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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form 10-K


(Mark One)

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

For the fiscal year ended September 30, 2021

 

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

52-2263942

State or other jurisdiction of incorporation or organization

IRS Employer Identification No.

IRS Employer Identification No.

 

100 Sylvan Road, Suite G700

 

Woburn, Massachusetts

01801

(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)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol

Name of exchange on which registered

Common Stock, $0.001 par value per share

BLIN

The NASDAQ Stock Market, LLC

 

Securities registered pursuant to Section 12(g) of the Act:

None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ☐     No   ☒

 

Indicate by check mark if the registrant in not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   ☐     No   ☒

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit. Yes  ☒   No ☐

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

 

 

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

 

Large accelerated filer   ☐

Accelerated filer   ☐

Non-accelerated filer   ☒

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 aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant was approximately $13,916,252 based on the closing price of $2.89 of the issuer’s common stock, par value $0.001 per share, as reported by the NASDAQ Stock Market on March 31, 2021.

 

On December 15, 2021, there were 10,187,128 shares of the registrant’s common stock outstanding.

 

 

 

DOCUMENTS INCORPORATED BY REFERENCE: NONE

 

2

 

 

Forward Looking Statement

All statements included in this Annual Report on Form 10-K, other than statements or characterizations of historical fact, are forward-looking statements. These forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These statements appear in a number of places in this Form 10-K and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc. These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions, including, but not limited to: the impact of the COVID 19 pandemic and related public health measures that may affect our financial results; business operations and the business of our customers, suppliers and partners; our ability to retain and upgrade current customers, increasing our recurring revenue, our ability to attract new customers, our revenue growth rate; our history of net loss and our ability to achieve or maintain profitability; our liability for any unauthorized access to our data or our users content, including through privacy and data security breaches; any decline in demand for our platform or products; changes in the interoperability of our platform across devices, operating systems, and third party applications that we do no control; competition in our markets; our ability to respond to rapid technological changes, extend our platform, develop new features or products, or gain market acceptance for such new features or products, particularly in light of potential disruptions to the productivity of our employees resulting from remote work; our ability to manage our growth or plan for future growth, and our acquisition of other businesses and the potential of such acquisitions to require significant management attention, disrupt our business, or dilute stockholder value; the volatility of the market price of our common stock, the ability to maintain our listing on the NASDAQ Capital Market; or our ability to maintain an effective system of internal controls as well as other risks described in our filings with the Securities and Exchange Commission. Any of such risks could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement. Bridgeline Digital, Inc. assumes no obligation to, and does not currently intend to, update any such forward-looking statements, except as required by applicable law. We urge readers to review carefully the risk factors described herein and in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

 

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

 

PART I

 

Item 1. Business.

 

Overview

 

Bridgeline Digital is a marketing technology software company that helps companies grow online revenue and share information with customers, partners and employees.

 

Bridgeline’s Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics.

 

Bridgeline’s Unbound platform, combined with its professional services, assists customers in driving lead generation, increasing revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs. 

 

Our Unbound Franchise product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale.

 

OrchestraCMS is the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners, and employees; uniquely combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals, intranets, websites, applications and services.

 

3

 

Celebros Search, is a commerce-oriented site search product that provides for Natural Language Processing with artificial intelligence to present relevant search results based on long-tail keyword searches in seven languages.

 

Woorank SRL (“Woorank”) is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of the site’s technical, on-page and off-page SEO.  Woorank’s clear, actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.

 

Hawk Search, Inc. (“Hawk Search”) is a search, recommendation, and personalization application, built for marketers, merchandisers and developers that enhances, normalizes and enriches a customer's site search and browse experience. Hawk Search leverages advanced artificial intelligence, machine learning and industry leading analyzers to deliver accurate results from federated data sources.

 

All of Bridgeline’s software is available through a cloud-based software as a service (“SaaS”) model, whose flexible architecture provides customers hosting and support. Additionally, Unbound and Hawk Search are available via a traditional perpetual licensing business model, in which the software resides on a dedicated infrastructure in either the customer’s facility, or manage-hosted by Bridgeline via a cloud-based hosted services model.

 

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

 

Locations

 

The Company’s corporate office is located in Woburn, Massachusetts.  The Company maintains regional field offices serving the following geographical locations: Boston, Massachusetts; Woodbury, New York; Chicago, Illinois; Raleigh, North Carolina; Ontario, Canada; and Brussels, Belgium.

 

The Company has four wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd., located in Bangalore, India; Bridgeline Digital Canada, Inc., located in Ontario, Canada; Hawk Search Inc. located in Illinois, United States and Bridgeline Digital Belgium BV, located in Brussels, Belgium.

 

Products and Services

 

Products

 

Bridgeline Unbound Platform

 

Subscription and Perpetual Licenses

 

Bridgeline Unbound is available as either a SaaS or perpetual license and is reported as subscription and perpetual licenses in the accompanying consolidated financial statements.

 

The Bridgeline Unbound platform provides a unified common set of shared software modules that are critical to websites, on-line stores, intranets, extranets, and portals. The Bridgeline Unbound platform empowers companies and developers to create websites, web applications and online stores with advanced business logic, state-of-the-art graphical user interfaces, and improved quality.

 

4

 

The Bridgeline Unbound suite of products includes:

 

Bridgeline Unbound Experience Manager is a suite that includes Bridgeline Content Manager, Bridgeline Unbound Marketing, and Bridgeline Unbound Insights that empowers marketers to easily create personalized customer journeys. Each Unbound implementation incorporates a set of flexible templates and modules to accelerate implementation speed and reduce costs. 

   

Bridgeline Unbound Content Manager is a Digital Experience Platform (“DXP”) that allows non-technical users to create, edit, and publish content via a browser-based interface. The advanced, easy-to-use interface allows businesses to keep content and promotions fresh, whether for a public commercial site or a company intranet. Bridgeline Unbound Content Manager handles the presentation of content based on a sophisticated indexing and security scheme that includes management of front-end access to online applications. The system provides a library to manage permissions, versions and organization of different content types, including multimedia files and images with advanced workflows. 

 

Bridgeline Unbound Commerce is an online B2B and B2C Commerce solution that allows users to sell products and services online to both domestic and international markets. The customizable dashboard provides customers with a real-time overview of the performance of their online stores, including sales trends, demographics, profit margins, inventory levels, inventory alerts, fulfillment deficiencies, average check out times, potential production issues, and delivery times. Bridgeline Unbound Commerce also provides backend access to payment and shipping gateways.

 

●         

Bridgeline Unbound Marketing is a Marketing Automation Platform (“MAP”) that helps marketers drive more qualified traffic to their sites through personalized and highly targeted marketing automation flows. Bridgeline Unbound Marketing's feature set includes end-to-end campaign administration - from drag-and-drop landing pages with our flexible form builder to behavior-based drip email campaigns, add-on dynamic contact and distribution list management, event-based response marketing, wizard-driven email campaign creation, and built-in goal tracking tools to measure campaign effectiveness and ROI.

 

Bridgeline Unbound Insights provides the ability to manage, measure and optimize web properties by recording detailed events and to subsequently mine data within a web application for statistical analysis. Through user-definable web reports, Bridgeline Unbound Insights provides deep insight into areas like visitor usage, content access, age of content, actions taken, event triggers, and reports on both client and server-side events.

 

 

Bridgeline Unbound Social is a social media management solution that empowers customers to easily set up customized watch lists tailored by social network, topic, or author to monitor relevant conversations happening on social media, popular websites and blogs. Customers can also prioritize and engage in conversations across the web and leverage the power of publishing content to department, dealer, franchise or other social media accounts.

 

5

 

Bridgeline Unbound Translate is a translation product that allows companies with web sites in multiple languages to create, approve, and publish content with automated and human translation services.
   

Bridgeline Unbound Franchises is a web content management and eCommerce platform built specifically to support the needs of multi-unit organizations and franchises. Bridgeline Unbound Franchise acts as a control center for a large organization’s distributed websites, enabling local content publishing that is managed through a workflow approval process that gives corporate marketing control of the brand and message.

 

Bridgeline also provides an alternative Digital Experience Platform that is 100% native on Salesforce called OrchestraCMS. This software is available as a SaaS license and is reported as subscription licenses in the accompanying consolidated financial statements.

 

OrchestraCMS by Bridgeline is built 100% native on Salesforce. OrchestraCMS helps Salesforce customers create digital experiences for their customers, partners, and employees - combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals, intranets, websites, applications and services.

 

OrchestraCMS also has a rich set of APIs to enable development of custom solutions, third-party integrations and delivery of digital transformation initiatives on the Salesforce platform, helping customers drive deeper engagement and collaboration, increase efficiency and minimize risk.

 

Bridgeline offers an enterprise site search solution with its Celebros Search product. This software is available as a SaaS license and is reported as subscription licenses in the accompanying consolidated financial statements.

 

Celebros Search by Bridgeline is a commerce-oriented, site search product that provides for Natural Language Processing and incorporates artificial intelligence to present relevant search results based on long-tail keyword searches. Celebros Search is a semantic search and conversion technology that is available in seven languages. Celebros Search has plug-ins into the Bridgeline Unbound Commerce offering in addition to many other third-party Commerce platforms such as Magento, Shopify, Hybris and more.

 

Hawk Search by Bridgeline, is a search, recommendation, and personalization application, built for marketers, merchandisers and developers that enhances, normalizes and enriches a customer's site search and browse experience. Hawk Search leverages advanced artificial intelligence, machine learning and industry leading analyzers to deliver accurate results from federated data sources.

 

 

Woorank by Bridgeline is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of the site’s technical, on-page and off-page SEO.  Woorank’s clear, actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.

 

6

 

Services

 

Revenue from Digital Engagement Services

 

Revenue from all digital engagement services is reported as ‘Digital engagement services’ in the accompanying consolidated financial statements.

 

Digital Engagement Services

 

Digital engagement services address specific customer needs such as digital strategy, web design and web development, usability engineering, information architecture, and SEO for their mission critical website, intranet or online store. Application development engagements are often sold as part of a multiple element arrangement that includes our software products, hosting arrangements (i.e., Managed Service Hosting) that provide for the use of certain hardware and infrastructure through our partnership with Amazon Web Services or professional services retained after completion of the application development.

 

Sales and Marketing

 

Overview

 

Bridgeline employs a direct sales force which focuses its efforts on selling to mid-sized and large companies. These companies are generally categorized in the following vertical markets: financial services, franchise/dealer networks, retail brand names, health services and life sciences, high technology (software and hardware), credit unions and regional banks, as well as associations and foundations.

 

We also pursue strategic alliances and partnerships to enhance the sales and distribution opportunities of Bridgeline intellectual property.

 

7

 

Organic Growth from Existing Customer Base

 

Our business development professionals seek ongoing business opportunities within our existing customer base and within other operating divisions or subsidiaries of our existing customer base.

 

New Customer Acquisition

 

We identify customers within our vertical expertise (financial services, franchise/dealer networks, retail brand names, health services and life sciences, high technology (software and hardware), credit unions and regional banks, as well as associations and foundations). Our business development professionals create an annual territory plan identifying various strategies to engage our target customers.

 

Customer Retention Programs

 

We use digital marketing capabilities when marketing to our customer base. We make available via email and on our website Bridgeline-authored white papers, featured case studies, and other Company-related announcements. We also host educational on-line webinars, face-to-face seminars and training.

 

New Lead Generation Programs

 

We generate targeted leads and new business opportunities by leveraging on-line marketing strategies. We receive leads by maximizing the SEO capabilities of our own website. Through our website, we provide various educational whitepapers and promote upcoming on-line seminars. In addition, we utilize banner advertisements on various independent newsletters and paid search advertisements that are linked to our website. We also participate and exhibit at targeted events.

 

Social Media Programs

 

We market Bridgeline’s upcoming events, white papers, blogs, case studies, digital product tutorials, announcements, and related articles frequently on leading social media platforms such as Twitter, LinkedIn, YouTube and Facebook.

 

Acquisitions

 

On March 1, 2021, the Company, pursuant to a Share Purchase Agreement (the “Woorank Purchase Agreement”), acquired all of the issued and outstanding shares of Woorank, an entity located in Belgium. The total purchase price of $2.4 million consisted of (1) $285 thousand in cash paid at closing or in close proximity to closing, (2) $376 thousand of deferred cash payable in installments post-closing, (3) $352 thousand seller note issued to one of the selling shareholders, and (4) amounts payable to one selling shareholder as consideration for assistance with certain matters related to the acquisition for a period of one year from the closing date of the acquisition. The Woorank Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets and operational goals, to the selling shareholders pursuant to three separate earn-out provisions.  The acquisition date fair value of contingent consideration was $1.3 million. Under certain conditions, up to € 600 thousand (approximately $723 thousand) of the purchase price is payable, at the Company’s discretion, in shares of the Company’s common stock, par value $0.001 per share (“common stock”), at a price per share equal to the greater of (i) the closing price of the Company’s common stock on the date of issuance or (ii) $3.38. On the closing date, the Company issued 29,433 shares of its common stock, with an aggregate issuance date fair value of $99 thousand, for a portion of the purchase price.

 

On May 28, 2021, the Company, pursuant to a Share Purchase Agreement (the “Hawk Purchase Agreement”), acquired all of the issued and outstanding shares of Hawk Search, an Illinois corporation. The total purchase price of $9.9 million consisted of (1) $4.8 million initial cash payment at closing, (2) issuance of 1,500 shares of the Company’s newly designated Series D Preferred Stock with an aggregate issuance date fair value of $930, and (3) $2,000 deferred cash payable on or before December 31, 2021. The Hawk Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets, to the selling shareholders as an additional earn-out, payable no later than December 31, 2022.   The acquisition date fair value of contingent consideration was $2.2 million.

 

There were no acquisitions during the fiscal year ended September 30, 2020.

 

Research and Development

 

We have research and development activities focusing on creating new products and innovations, product enhancements, and funding future market opportunities. Research and development expenses were approximately $2.4 million or 18% of revenues and $1.6 million or 15% of revenues during fiscal 2021 and 2020, respectively.

 

8

 

Employees

 

Human Capital

 

Bridgeline is dedicated to creating the best digital presence for our customers, and our employees are critical to achieving this mission. In order to continue to design innovative experiences and products, and compete and succeed in our highly competitive and rapidly evolving market, we continue to attract and retain experienced and talented employees. As part of these efforts, we strive to offer a competitive compensation and benefits program, foster a community where everyone feels included and empowered to do to their best work.

 

As of September 30, 2021, we had approximately 60 full-time employees. Of our full-time employees, approximately 48 were in the United States and the remaining were in our various international locations. None of our employees are represented by a labor union or covered by a collective bargaining agreement.

 

Compensation and Benefits Program

 

Our compensation program is designed to attract and reward talented individuals who possess the skills necessary to support our business objectives, assist in the achievement of our strategic goals and create long-term value for our stockholders. We provide employees with compensation packages that include base salary, incentive bonuses, and long-term stock option awards tied to the value of our stock price. We believe that a compensation program with both short-term and long-term awards provides fair and competitive compensation and aligns employee and stockholder interests, including by incentivizing business and individual performance (pay for performance), motivating based on long-term company performance and integrating compensation with our business plans. In addition to cash and equity compensation, we also offer employees benefits such as life and health (medical, dental & vision) insurance, paid time off, paid parental leave, and a 401(k) plan.

 

Customers

 

We primarily serve the following vertical markets that we believe have a history of investing in information technology enhancements and initiatives:

 

 

Financial Services

 

Franchise/Dealer Networks

 

Retail Brand Names

 

Health Services and Life Sciences

 

High Technology (software and hardware)

 

Credit Unions and Regional Banks

 

Associations and Foundations

 

For the year ended September 30, 2021, no customer exceeded 10% of the Company’s total revenues. For the year ended September 30, 2020, one customer generated approximately 12% of our revenue.

 

Competition

 

The markets for our products and services, including software for web content management, eCommerce platform software, eMarketing software, web analytics software and digital engagement services are highly competitive, fragmented, and rapidly changing. Barriers to entry in such markets remain relatively low. The markets are significantly affected by new product introductions and other market activities of industry participants. With the introduction of new technologies and market entrants, we expect competition to persist and intensify in the future.

 

We believe we compete adequately with others and we distinguish ourselves from our competitors in a number of ways, including:

 

 

We believe our competitors generally offer their web application software as a single point of entry type product (such as content management only, or commerce only) as compared to the deeply integrated approach provided by Bridgeline’s platforms.

 

 

We believe our competitors can generally only deploy their solutions in either a Cloud/SaaS environment or in a dedicated server environment. Bridgeline’s platform’s architecture is flexible and some are capable of being deployed in either a Cloud/SaaS or dedicated server environment.

 

9

 

 

We believe the majority of our competitors do not provide interactive technology development services that complement their software products. Our ability to develop mission critical websites and online stores on our own deeply integrated platforms provides a quality end-to-end solution that distinguishes us from our competitors.

 

 

We believe the interface of the Bridgeline platforms have been designed for ease of use without substantial technical skills.

 

 

Finally, we believe the Bridgeline platforms offers a competitive price-to-functionality ratio when compared to our competitors.

 

Patents, Trademarks, and Trade Secrets

 

We own a number of trade secrets, licenses and trademarks related to Bridgeline products and services and their loss could have a material adverse effect on the Company. We do not own any patents. For additional information see Risk Factor – If we are unable to protect our proprietary technology and other intellectual property rights, our ability to compete in the marketplace may be substantially reduced.

 

Available Information

 

This Annual Report on Form 10-K, as well as our quarterly reports on Form 10-Q and current reports on Form 8-K, along with any amendments to those reports, are made available upon request, on our website www.bridgeline.com as soon as reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission (“SEC”). Copies of the following are also available through our website on the “About – Investor Relations” page and are available in print to any shareholder who requests it:

 

● Code of Business Ethics

 

● Committee Charters for the following Board Committees:

 

o Nominating and Corporate Governance Committee

o Audit Committee

o Compensation Committee

 
   

The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information regarding the SEC’s Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information and can be found at http://www.sec.gov.

 

Item 1A. Risk Factors

 

This report contains forward-looking statements that involve risks and uncertainties, such as statements of our objectives, expectations and intentions. The cautionary statements made in this report are applicable to all forward-looking statements wherever they appear in this report. Our actual results could differ materially from those discussed herein. In addition to the risks discussed in Managements Discussion and Analysis of Financial Condition and Results of Operations, our business is subject to the risks set forth below.

 

We operate in a rapidly changing environment that involves certain risks and uncertainties, some of which are beyond our control. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results.

 

Risk Factors

 

We have incurred significant net losses since inception and expect to continue to incur operating losses for the foreseeable future. We may never achieve or sustain profitability, which would depress the market price of our common stock and could cause you to lose all or a part of your investment.

 

We have incurred a net loss of $6.7 million for the year ended September 30, 2021, which includes expenses related to the change in the fair value of warrant liabilities. Since our inception in 2000 through fiscal 2019, we have incurred net losses. As of September 30, 2021, we had an accumulated deficit of approximately $82.3 million. Our prior losses have had an adverse effect on our stockholders’ equity and working capital. Because of the numerous risks and uncertainties associated with our business, we are unable to predict the extent of any future losses or when we will become profitable. If we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

 

10

 

We may require additional financing to execute our business plan and further expand our operations.

 

We may require additional funding to further expand our operations. We depend on financing sources, either debt or equity, or a combination thereof, which may not be available to us in a timely basis if at all, or on terms acceptable to us. Further, our ability to obtain financing may be limited by rules of the NASDAQ Capital Market.

 

In July 2021, the Company received approximately $5.8 million in cash relating the issuance of 1,543,779 shares of its common stock upon exercise of Series A Warrants, originally issued in March 2019, with an exercise price of $4.00 per share. 

 

On May 14, 2021, the Company offered and sold, in a registered direct offering, a total of 1,060,000 shares of its common stock at a price of $2.28 per share. On the same day, the Company entered into securities purchase agreements with certain institutional investors in connection with a private placement of 2,700 shares of newly designated Series D Convertible Preferred Stock at a price of $1,000 per share and warrants to purchase up to an aggregate of 592,105 shares of common stock at an exercise price of $2.51 per share. The aggregate proceeds, net of cash paid for certain fees due to placement agents and transaction related expenses, of these two transactions that occurred on the same day was $4.6 million.

 

On February 4, 2021, the Company offered and sold a total of 880,000 shares of its common stock, par value $0.001 per share, to certain institutional and accredited investors at a public offering price of $3.10 per share in a registered direct offering. The aggregate proceeds from this transaction, net of certain fees due to placement agents and transaction expenses, was approximately $2.5 million.

 

In connection with the acquisition of Hawk Search completed during the third quarter of fiscal year 2021, the Company recognized an obligation for a deferred payment representing a portion of the purchase price of $2.0 million payable on or before December 31, 2021, and contingent earn-out payments of $2.2 million (acquisition date fair value) which are payable, no later than December 31, 2022, and may vary in amount in the event of achievement of certain revenue targets and operational goals.

 

In connection with the acquisition of Woorank completed during the second quarter of fiscal year 2021, the Company (1) assumed the outstanding long-term debt obligations of $2.1 million of the acquiree of which $732 thousand is payable over the next twelve months, (2) issued a seller note of $352 thousand to one of the selling shareholders payable over a five-year period, (3) deferred a portion of the purchase price of $376 thousand which is expected to be paid within the next twelve months, and (4) recognized contingent earn-out payments of $1.3 million (acquisition date fair value) which are payable in the event of achievement of certain revenue targets and operational goals.

 

On August 17, 2020, the Company entered into an arrangement with an investment banking firm to sell up to $4,796,090 of shares of the Company’s common stock, $0.001 par value. There are no obligations for the sale or purchase of the Company’s common stock pursuant to this offering. Accordingly, there can be no assurances that the Company or investment banking firm will be successful in selling any portion of the shares available for sale pursuant to this offering. On December 18, 2020, the Company delivered written notice to Roth Capital Partners that it was suspending all offers and sales under the At the Market Offering Agreement (the “Suspension Period”), during which time the Company will not make any sales of Placement Shares. On August 17, 2021, the ATM offering expired unused.

 

If we fail to obtain acceptable funding when needed, we may not have sufficient resources to fund our operations, and this would have a material adverse effect on our business.

 

A reduction in our license renewal rate could reduce our revenue.

 

Our customers have no obligation to renew their subscription licenses, and some customers have elected not to do so. Our license renewal rates may decline or fluctuate as a result of a number of factors, including customer dissatisfaction with our products and services, our failure to update our products to maintain their attractiveness in the market, or constraints or changes in budget priorities faced by our customers. A decline in license renewal rates could cause our revenue to decline, which would have a material adverse effect on our operations.

 

We are dependent upon a small number of major customers, and a failure to renew our licenses with such customers could reduce our revenue.

 

Our customers have no obligation to renew their subscription licenses, and some customers have elected not to do so, including a number of our large customers in the recent two fiscal years. Our license renewal rates may decline or fluctuate as a result of a number of factors, including customer dissatisfaction with our products and services, our failure to update our products to maintain their attractiveness in the market, or constraints or changes in budget priorities faced by our customers. A decline in license renewal rates could cause our revenue to decline, which would have a material adverse effect on our operations.

 

11

 

The length of our sales cycle can fluctuate significantly, which could result in significant fluctuations in license revenues being recognized from quarter to quarter.

 

The decision by a customer to purchase our products often involves the development of a complex implementation plan across a customer’s business. This process often requires a significant commitment of resources both by prospective customers and us. Given the significant investment and commitment of resources required in order to implement our software, it may take several months, or even several quarters, for marketing opportunities to materialize. If a customer’s decision to purchase our products is delayed, or if the installation of our products takes longer than originally anticipated, the date on which we may recognize revenue from these sales would be delayed. Such delays and fluctuations could cause our revenue to be lower than expected in a particular period, and we may not be able to adjust our costs quickly enough to offset such lower revenue, potentially negatively impacting our results of operations.

 

We depend on a third-party cloud platform provider to host our Bridgeline SaaS environment and managed services business and if we were to experience a disruption in service, our business and reputation could suffer.

 

We host our SaaS and managed hosting customers via a third-party, Amazon Web Services. If upon renewal date our third-party provider does not provide commercially reasonable terms, we may be required to transfer our services to a new provider, such as a data center facility, and we may incur significant equipment costs and possible service interruption in connection with doing so. Service interruptions might reduce our revenue, cause us to issue credits or refunds to customers, subject us to potential liability, or harm our renewal rates.

 

If our security measures or those of our third-party cloud computing platform provider are breached and unauthorized access is obtained to a customers data, our services may be perceived as not being secure, and we may incur significant legal and financial exposure and liabilities.

 

Security breaches could expose us to a risk of loss of our customers’ information, litigation and possible liability. While we have security measures in place, they may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise and result in someone obtaining unauthorized access to our IT systems, our customers’ data or our data, including our intellectual property and other confidential business information. Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to implement adequate preventative measures. In addition, our customers may authorize third-party technology providers to access their customer data, and some of our customers may not have adequate security measures in place to protect their data that is stored on our services. Because we do not control our customers or third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the integrity or security of such transmissions or processing. Malicious third parties may also conduct attacks designed to temporarily deny customers access to our services. Any security breach could result in a loss of confidence in the security of our services, damage our reputation, negatively impact our future sales, disrupt our business and lead to legal liability.

 

We rely on encryption and authentication technology from third parties to provide the security and authentication to effectively secure transmission of confidential information, including consumer payment card numbers. Such technology may not be sufficient to protect the transmission of such confidential information or these technologies may have material defects that may compromise the confidentiality or integrity of the transmitted data. Any imposition of liability, particularly liability that is not covered by insurance, or is in excess of insurance coverage, could harm our reputation, business and operating results. We might be required to expend significant capital and other resources to protect further against security breaches or to rectify problems caused by any security breach, which, in turn, could divert funds available for corporate growth and expansion or future acquisitions.

 

Our operating lease commitments may adversely affect our financial condition and cash flows from operations.

 

We have contractual commitments in operating lease arrangements. Our ability to meet our expenses and contractual commitments will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors. We will not be able to control many of these factors, such as economic conditions and governmental regulations. Further, our operations may not generate sufficient cash to enable us to service our working capital needs or contractual obligations resulting from our leases. If we are at any time unable to generate sufficient cash flows from operations, we may be required to obtain additional sources of financing. There can be no assurance that we would be able to successfully renegotiate such terms, or that additional financing could be obtained on terms that are favorable or acceptable to us. Refer to the Risk Factor - We may require additional financing to execute our business plan and further expand our operations, for a description of capital raising activities.

 

We face intense and growing competition, which could result in price reductions, reduced operating margins and loss of market share.

 

We operate in a highly competitive marketplace and generally encounter intense competition to create and maintain demand for our services and to obtain service contracts. If we are unable to successfully compete for new business and license renewals, our revenue growth and operating margins may decline. The market for our platforms and web development services are competitive and rapidly changing. Barriers to entry in such markets are relatively low. With the introduction of new technologies and market entrants, we expect competition to intensify in the future. Some of our principal competitors offer their products at a lower price, which may result in pricing pressures. Such pricing pressures and increased competition generally could result in reduced sales, reduced margins or the failure of our product and service offerings to achieve or maintain more widespread market acceptance.

 

12

 

The web development/services market is highly fragmented with a large number of competitors and potential competitors. Our prominent public company competitors are Big Commerce, Salesforce (Commerce Cloud), Optimizely (Episerver), Hubspot, Sitecore, and Adobe (Experience Manager). We face competition from customers and potential customers who develop their own applications internally. We also face competition from potential competitors that are substantially larger than we are and who have significantly greater financial, technical and marketing resources, and established direct and indirect channels of distribution. As a result, they are able to devote greater resources to the development, promotion and sale of their products than we can.

 

If our products fail to perform properly due to undetected errors or similar problems, our business could suffer, and we could face product liability exposure.

 

We develop and sell complex web engagement software which may contain undetected errors or bugs. Such errors can be detected at any point in a product’s life cycle but are frequently found after introduction of new software or enhancements to existing software. We continually introduce new products and new versions of our products. Despite internal testing and testing by current and potential customers, our current and future products may contain serious defects. If we detect any errors before we ship a product, we might have to delay product shipment for an extended period of time while we address the problem. We might not discover software errors that affect our new or current products or enhancements until after they are deployed, and we may need to provide enhancements to correct such errors. Therefore, it is possible that, despite our testing, errors may occur in our software. These errors could result in the following:

 

 

harm to our reputation;

 

lost sales;

 

delays in commercial release;

 

product liability claims;

 

contractual disputes;

 

negative publicity;

 

delays in or loss of market acceptance of our products;

 

license terminations or renegotiations; or

 

unexpected expenses and diversion of resources to remedy errors.

 

Furthermore, our customers may use our software together with products from other companies. As a result, when problems occur, it might be difficult to identify the source of the problem. Even when our software does not cause these problems, the existence of these errors might cause us to incur significant costs, divert the attention of our technical personnel from our product development efforts, impact our reputation, or cause significant customer relations problems.

 

Technology and customer requirements evolve rapidly in our industry, and if we do not continue to develop new products and enhance our existing products in response to these changes, our business could suffer.

 

We will need to continue to enhance our products in order to maintain our competitive position. We may not be successful in developing and marketing enhancements to our products on a timely basis, and any enhancements we develop may not adequately address the changing needs of the marketplace. Overlaying the risks associated with our existing products and enhancements are ongoing technological developments and rapid changes in customer requirements. Our future success will depend upon our ability to develop and introduce, in a timely manner, new products that take advantage of technological advances and respond to new customer requirements. The development of new products is increasingly complex and uncertain, which increases the risk of delays. We may not be successful in developing new products and incorporating new technology on a timely basis, and any new products may not adequately address the changing needs of the marketplace. Failure to develop new products and product enhancements that meet market needs in a timely manner could have a material adverse effect on our business, financial condition and operating results.

 

If we are unable to protect our proprietary technology and other intellectual property rights, our ability to compete in the marketplace may be substantially reduced.

 

If we are unable to protect our intellectual property, our competitors could use our intellectual property to market products similar to our products, which could decrease demand for such products, thus decreasing our revenue. We rely on a combination of copyright, trademark and trade secret laws, as well as licensing agreements, third-party non-disclosure agreements and other contractual measures to protect our intellectual property rights. These protections may not be adequate to prevent our competitors from copying or reverse engineering our products. Our competitors may independently develop technologies that are substantially similar or superior to our technology. To protect our trade secrets and other proprietary information, we require employees, consultants, advisors and collaborators to enter into confidentiality agreements. These agreements may not provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized use, misappropriation or disclosure of such trade secrets, know-how or other proprietary information. The protective mechanisms we include in our products may not be sufficient to prevent unauthorized copying. Existing copyright laws afford only limited protection for our intellectual property rights and may not protect such rights in the event competitors independently develop similar products. In addition, the laws of some countries in which our products are or may be licensed do not protect our products and intellectual property rights to the same extent as do the laws of the United States.

 

13

 

Policing unauthorized use of our products is difficult and litigation could become necessary in the future to enforce our intellectual property rights. Any litigation could be time consuming and expensive to prosecute or resolve, result in substantial diversion of management attention and resources, and materially harm our business or financial condition.

 

If a third party asserts that we infringe upon its proprietary rights, we could be required to redesign our products, pay significant royalties or enter into license agreements.

 

Claims of infringement are becoming increasingly common as the software industry continues to develop and as related legal protections, including but not limited to patents, are applied to software products. Although we do not believe that our products infringe on the rights of third parties, a third party may assert that our technology or technologies of entities we acquire violates its intellectual property rights. As the number of software products in our markets increases, and the functionality of these products further overlap, we believe that infringement claims will become more common. Any claims against us, regardless of their merit, could:

 

 

be expensive and time consuming to defend;

 

result in negative publicity;

 

force us to stop licensing our products that incorporate the challenged intellectual property;

 

require us to redesign our products;

 

divert management’s attention and our other resources; and/or

 

require us to enter into royalty or licensing agreements in order to obtain the right to use necessary technologies, which may not be available on terms acceptable to us, if at all.

 

We believe that any successful challenge to our use of a trademark or domain name could substantially diminish our ability to conduct business in a particular market or jurisdiction and thus decrease our revenue and result in possible losses to our business.

 

Increasing government regulation could affect our business and may adversely affect our financial condition.

 

We are subject not only to regulations applicable to businesses generally, but also to laws and regulations directly applicable to electronic commerce. In addition, an inability to satisfy the standards of certain voluntary third-party certification bodies that our customers may expect, such as an attestation of compliance with the Payment Card Industry (“PCI”) Data Security Standards, may have an adverse impact on our business and results. Further, there are various statutes, regulations, and rulings relevant to the direct email marketing and text-messaging industries, including the Telephone Consumer Protection Act (“TCPA”), the CAN-SPAM Act and related Federal Communication Commission (“FCC”) orders. The interpretation of many of these statutes, regulations, and rulings is evolving in the courts and administrative agencies and an inability to comply may have an adverse impact on our business and results. If in the future we are unable to achieve or maintain industry-specific certifications or other requirements or standards relevant to our customers, it may harm our business and adversely affect our results.

 

We may also expand our business in countries that have more stringent data protection laws than those in the United States, and such laws may be inconsistent across jurisdictions and are subject to evolving and differing interpretations. In particular, the European Union has passed the General Data Protection Regulation (“GDPR”), which came into force on May 25, 2018. The GDPR includes more stringent operational requirements for entities that receive or process personal data (as compared to U.S. privacy laws and previous EU laws), along with significant penalties for non-compliance, more robust obligations on data processors and data controllers, greater rights for data subjects, and heavier documentation requirements for data protection compliance programs. Additionally, both laws regulating privacy and third-party products purporting to address privacy concerns could negatively affect the functionality of, and demand for, our products and services, thereby reducing our revenue.

 

General Risk Factors

 

Our revenue and quarterly results may fluctuate, which could adversely affect our stock price.

 

We have experienced, and may in the future experience, significant fluctuations in our quarterly operating results that may be caused by many factors. These factors include, among others:

 

 

changes in demand for our products;

 

introduction, enhancement or announcement of products by us or our competitors;

 

market acceptance of our new products;

 

the growth rates of certain market segments in which we compete;

 

size and timing of significant orders;

 

budgeting cycles of customers;

 

mix of products and services sold;

 

changes in the level of operating expenses;

 

completion or announcement of acquisitions; and

 

general economic conditions in regions in which we conduct business.

 

14

 

If we are unable to manage our future growth efficiently, our business, liquidity, revenues and profitability may suffer.

 

We anticipate that continued expansion of our core business will require us to address potential market opportunities. For example, we may need to expand the size of our research and development, sales, corporate finance or operations staff. There can be no assurance that our infrastructure will be sufficiently flexible and adaptable to manage our projected growth or that we will have sufficient resources, human or otherwise, to sustain such growth. If we are unable to adequately address these additional demands on our resources, our profitability and growth might suffer. Also, if we continue to expand our operations, management might not be effective in expanding our physical facilities and our systems, and our procedures or controls might not be adequate to support such expansion. Our inability to manage our growth could harm our business and decrease our revenues.

 

There may be a limited market for our common stock, which may make it more difficult for you to sell your stock and which may reduce the market price of our common stock.

 

The average shares traded per day in fiscal 2021 was approximately 2,839,000 shares per day compared to approximately 484,000 shares for fiscal 2020, and 264,000 for fiscal 2019. Our average trading volume of our common stock can be very sporadic and may impair the ability of holders of our common stock to sell their shares at the time they wish to sell them or at a price that they consider reasonable. A low trading volume may also reduce the fair market value of the shares of our common stock. Accordingly, there can be no assurance that the price of our common stock will reflect our actual value. There can be no assurance that the daily trading volume of our common stock will increase or improve either now or in the future.

 

The market price of our common stock is volatile, which could adversely affect your investment in our common stock.

 

The market price of our common stock is volatile and could fluctuate significantly for many reasons, including, without limitation: as a result of the risk factors listed in this Annual Report on Form 10-K; actual or anticipated fluctuations in our operating results; and general economic and industry conditions. During fiscal 2021, the closing price of our common stock as reported by NASDAQ fluctuated between $1.99 and $12.23. We are required to meet certain financial criteria in order to maintain our listing on the NASDAQ Capital Market. One such requirement is that we maintain a minimum closing bid price of at least $1.00 per share for our common stock. If we fail this requirement then NASDAQ will issue a notice that we are not in compliance and we will need to take corrective actions in order to not be delisted. Such corrective actions could be a reverse stock split.

 

We are dependent upon our management team and the loss of any of these individuals could harm our business.

 

We are dependent on the efforts of our key management personnel. The loss of any of our key management personnel, or our inability to recruit and train additional key management and other personnel in a timely manner, could materially and adversely affect our business, operations and future prospects. We maintain a key man insurance policy covering our Chief Executive Officer.

 

Because competition for highly qualified personnel is intense, we might not be able to attract and retain the employees we need to support our planned growth.

 

We will need to increase the size and maintain the quality of our sales force, software development staff and professional services organization to execute our growth plans. To meet our objectives, we must attract and retain highly qualified personnel with specialized skill sets. Competition for qualified personnel can be intense, and we might not be successful in attracting and retaining them. Our ability to maintain and expand our sales, product development and professional services teams will depend on our ability to recruit, train and retain top quality people with advanced skills who understand sales to, and the specific needs of, our target customers. For these reasons, we have experienced, and we expect to again experience in the future, challenges in hiring and retaining highly skilled employees with appropriate qualifications for our business. In addition to hiring services personnel to meet our needs, we may also engage additional third-party consultants as contractors, which could have a negative impact on our financial results. If we are unable to hire or retain qualified personnel, or if newly hired personnel fail to develop the necessary skills or reach productivity slower than anticipated, it would be more difficult for us to sell our products and services, and we could experience a shortfall in revenue and fail to achieve our planned growth.

 

Future acquisitions may be difficult to integrate into our existing operations, may disrupt our business, dilute stockholder value, divert managements attention, or negatively affect our operating results.

 

We have acquired multiple businesses since our inception in 2000, including two in fiscal 2021. Future acquisitions could involve substantial investment of funds or financings by issuance of debt or equity securities and could result in one-time charges and expenses and have the potential to either dilute the interests of existing shareholders or result in the issuance or assumption of debt. Any such acquisition may not be successful in generating revenues, income or other returns to us, and the resources committed to such activities will not be available to us for other purposes. Moreover, if we are unable to access capital markets on acceptable terms or at all, we may not be able to consummate acquisitions, or may have to do so based upon less than optimal capital structure. Our inability to take advantage of growth opportunities for our business or to address risks associated with acquisitions or investments in businesses may negatively affect our operating results. Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings which, in turn, may have an adverse material effect on the price of our common stock.

 

15

 

We have issued preferred stock with rights senior to our common stock, and may issue additional preferred stock in the future, in order to consummate a merger or other transaction necessary to continue as a going concern.

 

Our Certificate of Incorporation authorizes the issuance of up to 1.0 million shares of preferred stock, par value $0.001 per share, without shareholder approval and on terms established by our board of directors, of which 264,000 shares have been designated as Series A Preferred, 5,000 shares have been designated as Series B Preferred, 11,000 shares have been designated as Series C Preferred and 4,200 shares have been designated as Series D Preferred. We may issue additional shares of preferred stock in order to consummate a financing or other transaction, in lieu of the issuance of common stock. The rights and preferences of any such class or series of preferred stock would be established by our board of directors in its sole discretion and may have dividend, voting, liquidation and other rights and preferences that are senior to the rights of our common stock.

 

We have never paid dividends on our common stock and we do not anticipate paying dividends in the future.

 

We have never paid cash dividends and do not believe that we will pay any cash dividends on our common stock in the future. Since we have no plan to pay cash dividends, an investor would only realize income from their investment in our shares if there is an increase in the market price of our common stock, which is uncertain and unpredictable.

 

We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control. Together these provisions may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities. Provisions in our amended and restated bylaws and Delaware law may have the effect of discouraging lawsuits against our directors and officers.

 

Our amended and restated bylaws require that derivative actions brought in our name, actions against our directors, officers, other employees or stockholders for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated bylaws.

 

This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

 

The COVID-19 pandemic could have a material adverse effect on our ability to operate, results of operations, financial condition, liquidity, and capital investments.

 

In 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our services. The COVID-19 pandemic and similar issues in the future could have a material adverse effect on our ability to operate, results of operations, financial condition, liquidity, and capital investments. Several public health organizations have recommended, and some governments have implemented, certain measures to slow and limit the transmission of the virus, including shelter in place, social distancing ordinances, and business shutdowns. There is considerable uncertainty regarding the extent to which the COVID-19 outbreak will continue to spread, and the extent and duration of governmental and other measures implemented to try to limit the spread of the virus.

 

The pandemic and such preventive measures, or others required or that we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, increased claims or other expenses, potential border closures, and others. These disruptions and challenges may continue for an indefinite period of time and may also materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments. Additionally, the effects of COVID-19 on the global economy could adversely affect our ability to access the capital and other financial markets, and if so, we may need to consider alternative sources of funding for some of our operations and for working capital, which may increase our cost of, as well as adversely impact our access to, capital. These uncertain economic conditions may also result in the inability of our customers to make payments to us, on a timely basis or at all.

 

Although these disruptions may continue to occur, the long-term economic impact and near-term financial impacts of the COVID-19 pandemic, including but not limited to, possible impairment, restructuring, and other charges, cannot be reliably quantified or estimated at this time due to the uncertainty of future developments.

 

16

 

Item 1B. Unresolved Staff Comments

None

 

 

Item 2.   Properties.

The following table lists our office locations, all of which are leased:

 

Geographic Location

 

Address

 

Size

Woburn, Massachusetts

 

100 Sylvan Rd Suite G-700
Woburn, MA 01801

 

775 square feet,

professional office space

Woodbury, New York

 

150 Woodbury Road
Woodbury, NY 11797

 

3,630 square feet,

professional office space

Brussels, Belgium

 

Cours Saint Michel 30B

1040 Brussels, Belgium

 

PO Box

Raleigh, North Carolina

 

4242 Six Forks Rd Suite 1550

North Hills Tower II

Raleigh, NC 27609

 

202 square feet,

professional office space

Vancouver, Canada

 

1055 West Hastings St, Suite 1700

Guinness Tower

Vancouver BC V6E 2E9

 

PO Box

Des Plaines, Illinois

 

2700 S River Rd, Suite 400

Des Plaines, IL 60018

 

2,500 square feet,

professional office space

 

 

Item 3.  Legal Proceedings.

 

From time to time, we are subject to ordinary routine litigation and claims incidental to our business. We are not currently involved in any legal proceedings that we believe are material.

 

Item 4.  Mine Safety Disclosures

 

Not applicable.

 

PART II

 

Item 5.   Market for Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities.

 

We have not declared or paid cash dividends on our common stock and do not plan to pay cash dividends to our common shareholders in the near future. As of December 13, 2021, our common stock was held of record by approximately 12,435 shareholders. Most of the Company’s shares of common stock are held in street name through one or more nominees.

 

Recent Sales of Unregistered Securities; Use of Proceeds From Registered Securities

 

The following summarizes all sales of our unregistered securities during the year ended September 30, 2021 for which more information is disclosed on our Form 8-Ks. 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(a)(2), 4(a)(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.

 

 

(1)

On May 14, 2021, the Company offered and sold, in a registered direct offering, a total of 1,060,000 shares of its common stock at a price of $2.28 per share. On the same day, the Company entered into securities purchase agreements with certain institutional investors in connection with a private placement of 2,700 shares of newly designated Series D Convertible Preferred Stock at a price of $1,000 per share and warrants to purchase up to an aggregate of 592,105 shares of common stock at an exercise price of $2.51 per share. Joseph Gunnar & Company, LLC acted as lead placement agent for the offering and Taglich Brothers, Inc. acted as co-placement agent for the offering. The Company issued to the placement agents common stock purchase warrants to purchase an aggregate of 179,536 shares of common stock. The warrants have a term of five years from the commencement of sales and an exercise price of $2.85 per share. The aggregate proceeds, net of cash paid for certain fees due to placement agents and transaction related expenses, of these two transactions that occurred on the same day was $4.6 million. As of September 30, 2021, all 2,700 shares of Series D Preferred Stock were converted to 1,184,211 common shares.

 

17

 

 

(2)

On May 28, 2021, the Company issued 1,500 shares of the newly designated Series D Convertible Preferred Stock as a component of the purchase price for the acquisition of Hawk Search. As of September 30, 2021, all 1,500 shares of Series D Preferred Stock were converted to 657,895 common shares.

 

Item 6.   Selected Financial Data.

 

Not required.

 

Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.

 

This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors and risks, including the impact of any weakness in the U.S. and international economies on our business, our inability to manage our future growth effectively or profitably, fluctuations in our revenue and quarterly results, our license renewal rate, the impact of competition and our ability to maintain margins or market share, the limited market for our common stock, the ability to maintain our listing on the NASDAQ Capital Market, the volatility of the market price of our common stock, the ability to raise capital, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, the security of our software and response to cyber security risks, our ability to meet our financial obligations and commitments, our dependence on our management team and key personnel, our ability to hire and retain future key personnel, our ability to maintain an effective system of internal controls, or our ability to respond to government regulations. These and other risks are more fully described herein and in our other filings with the Securities and Exchange Commission.

 

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

 

Overview

 

Bridgeline Digital is a marketing technology software company that helps customers grow online revenue and share information with customers, partners, and employees. 

 

Bridgeline’s Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, eMarketing, Social Media management, and Web Analytics.

 

Bridgeline’s Unbound platform, combined with its professional services, assists customers in driving lead generation, increasing revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs.

 

Our Unbound Franchise product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale.

 

OrchestraCMS is the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners, and employees; uniquely combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals, intranets, websites, applications and services.

 

18

 

 

Celebros Search is a commerce-oriented site search product that provides for Natural Language Processing with artificial intelligence to present very relevant search results based on long-tail keyword searches in seven languages.

 

Woorank SRL (“Woorank”) is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of the site’s technical, on-page and off-page SEO. Woorank’s clear, actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.

 

Hawk Search, Inc. (“Hawk Search”) is a search, recommendation, and personalization application, built for marketers, merchandisers and developers that enhances, normalizes and enriches a customer's site search and browse experience. Hawk Search leverages advanced artificial intelligence, machine learning and industry leading analyzers to deliver accurate results from federated data sources.

 

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

 

 

Sales and Marketing

 

Bridgeline employs a direct sales force which focuses its efforts on selling to mid-sized and large companies. These companies are generally categorized in the following vertical markets: financial services, franchise/dealer networks, retail brand names, health services and life sciences, high technology (software and hardware), credit unions and regional banks, as well as associations and foundations. We also pursue strategic alliances and partnerships that will enhance the sales and distribution opportunities of Bridgeline intellectual property.

 

Locations

 

The Company’s corporate office is located in Woburn, Massachusetts.  The Company maintains regional field offices serving the following geographical locations: Boston, Massachusetts; Woodbury, New York; Chicago, Illinois; Raleigh, North Carolina; Ontario, Canada; and Brussels, Belgium.

 

The Company has four wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd., located in Bangalore, India; Bridgeline Digital Canada, Inc., located in Ontario, Canada; and Bridgeline Digital Belgium BV, located in Brussels, Belgium.

 

Acquisitions

 

Bridgeline will continue to evaluate expanding its distribution of Bridgeline Unbound and its interactive development capabilities through acquisitions. We may make additional acquisitions in the foreseeable future. These potential acquisitions will be consistent with our growth strategy by providing Bridgeline with new geographical distribution opportunities, an expanded customer base, an expanded sales force and an expanded developer force. In addition, integrating acquired companies into our existing operations allows us to consolidate the finance, human resources, legal, marketing, and research and development of the acquired businesses with our own internal resources, hence reducing the aggregate of these expenses for the combined businesses and resulting in improved operating results.

 

On March 1, 2021, the Company, pursuant to a Share Purchase Agreement (the “Woorank Purchase Agreement”), acquired all of the issued and outstanding shares of Woorank SRL (“Woorank”), an entity located in Belgium. The total purchase price of approximately $2.4 million consisted of (1) $285 thousand in cash paid at closing or in close proximity to closing, (2) $376 thousand of deferred cash payable in installments post-closing, (3) $352 thousand seller note issued to one of the selling shareholders, and (4) amounts payable to one selling shareholder as consideration for assistance with certain matters related to the acquisition for a period of one year from the closing date of the acquisition. The Woorank Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets and operational goals, to the selling shareholders pursuant to three separate earn-out provisions.  The acquisition date fair value of contingent consideration was $1.3 million. Under certain conditions, up to € 600 thousand (approximately $723 thousand) of the purchase price is payable, at the Company’s discretion, in shares of the Company’s common stock, par value $0.001 per share, at a price per share equal to the greater of (i) the closing price of the Company’s common stock on the date of issuance or (ii) $3.38. On the closing date, the Company issued 29,433 shares of its common stock, with an aggregate issuance date fair value of $99 thousand, for a portion of the purchase price.

 

19

 

On May 28, 2021, the Company, pursuant to a Share Purchase Agreement (the “Hawk Purchase Agreement”), acquired all of the issued and outstanding shares of Hawk Search, Inc., an Illinois corporation (“Hawk Search”). The total purchase price of approximately $9.9 million consisted of (1) $4.8 million initial cash payment at closing, (2) issuance of 1,500 shares of the Company’s newly designated Series D Preferred Stock with an aggregate issuance date fair value of $930 thousand, and (3) $2.0 million deferred cash payable on or before December 31, 2021. The Hawk Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets, to the selling shareholders as an additional earn-out, payable no later than December 31, 2022.   The acquisition date fair value of contingent consideration was approximately $2.2 million.

 

Customer Information

 

We currently have over 150,000 active customers. For the year ended September 30, 2021, no customers exceeded 10% of the Company’s total revenue. For the year ended September 30, 2020, one customer represented approximately 12% of the Company’s total revenue.

 

Summary of Results of Operations

 

Total revenue for the fiscal year ended September 30, 2021 (“fiscal 2021”) increased to $13.3 million from $10.9 million for the fiscal year ended September 30, 2020 (“fiscal 2020”). Loss from operations for fiscal 2021 was $1.2 million, compared with loss from operations of $1.6 million for fiscal 2020. We had a net loss for fiscal 2021 of $6.7 million, which included government grant income related to Paycheck Protection Program (“PPP”) loan forgiveness of $88 thousand, a loss of approximately $5.9 million as a result of the change in fair value of certain warrant liabilities and a $1.2 million discrete benefit in taxes, compared with net income of $326 thousand, which included government grant income related to PPP loan forgiveness of $960 thousand and a gain of approximately $1.0 million as a result of the change in fair value of certain warrant liabilities for fiscal 2020. Basic and diluted net loss per share calculation attributable to common shareholders for fiscal 2021 was ($1.47) compared with the equivalent basic net loss per share attributable to common shareholders of ($0.59) for fiscal 2020.

 

(in thousands)

 

Years Ended
September 30,

                 
                    $    

%

 
   

2021

   

2020

   

Change

   

Change

 

Net Revenue

                               

Digital engagement services

  $ 3,296     $ 3,409     $ (113

)

    (3

)%

% of total net revenue

    25

%

    31

%

               

Subscription and perpetual licenses

    9,963       7,498       2,465       33

%

% of total net revenue

    75

%

    69

%

               

Total net revenue

    13,259       10,907       2,352       22

%

                                 

Cost of revenue

                               

Digital engagement services

    1,743       1,831       (88

)

    (5

)%

% of digital engagement services revenue

    53

%

    54

%

               

Subscription and perpetual licenses

    2,790       2,676       114       4 %

% of subscription and perpetual revenue

    28

%

    36

%

               

Total cost of revenue

    4,533       4,507       26       1

%

Gross profit

    8,726       6,400       2,326       36

%

Gross profit margin

    66

%

    59

%

               
                                 

Operating expenses

                               

Sales and marketing

    2,726       2,614       112       4

%

% of total revenue

    21

%

    24

%

               

General and administrative

    2,359       2,455       (96

)

    (4

)%

% of total revenue%

    18

%

    23

%

               

Research and development

    2,387       1,641       746       45

%

% of total revenue

    18

%

    15

%

               

Depreciation and amortization

    1,202       968       234       24

%

% of total revenue

    9

%

    9

%

               

Restructuring and acquisition related expenses

    1,235       366       869       237

%

% of total revenue

    9

%

    3

%

               

Total operating expenses

    9,909       8,044       1,865       23

%

                                 
                                 

Loss from operations

    (1,183

)

    (1,644

)

    461       (28

)%

Interest expense and other, net

    (883

)

    (7

)

    (876

)

    12,514

%

Government grant income

    88       960       (872

)

    (91

)%

Change in fair value of warrant liabilities

    (5,885

)

    1,028       (6,913

)

    (672

)%

Income (loss) before income taxes

    (7,863

)

    337       (8,200

)

    (2,433

)%

Provision for (benefit from) income taxes

    (1,174

)

    11       (1,185

)

    (10,773

)%

                                 

Net income/(loss)

  $ (6,689

)

  $ 326     $ (7,015

)

    (2,152

)%

                                 

Non-GAAP Measure:

                               

Adjusted EBITDA

  $ 1,839     $ (116

)

  $ 1,955       (1,685

)%

 

20

 

Revenue

 

Our revenue is derived from two sources: (i) digital engagement services and (ii) subscription and perpetual licenses.

 

Digital Engagement Services

 

Digital engagement services revenue is comprised of Bridgeline Unbound implementation and retainer-related services. Total revenue from digital engagement services decreased $113 thousand, or 3%, to $3.3 million in fiscal 2021 from $3.4 million in fiscal 2020. Digital engagement services revenue as a percentage of total revenue decreased to 25% in fiscal 2021 from 31% in fiscal 2020. The decrease compared to the prior period is primarily due to a decrease in new service engagements partially offset by $325 thousand related to revenues from the Company’s fiscal 2021 acquisitions.

 

Subscription and Perpetual Licenses

 

Revenue from subscription (SaaS) and perpetual licenses increased $2.5 million, or 33%, to $10.0 million in fiscal 2021 from $7.5 million in fiscal 2020. The increase compared to the prior period is primarily due to significant multi-year license renewals across our diverse portfolio of Fortune 500 companies and the inclusion of revenue of $2.6 million from the Company’s fiscal 2021 acquisitions. Subscription and perpetual license revenue as a percentage of total revenue increased to 75% in fiscal 2021 from 69% in fiscal 2020. The increase as a percentage of total revenue is attributable to the additional increase in subscription and perpetual licenses during the period compared to digital services revenue.

 

Cost of Revenue

 

Total cost of revenue for fiscal 2021 increased $26 thousand, or 1%, to $4.5 million from $4.5 million. The increase for fiscal 2021 compared to fiscal 2020 is primarily attributable to decreases in headcount and the use of third-party consultants. 

 

Cost of Digital Engagement Services

 

Cost of digital engagement services decreased $88 thousand, or 5%, to $1.7 million in fiscal 2021 from $1.8 million in fiscal 2020. The decrease in cost of digital engagement services in fiscal 2021 compared to fiscal 2020 is primarily due to the allocation of support team and third-party subcontractor costs and additional costs related to the fiscal 2021 business acquisitions. The cost of total digital engagement services as a percentage of total digital engagement services revenue decreased to 53% in fiscal 2021 from 54% in fiscal 2020. The decrease as a percentage of revenues in fiscal 2021 compared to fiscal 2020 is primarily due to the overall decrease in digital engagement services revenue and costs incurred related to fiscal 2021 business acquisitions, as noted above.

 

Cost of Subscription and Perpetual License

 

Cost of subscription and perpetual licenses increased $114 thousand, or 4%, to $2.8 million in fiscal 2021 compared to $2.7 million in fiscal 2020. The increase in cost of subscription and perpetual licenses in fiscal 2021 compared to fiscal 2020 is primarily due to a reduction within our fixed costs to operate our cloud-based hosting model with Amazon Web Services and variable internal support costs. The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue decreased to 28% in fiscal 2021 from 36% in fiscal 2020. The decrease as a percentage of revenues is primarily due to the overall increases in subscription and perpetual license revenue.

 

21

 

Gross Profit

 

Gross profit increased $2.3 million, or 36%, in fiscal 2021 to $8.7 million compared to $6.4 million in fiscal 2020.The gross profit margin increased to 66% for fiscal 2021 compared to 59% for fiscal 2020. The increase in the gross profit margin for fiscal 2021 compared to fiscal 2020 is primarily attributable to decreases in headcount and the use of third-party consultants and an increase in the proportion of license revenue, which is generally associated with higher margins, to digital engagement service revenue.

 

Operating Expenses

 

Sales and Marketing Expenses

 

Sales and marketing expenses increased $112 thousand, or 4%, to $2.7 million in fiscal 2021 from $2.6 million in fiscal 2020. Sales and marketing expense as a percentage of total revenue decreased to 21% in fiscal 2021 compared to 24% in fiscal 2020. The increase compared to the prior period is primarily attributable to the allocation of third-party subcontractor and partner costs and additional costs related to the fiscal 2021 business acquisitions. The decrease as a percentage of revenues is primarily due to the overall increase in revenues.

 

General and Administrative Expenses

 

General and administrative expenses decreased $96 thousand, or 4%, to $2.4 million in fiscal 2021 from $2.5 million in fiscal 2020. General and administrative expense as a percentage of revenue decreased to 18% in fiscal 2021 compared to 23% in fiscal 2020. These net decreases compared to the prior period are primarily attributable to an overall decrease in support headcount and personnel expenses offset by increases associated with business acquisitions in fiscal 2021.

 

Research and Development

 

Research and development expense increased $746 thousand, or 45%, to $2.4 million in fiscal 2021 from $1.6 million in fiscal 2020. Research and development expense as a percentage of total revenue increased to 18% in fiscal 2021 compared to 15% for fiscal 2020. These increases compared to the prior period are primarily attributable to the allocation of support team and third-party subcontractor costs and additional research and development expenses related to the business acquisitions in fiscal 2021.

 

22

 

 

Depreciation and Amortization

 

Depreciation and amortization expense increased by $234 thousand, or 24%, to $1.2 million in fiscal 2021 from $968 thousand in fiscal 2020. Depreciation and amortization as a percentage of total revenue remained consistent at 9% in fiscal 2021 and 2020. The increase compared to the prior period is primarily due to amortization of intangible assets resulting from acquisitions completed during fiscal 2021.

 

Restructuring and Acquisition Related Expenses

 

In connection with the acquisition of businesses completed during the fiscal 2021 second and third quarters, the Company incurred acquisition related legal and investment banking expenses of $1.2 million during fiscal 2021.

 

During fiscal 2020, the Company recognized $366 thousand related to a reduction in the workforce in its U.S. and Canada operations aimed at improving efficiencies by combining functions, certain responsibilities and eliminating redundancies, which resulted in a reduction of 15 positions.

 

Loss from Operations

 

The loss from operations was $1.2 million for fiscal 2021 compared to a loss from operations of $1.6 million for fiscal 2020, a decrease of $461 thousand or 28%.

 

Interest expense and other, net; Government grant income; Change in fair value of warrant liabilities

 

The Company recognized a loss related to the change in fair value of warrant liabilities of $5.9 million, for the year ended September 30, 2021 and a gain related to the change in fair value of warrant liabilities of $1.0 million for the year ended September 30, 2020, respectively.

 

During the years ended September 30, 2021 and 2020, the Company recognized government grant income of $88 thousand and $960 thousand, respectively, associated with proceeds received under the PPP deemed probable to be forgiven based on the actual expenditures from the date proceeds were received by the Company through September 30, 2020. The Company applied for full PPP loan forgiveness on March 29, 2021 and received approval from the U.S. Small Business Administration’s (the “SBA”) in August 2021. The Company classifies unexpended loan proceeds on the accompanying consolidated balance sheets as a current or noncurrent liability based on the contractual maturities of the underlying loan agreement. During the first quarter of fiscal 2021, the remaining loan proceeds were expended on qualified expenses and as a result, the Company recognized $88 thousand of government grant income.

 

During the years ended September 30, 2021 and 2020, interest expense and other net, was $883 thousand and $7 thousand, respectively and included non-recurring non-operating costs.

 

Provision for Income Taxes

 

The provision for (benefit from) income taxes was ($1.2) million for fiscal 2021 and $11 thousand for fiscal 2020, respectively. Income tax expense consists of estimated liability for federal and state income taxes owed by the Company.  Net operating loss (“NOL”) carryforwards are estimated to be sufficient to offset any potential taxable income for all periods presented. A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized. The Company maintains a valuation allowance against its net deferred tax assets. As of September 30, 2021 and 2020, the Company had a full valuation allowance on its net deferred tax assets.

 

The Federal NOL carryforward is approximately $32 million as of September 30, 2021 in which the 20-year carryforward expires on various dates through 2037 and the remaining NOL carryforward is indefinite. Net operating losses incurred after December 31, 2017 carry forward indefinitely. Internal Revenue Code Section 382 places certain limitations on the amount of taxable income that can be offset by NOL carryforwards after a change in control of a loss corporation. Generally, after a change in control, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 limitation. Due to these “change of ownership” provisions, utilization of NOL carryforwards may be subject to an annual limitation on utilization against taxable income in future periods. The Company has not performed a Section 382 analysis. However, if performed, Section 382 may be found to limit potential future utilization of our NOL carryforwards. The Company also has approximately $30 million in state NOLs which expire on various dates through 2039.

 

The acquisition of Hawk Search, Inc. during the third quarter of fiscal 2021 resulted in the recognition of deferred tax liabilities of approximately $1.1 million, related to intangible assets. Prior to the business combination, the Company had a full valuation allowance on its net deferred tax assets. The deferred tax liabilities generated from the business combination netted against the Company’s pre-existing deferred tax assets. Consequently, the impact of such resulted in the release of $1.1 million of the pre-existing valuation allowance against the deferred tax assets and corresponding deferred tax benefit recognized during fiscal 2021.

 

23

 

Adjusted EBITDA

 

We also measure our performance based on a non-GAAP (“Generally Accepted Accounting Principles”) measurement of earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, impairment of goodwill and intangible assets, non-cash warrant related expenses, other income and expenses, change in fair value of derivative instruments, change in fair value of contingent consideration, and restructuring and acquisition related charges (“Adjusted EBITDA”).

 

We believe this non-GAAP financial measure of Adjusted EBITDA is useful to management and investors in evaluating our operating performance for the periods presented and provides a tool for evaluating our ongoing operations.

 

Adjusted EBITDA, however, is not a measure of operating performance under accounting principles generally accepted in the United States of America (“U.S. GAAP”) and should not be considered as an alternative or substitute for U.S. GAAP profitability measures such as (i) income from operations and net income, or (ii) cash flows from operating, investing and financing activities, both as determined in accordance with U.S. GAAP. Adjusted EBITDA as an operating performance measure has material limitations because it excludes the financial statement impact of income taxes, net interest expense, amortization of intangibles, depreciation, goodwill impairment, restructuring charges, acquisition related expenses, loss on disposal of assets, other amortization, changes in fair value of warrant liabilities, changes in fair value of contingent consideration and stock-based compensation, and therefore does not represent an accurate measure of profitability. As a result, Adjusted EBITDA should be evaluated in conjunction with net income (loss) for a complete analysis of our profitability, as net income (loss) includes the financial statement impact of these items and is the most directly comparable U.S. GAAP operating performance measure to Adjusted EBITDA. Our definition of Adjusted EBITDA may also differ from and therefore may not be comparable with similarly titled measures used by other companies, thereby limiting its usefulness as a comparative measure. Because of the limitations that Adjusted EBITDA has as an analytical tool, investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under U.S. GAAP.

 

24

 

 

The following table reconciles net income (loss) (which is the most directly comparable U.S. GAAP operating performance measure) to Adjusted EBITDA:

 

   

Years Ended
September 30,

 
   

2021

   

2020

 

Net income (loss)

  $ (6,689 )   $ 326  

Provision for income tax

    (1,174 )     11  

Interest expense and other, net

    883       7  

Government grant income

    (88

)

    (960

)

Change in fair value of warrants

    5,885       (1,028

)

Amortization of intangible assets

    1,130       891  

Depreciation

    70       61  

Restructuring and acquisition related charges

    1,235       366  

Other amortization

    2       16  

Stock-based compensation

    188       194  

Adjusted EBITDA

  $ 1,442     $ (116

)

 

Adjusted EBITDA increased year over year, which is primarily attributable to increases in revenues due to business acquisitions that occurred in fiscal 2021 and cost control measures.

 

Liquidity and Capital Resources

 

Cash Flows

 

Operating Activities

 

Cash used in operating activities was $989 thousand during fiscal 2021 compared to cash used in operating activities of $498 thousand during fiscal 2020.  The change in cash used in operating activities compared to the prior period was primarily due to an increase in loss from operations partially offset by changes in non-cash items, including changes in fair value of warrant liabilities, and changes to accounts payable and accrued liabilities and deferred revenue.

 

Investing Activities

 

Cash used in investing activities was $4.5 million during fiscal 2021 and we did not have any cash flows from investing activities during fiscal 2020. Cash used in investing activities during fiscal 2021 was primarily related to net cash paid for the purchase of businesses during the second and third fiscal quarters of 2021.

 

Financing Activities

 

Cash provided by financing activities was $13.5 million during fiscal 2021 compared with $1.0 million during fiscal 2020. Cash provided by financing activities was primarily attributable to cash proceeds of approximately $14.3 million related to the issuance of common stock, Series D Convertible Preferred Stock and stock options and warrant exercises partially offset by re-payments of contingent consideration and long-term debt assumed in connection with the acquisition of a business. Cash provided by financing activities for fiscal 2020 was attributable to the proceeds received under the PPP.

 

Capital Resources and Liquidity Outlook

 

In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. We expect our operations in all locations to be affected as the virus continues to proliferate. We have adjusted certain aspects of our operations to protect employees and customers while still meeting customers’ needs for vital technology. We will continue to monitor the situation closely and it is possible that we will implement further measures. In light of the uncertainty as to the severity and duration of the pandemic, the impact on our revenue, profitability and financial position is uncertain at this time.

 

In July 2021, the Company received approximately $5.8 million in cash relating the issuance of 1,543,779 shares of its common stock upon exercise of Series A Warrants, originally issued in March 2019, with an exercise price of $4.00 per share. 

 

On May 14, 2021, the Company offered and sold, in a registered direct offering, a total of 1,060,000 shares of its common stock par value $0.001 per share, at a price of $2.28 per share. On the same day, the Company entered into securities purchase agreements with certain institutional investors in connection with a private placement of 2,700 shares of newly designated Series D Convertible Preferred Stock at a price of $1,000 per share and warrants to purchase up to an aggregate of 592,105 shares of common stock at an exercise price of $2.51 per share. The aggregate proceeds, net of cash paid for certain fees due to placement agents and transaction-related expenses, of these two transactions that occurred on the same day was $4.6 million.

 

25

 

On February 4, 2021, the Company offered and sold a total of 880,000 shares of its common stock, par value $0.001 per share, to certain institutional and accredited investors at a public offering price of $3.10 per share in a registered direct offering. The aggregate proceeds from this transaction, net of certain fees due to placement agents and transaction expenses, was approximately $2.5 million.

 

In connection with an acquisition of a business completed during the 2021 fiscal year third quarter (Hawk Search), the Company recognized an obligation for a deferred payment representing a portion of the purchase price of $2.0 million payable on or before December 31, 2021 and contingent earn-out payments of $2.2 million which are payable, no later than December 31, 2022, in the event of achievement of certain revenue targets and operational goals.

 

In connection with an acquisition of a business completed during the 2021 fiscal year second quarter (Woorank), the Company (1) assumed the outstanding long-term debt obligations of $2.1 million of the acquiree of which $732 thousand is payable over the next twelve months, (2) issued a seller note of $352 thousand to one of the selling shareholders payable over a five-year period, (3) deferred a portion of the purchase price of $376 thousand which is expected to be paid within the next twelve months, and (4) recognized contingent earn-out payments of $1.3 million which are payable in the event of achievement of certain revenue targets and operational goals.

 

In prior years, the Company incurred operating losses and used cash to fund operations, develop new products, and build infrastructure. During its 2020 fiscal year, the Company executed an operating plan that reduced operating expenses and headcount. The Company continued to maintain tight control over discretionary spending for the 2021 fiscal year. The Company believes that future revenues and cash flows will supplement its working capital and it has an appropriate cost structure to support future revenue growth.

 

On April 17, 2020, the Company entered into a loan with an aggregate principal amount of $1,047,500, pursuant to the PPP. The Company performed initial calculations for PPP loan forgiveness according to the terms and conditions of the SBA Loan Forgiveness Application (Revised June 16, 2020) and, based on such calculations, expected that the PPP loan will be forgiven in full based on usage of related proceeds over a period less than 24 weeks. In addition, the Company determined it was probable the Company will meet all the conditions of the PPP loan forgiveness. The Company applied for full PPP loan forgiveness on March 29, 2021, and received approval from the SBA in August 2021. The Company classifies unexpended loan proceeds on the accompanying consolidated balance sheets as a current or noncurrent liability based on the contractual maturities of the underlying loan agreement. During the first quarter of fiscal 2021, the remaining loan proceeds were expended on qualified expenses and as a result, the Company recognized $88 thousand as government grant income.

 

Off-Balance Sheet Arrangements

 

At this time, the Company does not have any off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons, other than our operating leases.

 

Contractual Obligations

 

We lease all of our office locations. The gross obligations for operating leases and subleases is $550 thousand and $236 thousand, respectively, of which $185 thousand and $101 thousand is expected in the next twelve months.   Debt payments on the Company’s various debt obligations total $1.9 million of which $732 thousand is expected to be paid in the next twelve months. Contingent consideration payments total $3.4 million of which $1.2 million is expected to be paid in the next twelve months. Deferred purchase price payments total $2.4 million of which $2.2 million is expected to be paid in the next twelve months.

 

26

 

 

Critical Accounting Policies and Estimates

 

These critical accounting policies and estimates by our management should be read in conjunction with Note 2, Summary of Significant Accounting Policies to the Consolidated Financial Statements that were prepared in accordance with U.S. GAAP.

 

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

 

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

 

 

Revenue recognition;

   

 

 

Allowance for doubtful accounts;

   

 

 

Accounting for goodwill and other intangible assets;

   

 

 

Accounting for business combinations;

   

 

 

Accounting for Payroll Protection Program; and

   

 

 

Accounting for stock-based compensation.

 

Revenue Recognition

 

Overview

 

The Company derives its revenue from two sources: (i) Software Licenses, which are comprised of subscription fees (“SaaS”), perpetual software licenses, and maintenance for post-customer support (“PCS”) on perpetual licenses, and (ii) Digital Engagement Services, which are professional services to implement our products such as web development, digital strategy, information architecture and usability engineering search. Customers who license the software on a subscription basis, which can be described as “Software as a Service” or “SaaS”, do not take possession of the software.

 

Revenue is recognized when control of these services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. If the consideration promised in a contract includes a variable amount, for example, overage fees, contingent fees or service level penalties, the Company includes an estimate of the amount it expects to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company’s subscription service arrangements are non-cancelable and do not contain refund-type provisions. Revenue is reported net of applicable sales and use tax.

 

The Company recognizes revenue from contracts with customers using a five-step model, which is described below:

 

 

1.         

Identify the customer contract;

 

2.         

Identify performance obligations that are distinct;

 

3.         

Determine the transaction price;

 

4.         

Allocate the transaction price to the distinct performance obligations; and

 

5.         

Recognize revenue as the performance obligations are satisfied.

 

Identify the customer contract

 

A customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms are identified, the contract has commercial substance and collectability and consideration is probable.

 

27

 

 

Identify performance obligations that are distinct

 

A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

 

Determine the transaction price

 

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are collected on behalf of government agencies.

 

Allocate the transaction price to distinct performance obligations

 

The transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the customer. The Company determines the SSP of its goods and services based upon the historical average sales prices for each type of software license and professional services sold.

 

Recognize revenue as the performance obligations are satisfied

 

Revenue is recognized when or as control of the promised goods or services is transferred to customers. Revenue from SaaS licenses is recognized ratably over the subscription period beginning on the date the license is made available to customers. Most subscription contracts are three-year terms. Customers who license the software on a perpetual basis receive rights to use the software for an indefinite time period and an option to purchase post-customer support (“PCS”). PCS revenue is recognized ratably on a straight-line basis over the period of performance and the perpetual license is recognized upon delivery. The Company also offers hosting services for those customers who purchase a perpetual license and do not want to run the software in their environment. Revenue from hosting is recognized ratably over the service period, ranging from one to three-year terms. The Company recognizes revenue from professional services as the services are provided.

 

Customer Payment Terms

 

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

 

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

 

Warranty

 

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

 

Allowance for Doubtful Accounts

 

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

 

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

 

28

 

 

Accounting for Goodwill and Intangible Assets

 

Goodwill is tested for impairment annually during the fourth quarter of every fiscal year and more frequently if events and circumstances indicate that the asset might be impaired. The purpose of an impairment test is to identify any potential impairment by comparing the carrying value of a reporting unit including goodwill to its fair value. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  

 

Factors that could lead to a future impairment include material uncertainties such as operational, economic and competitive factors specific to the key assumptions underlying the fair value estimate we use in our impairment testing that have a reasonable possibility of changing. This could include a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and a decline in our market value as a result of a significant decline in our stock price.

 

Accounting for Business Combinations

 

The Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. The Company bases the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estimated growth rates, cash flows and discounts rates and estimated useful lives could result in different purchase price allocations and amortization expense in current and future periods. Transaction costs associated with these acquisitions are expensed as incurred through general and administrative expense on the consolidated statements of operations. In those circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date. The Company re-measures this liability each reporting period and records changes in the fair value through income (loss) before income taxes within the consolidated statements of operations.

 

Accounting for Payroll Protection Program

 

U.S. GAAP does not contain authoritative accounting standards for forgivable loans provided by governmental entities to a for-profit entity. Absent authoritative accounting standards, interpretative guidance issued and commonly applied by financial statement preparers allows for the selection of accounting policies amongst acceptable alternatives. Based on the facts and circumstances, the Company determined it most appropriate to account for the PPP loan proceeds as an in-substance government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance. Under the provisions of IAS 20, “a forgivable loan from a government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.” IAS 20 does not define “reasonable assurance”; however, based on certain interpretations, it is analogous to “probable” as defined in Financial Accounting Standards Board (“FASB”) ASC 450-20-20 under U.S. GAAP, which is the definition the Company has applied to its expectations of PPP loan forgiveness. Under IAS 20, government grants are recognized in earnings on a systematic basis over the periods in which the Company recognizes costs for which the grant is intended to compensate (i.e. qualified expenses). Further, IAS 20 permits for the recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses. The Company has elected to recognize government grant income separately within other income to present a clearer distinction in its consolidated financial statements between its operating income and the amount of net income resulting from the PPP loan and subsequent expected forgiveness. The Company believes this presentation method promotes greater comparability amongst all periods presented.

 

Accounting for Stock-Based Compensation

 

At September 30, 2021, we maintained two stock-based compensation plans, one of which has expired but still contains vested and unvested stock options. The two plans are more fully described in Note 12 of these consolidated financial statements.

 

The Company accounts for stock-based compensation awards in accordance with ASC 718, Compensation-Stock Topic of the Codification.  Share-based payments (to the extent they are compensatory) are recognized in our consolidated statements of operations based on their fair values. 

 

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

 

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

 

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

 

29

 

 

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

 

Not required. 

 

 

30

 

Item 8.   Financial Statements and Supplementary Data.

 

Report of Independent Registered Public Accounting Firm

 

To the Shareholders and Board of Directors

Bridgeline Digital, Inc.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheet of Bridgeline Digital, Inc. and Subsidiaries (the “Company”) as of September 30, 2021, and the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity and cash flows for the year ended September 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021, and the results of its operations and its cash flows for the year ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

31

 

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

 

Business Combinations Acquisitions of Woorank SRL and Hawk Search, Inc.

 

As described in Note 16 to the consolidated financial statements, the Company completed acquisitions of (1) Woorank SRL on March 1, 2021, for purchase consideration of approximately $2.4 million and (2) Hawk Search, Inc. on May 28, 2021 for purchase consideration of approximately $9.9 million. The purchase price allocations resulted in the Company recording $6.3 million of intangible assets and $3.5 million of contingent consideration payable, estimated at the acquisition date.

 

The Company accounted for both acquisitions under the acquisition method of accounting for business combinations. Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date. The fair value of intangible assets was determined based on valuations using a discounted cash flow model, which requires significant estimates and assumptions, including estimating future revenues and costs. Management, with the assistance of an independent valuation expert, estimated the fair value of the intangible assets using the multi-period excess earnings method (customer relationships) and the relief from royalty methodology (tradename and developed technology). The fair value of contingent consideration payable was determined based on the probability of achievement of the revenue targets and operational goals, which requires significant estimates and assumptions, including estimating future revenues. Management, with the assistance of an independent valuation expert, estimated the fair value of the contingent consideration payable using the Monte Carlo simulation model.

 

Given the fair value determination of the intangible assets and contingent consideration payable requires management to make significant estimates and assumptions related to the forecasts of future cash flows and the selection of the discount rate, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included:

 

 

reviewing the purchase and sale agreements and evaluating the transactions to determine that  both acquisitions met the requirements of a business combination, and our analysis of the initial allocation of the purchase price accounting as well as the determination of the balance sheet classification of each component of the transaction.

 

obtaining  third party valuation reports to gain an understanding of the process and key assumptions for estimating the fair value of intangible assets and contingent consideration payable. We utilized our valuation specialists to evaluate the adequacy and appropriateness of the methodologies and assumptions used in developing the forecast and the discount rates used.

 

agreeing the underlying data used as part of the valuations to  source documents, including the purchase and sale agreements, and assessing the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results.

 

performing independent shadow calculations to test the reasonableness and mathematical accuracy of the fair values concluded on by the Company.

 

evaluating whether the estimated future cash flows were consistent with projections used by the Company, as well as evidence obtained in other areas of the audit.

 

Furthermore, we assessed the appropriateness of the disclosures in the consolidated financial statements.

 

Derivative Instruments

 

As described in Note 12 to the consolidated financial statements, in May 2021, the Company offered and sold, in a registered direct offering, shares of its common stock and entered into a private placement which consisted of Series D Convertible Preferred Stock and warrants to purchase common stock upon conversion of the Series D Preferred Stock for aggregate gross proceeds of $5.1 million. The Company allocated the proceeds between equity instruments and derivative liabilities using the relative fair value approach. As described in Note 5 to the consolidated financial statements, the Company classifies warrants on its Series A, C and D convertible preferred stock as liabilities that are subject to re-measurement on a quarterly basis. Management, with the assistance of an independent valuation expert, estimates the fair value of the warrant liabilities using Monte Carlo simulation and Black Scholes models, which take into consideration the volatilities of the Company and comparable public companies.

 

32

 

Given the determination of the fair values of equity instruments and derivative liabilities require management to make significant estimates and assumptions regarding the relevant valuation calculations, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve professionals in our firm having the expertise in the valuation of financial instruments.

 

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included:

 

 

evaluating management’s assessment and the Company’s accounting analysis as to the classification of equity instruments and derivative liabilities, including the determination of the balance sheet classification of each component of the transaction and identification of any derivatives included in the arrangements.

 

obtaining third party valuation reports to gain an understanding of management’s key assumptions in determining the fair value of warrant liabilities and assessing the source information underlying the valuation assumptions.

 

with the assistance of our valuation specialists, evaluating the methodologies and assumptions used to assess the Company’s fair value of equity instruments and derivative liabilities, including the selection of the valuation methodology and other significant assumptions used by the Company.

 

performing independent shadow calculations to test the reasonableness of the fair values for warrant liabilities concluded on by the Company’s specialist. Such calculations assessed the mathematical accuracy of the valuation model and assessed the source information underlying the valuation assumptions used in the model to determine the fair value for the Series D issuance at inception and liability classified warrants on a quarterly basis.

 

assess the appropriateness of the disclosures in the consolidated financial statements.

 

/s/ PKF O'Connor Davies, LLP

PKF O'Connor Davies, LLP

 

New York, New York

December 20, 2021

 

We have served as the Company’s auditor since February 27, 2021.

 

33

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Shareholders and Board of Directors of

Bridgeline Digital, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheet of Bridgeline Digital, Inc. (the “Company”) as of September 30, 2020, the related consolidated statements of operations, comprehensive income/(loss), stockholders’ equity and cash flows for the year ended September 30, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020, and the results of its operations and its cash flows for the year ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

/s/ Marcum LLP

Marcum LLP

 

We have served as the Company’s auditor since 2006 (such date takes into account the acquisition of a portion of UHY LLP by Marcum LLP in April 2010) to 2021.

 

Boston, MA

December 23, 2020

 

 

34

 

 

BRIDGELINE DIGITAL, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)

 

  

As of September 30,

 
  

2021

  

2020

 

ASSETS

        

Current assets:

        

Cash and cash equivalents

 $8,852  $861 

Accounts receivable, net

  1,370   665 

Prepaid expenses

  179   268 

Other current assets

  17   111 

Total current assets

  10,418   1,905 

Property and equipment, net

  252   238 

Operating lease assets

  481   294 

Intangible assets, net

  7,755   2,617 

Goodwill

  15,985   5,557 

Other assets

  76   49 

Total assets

 $34,967  $10,660 
         

LIABILITIES AND STOCKHOLDERS EQUITY

        

Current liabilities:

        

Current portion of long-term debt

 $732  $- 

Current portion of operating lease liabilities

  161   96 

Accounts payable

  974   1,311 

Accrued liabilities

  908   599 

Purchase price and contingent consideration payable, current portion (Note 16)

  3,463   - 

Paycheck Protection Program Liability (Note 10)

  -   88 

Deferred revenue

  2,097   1,511 

Total current liabilities

  8,335   3,605 
         

Long-term debt, net of current portion (Note 10)

  1,197   - 

Operating lease liabilities, net of current portion

  320   198 

Purchase price and contingent consideration payable, net of current portion (Note 16)

  2,360   - 

Warrant liabilities

  4,404   2,486 

Other long-term liabilities

  774   15 

Total liabilities

  17,390   6,304 
         

Commitments and contingencies (Note 13)

        
         

Stockholders’ equity:

        

Preferred stock - $0.001 par value; 1,000,000 shares authorized;

        
Series A Convertible Preferred stock: 264,000 shares authorized; no shares issued and outstanding at September 30, 2021 and 2020  -   - 

Series C Convertible Preferred stock: 11,000 shares authorized; 350 shares issued and outstanding at September 30, 2021 and 2020

  -   - 

Series D Convertible Preferred stock: 4,200 shares authorized; no shares issued and outstanding at September 30, 2021 and 2020

  -   - 

Common stock - $0.001 par value; 50,000,000 shares authorized; 10,187,128 shares at September 30, 2021 and 4,420,170 shares at September 30, 2020, issued and outstanding

  10   4 

Additional paid-in capital

  100,207   78,316 

Accumulated deficit

  (82,287

)

  (73,583

)

Accumulated other comprehensive loss

  (353

)

  (381

)

Total stockholders’ equity

  17,577   4,356 

Total liabilities and stockholders’ equity

 $34,967  $10,660 

 

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

 

35

 

 

BRIDGELINE DIGITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except share and per share data)

 

   

Years Ended September 30,

 
   

2021

   

2020

 

Net revenue:

               

Digital engagement services

  $ 3,296     $ 3,409  

Subscription and perpetual licenses

    9,963       7,498  

Total net revenue

    13,259       10,907  
                 

Cost of revenue:

               

Digital engagement services

    1,743       1,831  

Subscription and perpetual licenses

    2,790       2,676  

Total cost of revenue

    4,533       4,507  

Gross profit

    8,726       6,400  
                 

Operating expenses:

               

Sales and marketing

    2,726       2,614  

General and administrative

    2,359       2,455  

Research and development

    2,387       1,641  

Depreciation and amortization

    1,202       968  

Restructuring and acquisition related expenses

    1,235       366  

Total operating expenses

    9,909       8,044  
                 

Loss from operations

    (1,183

)

    (1,644

)

Interest expense and other, net

    (883

)

    (7

)

Government grant income (Note 10)

    88       960  

Change in fair value of warrant liabilities

    (5,885

)

    1,028  

Income (loss) before income taxes

    (7,863

)

    337  

Provision for (benefit from) income taxes

    (1,174

)

    11  
                 

Net income (loss)

    (6,689

)

    326  

Dividends on Series A convertible preferred stock

    -       (106

)

Deemed dividend on convertible preferred stock (Notes 12 and 16)

    (2,015

)

    (2,314

)

Net loss attributable to common shareholders

  $ (8,704

)

  $ (2,094

)

                 

Net loss per share attributable to common shareholders:

               

Basic

  $ (1.47

)

  $ (0.59

)

Diluted

  $ (1.47

)

  $ (0.59

)

Number of weighted average shares outstanding:

               

Basic

    5,935,981       3,555,032  

Diluted

    5,935,981       3,555,032  

 

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

 

36

 

 

BRIDGELINE DIGITAL, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(in thousands)

 

   

Years Ended September 30,

 
   

2021

   

2020

 

Net income (loss)

  $ (6,689

)

  $ 326  

Other comprehensive income (loss):

               

Net change in foreign currency translation adjustment

    28       (43

)

Comprehensive income (loss)

    (6,661

)

    283  

Dividends on Series A convertible preferred stock

    -       (106

)

Deemed dividend on convertible preferred stock (Notes 12 and 16)

    (2,015

)

    (2,314

)

Comprehensive loss attributable to common shareholders

  $ (8,676

)

  $ (2,137

)

 

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

 

37

 

 

BRIDGELINE DIGITAL, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(in thousands, except share data)

 

                          

Accumulated

     
  

Preferred Stock

  

Common Stock

  

Additional

      

Other

  

Total

 
                  

Paid-in

  

Accumulated

  

Comprehensive

  

Stockholders

 
  

Shares

  

Amount

  

Shares

  

Amount

  

Capital

  

Deficit

  

Loss

  

Equity

 

Balance at October 1, 2019

  262,751  $-   2,798,475  $3  $75,620  $(71,489

)

 $(338

)

 $3,796 

Dividends on Series A convertible preferred stock

                     (106

)

      (106

)

Deemed dividend on amendment of Series A convertible preferred stock (Note 12)

                 2,314   (2,314

)

      - 

Series A convertible preferred stock dividend liabilities settled in shares

         112,960   1   188           189 

Series A convertible preferred stock conversion to common

  (262,310

)

     1,498,623                   - 

Series C convertible preferred stock conversion to common

  (91

)

     10,112                   - 

Stock-based compensation expense

                 194           194 

Net income

                     326       326 

Foreign currency translation

                         (43

)

  (43

)

Balance at September 30, 2020

  350  $-   4,420,170  $4  $78,316  $(73,583

)

 $(381

)

 $4,356 

Stock-based compensation expense

                 607           607 

Deemed dividend on beneficial conversion feature (Notes 12 and 16)

                 2,015   (2,015)      - 

Issuance of common stock – stock options exercised

         27,333       39           39 

Issuance of common stock – warrants exercised

         1,928,086   3   12,371           12,374 

Issuance of common stock, net of offering costs

         1,940,000   2   4,453           4,455 

Issuance of stock in connection with acquisition of a business

         29,433       99           99 

Issuance of Series D convertible preferred stock, net of offering costs

  2,700              1,377           1,377 

Issuance of Series D convertible preferred in connection with acquisition of business

  1,500              930           930 

Series D convertible preferred stock conversion to common

  (4,200

)

     1,842,106   1               1 

Net loss

                      (6,689)      (6,689)

Foreign currency translation

                      28   28 

Balance at September 30, 2021

  350  $-   10,187,128  $10  $100,207  $(82,287

)

 $(353

)

 $17,577 

 

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

 

38

 

 

BRIDGELINE DIGITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS 

(in thousands)

 

   

Years Ended
September 30,

 
   

2021

   

2020

 

Cash flows from operating activities:

               

Net income (loss)

  $ (6,689

)

  $ 326  

Adjustments to reconcile net income (loss) to net cash used in operating activities:

               

Amortization of intangible assets

    1,130       891  

Depreciation

    70       61  

Other amortization

    2       16  

Change in fair value of contingent consideration

    170       -  

Change in fair value of warrant liabilities

    5,885       (1,028 )

Stock-based compensation

    607       194  

Deferred income taxes

    (1,196

)

    -  

Government grant income (Note 10)

    (88

)

    (960

)

Changes in operating assets and liabilities

               

Accounts receivable

    36       630  

Prepaid expenses

    149       89  

Other current assets and other assets

    99       (21

)

Accounts payable and accrued liabilities

    (920

)

    (585

)

Deferred revenue

    (613

)

    (75

)

Other liabilities

    369       (36

)

Total adjustments

    5,700       (824

)

Net cash used in operating activities

    (989

)

    (498

)

Cash flows from investing activities:

               

Software development capitalization costs

    (30

)

    -  

Purchase of property and equipment

    (79

)

    -  

Purchase of business, net of cash acquired

    (4,408 )     -  

Net cash used in investing activities

    (4,517 )     -  

Cash flows from financing activities:

               

Proceeds from issuance of common stock, net of issuance costs

    4,626       -  

Proceeds from issuance of Series D convertible preferred stock, net of issuance costs

    2,526       -  

Proceeds from stock option and warrant exercises

    7,127       -  

Proceeds received under Paycheck Protection Program

    -       1,048  

Payments of contingent consideration and deferred cash payable

    (203

)

    -  

Payments of long-term debt

    (603

)

    -  

Net cash provided by financing activities

    13,473       1,048  

Effect of exchange rate changes on cash and cash equivalents

    24       15  

Net increase in cash and cash equivalents

    7,991       565  

Cash and cash equivalents at beginning of period

    861       296  

Cash and cash equivalents at end of period

  $ 8,852     $ 861  

Supplemental disclosures of cash flow information:

               

Cash paid for:

               

Interest

  $ 7     $ -  

Income taxes

  $ -     $ 3  

Non-cash investing and financing activities:

               

Consideration paid in stock in connection with acquisition of businesses

  $ 1,029     $ -  

Offering costs settled by issuance of liability classified warrants

  $ 289     $ -  

Dividends accrued or settled in shares on convertible preferred stock

  $ -     $ 189  

Deemed dividend on convertible preferred stock (Notes 12 and 16)

  $ 2,015     $ 2,314  

 

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

 

39

 

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 is a marketing technology software company that helps companies grow online revenue and share information with customers, partners and employees.

 

Bridgeline’s Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, eMarketing, Social Media management, Web Analytics.

 

Bridgeline’s Unbound platform, combined with its professional services, assists customers in driving lead generation, increasing revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs. 

 

Our Unbound Franchise product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale.

 

OrchestraCMS is the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners, and employees; uniquely combining content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals, intranets, websites, applications and services.

 

Celebros Search is a commerce-oriented site search product that provides for Natural Language Processing with artificial intelligence to present relevant search results based on long-tail keyword searches in seven languages.

 

Woorank SRL (“Woorank”) is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of the site’s technical, on-page and off-page SEO.  Woorank’s clear, actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.

 

Hawk Search, Inc. (“Hawk Search”) is a search, recommendation, and personalization application, built for marketers, merchandisers and developers that enhances, normalizes and enriches a customer's site search and browse experience. Hawk Search leverages advanced artificial intelligence, machine learning and industry leading analyzers to deliver accurate results from federated data sources.

 

All of Bridgeline’s software is available through a cloud-based software as a service (“SaaS”) model, whose flexible architecture provides customers with hosting and support.  Additionally, Unbound and Hawk Search is available via a traditional perpetual licensing business model, in which the software resides on a dedicated infrastructure in either the customer’s facility, or manage-hosted by Bridgeline via a cloud-based hosted services model.

 

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

 

Locations

 

The Company’s corporate office is located in Woburn, Massachusetts.  The Company maintains regional field offices serving the following geographical locations: Boston, Massachusetts; Woodbury, New York; Chicago, Illinois; Raleigh, North Carolina; Ontario, Canada; and Brussels, Belgium.

 

The Company has four wholly-owned subsidiaries: Bridgeline Digital Canada, Inc., located in Ontario, Canada; Hawk Search Inc. located in Illinois, United States and Bridgeline Digital Belgium BV, located in Brussels, Belgium.

 

40

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

2.   Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

The Company’s fiscal year end is September 30th. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant inter-company balances and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of consolidated financial statements in conformity with United States generally accepted accounting principles (“GAAP”) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported periods. The most significant estimates included in these consolidated financial statements are the valuation of accounts receivable, including the adequacy of the allowance for doubtful accounts, recognition and measurement of deferred revenues, fair value of contingent consideration and fair value measurements related to the valuation of warrants. The complexity of the estimation process and factors relating to assumptions, risks and uncertainties inherent with the use of the estimates affect the amount of revenue and related expenses reported in the Company’s consolidated financial statements. Internal and external factors can affect the Company’s estimates. Actual results could differ from these estimates under different assumptions or conditions.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid instruments with original maturity of three months or less from the date of purchase to be cash equivalents.

 

The Company’s cash is maintained with what management believes to be high-credit quality financial institutions.  At times, deposits held at these banks may exceed the insured limits.  Management believes that the financial institutions that hold the Company’s deposits are financially sound and have minimal credit risk. Risks associated with cash and cash equivalents are mitigated by the Company’s investment policy, which limits the Company’s investing of excess cash into only money market mutual funds.

 

Concentration of Credit Risk, Significant Customers, and Off-Balance Sheet Risk

 

Financial instruments which potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, and accounts receivable.

 

The Company extends credit to customers on an unsecured basis in the normal course of business.  Management performs ongoing credit evaluations of its customers’ financial condition and limits the amount of credit when deemed necessary.  Accounts receivable are carried at original invoice amount, less an estimate for doubtful accounts based on a review of all outstanding amounts.

 

The Company has no off-balance sheets risks such as foreign exchange contracts, interest rate swaps, option contracts or other foreign hedging agreements.

 

Allowance for Doubtful Accounts

 

The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. For all customers, the Company recognizes allowances for doubtful accounts based on the length of time that the receivables are past due, current business environment and its historical experience. If the financial condition of the Company’s customers were to deteriorate, resulting in impairment of their ability to make payments, additional allowances may be required.

 

Revenue Recognition

 

The Company derives its revenue from two sources: (i) Software Licenses, which are comprised of subscription fees (“SaaS”), perpetual software licenses, and maintenance for post-customer support (“PCS”) on perpetual licenses, and (ii) Digital Engagement Services, which are professional services to implement our products such as web development, digital strategy, information architecture and usability engineering search. Customers who license the software on a subscription basis, which can be described as “Software as a Service” or “SaaS,” do not take possession of the software.

 

41

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

Revenue is recognized when control of these services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. If the consideration promised in a contract includes a variable amount, for example, overage fees, contingent fees or service level penalties, the Company includes an estimate of the amount it expects to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company’s subscription service arrangements are non-cancelable and do not contain refund-type provisions. Revenue is reported net of applicable sales and use tax.

 

The Company recognizes revenue from contracts with customers using a five-step model, which is described below:

 

 

1.

Identify the customer contract;

 

2.

Identify performance obligations that are distinct;

 

3.

Determine the transaction price;

 

4.

Allocate the transaction price to the distinct performance obligations; and

 

5.

Recognize revenue as the performance obligations are satisfied.

 

Identify the customer contract

 

A customer contract is generally identified when there is approval and commitment from both the Company and its customer, the rights have been identified, payment terms are identified, the contract has commercial substance and collectability and consideration is probable.

 

Identify performance obligations that are distinct

 

A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services. A good or service that is promised to a customer is distinct if the customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer, and the Company’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract.

 

Determine the transaction price

 

The transaction price is the amount of consideration to which the Company expects to be entitled in exchange for transferring goods or services to a customer, excluding sales taxes that are collected on behalf of government agencies.

 

Allocate the transaction price to distinct performance obligations

 

The transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the customer. The Company determines the SSP of its goods and services based upon the historical average sales prices for each type of software license and professional services sold.

 

Recognize revenue as the performance obligations are satisfied

 

Revenue is recognized when or as control of the promised goods or services is transferred to customers. Revenue from SaaS licenses is recognized ratably over the subscription period beginning on the date the license is made available to customers. Most subscription contracts are three-year terms. Customers who license the software on a perpetual basis receive rights to use the software for an indefinite time period and an option to purchase post-customer support (“PCS”). PCS revenue is recognized ratably on a straight-line basis over the period of performance and the perpetual license is recognized upon delivery. The Company also offers hosting services for those customers who purchase a perpetual license and do not want to run the software in their environment. Revenue from hosting is recognized ratably over the service period, ranging from one to three-year terms. The Company recognizes revenue from professional services as the services are provided.

 

Disaggregation of Revenue

 

The Company provides disaggregation of revenue based on geography and product groupings (see Note 14) as it believes this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

 

42

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

Customer Payment Terms

 

Payment terms with customers typically require payment 30 days from invoice date. Payment terms may vary by customer but generally do not exceed 45 days from invoice date.  Invoicing for digital engagement services is either monthly or upon achievement of milestones and payment terms for such billings are within the standard terms described above. Invoices for subscriptions and hosting are typically issued monthly and are generally due in the month of service.

 

Warranty

 

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

 

Property and Equipment

 

The components of property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets (three to five years). Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful life of the asset or the lease term.  Repairs and maintenance costs are expensed as incurred.

 

Internal-Use Software

 

Costs incurred in the preliminary stages of development were expensed as incurred.  Once an application had reached the development stage, internal and external costs, if direct and incremental, were capitalized until the software was substantially complete and ready for its intended use. Capitalization ceased upon completion of all substantial testing. The Company also capitalized costs related to specific upgrades and enhancements when it was probable that the expenditures would result in additional functionality.  Capitalized costs were recorded as part of equipment and improvements. Training costs were expensed as incurred.  Internal use software was amortized on a straight-line basis over its estimated useful life, generally three years.

 

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2018-15, which addresses a customer’s accounting for implementation costs incurred in a cloud-computing arrangement that is a service contract. The effective date of this new standard for the Company was October 1, 2020. Under the new standard, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. As of October 1, 2020, the Company did not have significant implementation costs incurred in a cloud-computing arrangement that is a service contract and therefore upon adoption the impact of the new standard on its consolidated financial statements and related disclosures was not material. All future implementation costs in such arrangements will be capitalized and amortized over the life of the arrangement, which may have a material impact in those future periods if such costs are material. 

 

Research and Development and Software Development Costs

 

Costs for research and development of a software product to sell, lease or otherwise market are charged to operations as incurred until technological feasibility has been established.  Once technological feasibility has been established, certain software development costs incurred during the application development stage are eligible for capitalization. Based on the Company’s software product development process, technological feasibility is established upon completion of a working model.

 

Software development costs that are capitalized are amortized to cost of sales over the estimated useful life of the software, typically three years. Capitalization ceases when a product is available for general release to customers. Capitalization costs are included in other assets in the consolidated financial statements.  The Company did not incur development costs during fiscal 2021 and 2020.

 

Intangible Assets

 

All intangible assets have finite lives and are stated at cost, net of amortization. Amortization is computed over the estimated useful life of the related assets on a straight-line method as follows:

 

Description

 

Estimated Useful Life (in years)

Technology

 3-5

Customer related

 3-10

Domain and trade names

 1-15

 

43

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

Goodwill

 

The carrying value of goodwill is not amortized, but is tested for impairment annually as of September 30, as well as on an interim basis whenever events or changes in circumstances indicate that the carrying amount of a reporting unity may not be recoverable. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value. However, the impairment loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. Goodwill is assessed at the consolidated level as one reporting unit.

 

Valuation of Long-Lived Assets

 

The Company periodically reviews its long-lived assets, which consist primarily of property and equipment and intangible assets with finite lives, for impairment whenever events or changes in circumstances indicate the carrying amount of such assets may exceed their fair value. Recoverability of these assets is assessed using a number of factors, including operating results, business plans, budgets, economic projections and undiscounted cash flows.

 

In addition, the Company’s evaluation considers non-financial data such as market trends, product development cycles and changes in management’s market emphasis. For the definite-lived intangible asset impairment review, the carrying value of the intangible assets is compared against the estimated undiscounted cash flows to be generated over the remaining life of the intangible assets. To the extent that the undiscounted future cash flows are less than the carrying value, the fair value of the asset is determined. If such fair value is less than the current carrying value, the asset is written down to the estimated fair value. There were no impairments of goodwill or long-lived assets in fiscal 2021 or 2020.

 

Business Combinations

 

The Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill. The Company bases the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use. The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable intangible assets acquired to goodwill. The use of alternative valuation assumptions, including estima