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 June 30, 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  ☐ (Do not check if a smaller reporting company) 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 August 10, 2018 was 4,241,225.

1

Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended June 30, 2018

Index

		Page
Part I	Financial Information
Item 1.	Condensed Consolidated Financial Statements
	Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2018 and September 30, 2017	4
	Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended June 30, 2018 and 2017	5
	Condensed Consolidated Statements of Comprehensive Loss (unaudited) for the three and nine months ended June 30, 2018 and 2017	6
	Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended June 30, 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	22
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
Part II	Other Information
Item 1.	Legal Proceedings	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 6.	Exhibits	33
Signatures		34

2

Bridgeline Digital, Inc.

Quarterly Report on Form 10-Q

For the Quarterly Period ended June 30, 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)

	June 30,			September 30,
	2018			2017
ASSETS
Current assets:
Cash and cash equivalents	$	427		$	748
Accounts receivable and unbilled receivables, net		2,103			3,026
Prepaid expenses and other current assets		465			352
Total current assets		2,995			4,126
Property and equipment, net		94			209
Intangible assets, net		49			263
Goodwill		8,026			12,641
Other assets		258			334
Total assets	$	11,422		$	17,573
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,371		$	1,241
Accrued liabilities		636			920
Debt, current portion		198			-
Deferred revenue		841			1,466
Total current liabilities		3,046			3,627
Debt, net of current portion		2,810			2,500
Other long term liabilities		234			172
Total liabilities		6,090			6,299
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock - $0.001 par value; 1,000,000 shares authorized; 264,000 and 262,364 at June 30, 2018 and 245,172 and 243,536 at September 30, 2017, issued and outstanding (liquidation preference $2,624, as of June 30, 2018)		-			-
Common stock - $0.001 par value; 50,000,000 shares authorized; 4,241,225 at June 30, 2018 and 4,200,219 at September 30, 2017, issued and outstanding		5			4
Additional paid-in capital		66,430			65,869
Accumulated deficit		(60,752	)		(54,249	)
Accumulated other comprehensive loss		(351	)		(350	)
Total stockholders’ equity		5,332			11,274
Total liabilities and stockholders’ equity	$	11,422		$	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						Nine Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net revenue:
Digital engagement services	$	1,578		$	2,121		$	5,559		$	6,298
Subscription and perpetual licenses		1,262			1,711			4,367			5,018
Managed service hosting		243			242			839			743
Total net revenue		3,083			4,074			10,765			12,059
Cost of revenue:
Digital engagement services		977			1,297			3,666			3,569
Subscription and perpetual licenses		510			473			1,503			1,468
Managed service hosting		47			65			213			209
Total cost of revenue		1,534			1,835			5,382			5,246
Gross profit		1,549			2,239			5,383			6,813
Operating expenses:
Sales and marketing		991			1,193			3,045			3,661
General and administrative		625			801			2,156			2,395
Research and development		406			393			1,221			1,175
Depreciation and amortization		93			126			305			468
Goodwill impairment		4,615			-			4,615			-
Restructuring charges		6			49			187			249
Total operating expenses		6,736			2,562			11,529			7,948
Loss from operations		(5,187	)		(323	)		(6,146	)		(1,135	)
Interest (income)/expense and other (income)/expense, net		35			(9	)		(115	)		(122	)
Loss before income taxes		(5,152	)		(332	)		(6,261	)		(1,257	)
Provision for income taxes		10			-			11			13
Net loss		(5,162	)		(332	)		(6,272	)		(1,270	)
Dividends on convertible preferred stock		(79	)		(71	)		(231	)		(207	)
Net loss applicable to common shareholders	$	(5,241	)	$	(403	)	$	(6,503	)	$	(1,477	)
Net loss per share attributable to common shareholders:
Basic and diluted	$	(1.24	)	$	(0.10	)	$	(1.54	)	$	(0.36	)
Number of weighted average shares outstanding:
Basic and diluted		4,241,225			4,195,900			4,222,848			4,129,481

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						Nine Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net Loss	$	(5,162	)	$	(332	)	$	(6,272	)	$	(1,270	)
Other Comprehensive Income: Net change in foreign currency translation adjustment		(1	)		-			(1	)		3
Comprehensive loss	$	(5,163	)	$	(332	)	$	(6,273	)	$	(1,267	)

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)

	Nine Months Ended
	June 30,
	2018			2017
Cash flows from operating activities:
Net loss	$	(6,272	)	$	(1,270	)
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		214			214
Depreciation		85			216
Other amortization		50			84
Goodwill impairment		4,615			-
Debt discount amortization		82			-
Change in fair value of warrant		(156	)		-
Stock-based compensation		374			433
Changes in operating assets and liabilities
Accounts receivable and unbilled receivables		923			(507	)
Prepaid expenses and other assets		(40	)		(22	)
Accounts payable and accrued liabilities		(201	)		(188	)
Deferred revenue		(625	)		269
Other liabilities		(81	)		(100	)
Total adjustments		5,300			447
Net cash used in operating activities		(972	)		(823	)
Cash flows from investing activities:
Software development capitalization costs		-			(41	)
Purchase of property and equipment		(30	)		(18	)
Net cash from investing activities		(30	)		(59	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		-			853
Proceeds from term loan		953			-
Borrowing on bank line of credit		888			1,859
Payments on bank line of credit		(1,121	)		(1,630	)
Preferred Series A cash dividends paid		(38	)		-
Contingent acquisition payments		-			(75	)
Principal payments on capital leases		-			(36	)
Net cashfrom financing activities		682			971
Effect of exchange rate changes on cash and cash equivalents		(1	)		3
Net (decrease)/increase in cash and cash equivalents		(321	)		92
Cash and cash equivalents at beginning of period		748			661
Cash and cash equivalents at end of period	$	427		$	753
Supplemental disclosures of cash flow information:
Cash paid for:
Interest	$	190		$	93
Income taxes	$	14		$	17
Non cash investing and financing activities:
Dividends on convertible preferred stock	$	114		$	207

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

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

Going Concern

The Company has a history of net losses and the net loss for the nine months ended June 30, 2018 is $6.3 million, which includes a charge of $4.6 million for goodwill impairment. Cash flows used in operations was $972 for the nine months ended June 30, 2018 and we expect to continue to incur negative cash flows for the rest of the fiscal year. As of June 30, 2018, we had $427 in cash available to fund operations and debt service costs. The Company has a line of credit of up to $2.5 million with Heritage Bank of Commerce (“Heritage Bank”), however, borrowing capability is based on eligible accounts receivable. At June 30, 2018, the Company had no additional borrowing ability on the Heritage Bank line of credit.

Management believes these conditions raise substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the date these financial statements are available to be issued. The ability to continue as a going concern is dependent upon profitable future operations, positive cash flows, and additional financing.

8

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Management intends to finance operating costs over the next twelve months with existing cash on hand and additional financing. Our future financing plans include issuing public or private equity securities, including selling common stock, and pursuing funding through new debt instruments. Management will also continue with its long-term cost reduction plan initiated in fiscal 2015, reevaluating its operations to decrease expenses commensurate with expected revenues. These sources of working capital are not currently assured, and consequently do not sufficiently mitigate the risks and uncertainties disclosed above. Management therefore concludes there is substantial doubt about the Company’s ability to continue as a going concern as of June 30, 2018.

These condensed consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from uncertainty related to our ability to continue as a going concern.

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, but does not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The operating results for the three and nine months ended June 30, 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. 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.

Recently Adopted Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350)—Simplifying the Test for Goodwill Impairment (“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step two of the goodwill impairment test referenced in Accounting Standards Codification (“ASC”) 350, Intangibles - Goodwill and Other (“ASC 350”). As a result, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for annual reporting periods beginning after December 15, 2019, including any interim impairment tests within those annual periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. As of  June 30, 2018, the Company elected to early adopt ASU 2017-04. In performing an interim impairment test at June 30, 2018, the Company recorded a $4.6 million impairment charge, which represented the excess of carrying value compared to fair value prior to recording the impairment charge. All future goodwill impairment tests will be performed according to ASU 2017-04.

.

9

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Recently Issued 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 adopting ASU 2014-09 recognized at the date of initial application as an adjustment to retained earnings, with certain additional required disclosures. The Company plans to adopt the standard using the modified retrospective method to restate each prior reporting period presented.

As the Company has substantially completed its assessment of 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 new 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.

10

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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.

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.

11

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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.

3. Accounts Receivable and Unbilled Receivables

Accounts receivable and unbilled receivables consists of the following:

	As of			As of
	June 30, 2018			September 30, 2017
Accounts receivable	$	2,061		$	3,174
Unbilled receivables		214			41
Subtotal		2,275			3,215
Allowance for doubtful accounts		(172	)		(189	)
Accounts receivable and unbilled receivables, net	$	2,103		$	3,026

As of June 30, 2018, two customers represented 15% 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 June 30, 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 June 30, 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 II, L.P (“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 ($156) since the original valuation in October 2017. The fair value of the warrant at June 30, 2018 is $185.

Assets and liabilities of the Company measured at fair value on a recurring basis as of June 30, 2018 are as follows:

	Level 1		Level 2		Level 3		Total
Liabilities:
Warrant liability	$	-	$	-	$	185	$	185
Total Liabilities	$	-	$	-	$	185	$	185

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.

	Nine Months Ended June 30,
	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
Additions		-
Adjustment to fair value		(133	)
Balance at end of period, June 30, 2018	$	185

5.   Goodwill

Changes in the carrying amount of goodwill are as follows:

	As of			As of
	June 30, 2018			September 30, 2017
Balance at beginning of period	$	12,641		$	12,641
Impairment		(4,615	)		-
Balance at end of period	$	8,026		$	12,641

The carrying value of goodwill is not amortized, but is tested for impairment annually as of September 30, as well as, whenever events or changes in circumstances indicate that the carrying amount of a reporting unit may not be recoverable.  The Company early adopted ASU 2017-04 during the quarter ended June 30, 2018.

The purpose of an impairment test is to identify any potential impairment by comparing the carrying value of a reporting unit including goodwill to its fair value. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  The fair value measurement was calculated at June 30, 2018 using the Company’s market price which is classified as Level 3 within the fair value hierarchy under U.S. GAAP. 

In performing the interim impairment test at June 30, 2018, Management concluded that goodwill was impaired by $4.6 million.  This amount is reflected as a reduction in goodwill of $4.6 million in the Company’s Condensed Consolidated Balance Sheet as of June 30, 2018 with the offset as an expense in the Company’s Condensed Consolidated Statement of Operations. 

13

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

6.   Intangible Assets

The components of intangible assets are as follows:

	As of		As of
	June 30, 2018		September 30, 2017
Domain and trade names	$	10	$	10
Customer related		18		179
Non-compete agreements		21		74
Balance at end of period	$	49	$	263

Total amortization expense related to intangible assets was $71 for both the three months ended June 30, 2018 and 2017 and $214 for the both the nine months ended June 30, 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 $28 and $21, respectively.

7.   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 nine months ended June 30, 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
Charges to operations		2
Cash disbursements		(21	)
Changes in estimates		-
Accretion Expense		4
Balance at end of period, June 30, 2018	$	93

14

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The components of the accrued restructuring liabilities is as follows:

	As of		As of
	June 30, 2018		September 30, 2017
Facilities and related	$	93	$	133
Other		-		43
Total	$	93	$	176

As of June 30, 2018, $78 was reflected in Accrued Liabilities and $15 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.

8.   Debt

Debt as of June 30, 2018 and September 30, 2017 consists of the following:

	As of			As of
	June 30, 2018			September 30, 2017
Line of credit borrowings	$	2,267		$	2,500
Term loan - Montage Capital		1,000			-
Subtotal debt	$	3,267		$	2,500
Other (debt discount)		(259	)		-
Total debt	$	3,008		$	2,500
Less current portion		198			-
Long term debt, net of current portion	$	2,810		$	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 and then further extended on August 10, 2018 to September 7, 2019 (Eighth Amendment). 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 Bank 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 in compliance with all financial covenants as of June 30, 2018.

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 June 30, 2018, the Company had an outstanding balance under the Loan Agreement of $2.3 million.

15

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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 and the grant of a second position lien to Montage (See Subsequent Events). In addition, Heritage Bank 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 Bank 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.

On August 10, 2018, the eighth Amendment was executed (“Eighth Amendment”). The Eighth Amendment extended the maturity date of the loan to September 7, 2019.

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. An additional $500 thousand of borrowing was available at the Company’s option through May 31, 2018 in the event that the Company achieved certain financial milestones and is otherwise in compliance with its loan covenants (the “Second Tranche”). However, the Company did not borrow the Second Tranche, as the financial milestones were not achieved, and the option expired. 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. 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. Heritage Bank consented to the Company’s incurrence of additional indebtedness from Montage and the grant of a second position lien to Montage. In addition, Heritage Bank 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. The Company was in compliance with all financial covenants as of June 30, 2018.

16

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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. 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 $250. If the equity buy-out is exercised, the Warrant will be surrendered to the Company for cancellation. At the loan execution, the initial fair value of the Warrant was $341. The fair value as of June 30, 2018 is $185. The warrants were initially valued with certain assumptions, including the probability of exercising the Second Tranche, which would require the issuance of additional warrants of 33,767. However, the Second Tranche was not exercised resulting in a decrease in the fair value of the warrant. 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 nine months ended June 30, 2018 was $28 and $82. For the three and nine months ended June 30, 2018, the total adjustments to fair value were ($133) and ($156). Adjustments to fair value are recorded as interest expense in the Condensed Consolidated Statement of Operations with the offset to warrant liability currently included in Other Long Term Liabilities in the Condensed Consolidated Balance Sheet.

9.   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 June 30, 2018, deferred rent of $7 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 June 30, 2018 was $185, a reduction of $156. Changes in fair value are recorded as expense in the period the change occurs.

10.   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 June 30, 2018, a total of 1,636 shares of preferred stock have been converted to 1,007 shares of common stock. 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)

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.

As of June 30, 2018, the Company has issued 64,000 shares of Preferred Stock as PIK dividends to the preferred shareholders, which is the maximum amount of cumulative PIK dividends authorized. Therefore, all future dividends payments will be cash dividends. 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.

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 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 until they are exercised or expire. 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 June 30, 2018, there were 460,246 options outstanding under both plans and 260,534 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 June 30, 2018, the total warrants outstanding were 584,308 issued as follows: 218,455 warrants were issued to the placement agents in connection with private placements, 299,538 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 153,297 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 6,000 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 of June 30, 2018 were as follows:

	Issue
Type	Date	Shares		Price		Expiration
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	5/9/2022
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			584,308

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		$	4.09
Exercised		-		$	-			-		$	-
Forfeited or expired		(10,300	)	$	(7.72	)		(27,600	)	$	31.25
Outstanding, June 30, 2018		460,246		$	6.80			584,308		$	6.58

19

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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					Nine Months Ended
	June 30,					June 30,
	2018		2017			2018			2017
Number of options granted	none			10,000			19,900			20,200
Volatility		n/a		85.30	%		80.52	%		84.95	%
Estimated life (in years)		n/a		6			6			6
Risk-free interest rate		n/a		1.95	%		2.50	%		1.96	%
Weighted-average fair value per share of grants		n/a	$	2.74		$	1.73		$	2.47

11.   Net Loss Per Share

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

	Three Months Ended						Nine Months Ended
(in thousands, except per share data)	June 30,						June 30,
	2018			2017			2018			2017
Net loss	$	(5,162	)	$	(332	)	$	(6,272	)	$	(1,270	)
Accrued dividends on convertible preferred stock		(79	)		(71	)		(231	)		(207	)
Net loss applicable to common shareholders	$	(5,241	)	$	(403	)	$	(6,503	)	$	(1,477	)
Weighted average common shares outstanding - basic and diluted		4,241			4,196			4,223			4,129
Net loss per share attributable to common shareholders:
Basic and diluted	$	(1.24	)	$	(0.10	)	$	(1.54	)	$	(0.36	)

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 both the three and nine months ended June 30, 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.

12.  Income Taxes

Income tax expense for the three months ended June 30, 2018 and 2017 was $10 and $0, respectively, and $11 and $13 for the nine months ended June 30, 2018 and 2017, respectively. Income tax expense consists of the estimated liability for state income taxes owed by the Company.  

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 under a provisional basis because the foreign subsidiary has no income.

20

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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 nine months ended June 30, 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 nine month periods ended June 30, 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.

13.  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.

14.  Legal Proceedings

The Company is subject to ordinary routine litigation and claims incidental to its business. As of June 30, 2018, the Company was not engaged with any material legal proceedings.

21

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

This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors and risks including 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 Bridgeline Unbound 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 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.

Customer Information

We currently have over 3,000 active customers. The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, as follows:

For the three months ended June 30, 2018, two customers accounted for 12% and one customer accounted for 11% of revenue. For the three months ended June 30, 2017, one customer accounted for 16% and one customer accounted for 11% of revenue. For the nine months ended June 30, 2018, one customer accounted for 14% and one customer accounted for 12% of revenue. For the nine months ended June 30, 2017, one customer accounted for 13% and one customer accounted for 11% of revenue.

	Three Months Ended		Nine Months Ended
	June 30,		June 30,
	2018	2017	2018	2017
Customer A	12%	16%	14%	13%
Customer B	12%	11%	12%	11%
Customer C	11%	-	-	-

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 34 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.

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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 Nine Months Ended June 30, 2018 compared to the Three and Nine Months Ended June 30, 2017

Total revenue for the three months ended June 30, 2018 was $3.1 million compared with $4.1 million for the three months ended June 30, 2017.  We had a net loss of ($5.2) million for the three months ended June 30, 2018 compared with net loss of ($332) thousand for the three months ended June 30, 2017.  Included in the three months ended June 30, 2018 is a goodwill impairment charge of $4.6 million. Net loss per share applicable to common shareholders was ($1.24) for the three months ended June 30, 2018 and ($0.10) for the three months ended June 30, 2017.

Total revenue for the nine months ended June 30, 2018 was $10.8 million compared with $12.1 million for the nine months ended June 31, 2017.  We had a net loss of ($6.3) million for the nine months ended June 30, 2018 compared with net loss of ($1.3) million for the nine months ended June 30, 2017. Included in the three months ended June 30, 2018 is a goodwill impairment charge of $4.6 million. Net loss per share applicable to common shareholders was ($1.54) for the nine months ended June 30, 2018 and ($0.36) for the nine months ended June 30, 2017.

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Results of Operations

	Three Months			Three Months									Nine Months			Nine Months
	Ended			Ended									Ended			Ended
	June 30,			June 30,			$			%			June 30,			June 30,			$			%
	2018			2017			Change			Change			2018			2017			Change			Change
Net revenue:
Digital enagement services	$	1,578		$	2,121			(543	)		(26	%)	$	5,559		$	6,298			(739	)		(12	%)
% of total net revenue		51	%		52	%								52	%		52	%
Subscription and perpetual licenses		1,262			1,711			(449	)		(26	%)		4,367			5,018			(651	)		(13	%)
% of total net revenue		41	%		42	%								40	%		42	%
Managed service hosting		243			242			1			0	%		839			743			96			13	%
% of total net revenue		8	%		6	%								8	%		6	%
Total net revenue	$	3,083		$	4,074		$	(991	)		(24	%)	$	10,765		$	12,059		$	(1,294	)		(11	%)
Cost of revenue:
Digital engagement costs		977			1,297			(320	)		(25	%)		3,666			3,569			97			3	%
% of digital engagement services revenue		62	%		61	%								66	%		57	%
Subscription and perpetual licenses		510			473			37			8	%		1,503			1,468			35			2	%
% of subscription and perpetual revenue		40	%		28	%								34	%		29	%
Managed service hosting		47			65			(18	)		(28	%)		213			209			4			2	%
% of managed service hosting revenue		19	%		27	%								25	%		28	%
Total cost of revenue		1,534			1,835			(301	)		(16	%)		5,382			5,246			136			3	%
Gross profit	$	1,549		$	2,239		$	(690	)		(31	%)	$	5,383		$	6,813		$	(1,430	)		(21	%)
Gross profit margin		50	%		55	%								50	%		56	%
Operating expenses:
Sales and marketing		991			1,193			(202	)		(17	%)		3,045			3,661			(616	)		(17	%)
% of total revenue		32	%		29	%								28	%		30	%
General and administrative		625			801			(176	)		(22	%)		2,156			2,395			(239	)		(10	%)
% of total revenue		20	%		20	%								20	%		20	%
Research and development		406			393			13			3	%		1,221			1,175			46			4	%
% of total revenue		13	%		10	%								11	%		10	%
Depreciation and amortization		93			126			(33	)		(26	%)		305			468			(163	)		(35	%)
% of total revenue		3	%		3	%								3	%		4	%
Goodwill impairment		4,615			-			4,615			-			4,615			-			4,615			-
% of total revenue		150	%		-			-			-			43	%		-
Restructuring charges		6			49			(43	)		(88	%)		187			249			(62	)		(25	%)
% of total revenue		-			1	%								2	%		2	%
Total operating expenses		6,736			2,562			4,174			163	%		11,529			7,948			3,581			45	%
Loss from operations		(5,187	)		(323	)		(4,864	)		1,506	%		(6,146	)		(1,135	)		(5,011	)		441	%
Interest (income)/expense and other (income)/expense, net		35			(9	)		44			(489	%)		(115	)		(122	)		7			(6	%)
Loss before income taxes		(5,152	)		(332	)		(4,820	)		1,452	%		(6,261	)		(1,257	)		(5,004	)		398	%
Provision for income taxes		10			-			10			-			11			13			(2	)		(15	%)
Net loss	$	(5,162	)	$	(332	)	$	(4,830	)		1,455	%	$	(6,272	)	$	(1,270	)	$	(5,002	)		394	%
Non-GAAP Measure:
Adjusted EBITDA	$	(332	)	$	49		$	(381	)		(778	%)	$	(611	)	$	81		$	(692	)		(854	%)

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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 $543 thousand, or 26%, for the three months ended June 30, 2018 compared to three months ended June 30, 2017 and decreased $739 thousand, or 12%, for the nine months ended June 30, 2018 compared to the nine months ended June 30, 2017.  Digital engagement services revenue as a percentage of total revenue decreased to 51% from 52% for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and remained at 52% for both the nine months ended June 30, 2018 and the nine months ended June 30, 2017.  The decreases are attributable to the decreases in new engagement sales compared to the prior period.

Subscription and Perpetual Licenses

Revenue from subscription and perpetual licenses decreased $449 thousand, or 26%, to $1.3 million for the three months ended June 30, 2018 compared to $1.7 million for the three months ended June 30, 2017 and decreased $651 thousand, or 13%, to $4.4 million for the nine months ended June 30, 2018 compared to $5.0 million for the nine months ended June 30, 2017. The decrease for the three and nine months ended June 30, 2018 compared to the prior periods is attributable to a decline in SaaS licenses and Perpetual licenses, partially due to attrition of a customer who was acquired and did not renew its contract. Subscription and perpetual license revenue as a percentage of total revenue decreased to 41% from 42% for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and decreased to 40% for the nine months ended June 30, 2018 from 42% compared to the nine months ended June 30, 2017. The decrease as a percentage of revenues is attributable to the decreases in new license sales.

Subsequent to the quarter ended June 30, 2018, we received notice from a large customer with multiple contracts that they will not be renewing one of their contracts with the Company. This is expected to result in a decline in subscription license revenue commencing in the quarter ended December 31, 2018. If we do not replace this revenue with new license revenue, the impact could be a decline in license revenue approximately $375 thousand per quarter, which may also result in a negative impact on our financial condition or results of operations. This revenue could be replaced by winning new engagements, as well as, strategic opportunities that we may choose to pursue.

Managed Service Hosting

Revenue from managed service hosting increased slightly to $243 thousand for the three months ended June 30, 2018 compared to $242 thousand for the three months ended June 30, 2017 and increased $96 thousand, or 13%, to $839 thousand for the nine months ended June 30, 2018 compared to $743 thousand for the nine months ended June 30, 2017. The increase is due to new hosting contracts for perpetual licenses sold in the second half of fiscal 2017, offset with a loss from existing customers. Managed services revenue as a percentage of total revenue increased to 8% for the three and nine months ended June 30, 2018 from 6% compared to the three and nine months ended June 30, 2017. The increases as a percentage of revenue is attributable to the increase in customer hosting contracts.

Costs of Revenue

Total cost of revenue decreased $301 thousand, or 16%, to $1.5 million for the three months ended June 30, 2018 compared to $1.8 million for the three months ended June 30, 2017 and increased $136 thousand, or 3%, to $5.4 million for the nine months ended June 30, 2018 compared to $5.2 million for the nine months ended June 30, 2017. The gross profit margin declined to 50% for the three months ended June 30, 2018 compared to 55% for the three months ended June 30, 2017 and declined to 50% for the nine months ended June 30, 2018 compared to 56% for the nine months ended June 30, 2017. The decline in the gross profit margin for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 is attributable to an increase in costs to support our SaaS environment. The decline in the gross profit margin for the nine months ended June 30, 2018 compared to the nine months ended June 30, 2017 is attributable to an increase in costs to support our SaaS environment and third party subcontractor costs that were incurred at a lower gross margin in order to complete a project for a strategic customer.

Cost of Digital Engagement Services

Cost of digital engagement services decreased $320 thousand, or 25%, to $977 thousand for the three months ended June 30, 2018 compared to $1.3 million for the three months ended June 30, 2017 and increased $97 thousand, or 3%, to $3.7 million for the nine months ended June 30, 2018 compared to $3.6 million for the nine months ended June 30, 2017. The cost of digital engagement services as a percentage of digital engagement services revenue increased to 62% from 61% for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and increased to 66% from 57% for the nine months ended June 30, 2018 compared to the nine months ended June 30, 2017.  The increases for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 are due to a decrease in margins and decrease in digital engagement revenue. The increases for the nine months ended June 30, 2018 compared to the nine months ended June 30, 2017 are due to costs for third-party subcontractors 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 $37 thousand, or 8%, to $510 thousand for the three months ended June 30, 2018 compared to $473 thousand for the three months ended June 30, 2017 and increased $35 thousand to $1.5 million for the nine months ended June 30, 2018 compared to $1.5 million for the nine months ended June 30, 2017. The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue increased to 40% from 28% for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and increased to 34% from 29% for the nine months ended June 30, 2018 compared to the nine months ended June 30, 2017. Costs to support SaaS licenses are primarily fixed costs.

Cost of Managed Service Hosting

Cost of managed service hosting decreased $18 thousand, or 28%, to $47 thousand for the three months ended June 30, 2018 compared to $65 thousand for the three months ended June 30, 2017 and increased $4 thousand, or 2%, to $213 thousand for the nine months ended June 30, 2018 compared to $209 thousand for the nine months ended June 30, 2017. The cost of managed services as a percentage of managed services revenue decreased to 19% from 27% for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 and decreased to 25% from 28% for the nine months ended June 30, 2018 compared to the nine months ended June 30, 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 2017.

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expenses decreased $202 thousand, or 17%, to $991 thousand for the three months ended June 30, 2018 compared to $1.2 million for the three months ended June 30, 2017 and decreased $616 thousand, or 17%, to $3.0 million for the nine months ended June 30, 2018 compared to $3.7 million for the nine months ended June 30, 2017.  Sales and marketing expenses represented 32% and 29% of total revenue for the three months ended June 30, 2018 and 2017, respectively, and 28% and 30% of total revenue for the nine months ended June 30, 2018 and 2017, respectively. The decreases for the three months ended June 30, 2018 compared to the three months ended June 30, 2017 is attributable to decreases in sales personnel and related compensation expenses. The decreases for the nine months ended June 30, 2018 compared to the nine months ended June 30, 2017 is attributable to decreases in sales personnel and related compensation expenses and marketing expenses.

Administrative Expenses

General and administrative expenses decreased $176 thousand, or 22%, to $625 thousand for the three months ended June 30, 2018 compared to $801 thousand for the three months ended June 30, 2017 and decreased $239 thousand, or 10%, to $2.2 million for the nine months ended June 30, 2018 compared to $2.4 million for the nine months ended June 30, 2017. General and administrative expenses represented 20% of total revenue for both the three months ended June 30, 2018 and 2017, and both the nine months ended June 30, 2018 and 2017. The decreases for the three and nine months ended June 30, 2018 compared to the three and nine months ended June 30, 2017 is attributable to decreases in compensation and other general expenses.

Research and Development

Research and development expense increased $13 thousand, or 3%, to $406 thousand for the three months ended June 30, 2018 compared to $393 thousand for the three months ended June 30, 2017 and increased $46 thousand, or 4%, to $1.2 million for the nine months ended June 30, 2018 compared to $1.2 million for the nine months ended June 30, 2017.  Research and development expenses represented 13% and 10% of total revenue the three months June 30, 2018 and 2017, respectively, and 11% and 10% of total revenue for the nine months ended June 30, 2018 and 2017, respectively. The increase in research and development expense for the three months and nine months ended June 30, 2018 compared to the three and nine months ended June 30, 2017 is due to an increase in compensation expense.

Depreciation and Amortization

Depreciation and amortization expense decreased $33 thousand, or 26%, to $93 thousand for the three months ended June 30, 2018 compared to $126 thousand for the three months ended June 30, 2017 and decreased $163 thousand, or 35%, to $305 thousand for the nine months ended June 30, 2018 compared to $468 thousand for the nine months ended June 30, 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% of revenue for both the three months ended June 30, 2018 and 2017 and 3% and 4% of revenue for the nine months ended June 30, 2018 and June 30, 2017, respectively.   

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Goodwill impairment

The Company performed an interim impairment test at June 30, 2018, due to various factors including a decline in our stock price and recurring losses. At June 30, 2018, we elected to early adopt ASU 2017-04, Intangibles – Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment. The interim impairment test was performed in accordance with ASU 2017-04 by comparing the Company’s fair value with its carrying amount, resulting in an impairment charge of $4.6 million.

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 $6 thousand and $49 thousand for the three months ended June 30, 2018 and 2017, respectively, and $187 thousand and $249 thousand for the nine months ended June 30, 2018 and 2017, respectively. Included in the three and nine months ended June 30, 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 ($5.2) million for three months ended June 30, 2018 compared to a loss of ($323) thousand in the prior period and a loss from operations of ($6.1) million for the nine months ended June 30, 2018 compared to a loss of ($1.1) million for the nine months ended June 20, 2017. Included in the three months and nine months ended June 30, 2018 is a goodwill impairment charge of $4.6 million. Excluding the goodwill impairment charge from operating expenses in the three months ended June 30, 2018, operating expenses decreased $441 thousand or 17% compared to June 30, 2017. Excluding the goodwill impairment charge from operating expenses in the nine months ended June 30, 2018, operating expenses decreased $1.0 million or 13%. We have made concerted efforts to decrease operating expenses in line with the decline in revenues.

Loss before income taxes

We have loans such as our line of credit with Heritage Bank of Commerce (“Heritage Bank”) and Montage Capital that accrue and pay interest on a monthly basis. We issued a warrant in connection with the Montage Capital loan that is classified as a liability with an offsetting entry to debt discounts. Debt discounts are recorded as interest expense and amortized over the life of the Loan Agreement. Total amortization of the debt discount for the three and nine months ended June 30, 2018 was $28 thousand and $82 thousand. Adjustments to fair value are recorded as interest (income)/ expense. The total adjustments to fair value were ($133) thousand and ($156) thousand for the three and nine months ended June 30, 2018, respectively.

Income Taxes

The provision for income tax expense was $10 thousand for the three months ended June 30, 2018. There was no provision for income tax recorded for the three months ended June 30, 2017. The provision for income tax expense was $11 thousand and $13 thousand for the nine months ended June 30, 2018 and 2017, respectively.  Income tax expense represents the estimated liability for state income taxes owed.  

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.

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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.

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						Nine Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
Net loss	$	(5,162	)	$	(332	)	$	(6,272	)	$	(1,270	)
Provision for income tax		10			-			11			13
Interest expense, net		98			29			282			94
Change in fair value of warrant		(133	)		-			(156	)		-
Amortization of intangible assets		71			71			214			214
Depreciation		20			53			85			216
Goodwill impairment		4,615			-			4,615			-
Restructuring charges		6			49			187			297
Other amortization		17			18			50			84
Stock based compensation		126			161			373			433
Adjusted EBITDA	$	(332	)	$	49		$	(611	)	$	81

Adjusted EBITDA for the three and nine months ended June 30, 2018 decreased compared to the three and nine months ended June 30, 2017. The decreases were due primarily to decreases in revenues.

Liquidity and Capital Resources

Cash Flows

Operating Activities

Cash used in operating activities was $972 thousand for the nine months ended June 30, 2018 compared to cash used in operating activities of $823 thousand for the nine months ended June 30, 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 from investing activities was $30 thousand for the nine months ended June 30, 2018 compared to $59 thousand for the nine months ended June 30, 2017.  We do not expect to expend significant dollars for computer equipment or to capitalize any software in the next twelve months.

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Financing Activities

Cash from financing activities was $682 thousand for the nine months ended June 30, 2018 compared to $971 thousand for the nine months ended June 30, 2017. Cash provided by financing activities for the nine months ended June 30, 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 Bank Line of Credit of $233.

Capital Resources and Liquidity Outlook

Going Concern

The Company has a history of net losses and the loss for the nine months ended June 30, 2018 is $6.3 million, which includes a charge for goodwill impairment of $4.6 million. Cash flows used in operations was $972 thousand for the nine months ended June 30, 2018 and we expect to continue to incur negative cash flows for the rest of the fiscal year. As of June 30, 2018, we had $427 thousand in cash available to fund operations and debt service costs. The Company has a line of credit of up to $2.5 million with Heritage Bank, however, borrowing capability is based on eligible accounts receivable. At June 30, 2018, the Company had no additional borrowing ability on the Heritage Bank line of credit, but there may be availability to borrow in the future.

Management believes these conditions raise substantial doubt about the Company’s ability to continue as a going concern within the next twelve months from the date these financial statements are available to be issued. The ability to continue as a going concern is dependent upon profitable future operations, positive cash flows, and additional financing.

Management intends to finance operating costs over the next twelve months with existing cash on hand and additional financing. Our future financing plans include issuing public or private equity securities, including selling common stock, and pursuing funding through new debt instruments. Management will also continue with its long-term cost reduction plan initiated in fiscal 2015, reevaluating its operations to decrease expenses commensurate with expected revenues. These sources of working capital are not currently assured, and consequently do not sufficiently mitigate the risks and uncertainties disclosed above. Management therefore concludes there is substantial doubt about the Company’s ability to continue as a going concern as of June 30, 2018.

It is not certain that all or part of the Heritage Bank line of credit 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 June 30, 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, as well as, Recently Issued Accounting Pronouncements.

30

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 June 30, 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 June 30, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

31

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 June 30, 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

There were no stock options granted during the fiscal quarter ended June 30, 2018. 

32

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)
10.1	Eighth Amendment to the Loan and Security Amendment between Bridgeline Digital, Inc. and Heritage Bank of Commerce, dated August 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.

33

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)
August 14, 2018	/s/    Roger Kahn
Date	Roger Kahn President and Chief Executive Officer  (Principal Executive Officer)
August 14, 2018	/s/    Michael Prinn
Date	Michael Prinn Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

34

EX-10.1

Exhibit 10.1

EIGHTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT

This Eighth Amendment to Loan and Security Agreement is entered into as of August 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, that certain Sixth Amendment to Loan and Security Agreement dated as of February 1, 2018 and that certain Seventh Amendment to Loan and Security Agreement dated as of May 10, 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.           The following definition in Section 1.1 of the Agreement is amended and restated in its entirety to read as follows:

“Revolving Maturity Date” means September 7, 2019.

2.           Section 2.5(a) of the Agreement is amended and restated in its entirety to read as follows:

(a)     Facility Fees. Borrower shall pay to Bank a facility equal to $6,000 on September 7, 2019 and each anniversary thereof for as long as the Revolving Facility is in effect, each of which are fully earned and nonrefundable.

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.

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 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.

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, Bank shall have received, in form and substance satisfactory to Bank, the following:

(a)     payment of a pro-rated facility fee in the amount of $1,500 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 Prinn

Title: CFO

HERITAGE BANK OF COMMERCE

By: /s/ Karla Schrader

Name: Karla Schrader

Title: Vice President

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: August 14, 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: August 14, 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 June 30, 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: August 14, 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 June 30, 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: August 14, 2018		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	9 Months Ended
	Jun. 30, 2018	Aug. 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	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2018	Jun. 30, 2018
Current assets:
Cash and cash equivalents	$ 748	$ 427
Accounts receivable and unbilled receivables, net	3,026	2,103
Prepaid expenses and other current assets	352	465
Total current assets	4,126	2,995
Property and equipment, net	209	94
Intangible assets, net	263	49
Goodwill	12,641	8,026
Other assets	334	258
Total assets	17,573	11,422
Current liabilities:
Accounts payable	1,241	1,371
Accrued liabilities	920	636
Debt, current portion		198
Deferred revenue	1,466	841
Total current liabilities	3,627	3,046
Debt, net of current portion	2,500	2,810
Other long term liabilities	172	234
Total liabilities	6,299	6,090
Commitments and contingencies
Stockholders’ equity:
Convertible preferred stock - $0.001 par value; 1,000,000 shares authorized; 264,000 and 262,364 at June 30, 2018 and 245,172 and 243,536 at September 30, 2017, issued and outstanding (liquidation preference $2,624, as of June 30, 2018)
Common stock - $0.001 par value; 50,000,000 shares authorized; 4,241,225 at June 30, 2018 and 4,200,219 at September 30, 2017, issued and outstanding	4	5
Additional paid-in capital	65,869	66,430
Accumulated deficit	(54,249)	(60,752)
Accumulated other comprehensive loss	(350)	(351)
Total stockholders’ equity	11,274	5,332
Total liabilities and stockholders’ equity	$ 17,573	$ 11,422

XML

Condensed Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($)	Sep. 30, 2018	Jun. 30, 2018
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)	245,172	264,000
Preferred stock, shares outstanding (in shares)	243,536	262,364
Preferred stock, liquidation preference		$ 2,624
Common stock, par value (in dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized (in shares)	50,000,000,000	50,000,000,000
Common stock, shares issued (in shares)	4,200,219,000	4,241,225,000
Common stock, shares outstanding (in shares)	4,200,219,000	4,241,225,000

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net revenue:
Net revenue	$ 3,083,000	$ 4,074,000	$ 10,765,000	$ 12,059,000
Cost of revenue:
Cost of revenue	1,534,000	1,835,000	5,382,000	5,246,000
Gross profit	1,549,000	2,239,000	5,383,000	6,813,000
Operating expenses:
Sales and marketing	991,000	1,193,000	3,045,000	3,661,000
General and administrative	625,000	801,000	2,156,000	2,395,000
Research and development	406,000	393,000	1,221,000	1,175,000
Depreciation and amortization	93,000	126,000	305,000	468,000
Goodwill impairment	4,615,000		4,615,000
Restructuring charges	6,000	49,000	187,000	249,000
Total operating expenses	6,736,000	2,562,000	11,529,000	7,948,000
Loss from operations	(5,187,000)	(323,000)	(6,146,000)	(1,135,000)
Interest (income)/expense and other (income)/expense, net	35,000	(9,000)	(115,000)	(122,000)
Loss before income taxes	(5,152,000)	(332,000)	(6,261,000)	(1,257,000)
Provision for income taxes	10,000	0	11,000	13,000
Net loss	(5,162,000)	(332,000)	(6,272,000)	(1,270,000)
Dividends on convertible preferred stock	(79,000)	(71,000)	(231,000)	(207,000)
Net loss applicable to common shareholders	$ (5,241,000)	$ (403,000)	$ (6,503,000)	$ (1,477,000)
Net loss per share attributable to common shareholders:
Basic and diluted (in dollars per share)	$ (1.24)	$ (0.10)	$ (1.54)	$ (0.36)
Number of weighted average shares outstanding:
Basic and diluted (in shares)	4,241,225	4,195,900	4,222,848	4,129,481
Service [Member]
Net revenue:
Net revenue	$ 1,578,000	$ 2,121,000	$ 5,559,000	$ 6,298,000
Cost of revenue:
Cost of revenue	977,000	1,297,000	3,666,000	3,569,000
License [Member]
Net revenue:
Net revenue	1,262,000	1,711,000	4,367,000	5,018,000
Cost of revenue:
Cost of revenue	510,000	473,000	1,503,000	1,468,000
Technology Service [Member]
Net revenue:
Net revenue	243,000	242,000	839,000	743,000
Cost of revenue:
Cost of revenue	$ 47,000	$ 65,000	$ 213,000	$ 209,000

XML

Condensed Consolidated Statements of Comprehensive Loss (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net Income (Loss) Attributable to Parent, Total	$ (5,162)	$ (332)	$ (6,272)	$ (1,270)
Other Comprehensive Income: Net change in foreign currency translation adjustment	(1)		(1)	3
Comprehensive loss	$ (5,163)	$ (332)	$ (6,273)	$ (1,267)

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash flows from operating activities:
Net loss	$ (6,272)	$ (1,270)
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	214	214
Depreciation	85	216
Other amortization	50	84
Goodwill impairment	4,615
Debt discount amortization	82
Change in fair value of warrant	(156)
Stock-based compensation	374	433
Changes in operating assets and liabilities
Accounts receivable and unbilled receivables	923	(507)
Prepaid expenses and other assets	(40)	(22)
Accounts payable and accrued liabilities	(201)	(188)
Deferred revenue	(625)	269
Other liabilities	(81)	(100)
Total adjustments	5,300	447
Net cash used in operating activities	(972)	(823)
Cash flows from investing activities:
Software development capitalization costs		(41)
Purchase of property and equipment	(30)	(18)
Net cash from investing activities	(30)	(59)
Cash flows from financing activities:
Proceeds from issuance of common stock, net of issuance costs		853
Proceeds from term loan	953
Borrowing on bank line of credit	888	1,859
Payments on bank line of credit	(1,121)	(1,630)
Preferred Series A cash dividends paid	(38)
Contingent acquisition payments		(75)
Principal payments on capital leases		(36)
Net cashfrom financing activities	682	971
Effect of exchange rate changes on cash and cash equivalents	(1)	3
Net (decrease)/increase in cash and cash equivalents	(321)	92
Cash and cash equivalents at beginning of period	748	661
Cash and cash equivalents at end of period	427	753
Cash paid for:
Interest	190	93
Income taxes	14	17
Non cash investing and financing activities:
Dividends on convertible preferred stock	$ 114	$ 207

XML

Note 1 - Description of Business

9 Months Ended

Jun. 30, 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. 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 accompanying condensed consolidated financial statements and footnotes have been retroactively adjusted to reflect the effects of the

1

-for-

5

reverse stock split.

Going Concern

The Company has a history of net losses and the net loss for the

nine

months ended

June 30, 2018

is

$6.3

million, which includes a charge of

$4.6

million for goodwill impairment. Cash flows used in operations was

$972

for the

nine

months ended

June 30, 2018

and we expect to continue to incur negative cash flows for the rest of the fiscal year. As of 

June 

30,

2018,

we had 

$427

 in cash available to fund operations and debt service costs. The Company has a line of credit of up to

$2.5

million with Heritage Bank of Commerce (“Heritage Bank”), however, borrowing capability is based on eligible accounts receivable. At

June 30, 2018,

the Company had

no

additional borrowing ability on the Heritage Bank line of credit.

Management believes these conditions raise substantial doubt about the Company’s ability to continue as a going concern within the next

twelve

months from the date these financial statements are available to be issued. The ability to continue as a going concern is dependent upon profitable future operations, positive cash flows, and additional financing.

Management intends to finance operating costs over the next

twelve

months with existing cash on hand and additional financing. Our future financing plans include issuing public or private equity securities, including selling common stock, and pursuing funding through new debt instruments. Management will also continue with its long-term cost reduction plan initiated in fiscal

2015,

reevaluating its operations to decrease expenses commensurate with expected revenues. These sources of working capital are

not

currently assured, and consequently do

not

sufficiently mitigate the risks and uncertainties disclosed above. Management therefore concludes there is substantial doubt about the Company’s ability to continue as a going concern as of

June 

30,

2018.

These condensed consolidated financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The accompanying condensed consolidated financial statements do

not

include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that

may

result from uncertainty related to our ability to continue as a going concern.

XML

Note 2 - Summary of Significant Accounting Policies

9 Months Ended

Jun. 30, 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, but does

not

include all of the information and footnotes required by U.S. GAAP for complete financial statements. The operating results for the

three

and

nine

months ended

June 30, 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. 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.

Recently

Adopted Accounting

Pronouncement

s

In

January 2017,

the FASB issued ASU

2017

-

04,

 

Intangibles

—

Goodwill and Other (Topic

350

)

—

Simplifying the Test for Goodwill Impairment

 (“ASU

2017

-

04”

). ASU

2017

-

04

simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step

two

of the goodwill impairment test referenced in Accounting Standards Codification (“ASC”)

350,

 

Intangibles - Goodwill and Other 

(“ASC

350”

). As a result, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. ASU

2017

-

04

is effective for annual reporting periods beginning after

December 15, 2019,

including any interim impairment tests within those annual periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

As of  

June 30, 2018,

the Company elected to early adopt ASU

2017

-

04.

In performing an interim impairment test at

June 30, 2018,

the Company recorded a

$4.6

million impairment charge, which represented the excess of carrying value compared to fair value prior to recording the impairment charge. All future goodwill impairment tests will be performed according to ASU

2017

-

04.

.

Recently Issued 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 adopting ASU

2014

-

09

recognized at the date of initial application as an adjustment to retained earnings, with certain additional required disclosures. The Company plans to adopt the standard using the modified retrospective method to restate each prior reporting period presented.

As the Company has substantially completed its assessment of 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 new 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.

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.

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

9 Months Ended

Jun. 30, 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
	June 30, 2018			September 30, 2017
Accounts receivable	$	2,061		$	3,174
Unbilled receivables		214			41
Subtotal		2,275			3,215
Allowance for doubtful accounts		(172	)		(189	)
Accounts receivable and unbilled receivables, net	$	2,103		$	3,026

As of

June 30, 2018,

two

customers represented

15%

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

9 Months Ended

Jun. 30, 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

June 30, 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

June 30, 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 II, L.P (“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 (

$156

) since the original valuation in

October 2017.

The fair value of the warrant at

June 30, 2018

is

$185.

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

June 30, 2018

are as follows:

	Level 1		Level 2		Level 3		Total
Liabilities:
Warrant liability	$	-	$	-	$	185	$	185
Total Liabilities	$	-	$	-	$	185	$	185

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.

	Nine Months Ended June 30,
	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
Additions		-
Adjustment to fair value		(133	)
Balance at end of period, June 30, 2018	$	185

XML

Note 5 - Goodwill

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Goodwill Disclosure [Text Block]

5

.  

Goodwill

Changes in the carrying amount of goodwill are as follows:

	As of			As of
	June 30, 2018			September 30, 2017
Balance at beginning of period	$	12,641		$	12,641
Impairment		(4,615	)		-
Balance at end of period	$	8,026		$	12,641

The carrying value of goodwill is

not

amortized, but is tested for impairment annually as of

September 30,

as well as, whenever events or changes in circumstances indicate that the carrying amount of a reporting unit

may

not

be recoverable.  The Company early adopted ASU

2017

-

04

during the quarter ended

June 30, 2018.

The purpose of an impairment test is to identify any potential impairment by comparing the carrying value of a reporting unit including goodwill to its fair value. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, however, the loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit.  The fair value measurement was calculated at

June 30, 2018

using the Company’s market price which is classified as Level

3

within the fair value hierarchy under U.S. GAAP. 

In performing the interim impairment test at

June 30, 2018,

Management concluded that goodwill was impaired by 

$4.6

million.  This amount is reflected as a reduction in goodwill of

$4.6

million in the Company’s Condensed Consolidated Balance Sheet as of 

June 30, 2018

with the offset as an expense in the Company’s Condensed Consolidated Statement of Operations. 

XML

Note 6 - Intangible Assets

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Intangible Assets Disclosure [Text Block]

6

.   Intangible Assets

The components of intangible assets are as follows:

	As of		As of
	June 30, 2018		September 30, 2017
Domain and trade names	$	10	$	10
Customer related		18		179
Non-compete agreements		21		74
Balance at end of period	$	49	$	263

Total amortization expense related to intangible assets was

$71

for both the

three

months ended

June 30, 2018

and

2017

and

$214

for the both the

nine

months ended

June 30, 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

$28

and

$21,

respectively.

XML

Note 7 - Restructuring

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Restructuring and Related Activities Disclosure [Text Block]

7

.   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

nine

months ended

June 30, 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
Charges to operations		2
Cash disbursements		(21	)
Changes in estimates		-
Accretion Expense		4
Balance at end of period, June 30, 2018	$	93

The components of the accrued restructuring liabilities is as follows:

	As of		As of
	June 30, 2018		September 30, 2017
Facilities and related	$	93	$	133
Other		-		43
Total	$	93	$	176

As of

June 30, 2018,

$78

was reflected in Accrued Liabilities and

$15

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 8 - Debt

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Debt Disclosure [Text Block]

8

.   Debt

Debt as of 

June 30, 2018

and

September 30, 2017

consists of the following:

	As of			As of
	June 30, 2018			September 30, 2017
Line of credit borrowings	$	2,267		$	2,500
Term loan - Montage Capital		1,000			-
Subtotal debt	$	3,267		$	2,500
Other (debt discount)		(259	)		-
Total debt	$	3,008		$	2,500
Less current portion		198			-
Long term debt, net of current portion	$	2,810		$	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

and then further extended on

August 10, 2018

to

September 7, 2019 (

Eighth Amendment). 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 Bank 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 in compliance with all financial covenants as of

June 30, 2018.

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

June 30, 2018,

the Company had an outstanding balance under the Loan Agreement of

$2.3

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 and the grant of a

second

position lien to Montage (See Subsequent Events). In addition, Heritage Bank 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 Bank 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.

On

August 10, 2018,

the

eighth

Amendment was executed (“Eighth Amendment”). The Eighth Amendment extended the maturity date of the loan to

September 7, 

2019.

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. An additional

$500

thousand of borrowing was available at the Company’s option through

May 31, 2018

in the event that the Company achieved certain financial milestones and is otherwise in compliance with its loan covenants (the “Second Tranche”). However, the Company did

not

borrow the Second Tranche, as the financial milestones were

not

achieved, and the option expired. 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. 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. Heritage Bank consented to the Company’s incurrence of additional indebtedness from Montage and the grant of a

second

position lien to Montage. In addition, Heritage Bank 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.

The Company was in compliance with all financial covenants as of

June 30, 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. 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

$250.

If the equity buy-out is exercised, the Warrant will be surrendered to the Company for cancellation. At the loan execution, the initial fair value of the Warrant was

$341.

The fair value as of

June 30, 2018

is

$185.

The warrants were initially valued with certain assumptions, including the probability of exercising the Second Tranche, which would require the issuance of additional warrants of

33,767.

However, the Second Tranche was

not

exercised resulting in a decrease in the fair value of the warrant. 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

nine

months ended

June 30, 2018

was

$28

and

$82.

For the

three

and

nine

months ended

June 30, 2018,

the total adjustments to fair value were (

$133

) and (

$156

). Adjustments to fair value are recorded as interest expense in the Condensed Consolidated Statement of Operations with the offset to warrant liability currently included in Other Long Term Liabilities in the Condensed Consolidated Balance Sheet.

XML

Note 9 - Other Long Term Liabilities

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

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

9

.   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

June 30, 2018,

deferred rent of

$7

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

June 30, 2018

was

$185,

a reduction of

$156.

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

XML

Note 10 - Shareholders' Equity

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Stockholders' Equity Note Disclosure [Text Block]

10

.   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

June 30, 2018,

a total of

1,636

shares of preferred stock have been converted to

1,007

shares of common stock. The Preferred Shares shall vote with the Common on an as converted basis.

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.

As of

June 30, 2018,

the Company has issued

64,000

shares of Preferred Stock as PIK dividends to the preferred shareholders, which is the maximum amount of cumulative PIK dividends authorized. Therefore, all future dividends payments will be cash dividends. 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.

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 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 until they are exercised or expire. 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

June 30, 2018,

there were

460,246

options outstanding under both plans and

260,534

 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

June 30, 2018,

the total warrants outstanding were

584,308

issued as follows:

218,455

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

299,538

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

153,297

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

6,000

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 of

June 30, 2018

were as follows:

	Issue
Type	Date	Shares		Price		Expiration
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	5/9/2022
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			584,308

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		$	4.09
Exercised		-		$	-			-		$	-
Forfeited or expired		(10,300	)	$	(7.72	)		(27,600	)	$	31.25
Outstanding, June 30, 2018		460,246		$	6.80			584,308		$	6.58

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					Nine Months Ended
	June 30,					June 30,
	2018		2017			2018			2017
Number of options granted	none			10,000			19,900			20,200
Volatility		n/a		85.30	%		80.52	%		84.95	%
Estimated life (in years)		n/a		6			6			6
Risk-free interest rate		n/a		1.95	%		2.50	%		1.96	%
Weighted-average fair value per share of grants		n/a	$	2.74		$	1.73		$	2.47

XML

Note 11 - Net Loss Per Share

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Earnings Per Share [Text Block]

1

1

.   Net Loss

Per Share

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

	Three Months Ended						Nine Months Ended
(in thousands, except per share data)	June 30,						June 30,
	2018			2017			2018			2017
Net loss	$	(5,162	)	$	(332	)	$	(6,272	)	$	(1,270	)
Accrued dividends on convertible preferred stock		(79	)		(71	)		(231	)		(207	)
Net loss applicable to common shareholders	$	(5,241	)	$	(403	)	$	(6,503	)	$	(1,477	)
Weighted average common shares outstanding - basic and diluted		4,241			4,196			4,223			4,129
Net loss per share attributable to common shareholders:
Basic and diluted	$	(1.24	)	$	(0.10	)	$	(1.54	)	$	(0.36	)

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 both the

three

and

nine

months ended

June 30, 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 12 - Income Taxes

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Income Tax Disclosure [Text Block]

1

2

.  Income Taxes

Income tax expense for the

three

months ended

June 30, 2018

and

2017

was

$10

and

$0,

respectively, and

$11

and

$13

for the

nine

months ended

June 30, 2018

and

2017,

respectively. Income tax expense consists of the estimated liability for state income taxes owed by the Company.  

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

under a provisional basis 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

nine

 months ended

June 30, 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

nine

month periods ended

June 30, 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 13 - Related Party Transactions

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

1

3

.  Related Party Transactions

In

October 2013,

Mr. Michael Taglich joined the Board of Directors. 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.

XML

Note 14 - Legal Proceedings

9 Months Ended

Jun. 30, 2018

Notes to Financial Statements

Legal Matters and Contingencies [Text Block]

1

4

.  Legal Proceedings

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

June 30, 2018,

the Company was

not

engaged with any material legal proceedings.

XML

Significant Accounting Policies (Policies)

9 Months Ended

Jun. 30, 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, but does

not

include all of the information and footnotes required by U.S. GAAP for complete financial statements. The operating results for the

three

and

nine

months ended

June 30, 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. 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]

Recently

Adopted Accounting

Pronouncement

s

In

January 2017,

the FASB issued ASU

2017

-

04,

 

Intangibles

—

Goodwill and Other (Topic

350

)

—

Simplifying the Test for Goodwill Impairment

 (“ASU

2017

-

04”

). ASU

2017

-

04

simplifies the accounting for goodwill impairments by eliminating the requirement to compare the implied fair value of goodwill with its carrying amount as part of step

two

of the goodwill impairment test referenced in Accounting Standards Codification (“ASC”)

350,

 

Intangibles - Goodwill and Other 

(“ASC

350”

). As a result, an entity should perform its annual or interim goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An impairment charge should be recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should

not

exceed the total amount of goodwill allocated to that reporting unit. ASU

2017

-

04

is effective for annual reporting periods beginning after

December 15, 2019,

including any interim impairment tests within those annual periods, with early application permitted for interim or annual goodwill impairment tests performed on testing dates after

January 1, 2017.

As of  

June 30, 2018,

the Company elected to early adopt ASU

2017

-

04.

In performing an interim impairment test at

June 30, 2018,

the Company recorded a

$4.6

million impairment charge, which represented the excess of carrying value compared to fair value prior to recording the impairment charge. All future goodwill impairment tests will be performed according to ASU

2017

-

04.

.

Recently Issued 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 adopting ASU

2014

-

09

recognized at the date of initial application as an adjustment to retained earnings, with certain additional required disclosures. The Company plans to adopt the standard using the modified retrospective method to restate each prior reporting period presented.

As the Company has substantially completed its assessment of 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 new 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.

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.

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 (Tables)

9 Months Ended

Jun. 30, 2018

Notes Tables

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

	As of			As of
	June 30, 2018			September 30, 2017
Accounts receivable	$	2,061		$	3,174
Unbilled receivables		214			41
Subtotal		2,275			3,215
Allowance for doubtful accounts		(172	)		(189	)
Accounts receivable and unbilled receivables, net	$	2,103		$	3,026

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

9 Months Ended

Jun. 30, 2018

Notes Tables

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

	Level 1		Level 2		Level 3		Total
Liabilities:
Warrant liability	$	-	$	-	$	185	$	185
Total Liabilities	$	-	$	-	$	185	$	185

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

	Nine Months Ended June 30,
	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
Additions		-
Adjustment to fair value		(133	)
Balance at end of period, June 30, 2018	$	185

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Note 5 - Goodwill (Tables)

9 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Goodwill [Table Text Block]

	As of			As of
	June 30, 2018			September 30, 2017
Balance at beginning of period	$	12,641		$	12,641
Impairment		(4,615	)		-
Balance at end of period	$	8,026		$	12,641

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Note 6 - Intangible Assets (Tables)

9 Months Ended

Jun. 30, 2018

Notes Tables

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

	As of		As of
	June 30, 2018		September 30, 2017
Domain and trade names	$	10	$	10
Customer related		18		179
Non-compete agreements		21		74
Balance at end of period	$	49	$	263

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Note 7 - Restructuring (Tables)

9 Months Ended

Jun. 30, 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
Charges to operations		2
Cash disbursements		(21	)
Changes in estimates		-
Accretion Expense		4
Balance at end of period, June 30, 2018	$	93

Restructuring and Related Costs [Table Text Block]

	As of		As of
	June 30, 2018		September 30, 2017
Facilities and related	$	93	$	133
Other		-		43
Total	$	93	$	176

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Note 8 - Debt (Tables)

9 Months Ended

Jun. 30, 2018

Notes Tables

Schedule of Debt [Table Text Block]

	As of			As of
	June 30, 2018			September 30, 2017
Line of credit borrowings	$	2,267		$	2,500
Term loan - Montage Capital		1,000			-
Subtotal debt	$	3,267		$	2,500
Other (debt discount)		(259	)		-
Total debt	$	3,008		$	2,500
Less current portion		198			-
Long term debt, net of current portion	$	2,810		$	2,500

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Note 10 - Shareholders' Equity (Tables)

9 Months Ended

Jun. 30, 2018

Notes Tables

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

	Issue
Type	Date	Shares		Price		Expiration
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	5/9/2022
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			584,308

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		$	4.09
Exercised		-		$	-			-		$	-
Forfeited or expired		(10,300	)	$	(7.72	)		(27,600	)	$	31.25
Outstanding, June 30, 2018		460,246		$	6.80			584,308		$	6.58

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

	Three Months Ended					Nine Months Ended
	June 30,					June 30,
	2018		2017			2018			2017
Number of options granted	none			10,000			19,900			20,200
Volatility		n/a		85.30	%		80.52	%		84.95	%
Estimated life (in years)		n/a		6			6			6
Risk-free interest rate		n/a		1.95	%		2.50	%		1.96	%
Weighted-average fair value per share of grants		n/a	$	2.74		$	1.73		$	2.47

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Note 11 - Net Loss Per Share (Tables)

9 Months Ended

Jun. 30, 2018

Notes Tables

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

	Three Months Ended						Nine Months Ended
(in thousands, except per share data)	June 30,						June 30,
	2018			2017			2018			2017
Net loss	$	(5,162	)	$	(332	)	$	(6,272	)	$	(1,270	)
Accrued dividends on convertible preferred stock		(79	)		(71	)		(231	)		(207	)
Net loss applicable to common shareholders	$	(5,241	)	$	(403	)	$	(6,503	)	$	(1,477	)
Weighted average common shares outstanding - basic and diluted		4,241			4,196			4,223			4,129
Net loss per share attributable to common shareholders:
Basic and diluted	$	(1.24	)	$	(0.10	)	$	(1.54	)	$	(0.36	)

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Note 1 - Description of Business (Details Textual) $ in Thousands		3 Months Ended		9 Months Ended		12 Months Ended
	Jul. 24, 2017	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Sep. 30, 2017 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2016 USD ($)	Jun. 30, 2016 USD ($)
Net Income (Loss) Attributable to Parent, Total		$ (5,162)	$ (332)	$ (6,272)	$ (1,270)
Goodwill, Impairment Loss		4,615		4,615
Net Cash Provided by (Used in) Operating Activities, Total				(972)	(823)
Cash and Cash Equivalents, at Carrying Value, Ending Balance		427	$ 753	427	$ 753	$ 748	$ 748	$ 661
Heritage Agreement [Member]
Line of Credit Facility, Maximum Borrowing Capacity		2,500		2,500					$ 2,500
Line of Credit Facility, Remaining Borrowing Capacity		$ 0		$ 0
Reverse Stock Split [Member]
Stockholders' Equity Note, Stock Split, Conversion Ratio	5

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Note 2 - Summary of Significant Accounting Policies (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Sep. 30, 2017
Goodwill, Impairment Loss	$ 4,615		$ 4,615

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Note 3 - Accounts Receivable and Unbilled Receivables (Details Textual) - Customer Concentration Risk [Member] - Sales Revenue, Net [Member]	9 Months Ended	12 Months Ended
	Jun. 30, 2018	Sep. 30, 2017
Number of Major Customers	2	2
Customer One [Member]
Concentration Risk, Percentage	15.00%	23.00%
Customer Two [Member]
Concentration Risk, Percentage	10.00%	14.00%

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Note 3 - Accounts Receivable and Unbilled Receivables - Summary of Accounts Receivable and Unbilled Receivables (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Jun. 30, 2018	Sep. 30, 2017
Accounts receivable		$ 2,275	$ 3,215
Allowance for doubtful accounts		(172)	(189)
Accounts receivable and unbilled receivables, net	$ 3,026	2,103	3,026
Trade Accounts Receivable [Member]
Accounts receivable		2,061	3,174
Unbilled Receivables [Member]
Accounts receivable		$ 214	$ 41

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Note 4 - Fair Value Measurement and Fair Value of Financial Instruments (Details Textual) $ in Thousands	9 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Oct. 10, 2017 USD ($)
Fair Value Adjustment of Warrants	$ (156)
Warrants Issued as Consideration for Loan [Member]
Warrants and Rights Outstanding	185		$ 341
Fair Value Adjustment of Warrants	$ (156)
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

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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	Jun. 30, 2018 USD ($)
Liabilities:
Warrant liability	$ 185
Total liabilities	185
Fair Value, Inputs, Level 1 [Member]
Liabilities:
Warrant liability
Total liabilities
Fair Value, Inputs, Level 2 [Member]
Liabilities:
Warrant liability
Total liabilities
Fair Value, Inputs, Level 3 [Member]
Liabilities:
Warrant liability	185
Total liabilities	$ 185

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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
	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017
Balance at beginning of period	$ 318	$ 338
Additions			341
Adjustment to fair value	(133)	(20)	(3)
Balance at end of period	$ 185	$ 318	$ 338

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Note 5 - Goodwill (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Sep. 30, 2017
Goodwill, Impairment Loss	$ 4,615		$ 4,615
Goodwill, Period Increase (Decrease), Total			$ (4,600)

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Note 5 - Goodwill - Changes in Carrying Amount of Goodwill (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Sep. 30, 2017
Balance at beginning of period			$ 12,641	$ 12,641	$ 12,641
Impairment	$ (4,615)		(4,615)
Balance at end of period	$ 8,026		$ 8,026		$ 12,641

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Note 6 - Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Amortization of Intangible Assets, Total	$ 71	$ 71	$ 214	$ 214
Finite-Lived Intangible Assets, Amortization Expense, Remainder of Fiscal Year	28		28
Finite-Lived Intangible Assets, Amortization Expense, Year Two	$ 21		$ 21

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Note 6 - Intangible Assets - Changes in the Carrying Amount of Intangible Assets (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Sep. 30, 2017
Finite Lived Intangible Assets, Net	$ 49	$ 263
Domain And Trade Names [Member]
Finite Lived Intangible Assets, Net	10	10
Customer-Related Intangible Assets [Member]
Finite Lived Intangible Assets, Net	18	179
Noncompete Agreements [Member]
Finite Lived Intangible Assets, Net	$ 21	$ 74

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Note 7 - Restructuring (Details Textual) - USD ($) $ in Thousands	Jun. 30, 2018	Sep. 30, 2017
Restructuring Reserve, Ending Balance	$ 93	$ 176
Accrued Liabilities, Current [Member]
Restructuring Reserve, Ending Balance	78	119
Other Noncurrent Liabilities [Member]
Restructuring Reserve, Ending Balance	$ 15	$ 57

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Note 7 - Restructuring - Restructuring Charges Reserve Activity (Details) - USD ($) $ in Thousands	3 Months Ended				9 Months Ended
	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Balance			$ 176		$ 176
Charges to operations	$ 6			$ 49	187	$ 249
Balance	93				93
Facility Closing [Member]
Balance	108	$ 109	176		176
Charges to operations	2	140
Cash disbursements	(21)	(121)	(67)
Changes in estimates		(20)
Balance	93	$ 108	$ 109		$ 93
Accretion Expense	$ 4

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Note 7 - Restructuring - Accrued Restructuring Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Sep. 30, 2017
Restructuring Reserve	$ 93	$ 176
Facilities and Related [Member]
Restructuring Reserve	93	133
Other Restructuring Costs [Member]
Restructuring Reserve		$ 43

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Note 8 - Debt (Details Textual) - USD ($) $ / shares in Units, $ in Thousands		1 Months Ended	3 Months Ended		9 Months Ended		11 Months Ended	12 Months Ended
	Oct. 10, 2017	Jun. 30, 2016	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Jun. 09, 2019	Jun. 30, 2018	Jun. 30, 2017	Jan. 01, 2018	Jan. 07, 2015
Proceeds from Issuance of Long-term Debt, Total					$ 953
Warrants Term					5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			584,308		584,308			584,308
Amortization of Debt Discount (Premium)					$ 82
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			66,315
Class of Warrant or Right, Exercise Price of Warrants or Rights	$ 2.65
Equity Buy-out, First Tranche	$ 250
Warrants and Rights Outstanding	$ 341		$ 185		$ 185			$ 185
Class of Warrants or Right, Number of Warrants to be Issued in the Second Tranche					33,767
Amortization of Debt Discount (Premium)			28	$ 133	$ 82	$ 156
Michael Taglich [Member]
Guaranty Agreement, Out of Formula Borrowings Available, Maximum			$ 1,500		$ 1,500			$ 1,500
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			153,297		153,297			153,297		6,000	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			$ 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
Heritage Agreement [Member]
Debt Instrument, Term		2 years
Line of Credit Facility, Commitment Fee Percentage								0.20%	0.40%
Line of Credit Facility, Maximum Borrowing Capacity		$ 2,500	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			$ 2,300		$ 2,300			$ 2,300
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, Annual Commitment Fee Amount, Thereafter							$ 6

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Note 8 - Debt - Summary of Debt (Details) - USD ($) $ in Thousands	Sep. 30, 2018	Jun. 30, 2018	Sep. 30, 2017
Debt		$ 3,267	$ 2,500
Other (debt discount)		(259)
Total debt		3,008	2,500
Less current portion		198
Long term debt, net of current portion	$ 2,500	2,810	2,500
Non-Revolving Term Loan [Member]
Debt		1,000
Heritage Agreement [Member]
Debt		$ 2,267	$ 2,500

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Note 9 - Other Long Term Liabilities (Details Textual) - USD ($) $ in Thousands	9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Sep. 30, 2018	Oct. 10, 2017	Sep. 30, 2017
Leasehold Improvements, Gross	$ 1,400
Deferred Rent Liability Reversed	118
Other Liabilities, Noncurrent, Total	234		$ 172
Fair Value Adjustment of Warrants	(156)
Warrants Issued as Consideration for Loan [Member]
Warrants and Rights Outstanding	185			$ 341
Fair Value Adjustment of Warrants	(156)
Leasehold Improvements [Member]
Accrued Liabilities, Total	7				$ 154
Other Liabilities, Noncurrent, Total					$ 43
Paid By Landlord [Member]
Leasehold Improvements, Gross	$ 657

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Note 10 - Shareholders' Equity (Details Textual) - USD ($) $ / shares in Units, $ in Millions			6 Months Ended	9 Months Ended	26 Months Ended	44 Months Ended
	Oct. 10, 2017	Oct. 27, 2014	Jun. 30, 2018	Jun. 30, 2018	Dec. 31, 2016	Jun. 30, 2018	Jan. 01, 2018	Apr. 29, 2017	Jan. 07, 2015
Warrants Exercisable Term				180 days
Warrants Term				5 years
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			584,308	584,308		584,308
Michael Taglich [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			153,297	153,297		153,297	6,000		6,000
Guaranty Agreement, Out of Formula Borrowings Available, Maximum			$ 1.5	$ 1.5		$ 1.5
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			218,455	218,455		218,455
Individual Investors [Member]
Class of Warrant or Right, Number of Securities Called by Warrants or Rights			299,538	299,538		299,538
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		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	8,600		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	86,000		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			460,246	460,246		460,246
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant			260,534	260,534		260,534
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		$ 2.0
Preferred Stock Conversion Price		$ 16.25
Minimum Common Stock Price Allowing Company to Force Convert Preferred Stock		$ 32.50
Convertible Preferred Stock [Member]
Preferred Stock Dividends, Shares				64,000
Preferred Stock, Dividend Rate, Percentage			12.00%		6.00%

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Note 10 - Shareholders' Equity - Stock Warrants Outstanding (Details)	9 Months Ended
	Jun. 30, 2018 $ / shares shares
Stock Warrants Outstanding, Shares (in shares)	584,308
Placement Agent Stock Warrants 1 [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 2 [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 3 [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 4 [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 5 [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 6 [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 7 [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 1 [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 09, 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 10 - Shareholders' Equity - Summary of Option and Warrant Activity and Outstanding Shares (Details) - $ / shares	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Granted, Options (in shares)	0	10,000	19,900	20,200
Employee Stock Option [Member]
Outstanding, Options (in shares)			450,646
Outstanding, Options, Weighted Average Exercise Price (in dollars per share)			$ 7.02
Granted, Options (in shares)			19,900
Granted, Options, Weighted Average Exercise Price (in dollars per share)			$ 2.47
Exercised, Options (in shares)
Forfeited or expired, Options (in shares)			(10,300)
Forfeited or expired, Options, Weighted Average Exercise Price (in dollars per share)			$ (7.72)
Outstanding, Options (in shares)	460,246		460,246
Outstanding, Options, Weighted Average Exercise Price (in dollars per share)	$ 6.80		$ 6.80
Stock Warrants [Member]
Outstanding, Warrant (in shares)			539,593
Outstanding, Warrant, Weighted Average Exercise Price (in dollars per share)			$ 8.18
Granted, Warrant (in shares)			72,315
Granted, Warrant, Weighted Average Exercise Price (in dollars per share)			$ 4.09
Exercised, Warrant (in shares)
Forfeited or expired, Warrant (in shares)			(27,600)
Forfeited or expired, Warrant, Weighted Average Exercise Price (in dollars per share)			$ 31.25
Outstanding, Warrant (in shares)	584,308		584,308
Outstanding, Warrant, Weighted Average Exercise Price (in dollars per share)	$ 6.58		$ 6.58

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Note 10 - Shareholders' Equity - Black-scholes Option Valuation Assumptions (Details) - $ / shares	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Number of options granted (in shares)	0	10,000	19,900	20,200
Volatility		85.30%	80.52%	84.95%
Estimated life (in years) (Year)		6 years	6 years	6 years
Risk-free interest rate		1.95%	2.50%	1.96%
Weighted-average fair value per share of grants (in dollars per share)		$ 2.74	$ 1.73	$ 2.47

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Note 11 - Net Loss Per Share - Basic and Diluted Net Loss Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net loss	$ (5,162)	$ (332)	$ (6,272)	$ (1,270)
Dividends on convertible preferred stock	(79)	(71)	(231)	(207)
Net loss applicable to common shareholders	$ (5,241)	$ (403)	$ (6,503)	$ (1,477)
Weighted average common shares outstanding - basic and diluted (in shares)	4,241,225	4,195,900	4,222,848	4,129,481
Basic and diluted (in dollars per share)	$ (1.24)	$ (0.10)	$ (1.54)	$ (0.36)

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Note 12 - Income Taxes (Details Textual) - USD ($)	3 Months Ended			9 Months Ended
	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017	Sep. 30, 2018	Jun. 30, 2018	Jun. 30, 2017
Income Tax Expense (Benefit), Total	$ 10,000		$ 0		$ 11,000	$ 13,000
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 13 - Related Party Transactions (Details Textual) - USD ($) $ in Millions	Jun. 30, 2018	Dec. 31, 2013
Michael Taglich [Member]
Related Party, Ownership Percentage Of Stock	22.00%
Guaranty Agreement, Out of Formula Borrowings Available, Maximum	$ 1.5
Convertible Subordinated Debt [Member]
Convertible Notes Payable, Total		$ 3.0