s obligations under such section after the date hereof and as amended hereby, and Bank does not waive any other failure by Borrower to perform its obligations under the Loan Documents.

2.     Section 6.9(b) of the Loan and Security Agreement is amended and restated in its entirety to read as follows:

(b)     Performance to Plan – Adjusted EBITDA. Borrower’s minimum quarterly Adjusted EBITDA for the fiscal quarters ending on June 30, 2018 and on September 30, 2018 shall be at least the amount set forth on Exhibit D. For each quarter thereafter, Borrower and Bank shall mutually agree upon minimum quarterly Adjusted EBITDA amounts for each fiscal year within thirty (30) days following the beginning of each fiscal year.

3.     Exhibit D to the Loan and Security Agreement is replaced in its entirety with the Exhibit D separately provided by Bank to Borrower.

4.     Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment, and no Event of Default has occurred and is continuing (other than the Covenant Default).

5.     Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Bank under the Agreement, as in effect prior to the date hereof. Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement.

6.     This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original hereof.

7.     As a condition to the effectiveness of this Amendment, Bank shall have received, in form and substance satisfactory to Bank, the following:

(a)     payment of a waiver fee in the amount of $5,000 plus all Bank Expenses incurred through the date of this Amendment; and

(b)     such other documents, and completion of such other matters, as Bank may reasonably deem necessary or appropriate.

[remainder of this page intentionally left blank]

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

BRIDGELINE DIGITAL, INC.

By: /s/Michael D. Prinn

Name: Michael D. Prinn

Title: CFO

HERITAGE BANK OF COMMERCE

By: /s/ Karla Schrader

Name: Karla Schrader

Title: Vice President

EX-10.2

Exhibit 10.2

FIRST AMENDMENT
TO
LOAN AND SECURITY AGREEMENT

This First Amendment to Loan and Security Agreement is entered into as of May 10, 2018 (the “Amendment”), by and between MONTAGE CAPITAL II, L.P. (“Lender”) and BRIDGELINE DIGITAL, INC. (“Borrower”).

RECITALS

Borrower and Lender are parties to that certain Loan and Security Agreement dated as of October 10, 2017 and as amended from time to time (the “Agreement”). The parties desire to amend the Agreement in accordance with the terms of this Amendment.

NOW, THEREFORE, the parties agree as follows:

1.     Borrower acknowledges that there is an existing and uncured Event of Default arising from Borrower’s failure to comply with the Adjusted EBITDA covenant set forth in Section 5.3(b) of the Agreement for the period ended March 31, 2018 (the “Covenant Default”). Subject to the conditions contained herein and performance by Borrower of all of the terms of the Agreement after the date hereof, Lender waives the Covenant Default. Lender does not waive Borrower’s obligations under such section after the date hereof, and Lender does not waive any other failure by Borrower to perform its obligations under the Loan Documents.

2.     Notwithstanding anything to the contrary in the Agreement, Borrower acknowledges and agrees that the Second Trance Advance shall only be made available to Borrower upon Lender’s consent, at Lender’s sole discretion.

3.     Borrower represents and warrants that the representations and warranties contained in the Agreement are true and correct as of the date of this Amendment, and no Event of Default has occurred and is continuing (other than the Covenant Default).

4.     Unless otherwise defined, all initially capitalized terms in this Amendment shall be as defined in the Agreement. The Agreement, as amended hereby, shall be and remain in full force and effect in accordance with its respective terms and hereby is ratified and confirmed in all respects. Except as expressly set forth herein, the execution, delivery, and performance of this Amendment shall not operate as a waiver of, or as an amendment of, any right, power, or remedy of Lender under the Agreement, as in effect prior to the date hereof. Borrower ratifies and reaffirms the continuing effectiveness of all agreements entered into in connection with the Agreement.

5.     This Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument. In the event that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile or “.pdf” signature page were an original hereof.

6.     As a condition to the effectiveness of this Amendment, Lender shall have received, in form and substance satisfactory to Lender, the following:

(a)     payment of a waiver fee in the amount of $5,000 plus all Lender Expenses incurred through the date of this Amendment; and

(b)     such other documents, and completion of such other matters, as Lender may reasonably deem necessary or appropriate.

[remainder of this page intentionally left blank]

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of the first date above written.

BRIDGELINE DIGITAL, INC.

By: /s/ Michael D. Prinn

Name: Michael D. Prinn

Title: CFO

MONTAGE CAPITAL II, L.P.

By: /s/ Michael Rose

Name: Michael Rose

Title: Managing Director

EX-31.1

EXHIBIT 31.1

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

I, Roger Kahn, 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, 2018	/s/ Roger Kahn
Name:	Roger Kahn
Title:	President and Chief Executive Officer (Co-Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

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

I, Michael 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, 2018

	/s/ Michael Prinn
Name:	Michael Prinn
Title:	Executive Vice 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, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Roger Kahn, President and Chief Executive Officer of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:

(1) The Report fully complies with the requirements of Section 13(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, 2018		/s/ Roger Kahn
	Name:	Roger Kahn
	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, 2018, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Michael 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, 2018		/s/ Michael Prinn
	Name:	Michael 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

Document And Entity Information - shares	6 Months Ended
	Mar. 31, 2018	May 10, 2018
Document Information [Line Items]
Entity Registrant Name	Bridgeline Digital, Inc.
Entity Central Index Key	0001378590
Trading Symbol	blin
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)		4,241,225
Document Type	10-Q
Document Period End Date	Mar. 31, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2018	Sep. 30, 2017
Current assets:
Cash and cash equivalents	$ 756	$ 748
Accounts receivable and unbilled receivables, net	2,879	3,026
Prepaid expenses and other current assets	429	352
Total current assets	4,064	4,126
Property and equipment, net	98	209
Intangible assets, net	120	263
Goodwill	12,641	12,641
Other assets	273	334
Total assets	17,196	17,573
Current liabilities:
Accounts payable	1,787	1,241
Accrued liabilities	718	920
Debt, current	120
Deferred revenue	1,193	1,466
Total current liabilities	3,818	3,627
Debt, net of current portion	2,591	2,500
Other long term liabilities	380	172
Total liabilities	6,789	6,299
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock - $0.001 par value; 1,000,000 shares authorized; 258,494 at March 31, 2018 and 243,536 at September 30, 2017, issued and outstanding (liquidation preference $2,624, as of March 31, 2018)
Common stock - $0.001 par value; 50,000,000 shares authorized; 4,241,225 at March 31, 2018 and 4,200,219 at September 30, 2017, issued and outstanding	4	4
Additional paid-in capital	66,265	65,869
Accumulated deficit	(55,511)	(54,249)
Accumulated other comprehensive loss	(351)	(350)
Total stockholders’ equity	10,407	11,274
Total liabilities and stockholders’ equity	$ 17,196	$ 17,573

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) shares in Thousands, $ in Thousands	Mar. 31, 2018	Sep. 30, 2017
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)	258,494	243,536
Preferred stock, shares outstanding (in shares)	258,494	243,536
Preferred stock, liquidation preference	$ 2,624	$ 2,624
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)	4,241,225	4,200,219
Common stock, shares outstanding (in shares)	4,241,225	4,200,219

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Net revenue:
Net revenue	$ 3,713	$ 3,994	$ 7,682	$ 7,985
Cost of revenue:
Cost of revenue	1,891	1,716	3,848	3,411
Gross profit	1,822	2,278	3,834	4,574
Operating expenses:
Sales and marketing	950	1,174	2,054	2,468
General and administrative	795	803	1,531	1,594
Research and development	408	422	815	782
Depreciation and amortization	104	157	212	342
Restructuring charges	181	169	181	200
Total operating expenses	2,438	2,725	4,793	5,386
Loss from operations	(616)	(447)	(959)	(812)
Interest and other expense, net	(64)	(82)	(150)	(113)
Loss before income taxes	(680)	(529)	(1,109)	(925)
Provision for income taxes	0	1	1	13
Net loss	(680)	(530)	(1,110)	(938)
Dividends on convertible preferred stock	(77)	(68)	(152)	(136)
Net loss applicable to common shareholders	$ (757)	$ (598)	$ (1,262)	$ (1,074)
Net loss per share attributable to common shareholders:
Basic and diluted (in dollars per share)	$ (0.18)	$ (0.14)	$ (0.30)	$ (0.26)
Number of weighted average shares outstanding:
Basic and diluted (in shares)	4,227,101	4,180,818	4,213,660	4,096,271
Service [Member]
Net revenue:
Net revenue	$ 1,921	$ 2,151	$ 3,981	$ 4,177
Cost of revenue:
Cost of revenue	1,292	1,144	2,689	2,272
License [Member]
Net revenue:
Net revenue	1,499	1,582	3,105	3,307
Cost of revenue:
Cost of revenue	513	499	993	995
Technology Service [Member]
Net revenue:
Net revenue	293	261	596	501
Cost of revenue:
Cost of revenue	$ 86	$ 73	$ 166	$ 144

XML

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Net Loss	$ (680)	$ (530)	$ (1,110)	$ (938)
Other Comprehensive Income: Net change in foreign currency translation adjustment		1	1	3
Comprehensive loss	$ (680)	$ (529)	$ (1,109)	$ (935)

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017
Cash flows from operating activities:
Net loss	$ (1,110)	$ (938)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of property and equipment	60	48
Amortization of Intangible Assets, Total	143	143
Depreciation	65	163
Other amortization	33	66
Debt discount amortization	50
Change in fair value of warrant	(23)
Stock-based compensation	247	272
Changes in operating assets and liabilities
Accounts receivable and unbilled receivables	147	331
Prepaid expenses and other assets	(3)	(5)
Accounts payable and accrued liabilities	312	(466)
Deferred revenue	(273)	279
Other liabilities	(80)	(48)
Total adjustments	681	783
Net cash used in operating activities	(429)	(155)
Cash flows used in investing activities:
Software development capitalization costs		(41)
Purchase of property and equipment	(13)	(8)
Net cash used in investing activities	(13)	(49)
Cash flows provided by financing activities:
Proceeds from issuance of common stock, net of issuance costs		853
Proceeds from term loan	953
Borrowing on bank line of credit	388	1,097
Payments on bank line of credit	(890)	(980)
Contingent acquisition payments		(75)
Principal payments on capital leases		(24)
Net cash provided by financing activities	451	871
Effect of exchange rate changes on cash and cash equivalents	(1)	3
Net increase in cash and cash equivalents	8	670
Cash and cash equivalents at beginning of period	748	661
Cash and cash equivalents at end of period	756	1,331
Cash paid for:
Interest	110	65
Income taxes	2
Non cash investing and financing activities:
Dividends on convertible preferred stock	$ 152	$ 136

XML

Note 1 - Description of Business

6 Months Ended

Mar. 31, 2018

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™, helps customers with their digital experience from websites and intranets to online stores. Bridgeline’s Unbound platform integrates Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics to deliver digital experiences to its customers. The Bridgeline Unbound platform is delivered through a cloud-based SaaS (“Software as a Service”) multi-tenant business model, providing maintenance, daily technical operation and support; or via a traditional perpetual licensing business model, in which the software resides on a dedicated server in either the customer’s facility or hosted by Bridgeline via a cloud-based hosted services model.

Bridgeline Digital was incorporated under the laws of the State of Delaware on

August 28, 2000.

Locations

The Company’s corporate office is located in Burlington, Massachusetts.  The Company has

one

wholly-owned subsidiary, Bridgeline Digital Pvt. Ltd. located in Bangalore, India.

Reverse Stock Split

On

June 29, 2017,

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 was effective as of close of business on

July 24, 2017

and the Company’s stock began trading on a split-adjusted basis on

July 25, 2017.

The reverse stock split reduced the number of shares of the Company’s common stock currently outstanding as of

March 31, 2017

from approximately

21

million shares to approximately

4.2

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, and stock options, and to the number of shares issued and issuable under the Company’s Stock Incentive Plans. Upon the effectiveness of the

1

-for-

5

reverse stock split, each

five

shares of the Company’s issued and outstanding common stock were 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 condensed consolidated financial statements and footnotes have been retroactively adjusted to reflect the effects of the

1

-for-

5

reverse stock split.

Liquidity

and Management’s Plans

The Company has a Loan and Security Agreement (“Heritage Agreement”) with Heritage Bank of Commerce (“Heritage Bank”) which has a maturity date of

June 15, 2019.

The Heritage Agreement currently provides for

$2.5

million of revolving credit advances and

may

be used for acquisitions and working capital purposes. The credit advances

may

not

exceed the monthly borrowing base capacity, which will fluctuate based on monthly accounts receivable balances. The Company

may

request credit advances if the borrowing capacity is more than the current outstanding loan advance, and must pay down the outstanding loan advance if it exceeds the borrowing capacity. As of

March 31, 2018,

the Company had an outstanding balance under the Heritage Agreement of

$2.0

million and the ability to borrow up to

$2.5

million.

On

October 10, 2017,

the Company entered into a Loan and Security Agreement (the “Montage Loan” or “Loan Agreement”) with Montage Capital II, L.P. (“Montage”). The Montage Loan has a

thirty-six

(

36

) month term which expires on

October 10, 2020.

The Loan Agreement provides for up to

$1.5

million of borrowing in the form of a non-revolving term loan which

may

be used by the Company for working capital purposes.

$1

million of borrowing was advanced on the date of closing (the “First Tranche”). An additional

$500

thousand of borrowing will be available through

May 31, 2018

at the Company’s option in the event that the Company achieves certain financial milestones and is otherwise in compliance with its loan covenants (the “Second Tranche”).

On

May 19, 2017,

the Company filed a Registration Statement on Form S-

3

with the Securities and Exchange Commission in relation to the registration of securities of the Company having an aggregate public offering price of up to

$10

million. The determinate number of shares of common stock, preferred stock, warrants, and units of any combination thereof (collectively, the “Securities”)

may

be offered and sold from time to time, but shall

not

exceed

$10

million in total. There have been

no

securities sold as of

March 31, 2018.

Historically, the Company has had operating losses and working capital deficiencies, but has undertaken a long term cost reduction plan that included staff reductions and office lease consolidations to compensate for the shortfalls. The Company will continue to follow through with its plan and closely monitor and adjust such expenditures throughout the next

twelve

months. While there can be

no

assurance that anticipated sales will be achieved for future periods, the Company’s management believes it has an appropriate cost structure in place to support the revenues that will be achieved under the Company’s operating plan. Management believes that it is probable that working capital, capital expenditure and debt repayment needs for the next

twelve

months from the financial statement date of issuance will be met. The cash balance as of

March 31, 2018

of

$756

thousand, as well as, collections from accounts receivable and borrowings on the Heritage Line of Credit will be sufficient to meet the Company’s obligations for a minimum of

twelve

months from the financial statement issuance date. Based on the accounts receivable borrow capacity as of

March 31, 2018,

the Company was able to borrow

$500

in

April 2018,

which it used to fund current operation. While

not

currently included in the Company’s operating plan and forecast, it

may

raise additional capital in order to fund future operations. The ability to raise funds through these means

may

be helpful to the Company if the anticipated sales levels are

not

achieved or it cannot reduce operating expenses to account for any shortfalls.

XML

Note 2 - Summary of Significant Accounting Policies

6 Months Ended

Mar. 31, 2018

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 balances and transactions have been eliminated in consolidation.

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and with the instructions to Form

10

-Q and Regulation S-

X,

and in the opinion of the Company’s management these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation. The operating results for the

three

and

six

months ended

March 31, 2018

are

not

necessarily indicative of the results to be expected for the year ending

September 30, 2018.

The accompanying

September 30, 2017

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. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form

10

-K for the year ended

September 30, 2017.

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.

Pending

Accounting Pronouncements

Revenue Recognition

In

May 2014,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”)

No.

2014

-

09,

Revenue from Contracts with Customers: Topic

606

(ASU

2014

-

09

), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. ASU

2014

-

09

is effective for annual reporting periods beginning after

December 15, 2017,

including interim reporting periods within that reporting period. The core principle of ASU

2014

-

09

is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU

2014

-

09

defines a

five

step process to achieve this core principle and, in doing so, it is possible more judgment and estimates

may

be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU

2014

-

09

is effective for the Company in the

first

quarter of fiscal

2019.

Companies

may

adopt ASU

2014

-

09

using either the retrospective method, under which each prior reporting period is presented under ASU

2014

-

09,

with the option to elect certain permitted practical expedients, or the modified retrospective method, under which a company adopts ASU

2014

-

09

from the beginning of the year of initial application with

no

restatement of comparative periods, with the cumulative effect of initially applying ASU

2014

-

09

recognized at the date of initial application, with certain additional required disclosures. The Company plans to adopt the standard using the full retrospective method to restate each prior reporting period presented. Additionally, as the Company continues to assess the new standard along with industry trends and additional interpretive guidance, the Company

may

adjust its implementation plan accordingly.

As the Company is continuing to assess all potential impacts of the new standard, it currently believes that the impact will

not

be significant. A large portion of the Company’s business is for the licensing of Software-as-a-Service (SaaS) term-based software licenses bundled with maintenance and support. Under current GAAP, the revenue attributable to these software licenses is recognized ratably over the term of the arrangement because VSOE does

not

exist for the undelivered maintenance and support element as it is

not

sold separately. To apply the revenue standard, a company must

first

determine whether a contract includes a promise of a license of intellectual property. A separate promise of a license exists when (

1

) the customer has the contractual right to take possession of the software at any time without significant penalty and (

2

) the customer can run the software on its own hardware or contract with another party unrelated to the vendor to host of the software. Neither of these criteria are met with our current SaaS licensing arrangements, therefore, revenue recognition will continue to be recognized over the period of service. Revenue recognition related to our professional services is expected to remain substantially unchanged.

Another significant provision under ASU

2014

-

09

includes the capitalization and amortization of costs associated with obtaining a contract, such as sales commissions. Currently, the Company expenses sales commissions in the period incurred. Under ASU

2014

-

09,

direct and incremental costs to acquire a contract are capitalized and amortized using a systematic basis over the pattern of transfer of the goods and services to which the asset relates. While we are continuing to assess the impact of this provision of ASU

2014

-

09,

we likely will be required to capitalize incremental costs such as commissions and amortize those costs over the period the capitalized assets are expected to contribute to future cash flows. Due to the complexity of certain of our contracts, the actual accounting treatment required under the new standard for these arrangements

may

be dependent on contract-specific terms and therefore

may

vary in some instances.

Leases

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

which is guidance on accounting for leases. ASU

No,

2016

-

02

requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after

December 15, 2018.

Early adoption is permitted. The guidance requires the use of a modified retrospective approach. The Company is evaluating the impact of the guidance on its consolidated financial position, results of operations and related disclosures.

Income Tax

Deferred income taxes are provided on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and on net operating loss and tax credit carry forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for that portion of deferred tax assets

not

expected to be realized.

On

December 22, 2017,

the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending

September 30, 2018,

including, but

not

limited to, reducing the U.S. federal corporate tax rate.  For taxable years after

December 31, 2017,

the Tax Act reduces the federal corporate tax rate to

21

percent and as such will impact the Company’s fiscal

2018

tax calculations. For the

six

months ended

March 31, 2018,

the U.S. federal statutory rate is a blended rate based upon the number of days in fiscal

2018

that the Company will be taxed at the former rate of

34

percent and the number of days that it will be taxed at the new rate of

21

percent. Amounts recorded where a provisional estimate that has been determined for the

six

months ended

March 31, 2018

principally relate to the tax reduction in the U.S. corporate income tax rate to

21

percent effective

January 1, 2018. 

The reduction of the corporate tax rate will cause the Company to reduce its deferred tax assets to the lower federal base rate and adjust the allowance against the deferred tax asset by the same amount. The Company has

not

yet determined the impact the rate reduction will have on its gross deferred tax asset and liabilities and offsetting valuation allowance. The Company has a full allowance against the deferred tax asset and as a result there was

no

impact to income tax expense for the

three

and

six

month periods ended

March 31, 2018. 

The Tax Act also contains a provision requiring companies to repatriate all aggregate post

1986

earnings and profits of foreign corporations. The Company has estimated that the repatriation will be

zero

because the foreign subsidiary has

no

income.

The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act

may

differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impact. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to

one

year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company will continue to analyze the Tax Act to assess the full effects on its financial results, including disclosures, and anticipates finalizing and recording any resulting adjustments by the end of our current fiscal year ending

September 30, 2018.

Cash Flows

In

August 2016,

the FASB issued ASU

2016

-

15,

which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows, specifically certain cash receipts and cash payments. The standard is effective for public business entities financial statements issued for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective method. Management does

not

expect the adoption of this Standard to have a material impact on its consolidated cash flows.

In

November 2016,

the FASB issued ASU

No.

2016

-

18

which requires entities to include in their cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. As a result, companies will

no

longer present transfers between cash and cash equivalents, and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for annual and interim periods beginning after

December 15, 2017.

Early adoption of ASU

2016

-

18

is permitted, including adoption in an interim period. Management is currently evaluating the adoption of ASU

2016

-

18

on its consolidated cash flows.

Goodwill

In

January 2017,

the FASB issued ASU

No.

2017

-

04

to simplify the accounting for goodwill impairment. The guidance removes Step

2

of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value,

not

to exceed the carrying amount of goodwill. The guidance will be applied prospectively and is effective for annual reporting periods ending

December 31, 2020

and thereafter with early adoption permitted. Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

Business Combinations

In

January 2017,

the FASB issued ASU

No.

2017

-

01,

which amended the existing FASB Accounting Standards Codification Topic

805

Business Combinations. The standard provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU

2017

-

01

is effective for annual periods beginning after

December 15, 2017,

including interim periods within those annual periods, with early adoption permitted. Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

In

July 2017,

the FASB issued ASU

No.

2017

-

11,

which simplifies the accounting for certain financial instruments with down round features. This new standard will reduce income statement volatility for many companies that issue warrants and convertible instruments containing such features. ASU

2017

-

11

is effective for public companies in

2019

and all other entities in

2020.

Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

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.

XML

Note 3 - Accounts Receivable and Unbilled Receivables

6 Months Ended

Mar. 31, 2018

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, 2018			September 30, 2017
Accounts receivable	$	2,788		$	3,174
Unbilled receivables		284			41
Subtotal		3,072			3,215
Allowance for doubtful accounts		(193	)		(189	)
Accounts receivable and unbilled receivables, net	$	2,879		$	3,026

As of

March 31, 2018,

two

customers represented

21%

and

10%

of accounts receivable. As of

September 30, 2017,

two

customers represented

23%

and

14%

of accounts receivable. Unbilled receivables represent amounts recognized as revenue for which invoices have

not

yet been sent.

XML

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

6 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Fair Value Disclosures [Text Block]

4

.   Fair Value Measurement and Fair Value of Financial Instruments

The Company measures its financial assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., exit price) in an orderly transaction between market participants at the measurement date. Additionally, companies are required to provide disclosure and categorize assets and liabilities measured at fair value into

one

of

three

different levels depending on the assumptions (i.e., inputs) used in the valuation. Level 

1

provides the most reliable measure of fair value while Level 

3

generally requires significant management judgment. Financial assets and liabilities are classified in their entirety based on the lowest level of input significant to the fair value measurement. The fair value hierarchy is defined as follows:

Level 

1—Valuations

are based on unadjusted quoted prices in active markets for identical assets or liabilities.

Level 

2—Valuations

are based on quoted prices for similar assets or liabilities in active markets, or quoted prices in markets that are

not

active for which significant inputs are observable, either directly or indirectly.

Level 

3—Valuations

are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. Inputs reflect management’s best estimate of what market participants would use in valuing the asset or liability at the measurement date.

The Company believes the carrying values for accounts receivable and accounts payable and short term debt approximate current fair values as of

March 31, 2018

and

September 30, 2017

because of their short-term nature and durations. The carrying value of long term debt also approximates fair value as of

March 31, 2018

and

September 30, 2017

based upon the Company’s ability to acquire similar debt at similar maturities. In

October 2017,

the Company recorded a liability associated with a warrant to purchase common stock issued to Montage Capital. The fair value of the warrant liability will utilize a Level 

3

input. To determine the value of the warrant liability, the Company used a Monte Carlo option-pricing model, which takes into consideration the market values of comparable public companies, considering among other factors, the use of multiples of earnings, and adjusted to reflect the restrictions on the ability of our shares to trade in an active market. The Monte Carlo option-valuation model also uses certain assumptions to determine the fair value, including expected life and annual volatility. Such inputs used to value the warrant liability include an expected life of

eight

(

8

) years, annual volatility of

80%,

and a risk-free interest rate of

2.24%.

The fair value of the warrant liability was valued at the loan execution date in the amount of

$341

and will be revalued at the end of each reporting period to fair value. The fair value of the warrant is included in Other long term liabilities in the Condensed Consolidated Balance Sheet. Changes in fair value are included in interest expense in the Condensed Statement of Operations in the period the change occurs. In total, the Company has recorded a change in fair value of (

$23

) since the original valuation in

October 2017.

The fair value of the warrant at

March 31, 2018

is

$318.

Assets and liabilities of the Company measured at fair value on a recurring basis as of

March 31, 2018

are as follows:

			As of March 31, 2018
	Level 1		Level 2		Level 3		Total
Liabilities:
Warrant liability	$	-	$	-	$	318	$	318
Total Liabilities	$	-	$	-	$	318	$	318

Warrant liability is reflected in Other long term liabilities on the Condensed Consolidated Balance Sheet.

The following table provides a rollforward of the fair value, as determined by Level

3

inputs, of the warrant liability.

	Six Months Ended March 31,
	2018
Balance at beginning of period, October 1, 2017	$	-
Additions		341
Adjustment to fair value		(3	)
Balance at end of period, December 31, 2017	$	338
Additions		-
Adjustment to fair value		(20	)
Balance at end of period, March 31, 2018	$	318

XML

Note 5 - Intangible Assets

6 Months Ended

Mar. 31, 2018

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, 2018		September 30, 2017
Domain and trade names	$	10	$	10
Customer related		71		179
Non-compete agreements		39		74
Balance at end of period	$	120	$	263

Total amortization expense related to intangible assets for the

three

months ended

March 31, 2018

and

2017

was

$71

and

$72,

respectively, and

$143

for the both the

six

months ended

March 31, 2018

and

2017.

Amortization expense is reflected in operating expenses on the Condensed Consolidated Statements of Operations. The estimated amortization expense for fiscal years

2018

(remaining) and

2019

is

$100

and

$20,

respectively.

XML

Note 6 - Restructuring

6 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

6

.   Restructuring

Commencing in fiscal

2015

and through the current fiscal year, the Company’s management approved, committed to and initiated plans to restructure and further improve efficiencies by implementing cost reductions in line with expected decreases in revenue. The Company renegotiated several office leases and relocated to smaller space, while also negotiating sub-leases for the original space. In addition, the Company executed a general work-force reduction and recognized costs for severance and termination benefits. These restructuring charges and accruals require estimates and assumptions, including contractual rental commitments or lease buy-outs for vacated office space and related costs, and estimated sub-lease income. The Company’s sub-lease assumptions include the rates to be charged to a sub-tenant and the timing of the sub-lease arrangement. All of the vacated lease space is currently contractually occupied by a new sub-tenant for the remaining life of the lease. In the

second

quarter of fiscal

2017,

the Company initiated a plan to shut down its operations in India. In the

second

quarter of fiscal

2018,

the Company restructured the office lease for its Corporate headquarters. All of these estimates and assumptions will be monitored on a quarterly basis for changes in circumstances with the corresponding adjustments reflected in the Condensed Consolidated Statement of Operations.

The following table summarizes the restructuring activity for the

three

and

six

months ended

March 31, 2018:

	Facility Closures and Other Costs
Balance at beginning of period, October 1, 2017	$	176
Charges to operations		-
Cash disbursements		(67	)
Changes in estimates		-
Balance at end of period, December 31, 2017	$	109
Charges to operations		140
Cash disbursements		(121	)
Changes in estimates		(20	)
Balance at end of period, March 31, 2018	$	108

The components of the accrued restructuring liabilities is as follows:

	As of		As of
	March 31, 2018		September 30, 2017
Facilities and related	$	106	$	133
Other		2		43
Total	$	108	$	176

As of

March 31, 2018,

$80

was reflected in Accrued Liabilities and

$28

in Other Long Term Liabilities in the Condensed Consolidated Balance Sheet. As of

September 30, 2017,

$119

is reflected in Accrued Liabilities and

$57

is reflected in Other Long Term liabilities in the Condensed Consolidated Balance Sheet.

XML

Note 7 - Debt

6 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

7

.   Debt

Debt at

March 31, 2018

and

September 30, 2017

consists of the following:

	As of			As of
	March 31, 2018			September 30, 2017
Line of credit borrowings	$	1,998		$	2,500
Term loan - Montage Capital		1,000			-
Subtotal debt	$	2,998		$	2,500
Other (debt discount)		(287	)		-
Total debt	$	2,711		$	2,500
Less current portion		120			-
Long term debt, net of current portion	$	2,591		$	2,500

Heritage Line of Credit

In

June 2016,

the Company entered into a new Loan and Security Agreement with Heritage Bank of Commerce (“Heritage Agreement” or “Loan Agreement”). The Heritage Agreement had an original a term of

24

months but was amended in

2017

to a maturity date of

June 9, 2019.

The Company paid an annual commitment fee of

0.4%

of the commitment amount in the

first

year and

0.2%

in the

second

year.  The facility fee is

$6

on each anniversary thereafter. Borrowings are secured by all of the Company’s assets and all of the Company’s intellectual property. The Company is required to comply with certain financial and reporting covenants including an Asset Coverage Ratio and an Adjusted EBITDA metric. The Company and Heritage mutually agree upon minimum quarterly Adjusted EBITDA amounts for each fiscal year within

thirty

days following the beginning of each fiscal year. The Company was

not

in compliance with the EBITDA financial covenants as of

March 31, 2018,

but received a waiver (“Seventh Amendment”).

The Heritage Agreement provides for up to

$2.5

million of revolving credit advances which

may

be used for acquisitions and working capital purposes. Borrowings are limited to the lesser of (i)

$2.5

million and (ii)

75%

of eligible receivables as defined. The Company can borrow up to

$1.0

million in out of formula borrowings for specified periods of time. The borrowings or credit advances

may

not

exceed the monthly borrowing base capacity, which will fluctuate based on monthly accounts receivable balances. The Company

may

request credit advances if the borrowing capacity is more than the current outstanding loan advance, and must pay down the outstanding loan advance if it exceeds the borrowing capacity.  Borrowings accrue interest at Wall Street Journal Prime Rate plus

1.75%,

(currently

6%

). As of

March 31, 2018,

the Company had an outstanding balance under the Loan Agreement of

$2.0

million, with the availability to borrow up to the maximum of

$2.5

million.

A Director and Shareholder of the Company, Michael Taglich, signed an unconditional guaranty (the “Guaranty”) and promise to pay Heritage Bank all indebtedness in an amount

not

to exceed

$1.5

million in connection with the out of formula borrowings. 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.

Amendments

– Heritage Bank

On

October 6, 2017,

a

fourth

amendment to the Heritage Agreement (“Fourth Amendment”) was executed. The Fourth Amendment included a consent to the Company’s incurrence of additional indebtedness from Montage Capital (“Montage”) and the grant of a

second

position lien to Montage (See Subsequent Events). In addition, Heritage and Montage entered into an Intercreditor Agreement dated

October 10, 2017,

and acknowledged by the Company.

On

November 27, 2017,

a

fifth

amendment to the Heritage Agreement (“Fifth Amendment”) was executed. The Fifth Amendment included the Adjusted EBITDA metrics for the

second

half of fiscal

2017

and the

first

six

months of fiscal

2018.

Thereafter, the Company and Heritage shall mutually agree upon minimum quarterly Adjusted EBITDA amounts for each fiscal year within

thirty

days following the beginning of each fiscal year.

On

February 1, 2018,

a

sixth

amendment to the Heritage Agreement (“Sixth Amendment”) was executed. The Sixth Amendment amended the definition of Eligible Foreign Accounts.

On

May 10, 2018,

a

seventh

amendment to the Heritage Agreement (“Seventh Amendment”) was executed. The Seventh Amendment included the Adjusted EBITDA metrics for the

third

and

fourth

quarter of fiscal

2018

and a waiver for

not

achieving the Adjusted EBITDA metric for the quarter ended

March 31, 2018.

Montage Capital II, L.P. Loan Agreement

On

October 10, 2017,

the Company entered into a Loan and Security Agreement (the “Loan Agreement”) with Montage Capital II, L.P. (“Montage”). The Loan Agreement has a

thirty-six

(

36

) month term which expires on

October 10, 2020.

The Loan Agreement provides for up to

$1.5

million of borrowing in the form of a non-revolving term loan which

may

be used by the Company for working capital purposes.

$1

million of borrowing was advanced on the date of closing (the “First Tranche”). An additional

$500

thousand of borrowing will be available at the Company’s option through

May 31, 2018

in the event that the Company achieves certain financial milestones and is otherwise in compliance with its loan covenants (the “Second Tranche”). Borrowings bear interest at the rate of

12.75%

per annum. The Company paid a fee of

$47

to Montage at closing. Interest only payments are due and payable during the

first

nine

months of the Loan. Commencing on

July 1, 2018,

the Company shall be obligated to make principal payments of

$26

per month if only the First Tranche has been received and

$39

if the Company has received both the First Tranche and the Second Tranche. All remaining principal and interest shall be due and payable at maturity. Borrowings are secured by a

second

position lien on all of the Company’s assets including intellectual property and general intangibles. Pursuant to the Loan Agreement, the Company is also required to comply with certain financial covenants.  The Loan is subordinate to the Company’s senior debt facility with Heritage Bank of Commerce (“Heritage”). Heritage consented to the Company’s incurrence of additional indebtedness from Montage and the grant of a

second

position lien to Montage. In addition, Heritage and Montage entered into an intercreditor agreement dated

October 10, 2017,

and acknowledged by the Company. The Company was

not

in compliance with the EBITDA financial covenants as of

March 31, 2018,

but received a waiver (“First Amendment”). On

May 10, 2018,

the

first

amendment to the Montage Agreement (“First Amendment”) was executed. The First Amendment included the Adjusted EBITDA metrics for the

third

quarter of fiscal

2018

and a waiver for

not

achieving the Adjusted EBITDA metrics for the quarter ended

March 31, 2018.

As additional consideration for the Loan, the Company issued to Montage an

eight

-year warrant (the “Warrant”) to purchase

66,315

shares of the Company’s common stock at a price equal to

$2.65

per share which

may

increase to an aggregate of

100,082

shares of the Company’s common stock in the event that Montage advances the Second Tranche. The Warrant contains an equity buy-out provision upon the earlier of (

1

) dissolution or liquidation of the Company, (

2

) any sale or distribution of all or substantially all of the assets of the Company or (

3

) a “Change in Control” as defined within the meaning of Section

13

(d) and

14

(d)(

2

) of the Securities Exchange Act of

1934.

Montage shall have the right to receive an equity buy-out of either

$250

if only the First Tranche has been advanced or

$375

if both the First Tranche and the Second Tranche have been advanced. If the equity buy-out is exercised, the Warrant will be surrendered to the Company for cancellation. The fair value of the Warrant was initially valued at

$341

at the loan execution. The fair value as of

March 31, 2018

is

$318.

The Warrant is classified as a liability with an offsetting entry to debt discounts, which will be amortized over the life of the Loan Agreement. Total amortization of the debt discount for the

three

and

six

months ended

March 31, 2018

was

$28

and

$54.

As of

March 31, 2018,

the total adjustments to fair value are (

$23

), recorded as interest expense in the Condensed Consolidated Statement of Operations.

XML

Note 8 - Other Long Term Liabilities

6 Months Ended

Mar. 31, 2018

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 lease in Massachusetts, the Company made an investment in leasehold improvements at this location of approximately

$1.4

million, of which approximately

$657

was funded by the landlord. The capitalized leasehold improvements were being amortized over the initial life of the lease. The improvements funded by the landlord were treated as lease incentives. Accordingly, the funding received from the landlord was recorded as a fixed asset addition and a deferred rent liability on the Condensed Consolidated Balance Sheets. The Company terminated this lease effective

March 1, 2018

and reversed the remaining deferred rent liability of

$118.

As of

March 31, 2018,

deferred rent of

$14

was reflected in Accrued Liabilities on the Condensed Consolidated Balance Sheet related to the Company’s Chicago office. As of

September 30, 2017,

deferred rent of

$154

was reflected in Accrued Liabilities and

$43

was reflected in Other long term liabilities on the Condensed Consolidated Balance Sheet.

Warrant Liability

The warrant issued to Montage Capital is included in Other Long Term Liabilities in the Condensed Consolidated Balance Sheet. The fair value of the warrant was valued at the loan execution date in the amount of

$341

and is revalued at the end of each reporting period to fair value. The fair value at

March 31, 2018

was

$318,

a reduction of

$23.

Changes in fair value are recorded as expense in the period the change occurs.

XML

Note 9 - Shareholders' Equity

6 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

9

.   Shareholder

s

’

Equity

Preferred

Stock

In

October 2014,

the Company sold

200,000

shares of Series A convertible preferred stock (the “Preferred Stock”) at a purchase price of

$10.00

per share for gross proceeds of

$2.0

million in a private placement. 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, multiplied by the stated value of

$10.00

(the “Stated Value”) and (ii) divided by the conversion price in effect at the time of conversion. The current conversion price is

$16.25,

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

$32.50

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.

As of

March 31, 2018,

a total of

1,636

shares of preferred stock have been converted to

1,007

shares of common stock.

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.

The Company

may

pay dividends in cash or Preferred Stock. Effective

January 1, 2017,

cumulative dividends are payable at a rate of

12%

per year, as after

two

years, any Preferred Stock dividends increase from

6%

to

12%

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”) up to

64,000

shares cumulatively. 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. 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

$32.50

per share. The Preferred Shares shall vote with the Common on an as converted basis.

As of

March 31, 2018,

the Company has issued

58,494

shares of Preferred Stock as PIK dividend to the preferred shareholders. The Company elected to declare a partial PIK dividend and partial cash dividend for the next quarterly payment due

April 1, 2018.

The total PIK dividend declared for

April 1, 2018

is

3,870

preferred stock shares at a dividend rate of

12%.

The cash dividend declared for

April 1, 2018

was

$38.

All future dividends payments will be cash dividends, as the cumulative PIK dividends of

64,000

has been realized.

Stock Incentive Plans

The Company has granted common stock, common stock warrants, and common stock option awards (the “Equity Awards”) to employees, consultants, advisors and debt holders of the Company and to former owners and employees of acquired companies that have become employees of the Company. On

April 29, 2016,

the stockholders approved a new stock incentive plan, The

2016

Stock Incentive Plan (the

“2016

Plan”). The

2016

Plan replaced an older plan that had expired in

August 2016.

New option grants are only issued from the new

2016

Plan, but the Company still maintains options under the older plan. The

2016

Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company. Initially, a total of

500,000

shares of the Company’s Common Stock is reserved for issuance under this new plan. As of

March 31, 2018,

there were

462,846

options outstanding under both plans and

258,334

 shares available for future issuance.

Common Stock Warrants

The Company typically issues warrants to individual investors and placement agents to purchase shares of the Company’s common stock in connection with private placement fund raising activities. Warrants

may

also be issued to individuals or companies in exchange for services provided for the Company. The warrants are typically exercisable

six

months after the issue date, expire in

five

years, and contain a cashless exercise provision and piggyback registration rights.

As of

March 31, 2018,

the total warrants outstanding were issued as follows:

227,655

warrants were issued to the placement agents in connection with private placements,

317,938

warrants were issued to individual investors in connection with private placements, debt issuances and bank guarantees, and

66,315

warrants were issued to Montage Capital. Certain of the Company’s officers and directors have also been issued warrants. Included in the total warrants outstanding are warrants to purchase

8,600

shares of common stock issued to the Company’s CEO and President, Roger Kahn, in connection with the

November 2016

Private Placement, in which he purchased shares of common stock. Also included in the total warrants outstanding are warrants to purchase

156,912

shares of common stock issued to Michael Taglich. Michael Taglich is a member of the Board of Directors and a shareholder. Michael Taglich has been issued warrants in connection with his participation as an investor in private offerings and issuance of loans to the Company. He has also guaranteed

$1.5

million in connection with the Company’s out of formula borrowings on its credit facility with Heritage Bank for which he received warrants totaling

86,000.

Michael Taglich is also a principal of Taglich Brothers, Inc who have been the placement agents for many of the Company’s private placements.

On

January 7, 2015,

Bridgeline also entered into a side letter with Michael Taglich pursuant to which Bridgeline agreed in the event the Bank 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.

Since the Guaranty was still outstanding at

December 31, 2017,

a warrant to purchase

6,000

shares of common stock was issued to Michael Taglich in

January 2018

at a price of

$20.00.

Total warrants outstanding as

March 31, 2018

were as follows:

	Issue
Type	Date	Shares		Price		Expiration
Investors	6/19/2013		18,400	$	31.25	6/19/2018
Placement Agent	6/19/2013		9,200	$	31.25	6/19/2018
Placement Agent	9/30/2013		6,157	$	32.50	9/30/2018
Placement Agent	11/6/2013		3,078	$	32.50	11/6/2018
Placement Agent	3/28/2014		12,800	$	26.25	3/28/2019
Placement Agent	10/28/2014		12,308	$	16.25	10/28/2019
Director/Shareholder	12/31/2014		12,000	$	20.00	12/31/2019
Director/Shareholder	2/12/2015		12,000	$	20.00	2/12/2020
Director/Shareholder	5/12/2015		12,000	$	20.00	5/12/2020
Director/Shareholder	7/21/2015		32,000	$	8.75	7/21/2018
Director/Shareholder	12/31/2015		6,000	$	20.00	12/31/2020
Placement Agent	5/17/2016		86,778	$	3.75	5/17/2021
Placement Agent	5/11/2016		53,334	$	3.75	5/11/2021
Placement Agent	7/15/2016		44,000	$	4.60	7/15/2021
Investors	11/9/2016		213,538	$	3.50	5/22/2022
Director/Shareholder	12/31/2016		6,000	$	20.00	12/31/2021
Financing	10/10/2017		66,315	$	2.65	10/10/2025
Director/Shareholder	12/31/2017		6,000	$	20.00	12/31/2021
Total			611,908

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, 2017		450,646		$	7.02			539,593	$	8.18
Granted		19,900		$	2.47			72,315	$	4.46
Exercised		-		$	-			-	$	-
Forfeited or expired		(7,700	)	$	(9.22	)		-	$	-
Outstanding, March 31, 2018		462,846		$	6.78			611,908	$	7.77

The fair value of each stock option grant was estimated on the date of grant using a Black-Scholes option pricing model with the following assumptions and fair value per share:

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2018			2017			2018			2017
Number of options granted		19,100			8,200			19,900			10,200
Volatility		80.39	%		84.71	%		80.52	%		84.60	%
Estimated life (years)		6			6			6			6
Risk-free interest rate		2.52	%		2.02	%		2.50	%		1.99	%
Weighted-average fair value per share of grants	$	1.72		$	2.29		$	1.73		$	2.20

XML

Note 10 - Net Loss Per Share

6 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

1

0

.   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,
	2018			2017			2018			2017
Net loss	$	(680	)	$	(530	)	$	(1,110	)	$	(938	)
Accrued dividends on convertible preferred stock		(77	)		(68	)		(152	)		(136	)
Net loss applicable to common shareholders	$	(757	)	$	(598	)	$	(1,262	)	$	(1,074	)
Weighted average common shares outstanding - basic and diluted		4,227			4,181			4,214			4,096
Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.18	)	$	(0.14	)	$	(0.30	)	$	(0.26	)

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 and convertible preferred stock using the “treasury stock” method. For the

three

and

six

months ended

March 31, 2018

and

2017,

the computation of diluted loss per share does

not

include all of stock options, warrants and convertible preferred stock as they are anti-dilutive.

XML

Note 11 - Income Taxes

6 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

1

1

.  Income Taxes

There was

no

income tax expense recorded for the

three

months ended

March 31, 2018.

Income tax expense was

$1

for the

three

months ended

2017

and

$1

and

$13

for the

six

months ended

March 31, 2018

and

2017,

respectively. Income tax expense consists of the estimated liability for state income taxes owed by the Company.  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. The Tax Act contains a provision requiring companies to repatriate all aggregate post

1986

earnings and profits of foreign corporations. The Company has estimated that the repatriation will be

zero

because the foreign subsidiary has

no

income.

On

December 22, 2017,

the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending

September 30, 2018,

including, but

not

limited to, reducing the U.S. federal corporate tax rate. For taxable years after

December 31, 2017,

the Tax Act reduces the federal corporate tax rate to

21

percent and as such will impact the Company’s fiscal

2018

tax calculations. For the

six

months ended

March 31, 2018,

the U.S. federal statutory rate is a blended rate based upon the number of days in fiscal

2018

that the Company will be taxed at the former rate of

34

percent and the number of days that it will be taxed at the new rate of

21

percent. The reduction of the corporate tax rate will cause the Company to reduce its deferred tax assets to the lower federal base rate and adjust the allowance against the deferred tax asset by the same amount. The Company has

not

yet determined the impact the rate reduction will have on its gross deferred tax asset and liabilities and offsetting valuation allowance. The Company has a full allowance against the deferred tax asset and as a result there was

no

impact to income tax expense for the

three

and

six

month periods ended

March 31, 2018. 

The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act

may

differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impact. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to

one

year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company will continue to analyze the Tax Act to assess the full effects on its financial results, including disclosures, and anticipates finalizing and recording any resulting adjustments by the end of our current fiscal year ending

September 30, 2018.

XML

Note 12 - Related Party Transactions

6 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

1

2

.  Related Party Transactions

In

October 2013,

Mr. Michael Taglich joined the Board of Directors. Michael Taglich is the Chairman and President of Taglich Brothers, Inc. a New York based securities firm. Taglich Brothers, Inc were the Placement Agents for many of the Company’s private offerings in

2012,

2013,

2014,

and

2016.

They were also the Placement Agent for the Company’s

$3

million subordinated debt offering in

2013

and the Series A Preferred stock sale in

2015.

Michael Taglich beneficially owns approximately

22%

of Bridgeline common stock. Michael Taglich has also guaranteed

$1.5

million in connection with the Company’s out of formula borrowings on its credit facility with Heritage Bank. Michael Taglich’s brother, Robert Taglich is a former member of the Company’s Board of Directors and beneficially owns approximately

8%

of the Company’s common and convertible preferred stock.

XML

Note 13 - Legal Proceedings

6 Months Ended

Mar. 31, 2018

Notes to Financial Statements

Legal Matters and Contingencies [Text Block]

1

3

.  Legal Proceedings

The Company is subject to ordinary routine litigation and claims incidental to its business. As of

March 31, 2018,

the Company was

not

engaged with any material legal proceedings.

XML

Significant Accounting Policies (Policies)

6 Months Ended

Mar. 31, 2018

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 balances and transactions have been eliminated in consolidation.

Basis of Accounting, Policy [Policy Text Block]

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and with the instructions to Form

10

-Q and Regulation S-

X,

and in the opinion of the Company’s management these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation. The operating results for the

three

and

six

months ended

March 31, 2018

are

not

necessarily indicative of the results to be expected for the year ending

September 30, 2018.

The accompanying

September 30, 2017

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. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form

10

-K for the year ended

September 30, 2017.

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]

Pending

Accounting Pronouncements

Revenue Recognition

In

May 2014,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”)

No.

2014

-

09,

Revenue from Contracts with Customers: Topic

606

(ASU

2014

-

09

), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. ASU

2014

-

09

is effective for annual reporting periods beginning after

December 15, 2017,

including interim reporting periods within that reporting period. The core principle of ASU

2014

-

09

is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU

2014

-

09

defines a

five

step process to achieve this core principle and, in doing so, it is possible more judgment and estimates

may

be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU

2014

-

09

is effective for the Company in the

first

quarter of fiscal

2019.

Companies

may

adopt ASU

2014

-

09

using either the retrospective method, under which each prior reporting period is presented under ASU

2014

-

09,

with the option to elect certain permitted practical expedients, or the modified retrospective method, under which a company adopts ASU

2014

-

09

from the beginning of the year of initial application with

no

restatement of comparative periods, with the cumulative effect of initially applying ASU

2014

-

09

recognized at the date of initial application, with certain additional required disclosures. The Company plans to adopt the standard using the full retrospective method to restate each prior reporting period presented. Additionally, as the Company continues to assess the new standard along with industry trends and additional interpretive guidance, the Company

may

adjust its implementation plan accordingly.

As the Company is continuing to assess all potential impacts of the new standard, it currently believes that the impact will

not

be significant. A large portion of the Company’s business is for the licensing of Software-as-a-Service (SaaS) term-based software licenses bundled with maintenance and support. Under current GAAP, the revenue attributable to these software licenses is recognized ratably over the term of the arrangement because VSOE does

not

exist for the undelivered maintenance and support element as it is

not

sold separately. To apply the revenue standard, a company must

first

determine whether a contract includes a promise of a license of intellectual property. A separate promise of a license exists when (

1

) the customer has the contractual right to take possession of the software at any time without significant penalty and (

2

) the customer can run the software on its own hardware or contract with another party unrelated to the vendor to host of the software. Neither of these criteria are met with our current SaaS licensing arrangements, therefore, revenue recognition will continue to be recognized over the period of service. Revenue recognition related to our professional services is expected to remain substantially unchanged.

Another significant provision under ASU

2014

-

09

includes the capitalization and amortization of costs associated with obtaining a contract, such as sales commissions. Currently, the Company expenses sales commissions in the period incurred. Under ASU

2014

-

09,

direct and incremental costs to acquire a contract are capitalized and amortized using a systematic basis over the pattern of transfer of the goods and services to which the asset relates. While we are continuing to assess the impact of this provision of ASU

2014

-

09,

we likely will be required to capitalize incremental costs such as commissions and amortize those costs over the period the capitalized assets are expected to contribute to future cash flows. Due to the complexity of certain of our contracts, the actual accounting treatment required under the new standard for these arrangements

may

be dependent on contract-specific terms and therefore

may

vary in some instances.

Leases

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

which is guidance on accounting for leases. ASU

No,

2016

-

02

requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases. The guidance requires enhanced disclosures regarding the amount, timing, and uncertainty of cash flows arising from leases and will be effective for interim and annual periods beginning after

December 15, 2018.

Early adoption is permitted. The guidance requires the use of a modified retrospective approach. The Company is evaluating the impact of the guidance on its consolidated financial position, results of operations and related disclosures.

Income Tax

Deferred income taxes are provided on the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and on net operating loss and tax credit carry forwards. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for that portion of deferred tax assets

not

expected to be realized.

On

December 22, 2017,

the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that will affect the Company’s fiscal year ending

September 30, 2018,

including, but

not

limited to, reducing the U.S. federal corporate tax rate.  For taxable years after

December 31, 2017,

the Tax Act reduces the federal corporate tax rate to

21

percent and as such will impact the Company’s fiscal

2018

tax calculations. For the

six

months ended

March 31, 2018,

the U.S. federal statutory rate is a blended rate based upon the number of days in fiscal

2018

that the Company will be taxed at the former rate of

34

percent and the number of days that it will be taxed at the new rate of

21

percent. Amounts recorded where a provisional estimate that has been determined for the

six

months ended

March 31, 2018

principally relate to the tax reduction in the U.S. corporate income tax rate to

21

percent effective

January 1, 2018. 

The reduction of the corporate tax rate will cause the Company to reduce its deferred tax assets to the lower federal base rate and adjust the allowance against the deferred tax asset by the same amount. The Company has

not

yet determined the impact the rate reduction will have on its gross deferred tax asset and liabilities and offsetting valuation allowance. The Company has a full allowance against the deferred tax asset and as a result there was

no

impact to income tax expense for the

three

and

six

month periods ended

March 31, 2018. 

The Tax Act also contains a provision requiring companies to repatriate all aggregate post

1986

earnings and profits of foreign corporations. The Company has estimated that the repatriation will be

zero

under a provisional basis under Staff Accounting Bulletin

No.

118

(SAB

118

).

The changes included in the Tax Act are broad and complex. The final transition impacts of the Tax Act

may

differ from the above estimate, possibly materially, due to, among other things, changes in interpretations of the Tax Act, any legislative action to address questions that arise because of the Tax Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Act, or any updates or changes to estimates the company has utilized to calculate the transition impact. The Securities Exchange Commission has issued rules that would allow for a measurement period of up to

one

year after the enactment date of the Tax Act to finalize the recording of the related tax impacts. The Company will continue to analyze the Tax Act to assess the full effects on its financial results, including disclosures, and anticipates finalizing and recording any resulting adjustments by the end of our current fiscal year ending

September 30, 2018.

Cash Flows

In

August 2016,

the FASB issued ASU

2016

-

15,

which is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows, specifically certain cash receipts and cash payments. The standard is effective for public business entities financial statements issued for fiscal years beginning after

December 15, 2017,

and interim periods within those fiscal years. Early adoption is permitted, provided that all of the amendments are adopted in the same period. The guidance requires application using a retrospective method. Management does

not

expect the adoption of this Standard to have a material impact on its consolidated cash flows.

In

November 2016,

the FASB issued ASU

No.

2016

-

18

which requires entities to include in their cash and cash-equivalent balances in the statement of cash flows those amounts that are deemed to be restricted cash and restricted cash equivalents. As a result, companies will

no

longer present transfers between cash and cash equivalents, and restricted cash and restricted cash equivalents in the statement of cash flows. The guidance is effective for annual and interim periods beginning after

December 15, 2017.

Early adoption of ASU

2016

-

18

is permitted, including adoption in an interim period. Management is currently evaluating the adoption of ASU

2016

-

18

on its consolidated cash flows.

Goodwill

In

January 2017,

the FASB issued ASU

No.

2017

-

04

to simplify the accounting for goodwill impairment. The guidance removes Step

2

of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value,

not

to exceed the carrying amount of goodwill. The guidance will be applied prospectively and is effective for annual reporting periods ending

December 31, 2020

and thereafter with early adoption permitted. Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

Business Combinations

In

January 2017,

the FASB issued ASU

No.

2017

-

01,

which amended the existing FASB Accounting Standards Codification Topic

805

Business Combinations. The standard provides additional guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. ASU

2017

-

01

is effective for annual periods beginning after

December 15, 2017,

including interim periods within those annual periods, with early adoption permitted. Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

In

July 2017,

the FASB issued ASU

No.

2017

-

11,

which simplifies the accounting for certain financial instruments with down round features. This new standard will reduce income statement volatility for many companies that issue warrants and convertible instruments containing such features. ASU

2017

-

11

is effective for public companies in

2019

and all other entities in

2020.

Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

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 3 - Accounts Receivable and Unbilled Receivables (Tables)

6 Months Ended

Mar. 31, 2018

Notes Tables

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

	As of			As of
	March 31, 2018			September 30, 2017
Accounts receivable	$	2,788		$	3,174
Unbilled receivables		284			41
Subtotal		3,072			3,215
Allowance for doubtful accounts		(193	)		(189	)
Accounts receivable and unbilled receivables, net	$	2,879		$	3,026

XML

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

6 Months Ended

Mar. 31, 2018

Notes Tables

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

			As of March 31, 2018
	Level 1		Level 2		Level 3		Total
Liabilities:
Warrant liability	$	-	$	-	$	318	$	318
Total Liabilities	$	-	$	-	$	318	$	318

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

	Six Months Ended March 31,
	2018
Balance at beginning of period, October 1, 2017	$	-
Additions		341
Adjustment to fair value		(3	)
Balance at end of period, December 31, 2017	$	338
Additions		-
Adjustment to fair value		(20	)
Balance at end of period, March 31, 2018	$	318

XML

Note 5 - Intangible Assets (Tables)

6 Months Ended

Mar. 31, 2018

Notes Tables

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

	As of		As of
	March 31, 2018		September 30, 2017
Domain and trade names	$	10	$	10
Customer related		71		179
Non-compete agreements		39		74
Balance at end of period	$	120	$	263

XML

Note 6 - Restructuring (Tables)

6 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Restructuring Reserve by Type of Cost [Table Text Block]

	Facility Closures and Other Costs
Balance at beginning of period, October 1, 2017	$	176
Charges to operations		-
Cash disbursements		(67	)
Changes in estimates		-
Balance at end of period, December 31, 2017	$	109
Charges to operations		140
Cash disbursements		(121	)
Changes in estimates		(20	)
Balance at end of period, March 31, 2018	$	108

Restructuring and Related Costs [Table Text Block]

	As of		As of
	March 31, 2018		September 30, 2017
Facilities and related	$	106	$	133
Other		2		43
Total	$	108	$	176

XML

Note 7 - Debt (Tables)

6 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Debt [Table Text Block]

	As of			As of
	March 31, 2018			September 30, 2017
Line of credit borrowings	$	1,998		$	2,500
Term loan - Montage Capital		1,000			-
Subtotal debt	$	2,998		$	2,500
Other (debt discount)		(287	)		-
Total debt	$	2,711		$	2,500
Less current portion		120			-
Long term debt, net of current portion	$	2,591		$	2,500

XML

Note 9 - Shareholders' Equity (Tables)

6 Months Ended

Mar. 31, 2018

Notes Tables

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

	Issue
Type	Date	Shares		Price		Expiration
Investors	6/19/2013		18,400	$	31.25	6/19/2018
Placement Agent	6/19/2013		9,200	$	31.25	6/19/2018
Placement Agent	9/30/2013		6,157	$	32.50	9/30/2018
Placement Agent	11/6/2013		3,078	$	32.50	11/6/2018
Placement Agent	3/28/2014		12,800	$	26.25	3/28/2019
Placement Agent	10/28/2014		12,308	$	16.25	10/28/2019
Director/Shareholder	12/31/2014		12,000	$	20.00	12/31/2019
Director/Shareholder	2/12/2015		12,000	$	20.00	2/12/2020
Director/Shareholder	5/12/2015		12,000	$	20.00	5/12/2020
Director/Shareholder	7/21/2015		32,000	$	8.75	7/21/2018
Director/Shareholder	12/31/2015		6,000	$	20.00	12/31/2020
Placement Agent	5/17/2016		86,778	$	3.75	5/17/2021
Placement Agent	5/11/2016		53,334	$	3.75	5/11/2021
Placement Agent	7/15/2016		44,000	$	4.60	7/15/2021
Investors	11/9/2016		213,538	$	3.50	5/22/2022
Director/Shareholder	12/31/2016		6,000	$	20.00	12/31/2021
Financing	10/10/2017		66,315	$	2.65	10/10/2025
Director/Shareholder	12/31/2017		6,000	$	20.00	12/31/2021
Total			611,908

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, 2017		450,646		$	7.02			539,593	$	8.18
Granted		19,900		$	2.47			72,315	$	4.46
Exercised		-		$	-			-	$	-
Forfeited or expired		(7,700	)	$	(9.22	)		-	$	-
Outstanding, March 31, 2018		462,846		$	6.78			611,908	$	7.77

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

	Three Months Ended						Six Months Ended
	March 31,						March 31,
	2018			2017			2018			2017
Number of options granted		19,100			8,200			19,900			10,200
Volatility		80.39	%		84.71	%		80.52	%		84.60	%
Estimated life (years)		6			6			6			6
Risk-free interest rate		2.52	%		2.02	%		2.50	%		1.99	%
Weighted-average fair value per share of grants	$	1.72		$	2.29		$	1.73		$	2.20

XML

Note 10 - Net Loss Per Share (Tables)

6 Months Ended

Mar. 31, 2018

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,
	2018			2017			2018			2017
Net loss	$	(680	)	$	(530	)	$	(1,110	)	$	(938	)
Accrued dividends on convertible preferred stock		(77	)		(68	)		(152	)		(136	)
Net loss applicable to common shareholders	$	(757	)	$	(598	)	$	(1,262	)	$	(1,074	)
Weighted average common shares outstanding - basic and diluted		4,227			4,181			4,214			4,096
Net loss per share attributable to common shareholders:
Basic and diluted	$	(0.18	)	$	(0.14	)	$	(0.30	)	$	(0.26	)

XML

Note 1 - Description of Business (Details Textual) $ / shares in Units, shares in Thousands, $ in Thousands			1 Months Ended		6 Months Ended		10 Months Ended
	Oct. 10, 2017 USD ($)	Jul. 24, 2017 $ / shares shares	Apr. 30, 2018 USD ($)	Jun. 30, 2016 USD ($)	Mar. 31, 2018 USD ($) $ / shares shares	Mar. 31, 2017 USD ($)	Mar. 31, 2018 USD ($) $ / shares shares	Sep. 30, 2017 USD ($) $ / shares shares	May 19, 2017 USD ($)	Sep. 30, 2016 USD ($)
Common Stock, Shares, Outstanding, Ending Balance | shares		4,200			4,241,225		4,241,225	4,200,219
Common Stock, Par or Stated Value Per Share | $ / shares		$ 0.001			$ 0.001		$ 0.001	$ 0.001
Common Stock, Shares Authorized | shares		50,000			50,000,000		50,000,000	50,000,000
Proceeds from Issuance of Long-term Debt, Total					$ 953
Maximum Value of Shares Allowed to Be Offered									$ 10,000
Cash and Cash Equivalents, at Carrying Value, Ending Balance					756	1,331	$ 756	$ 748		$ 661
Proceeds from Lines of Credit, Total					388	$ 1,097
May 2017 Registered Securities [Member]
Proceeds from Issuance or Sale of Equity, Total							0
Non-Revolving Term Loan [Member] | Loan Agreement [Member]
Debt Instrument, Term	3 years
Debt Agreement Maximum Borrowing Capacity	$ 1,500
Proceeds from Issuance of Long-term Debt, Total	1,000
Debt Instrument, Additional Borrowing, Subject to Restrictions	$ 500
Heritage Agreement [Member]
Line of Credit Facility, Maximum Borrowing Capacity				$ 2,500	2,500		2,500
Long-term Line of Credit, Total					$ 2,000		$ 2,000
Debt Instrument, Term				2 years
Heritage Agreement [Member] | Subsequent Event [Member]
Proceeds from Lines of Credit, Total			$ 500
Reverse Stock Split [Member]
Stockholders' Equity Note, Stock Split, Conversion Ratio		5
Pre Reverse Stock Split [Member]
Common Stock, Shares, Outstanding, Ending Balance | shares		21,000

XML

Note 2 - Summary of Significant Accounting Policies (Details Textual) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Mar. 31, 2018	Sep. 30, 2018
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent	34.00%
Income Tax Expense (Benefit), Continuing Operations, Adjustment of Deferred Tax (Asset) Liability	$ 0
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent		21.00%

XML

Note 3 - Accounts Receivable and Unbilled Receivables (Details Textual) - Customer Concentration Risk [Member] - Sales Revenue, Net [Member]	6 Months Ended	12 Months Ended
	Mar. 31, 2018	Sep. 30, 2017
Number of Major Customers	2	2
Customer One [Member]
Concentration Risk, Percentage	21.00%	23.00%
Customer Two [Member]
Concentration Risk, Percentage	10.00%	14.00%

XML

Note 3 - Accounts Receivable and Unbilled Receivables - Summary of Accounts Receivable and Unbilled Receivables (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Sep. 30, 2017
Accounts receivable	$ 3,072	$ 3,215
Allowance for doubtful accounts	(193)	(189)
Accounts receivable and unbilled receivables, net	2,879	3,026
Trade Accounts Receivable [Member]
Accounts receivable	2,788	3,174
Unbilled Receivables [Member]
Accounts receivable	$ 284	$ 41

XML

Note 4 - Fair Value Measurement and Fair Value of Financial Instruments (Details Textual) $ in Thousands	6 Months Ended
	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)	Dec. 31, 2017	Oct. 10, 2017 USD ($)
Fair Value Adjustment of Warrants	$ (23)
Warrants Issued as Consideration for Loan [Member]
Warrants and Rights Outstanding	318			$ 341
Fair Value Adjustment of Warrants	$ (23)
Measurement Input, Expected Term [Member]
Warrants and Rights Outstanding, Measurement Input	8
Measurement Input, Price Volatility [Member]
Warrants and Rights Outstanding, Measurement Input			80
Measurement Input, Risk Free Interest Rate [Member]
Warrants and Rights Outstanding, Measurement Input			2.24

XML

Note 4 - Fair Value Measurement and Fair Value of Financial Instruments - Assets and Liabilities Measured at Fair Values on a Recurring Basis (Details) - Fair Value, Measurements, Recurring [Member] $ in Thousands	Mar. 31, 2018 USD ($)
Warrant liability	$ 318
Total liabilities	318
Fair Value, Inputs, Level 1 [Member]
Warrant liability
Total liabilities
Fair Value, Inputs, Level 2 [Member]
Warrant liability
Total liabilities
Fair Value, Inputs, Level 3 [Member]
Warrant liability	318
Total liabilities	$ 318

XML

Note 4 - Fair Value Measurement and Fair Value of Financial Instruments - Changes in Contingent Consideration (Details) - Warrants [Member] - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2018	Dec. 31, 2017
Balance at beginning of period	$ 338
Additions		341
Adjustment to fair value	(20)	(3)
Balance at end of period	$ 318	$ 338

XML

Note 5 - Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Amortization of Intangible Assets, Total	$ 71	$ 72	$ 143	$ 143
Finite-Lived Intangible Assets, Amortization Expense, Remainder of Fiscal Year	100		100
Finite-Lived Intangible Assets, Amortization Expense, Year Two	$ 20		$ 20

XML

Note 5 - Intangible Assets - Changes in the Carrying Amount of Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Sep. 30, 2017
Finite Lived Intangible Assets, Net	$ 120	$ 263
Domain And Trade Names [Member]
Finite Lived Intangible Assets, Net	10	10
Customer-Related Intangible Assets [Member]
Finite Lived Intangible Assets, Net	71	179
Noncompete Agreements [Member]
Finite Lived Intangible Assets, Net	$ 39	$ 74

XML

Note 6 - Restructuring (Details Textual) - USD ($) $ in Thousands	Mar. 31, 2018	Sep. 30, 2017
Restructuring Reserve, Ending Balance	$ 108	$ 176
Accrued Liabilities, Current [Member]
Restructuring Reserve, Ending Balance	80	119
Other Noncurrent Liabilities [Member]
Restructuring Reserve, Ending Balance	$ 28	$ 57

XML

Note 6 - Restructuring - Restructuring Charges Reserve Activity (Details) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Mar. 31, 2018	Dec. 31, 2017	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Balance		$ 176		$ 176
Charges to operations	$ 181		$ 169	181	$ 200
Balance	108			108
Facility Closing [Member]
Balance	109	176		176
Charges to operations	140
Cash disbursements	(121)	(67)
Changes in estimates	(20)
Balance	$ 108	$ 109		$ 108

XML

Note 6 - Restructuring - Accrued Restructuring Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Sep. 30, 2017
Restructuring Reserve	$ 108	$ 176
Facilities and Related [Member]
Restructuring Reserve	106	133
Other Restructuring Costs [Member]
Restructuring Reserve	$ 2	$ 43

XML

Note 7 - Debt (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		1 Months Ended	3 Months Ended	6 Months Ended		11 Months Ended	12 Months Ended
	Oct. 10, 2017	Jun. 30, 2016	Mar. 31, 2018	Mar. 31, 2018	Mar. 31, 2017	Jun. 09, 2019	Jun. 30, 2018	Jun. 30, 2017	Jan. 01, 2018
Proceeds from Issuance of Long-term Debt, Total				$ 953
Warrants Term			5 years
Amortization of Debt Discount (Premium)				50
Fair Value Adjustment of Warrants				$ (23)
Warrants Issued as Consideration for Loan [Member]
Warrants Term	8 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights	66,315		66,315	66,315
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 2.65
Class of Warrant or Right, Number of Securities Called by Warrants or Rights, Advance Second Tranche	100,082
Equity Buy-out, First Tranche	$ 250
Equity Buy-out, First Tranche and Second Tranche	375
Warrants and Rights Outstanding	$ 341		$ 318	$ 318
Amortization of Debt Discount (Premium)			28		$ 54
Fair Value Adjustment of Warrants				(23)
Michael Taglich [Member]
Guaranty Agreement, Out of Formula Borrowings Available, Maximum			$ 1,500	$ 1,500
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			156,912	156,912					6,000
Class of Warrant or Right, Exercise Price of Warrants or Rights									$ 20
Bridge Bank Loan Agreement [Member] | Michael Taglich [Member]
Guaranty Agreement, Out of Formula Borrowings Available, Maximum			$ 1,500	$ 1,500
Loan Agreement [Member] | Non-Revolving Term Loan [Member]
Debt Instrument, Term	3 years
Debt Agreement Maximum Borrowing Capacity	$ 1,500
Proceeds from Issuance of Long-term Debt, Total	1,000
Debt Instrument, Additional Borrowing, Subject to Restrictions	$ 500
Debt Instrument, Interest Rate, Stated Percentage	12.75%
Payments of Financing Costs, Total	$ 47
Debt Instrument, Monthly Payment, Principal, When First Tranche Received	26
Debt Instrument, Monthly Payment, Principal, When First Tranche and Second Tranche Received	$ 39
Heritage Agreement [Member]
Debt Instrument, Term		2 years
Line of Credit Facility, Commitment Fee Percentage								0.40%
Line of Credit Facility, Maximum Borrowing Capacity		$ 2,500	2,500	2,500
Line of Credit Facility, Maximum Borrowing Capacity, Percentage of Eligible Receivables		75.00%
Guaranty Agreement, Out of Formula Borrowings Available, Maximum		$ 1,000
Long-term Line of Credit, Total			$ 2,000	$ 2,000
Heritage Agreement [Member] | Wall Street Journal Prime Rate [Member]
Debt Instrument, Basis Spread on Variable Rate		1.75%		6.00%
Heritage Agreement [Member] | Scenario, Forecast [Member]
Line of Credit Facility, Commitment Fee Percentage							0.20%
Line of Credit Facility, Annual Commitment Fee Amount, Thereafter						$ 6

XML

Note 7 - Debt - Summary of Debt (Details) - USD ($) $ in Thousands	Mar. 31, 2018	Sep. 30, 2017
Debt	$ 2,998	$ 2,500
Other (debt discount)	(287)
Total debt	2,711	2,500
Less current portion	120
Long term debt, net of current portion	2,591	2,500
Non-Revolving Term Loan [Member]
Debt	1,000
Heritage Agreement [Member]
Debt	$ 1,998	$ 2,500

XML

Note 8 - Other Long Term Liabilities (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Oct. 10, 2017	Sep. 30, 2017
Leasehold Improvements, Gross	$ 1,400
Deferred Rent Liability Reversed	118
Other Liabilities, Noncurrent, Total	380			$ 172
Fair Value Adjustment of Warrants	(23)
Warrants Issued as Consideration for Loan [Member]
Warrants and Rights Outstanding	318		$ 341
Fair Value Adjustment of Warrants	(23)
Warrants Issued as Consideration for Loan [Member] | Other Noncurrent Liabilities [Member]
Warrants and Rights Outstanding	318
Leasehold Improvements [Member]
Accrued Liabilities, Total	14			154
Other Liabilities, Noncurrent, Total				$ 43
Paid By Landlord [Member]
Leasehold Improvements, Gross	$ 657

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Note 9 - Shareholders' Equity (Details Textual) - USD ($) $ / shares in Units, $ in Thousands					3 Months Ended	26 Months Ended	38 Months Ended
	Apr. 01, 2018	Oct. 10, 2017	Jan. 01, 2017	Oct. 27, 2014	Mar. 31, 2018	Dec. 31, 2016	Dec. 31, 2017	Jan. 01, 2018	Sep. 30, 2017	Apr. 29, 2017	Jan. 07, 2015
Warrants Exercisable Term					180 days
Warrants Term					5 years
Michael Taglich [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					156,912			6,000
Guaranty Agreement, Out of Formula Borrowings Available, Maximum					$ 1,500
Class of Warrant or Right, Number of Securities Called by Each Warrant or Right											30,000
Class of Warrant or Right, Exercise Price of Warrants or Rights								$ 20
Placement Agent Warrants [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					227,655
Individual Investors [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					317,938
Warrants Issued as Consideration for Loan [Member]
Warrants Term		8 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights		66,315			66,315
Class of Warrant or Right, Exercise Price of Warrants or Rights		$ 2.65
Purchaser Warrant [Member] | Private Placement [Member] | Roger Kahn [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					8,600
Warrants Issued in Connection with Credit Facility with Heritage Bank [Member] | Michael Taglich [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights					86,000
The 2016 Stock Incentive Plan [Member]
Common Stock, Capital Shares Reserved for Future Issuance										500,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number, Ending Balance					462,846
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant					258,334
Convertible Preferred Stock Converted to Common Stock [Member]
Conversion of Stock, Shares Converted							1,636
Conversion of Stock, Shares Issued							1,007
Series A Convertible Preferred Stock [Member]
Stock Issued During Period, Shares, New Issues				200,000
Share Price				$ 10
Gross Proceeds From Sale of Stock				$ 2,000
Preferred Stock Conversion Price				$ 16.25
Minimum Common Stock Price Allowing Company to Force Convert Preferred Stock				$ 32.50
Preferred Stock, Dividend Rate, Percentage			12.00%			6.00%
Preferred Stock Dividends, Shares, Maximum Cumulative									64,000
Convertible Preferred Stock [Member]
Preferred Stock Dividends, Shares					58,494
Convertible Preferred Stock [Member] | Subsequent Event [Member]
Preferred Stock, Dividend Rate, Percentage	12.00%
Preferred Stock Dividends, Shares	3,870
Dividends, Preferred Stock, Cash	$ 38

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Note 9 - Shareholders' Equity - Stock Warrants Outstanding (Details)	6 Months Ended
	Mar. 31, 2018 $ / shares shares
Stock Warrants Outstanding, Shares (in shares)	611,908
Investor Stock Warrants 1 [Member]
Stock Warrants Outstanding, Issue Date	Jun. 19, 2013
Stock Warrants Outstanding, Shares (in shares)	18,400
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 31.25
Stock Warrants Outstanding, Expiration	Jun. 19, 2018
Placement Agent Stock Warrants 1 [Member]
Stock Warrants Outstanding, Issue Date	Jun. 19, 2013
Stock Warrants Outstanding, Shares (in shares)	9,200
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 31.25
Stock Warrants Outstanding, Expiration	Jun. 19, 2018
Placement Agent Stock Warrants 2 [Member]
Stock Warrants Outstanding, Issue Date	Sep. 30, 2013
Stock Warrants Outstanding, Shares (in shares)	6,157
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 32.50
Stock Warrants Outstanding, Expiration	Sep. 30, 2018
Placement Agent Stock Warrants 3 [Member]
Stock Warrants Outstanding, Issue Date	Nov. 06, 2013
Stock Warrants Outstanding, Shares (in shares)	3,078
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 32.50
Stock Warrants Outstanding, Expiration	Nov. 06, 2018
Placement Agent Stock Warrants 4 [Member]
Stock Warrants Outstanding, Issue Date	Mar. 28, 2014
Stock Warrants Outstanding, Shares (in shares)	12,800
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 26.25
Stock Warrants Outstanding, Expiration	Mar. 28, 2019
Placement Agent Stock Warrants 5 [Member]
Stock Warrants Outstanding, Issue Date	Oct. 28, 2014
Stock Warrants Outstanding, Shares (in shares)	12,308
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 16.25
Stock Warrants Outstanding, Expiration	Oct. 28, 2019
Director/Shareholder 1 [Member]
Stock Warrants Outstanding, Issue Date	Dec. 31, 2014
Stock Warrants Outstanding, Shares (in shares)	12,000
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 20
Stock Warrants Outstanding, Expiration	Dec. 31, 2019
Director/Shareholder 2 [Member]
Stock Warrants Outstanding, Issue Date	Feb. 12, 2015
Stock Warrants Outstanding, Shares (in shares)	12,000
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 20
Stock Warrants Outstanding, Expiration	Feb. 12, 2020
Director/Shareholder 3 [Member]
Stock Warrants Outstanding, Issue Date	May 12, 2015
Stock Warrants Outstanding, Shares (in shares)	12,000
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 20
Stock Warrants Outstanding, Expiration	May 12, 2020
Director/Shareholder 4 [Member]
Stock Warrants Outstanding, Issue Date	Jul. 21, 2015
Stock Warrants Outstanding, Shares (in shares)	32,000
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 8.75
Stock Warrants Outstanding, Expiration	Jul. 21, 2018
Director/Shareholder 5 [Member]
Stock Warrants Outstanding, Issue Date	Dec. 31, 2015
Stock Warrants Outstanding, Shares (in shares)	6,000
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 20
Stock Warrants Outstanding, Expiration	Dec. 31, 2020
Placement Agent Stock Warrants 6 [Member]
Stock Warrants Outstanding, Issue Date	May 17, 2016
Stock Warrants Outstanding, Shares (in shares)	86,778
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 3.75
Stock Warrants Outstanding, Expiration	May 17, 2021
Placement Agent Stock Warrants 7 [Member]
Stock Warrants Outstanding, Issue Date	May 11, 2016
Stock Warrants Outstanding, Shares (in shares)	53,334
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 3.75
Stock Warrants Outstanding, Expiration	May 11, 2021
Placement Agent Stock Warrants 8 [Member]
Stock Warrants Outstanding, Issue Date	Jul. 15, 2016
Stock Warrants Outstanding, Shares (in shares)	44,000
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 4.60
Stock Warrants Outstanding, Expiration	Jul. 15, 2021
Investor Stock Warrants 2 [Member]
Stock Warrants Outstanding, Issue Date	Nov. 09, 2016
Stock Warrants Outstanding, Shares (in shares)	213,538
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 3.50
Stock Warrants Outstanding, Expiration	May 22, 2022
Director/Shareholder 6 [Member]
Stock Warrants Outstanding, Issue Date	Dec. 31, 2016
Stock Warrants Outstanding, Shares (in shares)	6,000
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 20
Stock Warrants Outstanding, Expiration	Dec. 31, 2021
Financing Warrants [Member]
Stock Warrants Outstanding, Issue Date	Oct. 10, 2017
Stock Warrants Outstanding, Shares (in shares)	66,315
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 2.65
Stock Warrants Outstanding, Expiration	Oct. 10, 2025
Director/Shareholder 7 [Member]
Stock Warrants Outstanding, Issue Date	Dec. 31, 2017
Stock Warrants Outstanding, Shares (in shares)	6,000
Stock Warrants Outstanding, Price (in dollars per share) | $ / shares	$ 20
Stock Warrants Outstanding, Expiration	Dec. 31, 2021

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Note 9 - Shareholders' Equity - Summary of Option and Warrant Activity and Outstanding Shares (Details)	3 Months Ended		6 Months Ended
	Mar. 31, 2018 $ / shares shares	Mar. 31, 2017 shares	Mar. 31, 2018 $ / shares $ / item shares	Mar. 31, 2017 shares
Granted, Options (in shares)	19,100	8,200	19,900	10,200
Employee Stock Option [Member]
Outstanding, Options (in shares)			450,646
Outstanding, Options, Weighted Average Exercise Price (in dollars per share) | $ / shares			$ 7.02
Granted, Options (in shares)			19,900
Granted, Options, Weighted Average Exercise Price (in dollars per share) | $ / shares			$ 2.47
Exercised, Options (in shares)
Exercised, Options, Weighted Average Exercise Price (in dollars per share) | $ / shares
Forfeited or expired, Options (in shares)			(7,700)
Forfeited or expired, Options, Weighted Average Exercise Price (in dollars per share) | $ / shares			$ (9.22)
Outstanding, Options (in shares)	462,846		462,846
Outstanding, Options, Weighted Average Exercise Price (in dollars per share) | $ / shares	$ 6.78		$ 6.78
Stock Warrants [Member]
Outstanding, Warrant (in shares)			539,593
Outstanding, Warrant, Weighted Average Exercise Price (in dollars per share) | $ / shares			$ 8.18
Granted, Warrant (in shares)			72,315
Granted, Warrant, Weighted Average Exercise Price (in dollars per share) | $ / shares			$ 4.46
Exercised, Warrant (in shares)
Exercised, Warrant, Weighted Average Exercise Price (in USD per Per Share) | $ / item
Forfeited or expired, Warrant (in shares)
Forfeited or expired, Warrant, Weighted Average Exercise Price (in dollars per share) | $ / shares
Outstanding, Warrant (in shares)	611,908		611,908
Outstanding, Warrant, Weighted Average Exercise Price (in dollars per share) | $ / shares	$ 7.77		$ 7.77

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Note 9 - Shareholders' Equity - Black-scholes Option Valuation Assumptions (Details) - $ / shares	3 Months Ended		6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Number of options granted (in shares)	19,100	8,200	19,900	10,200
Volatility	80.39%	84.71%	80.52%	84.60%
Estimated life (years) (Year)	6 years	6 years	6 years	6 years
Risk-free interest rate	2.52%	2.02%	2.50%	1.99%
Weighted-average fair value per share of grants (in dollars per share)	$ 1.72	$ 2.29	$ 1.73	$ 2.20

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Note 10 - Net Loss Per Share - Basic and Diluted Net Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017
Net Loss	$ (680)	$ (530)	$ (1,110)	$ (938)
Dividends on convertible preferred stock	(77)	(68)	(152)	(136)
Net loss applicable to common shareholders	$ (757)	$ (598)	$ (1,262)	$ (1,074)
Weighted average common shares outstanding - basic and diluted (in shares)	4,227,101	4,180,818	4,213,660	4,096,271
Basic and diluted (in dollars per share)	$ (0.18)	$ (0.14)	$ (0.30)	$ (0.26)

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Note 11 - Income Taxes (Details Textual) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Mar. 31, 2018	Mar. 31, 2017	Mar. 31, 2018	Mar. 31, 2017	Sep. 30, 2018
Income Tax Expense (Benefit), Total	$ 0	$ 1	$ 1	$ 13
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent			34.00%
Scenario, Forecast [Member]
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate, Percent					21.00%

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Note 12 - Related Party Transactions (Details Textual) - USD ($) $ in Thousands	Mar. 31, 2018	Dec. 31, 2013
Michael Taglich [Member]
Related Party, Ownership Percentage Of Stock	22.00%
Guaranty Agreement, Out of Formula Borrowings Available, Maximum	$ 1,500
Robert Taglich [Member]
Related Party, Ownership Percentage Of Stock	8.00%
Convertible Subordinated Debt [Member]
Convertible Notes Payable, Total		$ 3,000