Bridgeline Digital, Inc. - Quarter Report: 2010 March (Form 10-Q)

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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

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Delaware	52-2263942
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
10 Sixth Road  Woburn, MA	01801
(Address of principal executive offices)	(Zip Code)

 

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer	¨		Accelerated filer	¨
Non-accelerated filer	¨		Smaller reporting company	þ

 

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		Page
Part I	Financial Information
Item 1.	Financial Statements
	Consolidated Balance Sheets (unaudited) as of March 31, 2010 and September 30, 2009	4
	Consolidated Statements of Operations (unaudited) for the three and six months ended March 31, 2010 and 2009	5
	Consolidated Statements of Cash Flows (unaudited) for the three and six months ended March 31, 2010 and 2009	6
	Notes to Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4T.	Controls and Procedures	21
Part II	Other Information
Item 1.	Legal Proceedings	21
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	21
Item 5.	Other Information	22
Item 6.	Exhibits	24
Signatures		25

 

 

Bridgeline Digital, Inc.   Quarterly Report on Form 10-Q   For the Quarterly Period ended March 31, 2010     Statements contained in this Report on Form 10-Q that are not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements may be identified by the use of forward-looking terminology such as “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intends,” “continue,” or similar terms or variations of those terms or the negative of those terms.  These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc. Forward-looking statements are merely our current predictions of future events. Investors are cautioned that any such forward-looking statements are inherently uncertain, are not guaranties of future performance and involve risks and uncertainties. Actual results may differ materially from our predictions. Important factors that could cause actual results to differ from our predictions include the impact of the global financial deterioration on our business, our inability to manage our future growth effectively or profitably, our license renewal rate, the impact of competition and our ability to maintain margins or market share, the performance of our products, our ability to protect our proprietary technology, the security of our software, our ability to maintain our listing on the Nasdaq Capital Market, our dependence on our management team and key personnel, or our ability to hire and retain future key personnel.  Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to what extent, any of such risks may be realized, nor is there any assurance that we have identified all possible issues which we might face. We assume no obligation to update our forward-looking statements to reflect new information or developments. We urge readers to review carefully the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2009 as well as in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.     Where we say “we,” “us,” “our,” “Company” or “Bridgeline” we mean Bridgeline Digital, Inc.

 

Item 1.

Financial Statements.

 

 

		March 31, 2010				September 30, 2009
Assets
Current assets:
Cash and cash equivalents		$	3,293			$	3,060
Accounts receivable and unbilled receivables, net			3,724				3,468
Prepaid expenses and other current assets			367				320
Total current assets			7,384				6,848
Equipment and improvements, net			1,210				1,448
Intangible assets, net			1,207				1,490
Goodwill			14,656				13,899
Other assets			921				570
Total assets		$	25,378			$	24,255
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable		$	729			$	714
Accrued liabilities			756				786
Accrued earnouts			287				408
Line of credit			1,650				1,000
Capital lease obligations – current			49				77
Deferred revenue			1,139				890
Total current liabilities			4,610				3,875
Capital lease obligations, net of current portion			48				62
Other long term liabilities			411				414
Total liabilities			5,069				4,351
Commitments and contingencies
Stockholders’ equity:
Preferred stock - $0.001 par value; 1,000,000 shares authorized; none issued and outstanding			—				—
Common stock - $0.001 par value; 20,000,000 shares authorized; 11,188,208 and 11,182,209 shares issued and outstanding, respectively			11				11
Additional paid-in capital			35,798				35,620
Accumulated deficit			(15,371	)			(15,611	)
Accumulated other comprehensive income			(129	)			(116	)
Total stockholders’ equity			20,309				19,904
Total liabilities and stockholders’ equity		$	25,378			$	24,255

 

		Three Months Ended March 31,						Six Months Ended March 31,
		2010			2009			2010				2009
Revenue:
Web application development services		$	4,525		$	5,126		$	9,138			$	10,674
Managed service hosting			506			656			1,000				1,254
Subscription and perpetual licenses			356			317			728				644
Total revenue			5,387			6,099			10,866				12,572
Cost of revenue:
Web application development services			2,273			2,364			4,451				5,005
Managed service hosting			159			171			288				305
Subscription and perpetual licenses			167			147			300				270
Total cost of revenue			2,599			2,682			5,039				5,580
Gross profit			2,788			3,417			5,827				6,992
Operating expenses:
Sales and marketing			1,170			1,628			2,420				3,258
General and administrative			1,032			1,027			2,201				2,069
Research and development			250			284			325				635
Depreciation and amortization			306			227			609				592
Total operating expenses			2,758			3,166			5,555				6,554
Income from operations			30			251			272				438
Interest income (expense), net			5			(13	)		(1	)			(35	)
Income before income taxes			35			238			271				403
Income taxes			15			20			31				20
Net income		$	20		$	218		$	240			$	383
Net income per share:
Basic		$	—		$	0.02		$	0.02			$	0.04
Diluted		$	—		$	0.02		$	0.02			$	0.04
Number of weighted average shares:
Basic			11,186,145			11,012,808			11,184,156				10,891,537
Diluted			11,755,919			11,058,933			11,650,060				10,938,201

 

 

						Six Months Ended March 31,
						2010				2009
Cash flows from operating activities:
Net income						$	240			$	383
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets							283				234
Depreciation							371				402
Other amortization							117				108
Stock-based compensation							173				282
Changes in operating assets and liabilities, net of acquired assets and liabilities:
Accounts receivable and unbilled receivables							(256	)			1,003
Prepaid expenses and other assets							(140	)			37
Accounts payable and accrued liabilities							(73	)			(738	)
Deferred revenue							249				44
Other liabilities							(3	)			96
Total adjustments							721				1,468
Net cash provided by operating activities							961				1,851
Cash flows from investing activities:
Equipment and improvements							(116	)			(376	)
Software development							(338	)			—
Contingent acquisition payments (earnouts)			(				(878	)			(587	)
Net cash used in investing activities							(1,332	)			(963	)
Cash flows from financing activities:
Proceeds from bank line of credit							3,000				2,000
Principal payments on bank line of credit							(2,350	)			(2,000	)
Principal payments on capital leases							(42	)			(69	)
Proceeds from exercise of stock options							5				—
Net cash provided by (used in) financing activities							613				(69	)
Net increase in cash and cash equivalents							242				819
Effect of exchange rate changes on cash			1				(9	)			10
Cash and cash equivalents at beginning of the period							3,060				1,911
Cash and cash equivalents at end of the period						$	3,293			$	2,740
Supplemental cash flow information:
Cash paid for:
Interest						$	11			$	35
Income taxes						$	87			$	13
Non cash activities:
Equipment and other assets included in accounts payable						$	10			$	—
Other assets included in accrued expenses						$	87			$	—
Issuance of common stock for contingent acquisition payments (earnouts)						$	—			$	301
Accrued contingent consideration (earnouts)						$	287			$	470

 

 

1.	Description of Business

2.	Summary of Significant Accounting Policies

 

3.	Accounts Receivable and Unbilled Receivables

		March 31,				September 30,
		2010				2009
Accounts receivable		$	3,596			$	$3,399
Unbilled receivables			376				349
Subtotal			3,972				3,748
Allowance for doubtful accounts			(248	)			(280	)
Accounts receivable, net		$	3,724			$	$3,468

4.	Intangible Assets and Goodwill

 

		At March 31, 2010
		Gross Asset				Accumulated Amortization				Impairment (a)				Net Amount
Domain and trade names		$	39			$	(26	)		$	(13	)		$	—
Customer related			2,676				(1,480	)			(63	)			1,133
Acquired software			362				(288	)			—				74
Total intangible assets		$	3,077			$	(1,794	)		$	(76	)		$	1,207

(a)	An impairment charge of $76 thousand was taken during fiscal year ended September 30, 2008

		Three Months Ended March 31,							Six Months Ended March 31,
		2010				2009				2010				2009
Amortization expense charged to:
Cost of revenue		$	23			$	22			$	45			$	45
Operating expense			119				168				238				189
Total		$	142			$	190			$	283			$	234

		For the
		Six Months
		Ended March 31,  2010
Goodwill balance at beginning of period		$	13,899
Contingent acquisition payments (earnouts)		757
Goodwill balance at end of period		$	14,656

		Shares Covered By Options				Exercise Price per Share				Weighted Average Exercise Price				Weighted Average Remaining Contractual Term				Aggregate Intrinsic Value (in thousands)
Balance at September 30, 2009			1,470,207				$0.003 to $3.590			$	0.91
Granted			518,500			1.120 to 1.390					1.17
Exercised			( 5,999	)			.90				0.90
Forfeited			(4,000	)		1.060 to 3.590					2.96
Balance at March 31, 2010			1,978,708				$0.003 to $3.590			$	0.97				9.00			$	12

 

 

Item 2.

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

 

			Three Months Ended March 31,								Six Months Ended March 31,
(dollars in thousands)			2010				2009				2010				2009
Revenue
Web application development services			$	4,525			$	5,126			$	9,138			$	10,674
% of total revenue				84	%			84	%			84	%			85	%
Managed service hosting				506				656				1,000				1,254
% of total revenue				9	%			11	%			9	%			10	%
Subscription and perpetual licenses				356				317				728				644
% of total revenue				7	%			5	%			7	%			5	%
Total Revenue				5,387				6,099				10,866				12,572
Cost of revenue
Web application development services				2,273				2,364				4,451				5,005
% of web application development services revenue				50	%			46	%			49	%			47	%
Managed service hosting				159				171				288				305
% of managed service hosting revenue				31	%			26	%			29	%			25	%
Subscription and perpetual licenses				167				147				300				270
% of subscription and perpetual license revenue				47	%			46	%			41	%			40	%
Total cost of revenue				2,599				2,682				5,039				5,580
Gross profit				2,788				3,417				5,827				6,992
Gross profit margin				51.8	%			56.0	%			53.6	%			55.6	%
Operating expenses
Sales and marketing				1,170				1,628				2,420				3,258
% of total revenue				22	%			27	%			22	%			26	%
General and administrative				1,032				1,027				2,201				2,069
% of total revenue				19	%			17	%			20	%			16	%
Research and development				250				284				325				635
% of total revenue				5	%			4	%			3	%			5	%
Depreciation and amortization				306				227				609				592
% of total revenue				5	%			4	%			6	%			5	%
Total operating expenses				2,758				3,166				5,555				6,554
% of total revenue				51	%			52	%			51	%			52	%
Income from operations				30				251				272				438
% of total revenue				1	%			4	%			3	%			3	%
Interest income (expense), net				5				(13	)			(1	)			(35	)
Income before income taxes				35				238				271				403
Income taxes				15				20				31				20
Net income			$	20			$	218			$	240			$	383
% of total revenue	-			—	%			4	%			2	%			3	%
Adjusted EBITDA			$	528			$	699			$	1,216			$	1,464

 

 

Income from operations decreased to $30 thousand from $251 thousand for the three months ended March 31, 2010 compared with the same period of the prior year.  The decrease in income from operations is principally the result of a lower revenue in the current period as compared with the same period of the prior year.

 

Cost of subscription and perpetual licenses increased $30 thousand, or 11% for the three months ended March 31, 2010 compared to the same period in 2009.  The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue increased to 41% from 40% for the same comparative six month periods.  The increase in the amount of subscription and perpetual license costs is primarily related to additional software development costs capitalized in prior periods which is now being amortized.  Additionally, since a portion of this cost is fixed cost related to our hosting environment, such costs will not always increase or decrease at the same rate as the related revenue.

			Three Months Ended March 31,								Six Months Ended March 31,
(in thousands)			2010				2009				2010				2009
Net income			$	20			$	218			$	240			$	383
Taxes				15				20				31				20
Interest (income) expense, net				(5	)			13				1				35
Amortization of intangible assets				142				44				283				234
Depreciation				187				205				371				402
EBITDA			$	359			$	500			$	926			$	1,074
Other amortization				66				54				117				108
Stock based compensation				103				145				173				282
Adjusted EBITDA			$	528			$	699			$	1,216			$	1,464

●	Revenue recognition;
●	Allowance for doubtful accounts;
●	Accounting for cost of computer software to be sold, leased or otherwise marketed;

●	Accounting for goodwill and other intangible assets; and
●	Accounting for stock-based compensation.

 
 

 

 

Item 1.

Legal Proceedings.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

Item 5.

Other Information.