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Bridgeline Digital, Inc. - Quarter Report: 2019 June (Form 10-Q)

blin20190630_10q.htm
 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


Form 10-Q


 (Mark One)

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

 

 

For the quarterly period ended June 30, 2019

 

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 Summit Drive

 

Burlington, Massachusetts

01803

(Address of Principal Executive Offices)

(Zip Code)

 

 

(781) 376-5555

(Registrant’s telephone number, including area code)

 

(Former name, former address and former fiscal year, if changed since last report)

 

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

 

Indicate by check mark whether the registrant has submitted electronically 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 such files)   ☒  Yes    ☐  No

 

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

 

Large accelerated filer  ☐

Accelerated filer  ☐

Non-accelerated filer  ☒

Smaller reporting company ☒

Emerging growth company  ☐ 

 

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

 

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

 

Title of each class

Trading Symbols(s)

Name of each exchange on which registered

Common Stock, par value $0.001

BLIN

NASDAQ

 

The number of shares of Common Stock par value $0.001 per share, outstanding as of August 10, 2019 was 2,794,308.

 

1

 

 

 

Bridgeline Digital, Inc.

 

Quarterly Report on Form 10-Q

 

For the Quarterly Period ended June 30, 2019

 

Index

 

 

 

Page

Part I

Financial Information

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2019 and September 30, 2018

4

 

 

 

 

Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended June 30, 2019 and 2018

5

     
 

Condensed Consolidated Statements of Comprehensive Income/(Loss) (unaudited) for the three and nine months ended June 30, 2019 and 2018

6

 

 

 

  Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months ended June 30, 2019 and June 30, 2018  7
     

 

Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended June 30, 2019 and 2018 

8

     

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

 

 

 

Item 2.

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

30

 

 

 

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

41

 

 

 

Item 4.

Controls and Procedures

41

 

 

 

Part II

Other Information

 

 

 

 

Item 1.

Legal Proceedings

42

     

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds 

42

 

 

 

Item 6.

Exhibits

43

     
Signatures 45

 

2

 

 

 

 

 

Bridgeline Digital, Inc.

 

Quarterly Report on Form 10-Q

 

For the Quarterly Period ended June 30, 2019

 

 

Statements contained in this Report on Form 10-Q that are not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Forward-looking statements may be identified by the use of forward-looking terminology such as “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intends,” “continue,” or similar terms or variations of those terms or the negative of those terms.  These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc. Forward-looking statements are merely our current predictions of future events. Investors are cautioned that any such forward-looking statements are inherently uncertain, are not guaranties of future performance and involve risks and uncertainties. Actual results may differ materially from our predictions. Important factors that could cause actual results to differ from our predictions include the impact of the weakness in the U.S. and international economies on our business, our inability to manage our future growth effectively or profitably, fluctuations in our revenue and quarterly results, our license renewal rate, the impact of competition and our ability to maintain margins or market share, the limited market for our common stock, the volatility of the market price of our common stock, the ability to maintain our listing on the NASDAQ Capital market, the ability to raise capital, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, dependence on third parties, 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, or our ability to maintain an effective system of internal controls, and our ability to respond to government regulations. 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, 2018 as well as in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

 

 

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

 

3

 

 

 

PART I—FINANCIAL INFORMATION

 Item 1.

Condensed Consolidated Financial Statements.

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 (in thousands, except share and per share data)

(Unaudited)

 

 

 

June 30,

   

September 30,

 
   

2019

   

2018

 
ASSETS                
                 

Current assets:

               

Cash and cash equivalents

  $ 1,298     $ 644  

Accounts receivable and unbilled receivables, net

    1,658       1,721  

Prepaid expenses

    442       452  

Other current assets

    89       21  

Total current assets

    3,487       2,838  

Property and equipment, net

    315       80  

Intangible assets, net

    3,747       20  

Goodwill

    5,557       7,782  

Other assets

    103       280  

Total assets

  $ 13,209     $ 11,000  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               
                 

Current liabilities:

               

Accounts payable

  $ 1,312     $ 1,577  

Accrued liabilities

    1,172       580  

Debt, current

    -       1,017  

Deferred revenue

    1,832       594  

Total current liabilities

    4,316       3,768  
                 

Debt, net of current portion

    -       2,574  

Warrant liabilities

    5,726       180  

Other long term liabilities

    13       54  

Total liabilities

    10,055       6,576  
                 

Commitments and contingencies

               
                 

Stockholders’ equity:

               

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

               

Series C Convertible Preferred stock:

               

11,000 shares authorized; 441 shares issued and outstanding at June 30, 2019

    -       -  

Series A Convertible Preferred stock:

               

264,000 shares and 262,310 shares at June 30, 2019 and 264,000 shares and 262,364 shares at September 30, 2018, issued and outstanding (liquidation preference $2,624 at June 30, 2019)

    -       -  

Common stock - $0.001 par value; 50,000,000 shares authorized;

               

2,794,308 at June 30, 2019 and 84,005 at September 30, 2018, issued and outstanding

    3       -  

Additional paid-in capital

    75,585       66,553  

Accumulated deficit

    (72,101 )     (61,778 )

Accumulated other comprehensive loss

    (333 )     (351 )

Total stockholders’ equity

    3,154       4,424  

Total liabilities and stockholders’ equity

  $ 13,209     $ 11,000  

 

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

 

 

4

 

 

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (in thousands, except share and per share data)

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

June 30,

   

June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Net revenue:

                               

Digital engagement services

  $ 1,118     $ 1,578     $ 3,102     $ 5,559  

Subscription and perpetual licenses

    1,322       1,262       3,411       4,367  

Managed service hosting

    253       243       751       839  

Total net revenue

    2,693       3,083       7,264       10,765  

Cost of revenue:

                               

Digital engagement services

    573       977       2,007       3,666  

Subscription and perpetual licenses

    834       510       2,010       1,503  

Managed service hosting

    84       47       222       213  

Total cost of revenue

    1,491       1,534       4,239       5,382  

Gross profit

    1,202       1,549       3,025       5,383  

Operating expenses:

                               

Sales and marketing

    1,268       892       3,083       2,800  

Support

    201       99       436       245  

General and administrative

    785       625       2,216       2,156  

Research and development

    592       406       1,499       1,221  

Depreciation and amortization

    257       93       361       305  

Goodwill impairment

    -       4,615       3,732       4,615  

Restructuring and acquisition related expenses

    938       6       1,242       187  

Total operating expenses

    4,041       6,736       12,569       11,529  

Loss from operations

    (2,839 )     (5,187 )     (9,544 )     (6,146 )

Interest income (expense), net

    7       (70 )     (305 )     (199 )

Amortization of debt discount

    -       (28 )     (231 )     (82 )
Other income (expense), net     10,146       133       (79)       166  

Income/(loss) before income taxes

    7,314       (5,152 )     (10,159 )     (6,261 )

Provision for income taxes

    3       10       7       11  

Net income/(loss)

    7,311       (5,162 )     (10,166 )     (6,272 )

Dividends on convertible preferred stock

    (78 )     (79 )     (235 )     (231 )

Net income/(loss) applicable to common shareholders

  $ 7,233     $ (5,241 )   $ (10,401 )   $ (6,503 )

Net income/(loss) per share attributable to common shareholders:

                               

Basic net income/(loss) per share

  $ 3.62     $ (61.78 )   $ (12.38 )   $ (77.00 )
Diluted net income/(loss) per share   $ 3.56     $ (61.78 )   $ (12.38 )   $ (77.00 )
                                 

Number of weighted average shares outstanding:

                               

Basic 

    1,996,326       84,825       839,975       84,457  
Diluted     2,032,766       84,825       839,975       84,457  

 

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

 

5

 

 

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

 (in thousands)

(Unaudited)

 

   

Three Months Ended

   

Nine Months Ended

 
   

June 30,

   

June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Net income/(loss)

  $ 7,311     $ (5,162 )   $ (10,166 )   $ (6,272 )

Other Comprehensive Income:

                               

Net change in foreign currency translation adjustment

    19       (1 )     18       (1 )

Comprehensive income/(loss)

  $ 7,330     $ (5,163 )   $ (10,148 )   $ (6,273 )

 

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

  

6

 

 

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 (in thousands)

(Unaudited)

 

   

For the Three and Nine Months Ended June 30, 2019

 
                                                   

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, 2018

    262     $ -       85     $ -     $ 66,553     $ (61,778 )   $ (351 )   $ 4,424  

Issuance of common stock

                    28       -       4,377                       4,377  

Stock-based compensation expense

                                    97                       97  

Preferred B stock conversion to common

                    168       -       -                       -  

Dividends - issued

                                            (79 )             (79 )

Net loss

                                            (4,955 )             (4,955 )

Prior Period Adjustment - ASC 606 adoption

                                            78               78  

Foreign currency translation

                                                            -  

Balance at December 31, 2018

    262       -       282       -       71,027       (66,734 )     (351 )     3,942  

Issuance of common stock

                    40       -       476                       476  

Stock-based compensation expense

                                    38                       38  

Preferred B stock conversion to common

                    3                                       -  

Dividends - issued

                                            (78 )             (78 )

Net loss

                                            (12,522 )             (12,522 )

Foreign currency translation

                                                    (1 )     (1 )

Balance at March 31, 2019

    262       -       325       -       71,541       (79,334 )     (352 )     (8,145 )

Issuance of common stock, net of issuance costs

                    1,382       3       3,969                       3,972  

Stock-based compensation expense

                                    74                       74  

Series C Convertible Preferred stock issuance and conversion to common

    1               1,087               1                       1  

Dividends - issued

                                            (78 )             (78 )

Net income

                                            7,311               7,311  

Foreign currency translation

                                                    19       19  

Balance at June 30, 2019

    263     $ -       2,794     $ 3     $ 75,585     $ (72,101 )   $ (333 )   $ 3,154  

 

 

   

For the Three and Nine Months Ended June 30, 2018

 
                                                   

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, 2017

    244     $ -       84     $ -     $ 65,873     $ (54,249 )   $ (350 )   $ 11,274  

Stock-based compensation expense

                                    99                       99  

Stock dividends - issued

    7                               75                       75  

Stock dividends - declared

                                            (75 )             (75 )

Net loss

                                            (430 )             (430 )

Foreign currency translation

                                                    (1 )     (1 )

Balance at December 31, 2017

    251       -       84       -       66,047       (54,754 )     (351 )     10,942  

Stock-based compensation expense

                                    97                       97  

Issuance of common stock - restricted shares

                    -       -       49                       49  

Stock dividends - issued

    7                               76                       76  

Stock dividends - declared

    1       -                               (77 )             (77 )

Net loss

                                            (680 )             (680 )

Foreign currency translation

                                                            -  

Balance at March 31, 2018

    259       -       84       -       66,269       (55,511 )     (351 )     10,407  

Stock-based compensation expense

                                    102                       102  

Issuance of common stock - restricted shares

                    -       -       24                       24  

Stock dividends - issued

    -       1                       39                       40  

Stock dividends - declared

    -       -                               (79 )             (79 )

Net loss

                                            (5,162 )             (5,162 )

Foreign currency translation

                                                            -  

Balance at June 30, 2018

    259     $ 1       84     $ -     $ 66,434     $ (60,752 )   $ (351 )   $ 5,332  

 

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

  

7

 

 

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (in thousands)

(Unaudited)

 

   

Nine Months Ended

 
   

June 30,

 
   

2019

   

2018

 

Cash flows from operating activities:

               

Net loss

  $ (10,166 )   $ (6,272 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Loss on disposal of property and equipment

    9       60  

Amortization of intangible assets

    310       214  

Depreciation

    50       85  

Other amortization

    32       50  

Goodwill impairment

    3,732       4,615  

Amortization of debt discount

    231       82  

Warrant liability expense

    11,272       -  

Change in fair value of warrant liabilities

    (11,204 )     (156 )

Stock-based compensation

    210       374  

Changes in operating assets and liabilities

               

Accounts receivable and unbilled receivables

    971       923  

Prepaid expenses

    3       (40 )

Other current assets and other assets

    129       -  

Accounts payable and accrued liabilities

    329       (201 )

Deferred revenue

    722       (625 )

Other liabilities

    62       (81 )

Total adjustments

    6,858       5,300  

Net cash used in operating activities

    (3,308 )     (972 )

Cash flows used in investing activities:

               

Software development capitalization costs

    (12 )     -  

Purchase of property and equipment

    (21 )     (30 )

Acquisition of businesses

    (5,638 )     -  

Net cash used in investing activities

    (5,671 )     (30 )

Cash flows provided by financing activities:

               

Proceeds from issuance of common stock, net of issuance costs

    4,700       -  

Proceeds from issuance of preferred stock, net of issuance costs

    9,123       -  

Proceeds from term notes from Montage Capital, net of issuance costs

    -       953  

Borrowing on bank line of credit

    75       888  

Payments on bank line of credit

    (2,156 )     (1,121 )

Payments on term notes from Montage Capital

    (922 )     -  

Payments on promissory term notes

    (941 )     -  

Cash dividends paid on Series A convertible preferred stock

    (235 )     (38 )

Net cash provided by financing activities

    9,644       682  

Effect of exchange rate changes on cash and cash equivalents

    (11 )     (1 )

Net increase (decrease) in cash and cash equivalents

    654       (321 )

Cash and cash equivalents at beginning of period

    644       748  

Cash and cash equivalents at end of period

  $ 1,298     $ 427  

Supplemental disclosures of cash flow information:

               

Cash paid for:

               

Interest

  $ 307     $ 190  

Income taxes

  $ 11     $ 14  

Non cash investing and financing activities:

               

Consideration paid in Common Stock in connection with acquisition of business

  $ 480     $ -  

Dividends on convertible preferred stock

  $ 235     $ 114  

 

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

 

8

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

 

1.   Description of Business

 

Overview

 

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

 

The Company was incorporated under the laws of the State of Delaware on August 28, 2000.

 

Locations

 

The Company’s corporate office is located in Burlington, Massachusetts.  The Company has three wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd. located in Bangalore, India, Bridgeline Digital Canada, Inc. located in Ontario, Canada, and Stantive Technologies Pty. Ltd. located in Australia.

 

Increase in Authorized Shares and Reverse Stock Split

 

On April 26, 2019, the Company’s Shareholders and the Board of Directors approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to increase the total number of shares of Common Stock, par value $0.001 per share (“Common Stock”), authorized for issuance thereunder from 50 million shares to 2.5 billion shares (the “Increase in Authorized”). On the same date the Company’s Shareholders and the Board of Directors also approved an amendment to the Company’s Amended and Restated Certificate of Incorporation to effect a reverse stock split of both its issued and outstanding and authorized shares of Common Stock, par value $0.001 per share, at a ratio of one (1) share of Common Stock for every fifty (50) shares of Common Stock at any time prior to December 31, 2019 (the “Reverse Split”) pursuant to which all classes of the Company’s issued and outstanding shares of Common Stock at the close of business on such date were combined and reconstituted into a smaller number of shares of Common Stock in a ratio of one (1) share of Common Stock for every fifty (50) shares of Common Stock (“1-for-50 reverse stock split”). The 1-for-50 reverse stock split was effective as of close of business on May 1, 2019 (the “Effective Date”) and the Company’s stock began trading on a split-adjusted basis on May 2, 2019.

 

The reverse stock split reduced the number of shares of the Company’s Common Stock authorized from 2.5 billion shares to 50 million shares. Proportional adjustments have been made to the conversion and exercise prices of the Company’s outstanding convertible preferred stock, warrants, restricted stock awards, and stock options, and to the number of shares issued and issuable under the Company’s Stock Incentive Plans. The Company did not issue any fractional shares in connection with the reverse stock split. Instead, any stockholder who would otherwise be entitled to receive a fractional share of Common Stock as a result of the reverse stock split is entitled to receive a cash payment in lieu thereof based on the average of the closing sales prices of a share of the Company’s Common Stock on the Nasdaq Capital Market during regular trading hours for the five consecutive trading days immediately preceding the Effective Date. The reverse stock split does not modify the rights or preferences of the Common Stock. The number of authorized shares of the Company’s Common Stock is 50 million shares and the par value remains $0.001.

 

The accompanying unaudited interim condensed consolidated financial statements as of June 30, 2019 and September 30, 2018 and for the three and nine months ended June 30, 2019 and 2018 and footnotes have been retroactively adjusted to reflect the effects of the 1-for-50 reverse stock split.

 

9

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

Liquidity and Management’s Plans

 

The Company has incurred operating losses and used cash in its operating activities for the past several years. Cash was used to fund operations, develop new products, and build infrastructure. During the past two fiscal years and continuing into the current fiscal year, the Company has executed on a restructuring plan that included a reduction of workforce and office space, which significantly reduced operating expenses. The Company is continuing to maintain tight control over discretionary spending in the current fiscal year.

 

In the second quarter of this current fiscal year, the Company concluded a private offering that raised a net $9.2 million in cash. Proceeds were used to pay down the Heritage Bank of Commerce line of credit to zero and pay the Company’s outstanding loan to Montage Capital II, L.P in full. The Company has zero debt at June 30, 2019. Also, in the second quarter of the current fiscal year, the Company used cash to purchase the assets of Seevolution, Inc. and Stantive Technologies Group Inc., which assets included technology and customers. The Company believes the future revenues and cash flows from these newly acquired customers will supplement the working capital to sustain operations for the next twelve months. While there can be no assurances that the anticipated sales will be achieved for future periods to provide positive cash flows, the Company’s management believes it will have an appropriate cost structure to support the revenues that will be achieved. As such, management believes that it is probable that we will meet our working capital, capital expenditure and debt repayment needs, if any, for the next twelve months from the issuance date of this Form 10-Q.

 

 

2.   Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

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

 

Unaudited Interim Financial Information

 

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and with the instructions to Form 10-Q and Regulation S-X, and in the opinion of the Company’s management these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for the fair presentation. The operating results for the three and nine months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending September 30, 2019. The accompanying September 30, 2018 Condensed Consolidated Balance Sheet has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by US GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended September 30, 2018 filed with the Securities and Exchange Commission on December 28, 2018.

 

Revenue Recognition

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09 or ASC 606), to supersede nearly all existing revenue recognition guidance under U.S. GAAP, which became effective for the Company on October 1, 2018. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. Under ASC 606, revenue is recognized when a customer obtains control of a promised good or service and is recognized in an amount that reflects the consideration that the entity expects to receive in exchange for the good or service. In addition, ASC 606 also includes subtopic ASC 340-40, Other Assets and Deferred Costs- Contracts with Customers, referred to herein as ASC 340-40, which provides guidance on accounting for certain revenue related costs including costs associated with obtaining and fulfilling a contract, discussed further below.

 

10

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

The Company adopted the new revenue guidance using the modified retrospective method applied to those contracts which were not completed as of October 1, 2018. Results for reporting periods beginning after September 30, 2018 are presented under the new guidance, while prior period amounts are not adjusted and continue to be reported in accordance with historic revenue guidance.  The Company applied the new standard using practical expedients where:

 

 

the measurement of the transaction price excludes all taxes assessed by governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction and collected by the Company from a customer;

 

the new revenue guidance has been applied to portfolios of contracts with similar characteristics;

 

the modified retrospective approach has been applied only to contracts that are not completed contracts at the date of initial adoption; and

 

the value of unsatisfied performance obligations for contracts with an original expected length of one year or less has not been disclosed.

 

Revenue recognition from the Company’s primary revenue streams remained substantially unchanged following adoption of ASC 606 and therefore did not have a material impact on its revenues. The impact of applying the new guidance in fiscal 2019 versus the prior guidance resulted in a change to the period over which sales commissions are amortized to incorporate an estimated customer life. This resulted in a longer amortization period for deferred commission expense, which reduces expense compared to the application of the prior guidance.  

 

Upon adoption, Other current assets increased by $59 due to the capitalization of the current portion of sales commissions and Other assets increased by $27 due to the capitalization of the noncurrent portion of sales commissions. Retained earnings decreased by $86 as a net result of these adjustments. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

 

The following tables summarize the impact of adopting ASC 606 on the Company’s condensed consolidated financial statements during the nine months ended and as of June 30, 2019:

 

   

As of June 30, 2019

 
                         
   

As Reported

   

Adjustments

   

As If

Presented

Under ASC

605

 

Condensed Consolidated Balance Sheet

                       

Assets

                       

Other current assets

  $ 89       38     $ 51  

Other assets

    103       27       76  

Equity

                       

Retained earnings

  $ (72,101 )     (65 )   $ (72,166 )

 

11

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

   

Three Months Ended June 30, 2019

   

Nine Months Ended June 30, 2019

 
                                                 
   

As Reported

   

Adjustments

   

As If

Presented

Under ASC

605

   

As Reported

   

Adjustments

   

As If

Presented

Under

ASC 605

 

Condensed Consolidated Statement of Operations

                                               

Sales and Marketing

  $ 1,268     $ (21 )   $ 1,247     $ 3,083     $ (12 )   $ 3,071  

Net income/(loss)

  $ 7,311     $ (21 )   $ 7,332     $ (10,166 )   $ (12 )   $ (10,154 )

Net income/(loss) per share

                                               

Basic 

  $ 3.62     $ 0.01     $ 3.63     $ (12.38 )   $ (0.02 )   $ (12.36 )
           Diluted   $ 3.56     $ 0.01     $ 3.57     $ (12.38 )   $ (0.02 )   $ (12.36 )

 

 

   

Nine Months Ended June 30, 2019

 
                         
   

As Reported

   

Adjustments

   

As If

Presented

Under

ASC 605

 

Condensed Consolidated Statement of Cash Flows

                       

Cash flows from operating activities

                       

Net loss

  $ (10,166 )   $ (12 )   $ (10,154 )

Other current assets and other assets

  $ 129     $ 12     $ 141  

 

 

The Company derives its revenue from three sources: (i) Software Licenses, which are comprised of subscription fees ("SaaS"), perpetual software licenses, and maintenance for post-customer support (“PCS”) on perpetual licenses, (ii) Digital Engagement Services, which are professional services to implement our products such as web development, digital strategy, information architecture and usability engineering and (iii) hosting of perpetual licenses. Customers who license the software on a subscription basis, which can be described as “Software as a Service” or “SaaS” and 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:

 

 

Identify the customer contract;

 

Identify performance obligations that are distinct;

 

Determine the transaction price;

 

Allocate the transaction price to the distinct performance obligations; and

 

Recognize revenue as the performance obligations are satisfied.

 

12

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

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 a 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 the 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

 

Revenues are 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 within the notes (Note 13) as it believes this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

 

13

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

Deferred Revenue

 

Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Deferred revenue represents amounts billed for which revenue has not yet been recognized. Deferred revenue that will be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as noncurrent deferred revenue included in Other long-term liabilities. Deferred revenue during the nine months ended June 30, 2019 increased by $1.2 million.  As of June 30, 2019, approximately $13 of revenue is expected to be recognized from remaining performance obligations for contracts with original performance obligations that exceed one year.  The Company expects to recognize revenue on approximately 99% of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.  

 

   

Deferred Revenue

 
   

Current

   

Long Term

 

Balance as of October 1, 2018

  $ 594     $ 20  

Increase(decrease)

    341       (7 )

Balance as of December 31, 2018

    935       13  

Increase(decrease)

    417       (5 )

Balance as of March 31, 2019

    1,352       8  

Increase(decrease)

    480       5  

Balance as of June 30, 2019

  $ 1,832     $ 13  

 

 

Deferred Capitalized Commission Costs

 

The incremental direct costs of obtaining a contract, which primarily consist of sales commissions paid for new subscription contracts are deferred and amortized on a straight-line basis over a period of approximately three years.  The Company evaluated both qualitative and quantitative factors, including the estimated life cycles of its offerings, renewal rates, and its customer attrition to determine the amortization periods for the capitalized costs. The initial amortization period will generally be the customer contract term, which is typically thirty-six (36) months, with some exceptions. Deferred capitalized commission expense that will be recorded as expense during the succeeding 12-month period is recorded as current deferred capitalized commission costs, and the remaining portion is recorded as long-term deferred capitalized commission costs. Total deferred capitalized commissions were $66 as of the quarter ended June 30, 2019 compared to $77 as of the year ended September 30, 2018. Current deferred capitalized commission costs are included in Other current assets in the Condensed Consolidated Balance Sheet and noncurrent deferred capitalized commission costs are included in Other assets in the Condensed Consolidated Balance Sheet. Amortization expense for the three and nine months ended June 30, 2019 was $19 and $53, respectively.

 

Accounting Pronouncements Pending Adoption

 

Leases

 

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

 

Earnings Per Share

 

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

 

Compensation Stock Compensation

 

In June 2018, the FASB issued ASU 2018-07, which expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 is effective for interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, but no earlier than the Company’s adoption date of Topic 606. The new guidance is required to be applied retrospectively with the cumulative effect recognized at the date of initial application. Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

 

14

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

Derivative Financial Instruments

 

In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815) Targeted Improvements to Accounting for Hedging Activities", which amends and simplifies existing guidance to allow companies to more accurately present the economic effects of risk management activities in the financial statements. The guidance is effective for annual reporting periods beginning after December 15, 2018 including interim reporting periods within those annual reporting periods and early adoption is permitted. Management is currently evaluating the impact of the new guidance on its consolidated financial statements.

 

Intangibles Goodwill and Other - Internal-Use Software

 

In August 2018, the FASB issued ASU 2018-15, which addresses a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. Under the new guidance, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. ASU 2018-15 is effective for interim periods in fiscal years beginning after December 15, 2019, with early adoption permitted.

 

Fair Value

 

In August 2018, the FASB issued ASU 2018-13, which is guidance that changes the fair value measurement disclosure requirements of ASC 820. This guidance is will be effective for all entities for fiscal years beginning after December 15, 2019, including interim periods therein. Early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The Company is evaluating the impact the update will have on its disclosures.

 

Financial Instruments – Credit Losses

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements and related disclosures.

 

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

 

 

3. Accounts Receivable and Unbilled Receivables

 

Accounts receivable and unbilled receivables consists of the following:

 

   

As of

   

As of

 
   

June 30, 2019

   

September 30, 2018

 

Accounts receivable

  $ 1,765     $ 1,866  

Unbilled receivables

    11       36  

Subtotal

    1,776       1,902  

Allowance for doubtful accounts

    (118 )     (181 )

Accounts receivable and unbilled receivables, net

  $ 1,658     $ 1,721  

 

 

As of June 30, 2019, one customer represented more than 10% of accounts receivable. As of September 30, 2018, two customers represented more than 10% of accounts receivable. For the three months ended June 30, 2019, two customers represented 14% and 11% of the Company’s total revenue. For the nine months ended June 30, 2019, two customers represented 16% and 12% of the Company’s total revenue. For the three months ended June 30, 2018, two customers each represented 12% and one customer represented 11% of the Company’s total revenue. For the nine months ended June 30, 2018, two customers represented 14% and 12% of the Company’s total revenue.

 

15

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

 

4.   Acquisitions

 

On February 13, 2019, the Company entered into an Asset Purchase Agreement with Seevolution Inc, a Delaware corporation, Celebros, Inc., a Delaware corporation, and Elisha Gilboa, an individual and shareholder of Seevolution, (the “Seevolution Asset Purchase Agreement”). The Seevolution Asset Purchase Agreement sets forth the terms and conditions pursuant to which the Company acquired certain assets in exchange for consideration paid consisting of (i) $418 in cash at the time of the purchase, (ii) the payment of $100 of additional cash to be paid out $10 per month for ten months starting April 30, 2019 and (iii) 40,000 shares of Bridgeline Digital common stock. 

 

The Company accounted for the Seevolution transaction as an asset acquisition. Goodwill is not recognized in an asset purchase. 

 

On March 13, 2019, the Company entered into an Asset Purchase Agreement with Stantive Technologies Group Inc., (“Stantive”) a corporation organized under the laws of Ontario, Canada to purchase substantially all of the assets of Stantive and assume certain liabilities. The Company also acquired all of the outstanding stock of Stantive Technologies Group, Pty, a company incorporated in Australia, which was a subsidiary of Stantive. The total purchase price, including cure costs, for Stantive and its Australian subsidiary was approximately $5.2 million in cash.

 

The Company accounted for the Stantive transaction as a business combination in accordance with ASC Topic 805, Business Combinations

 

 

The Company assessed the fair market value of the acquired companies as of the respective purchase dates, as follows:

 

Net assets acquired:

 

Seevolution

   

Stantive

   

Total

 

Cash

  $ -     $ 8     $ 8  

Accounts receivable, net

    47       844       891  

Other assets

    -       40       40  

Fixed assets, net

    -       272       272  

Intangible assets

    1,024       3,007       4,031  

Goodwill

    -       1,507       1,499  

Total assets

    1,071       5,678       6,741  
                         

Current liabilities

    76       488       556  

Net assets acquired:

  $ 995     $ 5,190     $ 6,185  
                         

Purchase Price:

                       

Cash Paid (including acquisition costs)

  $ 418     $ 5,190     $ 5,608  

Future deferred payments (present value)

    97       -       97  

Common stock ( fair value)

    480       -       480  

Total consideration paid

  $ 995     $ 5,190     $ 6,185  

 

16

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

As part of the Seevolution acquisition, of the $1 million allocated to intangible assets, $602 is allocated to customer relationships, $401 is allocated to technology with an average useful life of five years, and $21 is allocated to trademarks with an average useful life of one year. Amortization expense of intangible assets was $55 and $83 for the three and nine months ended June 30, 2019.

 

As part of the Stantive acquisition, of the $3 million allocated to intangible assets, $1.7 million is allocated to customer relationships and $1.2 million is allocated to technology with an average useful life of five years, and $75 is allocated to trademarks with an average useful life of one year. Amortization expense of intangible assets was $182 and $212 for the three and nine months ended June 30, 2019.

 

Total revenue from the Seevolution and Stantive acquisitions totaled $968 and $1,263 for the three and nine months ended June 30, 2019. Total earnings from the two acquisitions is impracticable to disclose as the acquisitions were asset purchases and the operations were merged with existing operations and not accounted for separately.

 

Pro Forma Information

 

The following is the unaudited pro forma information assuming the Stantive acquisition occurred on October 1, 2017:

 

   

Three Months Ended

   

Nine Months Ended

 
   

June 30,

   

June 30,

 

(In thousands, except per share data)

 

2019

   

2018

   

2019

   

2018

 
                                 

Revenue

  $ 2,693     $ 3,733     $ 8,621     $ 12,828  
                                 

Net income/(loss) applicable to common shareholders

    7,311       (5,822 )     (11,234 )     (8,268 )
                                 
                                 

Net income/(loss) per share attributable to common shareholders:

                               

Basic

  $ 3.62     $ (68.64 )   $ (13.37 )   $ (97.90 )
Diluted   $ 3.56     $ (68.64 )   $ (13.37 )   $ (97.90 )
                                 

Weighted average common shares outstanding - basic

    1,996       85       840       84  
Weighted average common shares outstanding - diluted     2,033       85       840       84  

 

 

 

5.   Fair Value Measurement and Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

17

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

The Company believes the recorded values for accounts receivable and accounts payable and short-term debt approximate current fair values as of June 30, 2019 and September 30, 2018 because of their short-term nature and durations. The carrying value of long-term debt also approximates fair value as of September 30, 2018 based upon the Company’s ability to acquire similar debt at similar maturities and renew current debt instruments under similar terms as the original debt.

 

In October 2017, the Company recorded a liability associated with a warrant to purchase common stock issued to Montage Capital II, L.P (“Montage Capital”). The fair value of the warrant liability utilizes a Level 3 input. To determine the value of the warrant liability, the Company used a Monte Carlo option-pricing model, which takes into consideration the market values of comparable public companies, considering among other factors, the use of multiples of earnings, and adjusted to reflect the restrictions on the ability of our shares to trade in an active market. The Monte Carlo option-valuation model also uses certain assumptions to determine the fair value, including expected life and annual volatility. The initial valuation assumptions included an expected life of eight (8) years, volatility of 80%, and a risk-free interest rate of 2.24%. At June 30, 2019, volatility decreased to 76%, the risk-free rate was 1.84% and the Company’s stock price declined to $2.45 per share.

 

The fair value of the warrant liability was valued at the loan execution date in the amount of $341 and is revalued at the end of each reporting period to fair value. The fair value of the warrant is included in Warrant liabilities in the Condensed Consolidated Balance Sheets. Changes in fair value are included in Other income (expense),net in the Statements of Operations in the period the change occurs. the Company recorded a gain (income) of $96 in the quarter ended June 30, 2019. In total, the Company has recorded net gains (income) as a result in the change in fair value of $315 since the original valuation in October 2017. The fair value of the Montage Capital warrant at June 30, 2019 is $26.

 

In connection with the private offering of Series C Convertible Preferred Stock issued on March 12, 2019, the Company issued Series A, Series B and Series C warrants (“collectively, the “Series C Preferred Warrants”) to accredited investors and the placement agents. These Series C Preferred Warrants have been classified as liabilities with the fair value determined using the Monte Carlo option-pricing model. The fair value of the Series C Preferred Warrants are included in Warrant liabilities in the Condensed Consolidated Balance Sheets. The initial valuation assumptions included an average expected life of five and one-half (5.5) years, volatility of 76.8%, and a risk-free interest rate of 2.4%. The fair value of the Series C Preferred Warrants as of June 30, 2019 is $5.7 million. Changes in fair value are included in Other income (expense),net in the Statements of Operations in the period the change occurs. The Company recorded a gain (income) of $10.1 million in the quarter ended June 30, 2019. The resulting gain was primarily due to changes in inputs to the valuation model, including a decline in the stock price. At June 30, 2019, volatility increased to 80.8%, the risk-free rate was 1.84% and the Company’s stock price declined to $2.45 per share. There were also exercises of the Series C warrants during the quarter ended June 30, 2019, which also contributed to the decrease in the value of the liability by $4.8 million.

 

18

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

Assets and liabilities of the Company measured at fair value on a recurring basis as of June 30, 2019 and September 30, 2018 are as follows:

 

   

As of June 30, 2019

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 
                                 

Liabilities:

                               

Warrant liability - Montage

  $ -     $ -     $ 26     $ 26  

Warrant liability - Series A, B and C

    -       -       5,700       5,700  

Total Liabilities

  $ -     $ -     $ 5,726     $ 5,726  

 

 

   

As of September 30, 2018

 
   

Level 1

   

Level 2

   

Level 3

   

Total

 
                                 

Liabilities:

                               

Warrant liability - Montage

  $ -     $ -     $ 180     $ 180  

Total Liabilities

  $ -     $ -     $ 180     $ 180  

 

 

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

 

   

Nine Months Ended

June 30,

 
   

2019

 

Balance at beginning of period, October 1, 2018

  $ 180  

Additions

    -  

Adjustment to fair value

    (12 )

Balance at end of period, December 31, 2018

    168  

Additions

    21,500  

Adjustment to fair value

    (1,046 )

Balance at end of period, March 31, 2019

    20,622  
Exercises     (4,750 )

Adjustment to fair value

    (10,146 )

Balance at end of period, June 30, 2019

  $ 5,726  

 

 

 

6. Goodwill

 

The carrying value of goodwill is not amortized, but is typically tested for impairment annually, as well as, whenever events or changes in circumstances indicate that the carrying amount of a reporting unit may not be recoverable. 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.  

 

An interim test was performed at December 31, 2018, as a decline in the stock price and other negative qualitative factors led management to conclude that there was a potential impairment. The fair value was calculated using the Company’s market price.  In performing the interim impairment test, Management concluded that goodwill was impaired and recorded a charge of $3.7 million. This amount is reflected as a reduction in goodwill of $3.7 million in the Company’s Condensed Consolidated Balance Sheet as of June 30, 2019 with the offset as an expense in the Company’s Condensed Consolidated Statement of Operations. There was no additional impairment at June 30, 2019. 

 

19

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

On March 13, 2019, the Company entered into an Asset Purchase Agreement with Stantive and recorded goodwill of $1.5 million, which represented the excess of purchase price over the fair market value of the assets acquired.

 

Changes in the carrying value of goodwill are as follows:

 

   

As of

   

As of

 
   

June 30, 2019

   

September 30, 2018

 

Balance at beginning of period

  $ 7,782     $ 12,641  

Acquisitions

    1,507       -  

Impairment

    (3,732 )     (4,859 )

Balance at end of period

  $ 5,557     $ 7,782  

 

 

 

7.   Intangible Assets

 

The components of intangible assets, net of accumulated amortization, are as follows:

 

   

As of

   

As of

 
   

June 30, 2019

   

September 30, 2018

 

Domain and trade names

  $ 76     $ 10  

Customer related

    2,166       -  

Technology

    1,505       -  

Non-compete agreements

    -       10  

Balance at end of period

  $ 3,747     $ 20  

 

 

Total amortization expense related to intangible assets for the nine months ended June 30, 2019 and the year ended September 30, 2018 was $306 and $242, respectively, and is reflected in operating expenses on the Condensed Consolidated Statements of Operations. The estimated amortization expense for fiscal year 2019 (remaining), 2020, 2021, 2022 and thereafter is $238, $900, $858, $763, and $988, respectively.

 

 

 

8.   Restructuring and Acquisition Related Expenses

 

Restructuring Expenses

 

Commencing in fiscal 2015 and through fiscal 2019, the Company’s management approved, committed to and initiated plans to restructure and further improve efficiencies by implementing cost reductions in line with expected decreases in revenue. The Company renegotiated several office leases and relocated to smaller space, while also negotiating sub-leases for the original space. In addition, the Company executed a general work-force reduction and recognized costs for severance and termination benefits. These restructuring charges and accruals require estimates and assumptions, including contractual rental commitments or lease buy-outs for vacated office space and related costs, and estimated sub-lease income. The Company’s sub-lease assumptions include the rates to be charged to a sub-tenant and the timing of the sub-lease arrangement. All of the vacated lease spaces are currently contractually occupied by new sub-tenants for the remaining life of the lease. In the second quarter of fiscal 2017, the Company initiated a plan to shut down its operations in India, which is targeted to be completed in fiscal 2019. In the third quarter of fiscal 2019, the Company incurred further restructuring expenses related to a work-force reduction primarily for its international operations and recognized costs for severance and termination benefits.

 

20

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

All of these estimates and assumptions will be monitored on a quarterly basis for changes in circumstances with the corresponding adjustments reflected in the consolidated statement of operations. All of these estimates and assumptions will be monitored on a quarterly basis for changes in circumstances with the corresponding adjustments reflected in the Condensed Consolidated Statements of Operations.

 

The following table summarizes the restructuring activity for the nine months ended June 30, 2019:

 

 

   

Facility Closures

and Other Costs

 

Balance at beginning of period, October 1, 2018

  $ 78  

Charges to operations

    -  

Cash disbursements

    (29 )

Balance at end of period, December 31, 2018

    49  

Charges to operations

    -  

Cash disbursements

    (14 )

Balance at end of period, March 31, 2019

    35  

Charges to operations

    420  

Cash disbursements

    (14 )

Balance at end of period, June 30, 2019

  $ 441  

 

 

The components of the accrued restructuring liabilities is as follows:

 

   

As of

   

As of

 
   

June 30, 2019

   

September 30, 2018

 

Facilities and related

  $ 21     $ 77  

Other costs (employee termination costs)

    420       1  

Total

  $ 441     $ 78  

 

 

As of June 30, 2019, $441 was reflected in Accrued liabilities in the Condensed Consolidated Balance Sheet. As of September 30, 2018, $53 is reflected in Accrued liabilities and $25 is reflected in Other long term liabilities in the Condensed Consolidated Balance Sheet.

 

Acquisition Related Expenses

 

In connection with the acquisition of Stantive, the Company incurred legal, accounting and consulting fees of $124 and $428 for the three and nine months ended June 30, 2019, respectively, which is included in Restructuring and acquisition related expenses in the Condensed Consolidated Statements of Operations.

 

 

 

9.   Debt

 

The Company has a Line of Credit with Heritage Bank of Commerce (“Heritage Bank”). As of June 30, 2019, the Company has no borrowings on the Line of Credit. The Company’s debt as of September 30, 2018 consisted of the Line of Credit from Heritage Bank, a term loan with Montage Capital II, L.P. (“Montage Capital”), and Promissory Term Notes.

 

21

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

Debt at September 30, 2018 consists of the following:

 

 

   

As of

 
   

September 30, 2018

 

Line of credit borrowings

  $ 2,081  

Term loan - Montage Capital

    922  

Other promissory notes

    941  

Other (debt discount)

    (353 )

Total debt

    3,591  

Less current portion

    1,017  

Long term debt, net of current portion

  $ 2,574  

 

 

Heritage Line of Credit

 

In June 2016, the Company entered into a new Loan and Security Agreement (“Heritage Agreement”), with Heritage Bank. The Heritage Agreement had an original term of 24 months but was further amended in February 2019 to a maturity date of February 29, 2020. The Company paid an annual commitment fee of 0.4% of the commitment amount in the first year and 0.2% in the following years.  The facility fee will be $6 on each anniversary thereafter. Borrowings are secured by all of the Company’s assets and all of the Company’s intellectual property. The Company is required to comply with certain financial and reporting covenants including an Asset Coverage Ratio and an Adjusted EBITDA metric. The Company was in compliance with the Adjusted EBITDA metric as of June 30, 2019.

 

The Heritage Agreement provides for up to $2.5 million of revolving credit advances which may be used for acquisitions and working capital purposes. Borrowings are limited to the lesser of (i) $2.5 million and (ii) 75% of eligible receivables as defined. The Company can borrow up to $1.0 million in out of formula borrowings for specified periods of time. The borrowings or credit advances may not exceed the monthly borrowing base capacity, which will fluctuate based on monthly accounts receivable balances. The Company may request credit advances if the borrowing capacity is more than the current outstanding loan advance and must pay down the outstanding loan advance if it exceeds the borrowing capacity.  As of June 30, 2019, the Company had no outstanding balance under the Heritage Agreement.

 

Amendments – Heritage Bank

 

The Company and Heritage Bank have executed numerous amendments since the origination of the Heritage Agreement. Those amendments that are significant as of June 30, 2019 are the following:

 

The first amendment, executed on August 15, 2016, included a decrease in the revolving line of credit from $3.0 million to $2.5 million. The second amendment, executed on December 14, 2016, included a minimum cash requirement of $250 in the Company’s accounts at Heritage. On October 6, 2017, a fourth amendment was executed, which included a consent to the Company’s incurrence of additional indebtedness from Montage Capital and the grant of a second position lien to Montage Capital. In addition, Heritage Bank and Montage Capital entered into an Intercreditor Agreement dated October 10, 2017 and acknowledged by the Company. On September 21, 2018, the ninth amendment was executed and addressed the minimum unrestricted cash requirements for the Company’s accounts at Heritage Bank upon repayment of certain Promissory Term Notes issued by the Company on September 7, 2018 in the principal amount of $941. On December 27, 2018, the tenth amendment was executed, which extended the maturity date of the Loan Agreement to January 1, 2020, as well as, set new financial covenants for fiscal 2019. On February 14, 2019, the eleventh amendment was executed, which extended the maturity date of the Loan Agreement to February 29, 2020, as well as, set new financial covenants for fiscal 2019. On May 15, 2019, the twelfth amendment was executed, which included a waiver for a failed covenant metric.

 

22

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

Montage Capital II, L.P. Loan Agreement

 

On October 10, 2017, the Company entered into a Loan and Security Agreement (the “Montage Agreement” or “Montage Loan”) with Montage Capital. The Montage Agreement has a thirty-six (36) month term which matures on October 10, 2020. $1 million of borrowing was advanced on the date of closing. Borrowings bear interest at the rate of 12.75% per annum.

 

On May 10, 2018, the first amendment to the Montage Agreement (the “First Amendment”) was executed. The First Amendment included the Adjusted EBITDA metrics for the third quarter of fiscal 2018 and a waiver for not achieving the Adjusted EBITDA metrics for the quarter ended March 31, 2018. A second amendment to the Montage Agreement (the “Second Amendment”) was executed on October 22, 2018. The Second Amendment included modifications to financial covenants and addressed the minimum unrestricted cash requirements for the Company’s accounts at Heritage Bank upon repayment of debt incurred by the Company pursuant to certain Promissory Term Notes (see below) issued by the Company on September 7, 2018 in the amount of $941. A third amendment to the Montage Agreement (the “Third Amendment”) was executed on December 7, 2018 and included the new financial covenants for fiscal 2019. The Montage Loan was paid in full and discharged on March 13, 2019. A loss on early extinguishment of debt of $221 was recorded in the three months ended March 31, 2019 related to the remaining unamortized debt discount expense.

 

Promissory Term Notes

 

On September 7, 2018, the Company sold and issued subordinate promissory notes (the “Promissory Term Notes”) to certain accredited investors (“Purchasers”), pursuant to which it issued to the Purchasers (i) Promissory Term Notes, in the aggregate principal amount of approximately $941. The Promissory Term Notes had an original issue discount of fifteen percent (15%), bore interest at a rate of twelve percent (12%) per annum, and had a maturity date of the earlier to occur of (a) six months from the date of execution of the Purchase Agreement, or (b) the consummation of a debt or equity financing resulting in the gross proceeds to the Company of at least $3.0 million. After recording $141 of original issue discount and debt issuance costs of $40, the Company received net cash proceeds in the aggregate amount of $760 for the Promissory Term Notes. On October 19, 2018, the Company completed an equity financing resulting in gross proceeds of $5.0 million and repaid the Promissory Term Notes including accrued interest of $13 for a total of $954 on October 23, 2018.

 

Further, Heritage Bank and Montage Capital both approved the issuance of the Promissory Term Notes and the repayment terms and each Purchaser also entered into a Subordination Agreement with the two parties, pursuant to which the Purchasers agreed to subordinate (i) all of the Company’s indebtedness and obligations to the Purchasers, whether presently existing or arising in the future, to all of the Company’s indebtedness the both Heritage Bank and Montage Capital and (ii) all of the Purchasers’ security interests, if any, to all of Heritage Bank’s and Montage Capital’s security interests in property of the Company.

 

 

10.   Shareholders Equity

 

Preferred Stock Series A Convertible Stock

 

In October 2014, the Company designated 264,000 shares of its Preferred stock (the “Preferred Stock”) as Series A convertible preferred stock and sold 200,000 shares of Series A convertible preferred stock at a purchase price of $10.00 per share for gross proceeds of $2.0 million in a private placement. The shares of Preferred Stock may be converted, at the option of the holder at any time, into such number of shares of common stock (“Conversion Shares”) equal (i) to the number of shares of Preferred Stock to be converted, multiplied by the stated value of $10.00 (the “Stated Value”) and (ii) divided by the conversion price in effect at the time of conversion. The current conversion price is $812.50 and is subject to adjustment in the event of stock splits or stock dividends. As of June 30, 2019, a total of 1,636 preferred shares have been converted to 20 shares of common stock.

 

23

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

Any accrued but unpaid dividends on the shares of Preferred Stock to be converted shall also be converted in common stock at the conversion price. A mandatory provision also may provide that the Company will have the right to require the holders to convert shares of Preferred Stock into Conversion Shares if (i) the Company’s common stock has closed at or above $1,625 per share for ten consecutive trading days and (ii) the Conversion Shares are (A) registered for resale on an effective registration statement or (B) may be resold pursuant to Rule 144.

 

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

 

Effective January 1, 2017, cumulative dividends are payable at a rate of 12% per year. The Company has issued 64,000 shares of Preferred Stock as PIK dividends to the preferred shareholders, which is the maximum amount of cumulative PIK dividends authorized. Therefore, all future dividend payments will be cash dividends. Total cash dividend payments for the nine months ended June 30, 2019 were $235.

 

Preferred Stock Series B Convertible Stock

 

On October 16, 2018, in connection with a public offering, the Company issued 4,288 Series B Convertible Preferred Stock, par value $0.001 per share, with each share of Series B Convertible Preferred Stock convertible into 40 shares of the Company’s common stock at a conversion price of $25.00 per share. As of June 30, 2019, all of the shares of Series B Convertible Preferred Stock were converted into 171,520 shares of common stock.

 

Series C Preferred Convertible Stock and Associated Warrants

 

On March 12, 2019, the Company entered into Securities Purchase Agreements with certain accredited investors (each, a “Purchaser”), pursuant to which the Company offered and sold to the Purchasers an aggregate of 10,227.5 units (“Units”) for $1,000 per Unit, with such Units consisting of (i) an aggregate of 10,227.5 shares of the Company’s newly designated Series C Convertible Preferred Stock, par value $0.001 per share (“Series C Preferred stock”); (ii) warrants to purchase an aggregate of 1,136,390 shares of Company common stock, par value $0.001 per share (“Common Stock”), subject to adjustment (as set forth below), with a term of 5.5 years (“Series A Warrants”); (iii) warrants to purchase an aggregate of 1,136,390 shares of Common Stock, subject to adjustment (as set forth below), with a term of 24 months (“Series B Warrants”); and (iv) warrants to purchase an aggregate of 1,420,486 shares with a term of 5.5 years (“Series C Warrants,” and together with the Series A Warrants and Series B Warrants, the “Series C Preferred Warrants”). The Company also issued warrants to purchase an aggregate of 127,848 shares of the Company’s Common Stock to the placement agents that were also subject to the same resets as described below.

 

At the time of issuance, no shares of Series C Preferred stock could be converted into Conversion Shares and no Series C Preferred Warrants could be exercised for shares of Common Stock, unless and until such time that the Company had obtained approval from its stockholders, at an annual or special meeting or via written consent, to (i) issue the Conversion Shares and warrants upon the conversion and exercise of the Series C Preferred stock and associated warrants, respectively, which number of shares in the aggregate exceeds 20% of the Company’s shares of Common Stock issued and outstanding immediately prior to the Closing Date, as required by Nasdaq Marketplace Rule 5635(d) (the “Issuance Approval”), and (ii) amend its Amended and Restated Certificate of Incorporation, as amended (“Charter”) to increase the number of shares of Common Stock available for issuance thereunder (or effect a reverse stock split of its issued and outstanding shares of Common Stock so as to effectively increase the number of shares of Common Stock available for issuance) by a sufficient amount to permit the conversion of all outstanding Series C Preferred stock into Conversion Shares and all Series C Preferred Warrants into warrant shares (the “Authorized Share Approval,” and together with the Issuance Approval, the “Stockholder Approvals”). In addition, the Company may not effect, and a Purchaser will not be entitled to, convert the Series C Preferred stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of Common Stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of Common Stock outstanding immediately after giving effect to the exercise. The Stockholder Approvals were obtained on April 26, 2019 and the Company’s Charter was amended on April 29, 2019. As of June 30, 2019, a total of 9,786.50 shares of Series C Preferred stock have been converted to 1,087,443 shares of Common Stock.

 

24

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

The Company determined that the Series C Preferred stock and the Series C Preferred Warrants are each separate freestanding financial instruments issued in a single transaction (the Private Placement) and that Series C Warrants have been determined to be derivative liabilities, which are measured at fair value on a recurring basis. The net proceeds of that single transaction were allocated to each of the freestanding financial instruments based on their fair values. The purchase price was allocated to the Series C Preferred Warrants first leaving no value for the Series C Preferred stock, as the Series C Warrants were fair valued at $21.5 million and the total proceeds were only $10.3 million. The final allocation of the proceeds resulted in a charge against income of $11.2 million for the excess of the fair value over the net proceeds, which was recorded in the second quarter of fiscal 2019.

 

Common Stock

 

Public Offering

 

On October 16, 2018, the Company issued and sold in a public offering (the “Offering”) an aggregate of (i) 28,480 Class A Units (the “Class A Units”) at a price of $25.00 per Class A Unit, consisting of (i) one share of the Company’s common stock and one five-year warrant to purchase one share of Company common stock at an exercise price of $25.00 per share and (ii) 4,288 Class B Units, consisting of one share of Series B Convertible Preferred Stock and a Warrant to purchase one share of common stock. The net proceeds to the Company from the Offering, after deducting the underwriter’s fees and expenses, was approximately $4.4 million. 

 

In addition, the Company granted the underwriter of the Offering a 45-day option (the “Over-allotment Option”) to purchase up to an additional 30,000 shares of common stock and additional warrants to purchase an additional 30,000 shares of common stock. At the time of the Offering, the underwriter partially exercised the Over-allotment Option by electing to purchase from the Company additional warrants to purchase 8,000 shares of common stock.

 

Amended and Restated Stock Incentive Plan

 

The Company has granted common stock, common stock warrants, and common stock option awards (the “Equity Awards”) to employees, consultants, advisors and debt holders of the Company and to former owners and employees of acquired companies that have become employees of the Company. On April 29, 2016, the stockholders approved a new stock incentive plan, The 2016 Stock Incentive Plan (the “2016 Plan”). The 2016 Plan replaced an older plan that had expired in August 2016. No new shares will be granted under the old plan. The 2016 Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company. Initially, a total of 10,000 shares of the Company’s Common Stock is reserved for issuance under the 2016 Plan. As of June 30, 2019, there were 7,859 options outstanding under this plan and 5,399 shares available for future issuance.

 

Compensation expense

 

The Company estimates the fair value of stock options using the Black-Scholes-Merton option valuation model.  Compensation expense is generally recognized on a graded accelerated basis over the vesting period of grants. Compensation expense is recorded in the Condensed Consolidated Statements of Operations with a portion charged to Cost of Goods Sold and a portion to Operating Expenses depending on the employee’s department. During the three and nine months ended June 30, 2019, the Company recognized $74 and $209, respectively, as compensation expense related to share based payments related to stock options. For the three and nine months ended June 30, 2018, the Company recognized $126 and $373, respectively, as compensation expense related to share based payments related to stock options. As of June 30, 2019, the Company had approximately $59 of unrecognized compensation costs related to unvested options, which the Company expects to recognize through fiscal 2021.

 

Common Stock Warrants

 

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

 

25

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

Montage Warrant - As additional consideration for the Montage Loan, the Company issued to Montage Capital an eight-year warrant (the “Montage Warrant”) to purchase 1,326 shares of the Company’s common stock at a price equal to $132.50 per share. The Montage Warrant contains an equity buy-out provision upon the earlier of (1) dissolution or liquidation of the Company, (2) any sale or distribution of all or substantially all of the assets of the Company or (3) a “Change in Control” as defined within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934. Montage Capital shall have the right to receive an equity buy-out of $250. If the equity buy-out is exercised, the Montage Warrant will be surrendered to the Company for cancellation. The fair value of the Montage warrant liability at June 30, 2019 is $26 and is included in Warrant liabilities in the Condensed Consolidated Balance Sheet.

 

Series A, B and C Preferred Warrants - Reset Dates and Reset Price - The Series A Warrants and Series B Warrants had an initial exercise price of $9.00 per share; provided, however, that the exercise price of the Series A Warrants and Series B Warrants could be reset up to three times (each, a “Reset Date”), as more specifically set forth in the Series C Warrants, to a price equal to the greater of (i) 80% of the average of the two lowest VWAP days out of the 20 consecutive trading days immediately preceding the Reset Date, and (ii) $4.00 (the “Floor”) (the “Reset Price”). Upon the applicable Reset Date, the number of shares of Common Stock issuable pursuant to the Series A Warrants and Series B Warrants would also be adjusted, as more specifically set forth in the Series C Warrants. The Series C Warrants, were not exercisable until the applicable Reset date. At the First Reset Date, which was May 29, 2019, the Reset Price was set to the Floor price of $4.00 per share. Therefore, there will be no future Reset Dates or Reset Prices. The shares were fixed to the following at the Reset Date: the number of shares of Common Stock issuable upon exercise of the Series A Warrants is 2,556,875 shares, Series B Warrants is 2,556,875 shares, and Series C Warrants is 1,420,486. The number of shares of Common Stock issuable upon exercise of warrants issued to the placement agents is 127,848 shares.


During the three months ended June 30, 2019, shareholders exercised 1,347,050 shares of the Series C Warrants. There were no Series A, B or placement agents warrants exercised as of June 30, 2019. The fair value of the total warrant liability related to the Series A, B and C warrants and the placement agent warrants at June 30, 2019 is $5.7 million and is included in Warrant liabilities in the Condensed Consolidated Balance Sheets.

 

26

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

Total warrants outstanding as June 30, 2019 were as follows:

 

   

Issue

                 

Type

 

Date

 

Shares

   

Price

 

Expiration

Placement Agent

 

10/28/2014

    247     $ 812.50  

10/28/2019

Director/Shareholder

 

12/31/2014

    240     $ 1,000.00  

12/31/2019

Director/Shareholder

 

2/12/2015

    240     $ 1,000.00  

2/12/2020

Director/Shareholder

 

5/12/2015

    240     $ 1,000.00  

5/12/2020

Director/Shareholder

 

12/31/2015

    120     $ 1,000.00  

12/31/2020

Placement Agent

 

5/17/2016

    1,736     $ 187.50  

5/17/2021

Placement Agent

 

5/11/2016

    1,067     $ 187.50  

5/11/2021

Placement Agent

 

7/15/2016

    880     $ 230.00  

7/15/2021

Investors

 

11/9/2016

    4,271     $ 175.00  

5/22/2022

Director/Shareholder

 

12/31/2016

    120     $ 1,000.00  

12/31/2021

Financing (Montage)

 

10/10/2017

    1,327     $ 132.50  

10/10/2025

Director/Shareholder

 

12/31/2017

    120     $ 1,000.00  

12/31/2021

Placement Agent

 

10/16/2018

    10,000     $ 31.25  

10/16/2023

Investors

 

10/19/2018

    3,120     $ 25.00  

10/19/2023

Investors

 

3/12/2019

    159,236     $ 4.00  

10/19/2023

Investors

 

3/12/2019

    2,556,875     $ 4.00  

9/12/2021

Investors

 

3/12/2019

    2,556,875     $ 4.00  

9/12/2024

Investors

 

3/12/2019

    73,462     $ 0.05  

9/12/2024

Placement Agent

 

3/12/2019

    127,848     $ 4.00  

9/12/2024

Total

    5,498,024            

 

27

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

Summary of Option and Warrant Activity and Outstanding Shares

 

   

Stock Options

   

Stock Warrants

 
           

Weighted

           

Weighted

 
           

Average

           

Average

 
           

Exercise

           

Exercise

 
   

Options

   

Price

   

Warrants

   

Price

 
                                 

Outstanding, October 1, 2018

    9,157     $ 341.50       10,926     $ 308.32  

Granted

    -       -       7,084,990       3.86  

Exercised

    -       -       (1,392,694 )     0.18  

Forfeited/Exchanged

    (1,128 )     (486 )     (204,880 )     (25.00 )

Expired

    (181 )     (1,219 )     (318 )     (1,373.43 )

Outstanding, June 30, 2019

    7,848     $ 306.41       5,498,024     $ 4.53  

 

 

As of June 30, 2019, there are 5,688 options available for exercise.  All options are out-of-the-money and have a zero intrinsic value.

 

 

11.  Net Income/(Loss) Per Share

 

 

Basic and diluted net income/(loss) per share is computed as follows:

 

 

   

Three Months Ended

   

Nine Months Ended

 

(in thousands, except per share data)

 

June 30,

   

June 30,

 
   

2019

   

2018

   

2019

   

2018

 
Numerator:                                

Net income/(loss)

  $ 7,311     $ (5,162 )   $ (10,166 )   $ (6,272 )
Change in warrant derivative liability     (18 )     -       (18 )     -  

Accrued dividends on convertible preferred stock

    (78 )     (79 )     (235 )     (231 )

Net income/(loss) applicable to common shareholders

  $ 7,215     $ (5,241 )   $ (10,419 )   $ (6,503 )
Denominator:                                

Weighted average shares outstanding for basic earnings per share 

    1,996       85       840       84  
    Effect of dilutive securities:                                

        Warrants

    1       -       1       -  
         Preferred stock     36       -       -       -  
Adjusted weighted-average shares outstanding and assumed conversions for diluted earnings per share     2,033       85       841       84  
                                 

Basic net income/(loss) per share

  $ 3.62     $ (61.78 )   $ (12.38 )   $ (77.00 )
    Diluted net income/(loss) per share   $ 3.56     $ (61.78 )   $ (12.38 )   $ (77.00 )

 

 

Basic net income/(loss) per share is computed by dividing net income/(loss) available to common shareholders by the weighted average number of common shares outstanding.  Diluted net income/(loss) per share applicable to common shareholders is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock options, warrants and convertible preferred stock using the “treasury stock” method. For the three months ended June 30, 2019, stock options of 7,848 and warrants to purchase 5,424,562 shares of common stock were not included in the computation of diluted net income per share because they were considered antidilutive. For the three months ended June 30, 2018 and both the nine months ended June 30, 2019 and 2018, the diluted net loss per share is the same as the basic net loss per share as the effects of all the Company’s potential common stock equivalents are antidilutive because the Company reported a loss for the periods.

 

 

12.  Disaggregated Revenue and Segment Reporting

 

The Company operates as one operating segment, therefore, all required financial segment information can be found in the Condensed Consolidated Financial Statements. 

 

The Company disaggregates revenue from contracts with customers by geography and product grouping, as it believes this best depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

 

28

 

 

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

 

 

The Company’s revenue by geography (based on customer address) is as follows:

 

   

Three Months Ended

   

Nine Months Ended

 
   

June 30,

   

June 30,

 

Revenues:

 

2019

   

2018

   

2019

   

2018

 

United States

  $ 2,369     $ 2,538     $ 6,631     $ 9,894  

International

    324       545       633       871  
    $ 2,693     $ 3,083     $ 7,264     $ 10,765  

 

 

The Company’s revenue by type is as follows:

 

   

Three Months Ended

   

Nine Months Ended

 
   

June 30,

   

June 30,

 

Revenues:

 

2019

   

2018

   

2019

   

2018

 

Digital Engagement Services

  $ 1,102     $ 1,578     $ 3,070     $ 5,559  

Subscription

    1,230       1,140       2,934       3,935  

Perpetual Licenses

    -       7       145       72  

Maintenance

    92       115       332       360  

Hosting

    269       243       783       839  
    $ 2,693     $ 3,083     $ 7,264     $ 10,765  

 

 

 

13.  Income Taxes

 

Income tax expense was $3 and $10 for the three months ended June 30, 2019 and 2018, respectively, and $7 and $11 for the nine months ended June 30, 2019 and 2018, respectively. Income tax expense consists of the estimated liability for federal and state income taxes owed by the Company.  Net operating loss carry forwards are estimated to be sufficient to offset any potential taxable income for all periods presented.

 

 

14.  Related Party Transactions

 

In November 2018, the Company engaged Taglich Brothers Inc, on a non-exclusive basis, to perform advisory and investment banking services to identify possible acquisition target possibilities. Michael Taglich, a director and shareholder of the Company, is the President and Chairman of Taglich Brothers Inc. Fees for the services were $8 per month for three months and $5 thereafter, cancellable at any time. Taglich Brothers Inc. could also earn a success fee ranging from $200 for a revenue target acquisition of under $5 million up to $1 million for an acquisition target over $200 million. In connection with the asset purchase of Stantive, The Taglich Brothers earned a success fee of $200.

 

Michael Taglich also purchased 350 units in the amount of $350 of Series C Preferred Convertible stock and associated warrants in the private transaction consummated on March 13, 2019. Mr. Taglich’s purchase was subject to stockholder approval pursuant to Nasdaq Marketplace Rule 5635(c), for which approval by the stockholders of the Company was obtained on April 26, 2019.

 

 

15.  Legal Proceedings

 

The Company is subject to ordinary routine litigation and claims incidental to its business. As of June 30, 2019, the Company was not engaged with any material legal proceedings.

 

 

 

16. Subsequent Events

 

The Company evaluated subsequent events through the date of this filing and concluded there were no material subsequent events requiring adjustment to or disclosure in these interim condensed consolidated financial statements, except as already disclosed in these financial statements.

 

29

 

 

 

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

 

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

 

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

 

Overview

 

Bridgeline Digital, The Digital Engagement Company™, helps customers maximize the performance of their full digital experience from websites and intranets to eCommerce experiences. Bridgeline’s Unbound platform is a Digital Experience Platform that deeply integrates Web Content Management, eCommerce, Marketing Automation, Site Search, Authenticated Portals, Social Media Management, and Web Analytics with the goal of assisting marketers to deliver exceptional digital experiences that attract, engage, nurture and convert their customers across all channels. Bridgeline offers a core accelerator framework for rapidly implementing digital experiences on the Bridgeline Unbound Platform which provides customers with cost-effective solutions in addition to velocity to market.

 

Bridgeline’s Unbound platform combined with its professional services assists customers in digital business transformation, driving lead generation, increasing revenue, improving customer service and loyalty, enhancing employee knowledge, and reducing operational costs. The Bridgeline Unbound platform bridges the gaps between web content management, eCommerce, eMarketing, social and web analytics by providing all of these components in one unified and deeply integrated platform.

 

Our Unbound Franchise product empowers large franchises, healthcare networks, associations/chapters and other multi-unit organizations to manage a large hierarchy of digital properties at scale. The platform provides an easy-to-use administrative console that enables corporate marketing to provide consistency in branding and messaging while providing flexible publishing capabilities at the local-market level. The platform empowers brand networks to unify, manage, scale and optimize a hierarchy of web properties and marketing campaigns on a global, national and local level.

 

The Unbound platform is delivered through a cloud-based software as a service (“SaaS”) model, whose flexible architecture provides customers with state-of-the-art deployment providing maintenance, daily technical operation and support; or via a traditional perpetual licensing business model, in which the software resides on a dedicated 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 Burlington, Massachusetts.  The Company has three wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd. located in Bangalore, India, Bridgeline Digital Canada, Inc. located in Ontario, Canada, and Stantive Technologies Pty, Ltd. located in Australia.

 

 

Acquisitions

 

On February 13, 2019, the Company entered into an Asset Purchase Agreement with Seevolution Inc, a Delaware corporation, Celebros, Inc., a Delaware corporation, and Elisha Gilboa, an individual and shareholder of Seevolution, (the “Seevolution Asset Purchase Agreement”). The Seevolution Asset Purchase Agreement sets forth the terms and conditions pursuant to which the Company acquired certain assets in exchange for consideration paid consisting of (i) $400 thousand in cash at the time of the purchase, (ii) the payment of $100 thousand of additional cash to be paid out $10 thousand per month for ten months starting April 30, 2019 and (iii) 40,000 shares of Bridgeline Digital common stock. Costs to complete the transaction were approximately $18 thousand.

 

30

 

 

On March 13, 2019, the Company entered into an Asset Purchase Agreement with Stantive Technologies Group Inc., (“Stantive”) a corporation organized under the laws of Ontario, Canada to purchase substantially all of the assets of Stantive and assume certain liabilities. The Company also acquired all of the outstanding stock of Stantive Technologies Group, Pty, a company incorporated in Australia, which was a subsidiary of Stantive. The total purchase price for Stantive and its Australian subsidiary was $5.2 million in cash.

 

Customer Information

 

For the three months ended June 30, 2019, two customers represented 14% and 11% of the Company’s total revenue. For the nine months ended June 30, 2019, two customers represented 16% and 12% of the Company’s total revenue. For the three months ended June 30, 2018, two customers each represented 12% and one customer represented 11% of the Company’s total revenue. For the nine months ended June 30, 2018, two customers represented 14% and 12% of the Company’s total revenue.

 

 

Results of Operations for the Three and Nine Months Ended June 30, 2019 compared to the Three and Nine Months Ended June 30, 2018

 

Total revenue for the three months ended June 30, 2019 was $2.7 million and $3.1 million for the three months ended June 30, 2018. We had net income of $7.3 million for the three months ended June 30, 2019 and a net loss of ($5.2) million for the three months ended June 30, 2018. Included in net income for the three months ended June 30, 2019 was a gain of $10.1 million as a result of the change in fair value of certain warrant liabilities, partially offset by restructuring and acquisition costs of $938 thousand.  Included in the net loss for the three months ended June 30, 2018 was a goodwill impairment charge of $4.6 million.  Basic net income/(loss) per share applicable to common shareholders was $3.62 for the three months ended June 30, 2019 and ($61.78) for the three months ended June 30, 2018. Total revenue from acquisitions was $968 thousand for the three months ended June 30, 2019.

 

 

Total revenue for the nine months ended June 30, 2019 was $7.3 million and $10.8 million for the nine months ended June 30, 2018. We had net loss of ($10.2) million for the nine months ended June 30, 2019 and ($6.3) million for the nine months ended June 30, 2018. Included in the net loss for the nine months ended June 30, 2019 was a goodwill impairment of $3.7 million and restructuring and acquisition costs of $1.2 million.  Included in the net loss for the nine months ended June 30, 2018 was a goodwill impairment of $4.6 million. Basic and diluted net loss per share applicable to common shareholders was ($12.38) for the nine months ended June 30, 2019 and ($77.00) for the nine months ended June 30, 2018. Total revenue from acquisitions was $1.3 million for the nine months ended June 30, 2019.

 

31

 

 

   

Three Months

   

Three Months

                   

Nine Months

   

Nine Months

                 

(in thousands)

 

Ended

   

Ended

                   

Ended

   

Ended

                 
   

June 30,

   

June 30,

           

%

   

June 30,

   

June 30,

           

%

 

Revenue

 

2019

   

2018

   

Change

   

Change

   

2019

   

2018

   

Change

   

Change

 

Digital enagement services

  $ 1,118     $ 1,578       (460 )     (29% )   $ 3,102     $ 5,559       (2,457 )     (44% )

% of total net revenue

    42 %     51 %                     43 %     52 %                

Subscription and perpetual licenses

    1,322       1,262       60       5 %     3,411       4,367       (956 )     (22% )

% of total net revenue

    49 %     41 %                     47 %     41 %                

Managed service hosting

    253       243       10       4 %     751       839       (88 )     (10% )

% of total net revenue

    9 %     8 %                     10 %     7 %                

Total net revenue

  $ 2,693     $ 3,083     $ (390 )     (13% )   $ 7,264     $ 10,765     $ (3,501 )     (33% )
                                                                 

Cost of revenue

                                                               

Digital engagement services

    573       977       (404 )     (41% )     2,007       3,666       (1,659 )     (45% )

% of digital engagement services revenue

    51 %     62 %                     65 %     66 %                

Subscription and perpetual licenses

    834       510       324       64 %     2,010       1,503       507       34 %

% of subscription and perpetual revenue

    63 %     40 %                     59 %     34 %                

Managed service hosting

    84       47       37       79 %     222       213       9       4 %

% of managed service hosting revenue

    33 %     19 %                     30 %     25 %                

Total cost of revenue

    1,491       1,534       (43 )     (3% )     4,239       5,382       (1,143 )     (21% )

Gross profit

    1,202       1,549       (347 )     (22% )     3,025       5,383       (2,358 )     (44% )

Gross profit margin

    45 %     50 %                     42 %     50 %                
                                                                 

Operating expenses

                                                               

Sales and marketing

    1,268       892       376       42 %     3,083       2,800       283       10 %

% of total revenue

    47 %     29 %                     42 %     26 %                

Support

    201       99       102       103 %     436       245       191       78 %

% of total revenue

    7 %     3 %                     6 %     2 %                

General and administrative

    785       625       160       26 %     2,216       2,156       60       3 %

% of total revenue

    29 %     20 %                     31 %     20 %                

Research and development

    592       406       186       46 %     1,499       1,221       278       23 %

% of total revenue

    22 %     13 %                     21 %     11 %                

Depreciation and amortization

    257       93       164       176 %     361       305       56       18 %

% of total revenue

    10 %     3 %                     5 %     3 %                

Goodwill impairment

    -       4,615       (4,615 )     100 %     3,732       4,615       (883 )     (19% )

% of total revenue

    0 %     150 %                     51 %     43 %                

Restructuring and acquisition related expenses

    938       6       932       15,533 %     1,242       187       1,055       564 %

% of total revenue

    35 %     0 %                     17 %     2 %                

Total operating expenses

    4,041       6,736       (2,695 )     (40% )     12,569       11,529       1,040       9 %
                                                                 
                                                                 

Loss from operations

    (2,839 )     (5,187 )     2,348       (45% )     (9,544 )     (6,146 )     (3,398 )     55 %

Interest income (expense), net

    7       (70 )     77       (110% )     (305 )     (199 )     (106 )     53 %

Amortization of debt discount

    -       (28 )     28       (100% )     (231 )     (82 )     (149 )     182 %
    Other income (expense), net     10,146       133       10,013       7,529 %     (79 )     166       (245 )     (148% )

Income/(loss) before income taxes

    7,314       (5,152 )     12,466       (242% )     (10,159 )     (6,261 )     (3,898 )     62 %

Provision for income taxes

    3       10       (7 )     70 %     7       11       (4 )     (36% )
                                                                 

Net income/(loss)

  $ 7,311     $ (5,162 )   $ 12,473       (242% )   $ (10,166 )   $ (6,272 )   $ (3,894 )     62 %
                                                                 

Non-GAAP Measure:

                                                               

Adjusted EBITDA

  $ (1,562 )   $ (332 )   $ (1,230 )     370 %   $ (3,974 )   $ (611 )   $ (3,363 )     550 %

 

32

 

 

Revenue

 

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

 

Digital Engagement Services

 

Digital engagement services revenue is comprised of implementation and retainer related services. In total, revenue from digital engagement services decreased $460 thousand, or 29%, to $1.1 million for the three months ended June 30, 2019 compared to $1.6 million for the three months ended June 30, 2018 and decreased $2.5 million, or 44%, to $3.1 million for the nine months ended June 30, 2019 compared to $5.6 million for the nine months ended June 30, 2018. The decrease for the three and nine months ended June 30, 2019 compared to the prior period is primarily due to a decrease in new service engagements. Digital engagement services revenue as a percentage of total revenue decreased to 42% from 51% for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and decreased to 43% from 52% for the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018. The decrease as a percentage of total revenue is attributable to overall decreases in revenues generated from service engagements. Digital engagement services revenue from acquisitions was $384 thousand and $512 thousand for the three and nine months ended June 30, 2019.

 

Subscription and Perpetual Licenses

 

Revenue from subscription and perpetual licenses increased $60 thousand, or 5%, to $1.3 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and decreased $956 thousand, or 22%, to $3.4 million for the nine months ended June 30, 2019 compared to $4.4 million for the nine months ended June 30, 2018.  The increase for the three months ended June 30, 2019 compared to the prior period is primarily due to license revenues realized from our two recent acquisitions. The decrease for the nine months ended June 30, 2019 compared to the prior period is primarily due to a decline in SaaS license revenue due to the loss of a large customer that we previously disclosed. Subscription and perpetual license revenue as a percentage of total revenue increased to 49% from 41% for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and increased to 47% from 41% for the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018. The increase as a percentage of total revenue is attributable to the overall decreases in digital engagement services revenue. Subscription and perpetual license revenue from acquisitions was $584 thousand and $751 thousand for the three and nine months ended June 30, 2019.

 

Managed Service Hosting

 

Revenue from managed service hosting increased $10 thousand, or 4%, to $253 thousand for the three months ended June 30, 2019 compared to $243 thousand for the three months ended June 30, 2018 and decreased $88 thousand, or 10%, to $751 thousand for the nine months ended June 30, 2019 compared to $839 thousand for the nine months ended June 30, 2018. The decrease for the nine months ended June 30, 2019 compared to the prior period is due to customer attrition offset by new hosting contracts entered into the current fiscal year. Managed services revenue as a percentage of total revenue increased to 9% for the three months ended June 30, 2019 compared to 8% for the three months ended June 30, 2018 and increased to 10% for the nine months ended June 30, 2019 compared to 7% for the nine months ended June 30, 2018. The increase as a percentage of revenue is attributable to the overall decreases in other revenue streams.

 

Costs of Revenue

 

Total cost of revenue decreased $43 thousand, or 3%, to $1.5 million for the three months ended June 30, 2019 compared to the three months ended June 30, 2018 and decreased $1.1 million, or 21%, to $4.2 million for the nine months ended June 30, 2019 compared to $5.4 million for the nine months ended June 30, 2018. The gross profit margin declined to 45% and 42% for the three and nine months ended June 30, 2019, respectively, compared to 50% for the three and nine months ended June 30, 2018. The decline in the gross profit margin for the three and nine months ended June 30, 2019 compared to the three and nine months ended June 30, 2018 is attributable to the decrease in digital engagement services revenue.

 

33

 

 

Cost of Digital Engagement Services

 

Cost of digital engagement services decreased $404 thousand, or 41%, to $573 thousand for the three months ended June 30, 2019 compared to $977 thousand for the three months ended June 30, 2018 and decreased $1.7 million, or 45%, to $2.0 million for the nine months ended June 30, 2019 compared to $3.7 million for the nine months ended June 30, 2018. The decrease is primarily due to a decrease in headcount. The cost of digital engagement services as a percentage of digital engagement services revenue increased to 51% for the three months ended June 30, 2019 compared to 62% for the three months ended June 30, 2018 and decreased to 65% for the nine months ended June 30, 2019 compared to 66% for the nine months ended June 30, 2018.   The decreases as a percentage of revenues for the three and nine months ended June 30, 2019 as compared to the three and nine months ended June 30, 2018 is primarily due to under-utilization of billable consultants due to the decrease in engagements.

 

Cost of Subscription and Perpetual License

 

Cost of subscription and perpetual licenses increased $324 thousand, or 64%, to $834 thousand for the three months ended June 30, 2019 compared to $510 thousand for the three months ended June 30, 2018 and increased $507 thousand, or 34%, to $2.0 million for the nine months ended June 30, 2019 compared to $1.5 million for the nine months ended June 30, 2018. The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue increased to 63% for the three months ended June 30, 2019 compared to 40% for the three months ended June 30, 2018 and increased to 59% for the nine months ended June 30, 2019 compared to 34% for the nine months ended June 30, 2018. The increases are attributable to fixed costs to operate our cloud-based hosting model with Amazon Web Services and variable internal support costs.

 

Cost of Managed Service Hosting

 

Cost of managed service hosting increased $37 thousand, or 79%, to $84 thousand for the three months ended June 30, 2019 compared to $47 thousand for the three months ended June 30, 2018 and increased $9 thousand, or 4%, to $222 thousand for the nine months ended June 30, 2019 compared to $213 thousand for the nine months ended June 30, 2018. The cost of managed services as a percentage of managed services revenue increased to 33% for the three months ended June 30, 2019 compared to 19% for the three months ended June 30, 2018 and increased to 30% for the nine months ended June 30, 2019 compared to 25% for the nine months ended June 30, 2018. The increases are attributable to fixed costs to operate our cloud-based hosting model with Amazon Web Services and variable internal support costs.

 

Operating Expenses

 

Sales and Marketing Expenses

 

Sales and marketing expenses increased $376 thousand, or 42%, to $1.3 million for the three months ended June 30, 2019 compared to $892 million for the three months ended June 30, 2018 and increased $283 thousand, or 10%, to $3.1 million for the nine months ended June 30, 2019 compared to $2.8 million for the nine months ended June 30, 2018.  Sales and marketing expenses represented 47% and 29% of total revenue for the three months ended June 30, 2019 and 2018, respectively, and 42% and 26% of total revenue for the nine months ended June 30, 2019 and 2018, respectively. The increases for the three and nine months ended June 30, 2019 compared to the three and nine months ended June 30, 2018 is attributable to the overall decrease in revenue and an increase in headcount from acquisitions.

 

Support

 

Support expenses increased $102 thousand, or 103%, to $201 thousand for the three months ended June 30, 2019 compared to $99 thousand for the three months ended June 30, 2018 and increased $191 thousand, or 78%, to $436 thousand for the nine months ended June 30, 2019 compared to $245 thousand for the nine months ended June 30, 2018.  Support expenses represented 7% and 3% of total revenue for the three months ended June 30, 2019 and 2018, respectively, and 6% and 2% of total revenue for the nine months ended June 30, 2019 and 2018, respectively. The increase in expenses for the three and nine months ended June 30, 2019 as compared to the three and nine months ended June 30, 2018 was due to increases in support headcount from acquisitions. The increases as a percentage of revenues for the three and nine months ended June 30, 2019 as compared to the three and nine months ended June 30, 2018 are attributable to the decreases in revenues. 

 

34

 

 

General and Administrative Expenses

 

General and administrative expenses increased $160 thousand, or 26%, to $785 thousand for the three months ended June 30, 2019 compared to $625 thousand for the three months ended June 30, 2018 and increased $60 thousand, or 3%, to $2.2 million for the nine months ended June 30, 2019 compared to the nine months ended June 30, 2018.  General and administrative expenses represented 29% and 20% of total revenue for the three months ended June 30, 2019 and 2018, respectively, and 31% and 20% of total revenue for the nine months ended June 30, 2019 and 2018, respectively. The increase in expense was due to an increase in headcount from acquisitions.

 

Research and Development

 

Research and development expense increased $186 thousand, or 46%, to $592 thousand for the three months ended June 30, 2019 compared to $406 thousand for the three months ended June 30, 2018 and increased $278 thousand, or 23%, to $1.5 million for the nine months ended June 30, 2019 compared to $1.2 million for the nine months ended June 30, 2018.  Research and development expenses represented 22% and 13% of total revenue for the three months ended June 30, 2019 and 2018, respectively, and 21% and 11% of total revenue for the nine months ended June 30, 2019 and 2018, respectively. The increase in expenses for the three and nine months ended June 30, 2019 compared to the three and nine months ended June 30, 2018 is due to an increase in headcount from acquisitions. The increases as a percentage of revenues for the three and nine months ended June 30, 2019 as compared to the three and nine months ended June 30, 2018 are attributable to the decreases in revenues.

 

Depreciation and Amortization

 

Depreciation and amortization expense increased $164 thousand, or 176%, to $257 thousand for the three months ended June 30, 2019 compared to $93 thousand for the three months ended June 30, 2018 and increased $56 thousand, or 18%, to $361 thousand for the nine months ended June 30, 2019 compared to $305 thousand for the nine months ended June 30, 2018.  The increase is primarily due to amortization of intangible assets resulting from the acquisitions. Amortization expense was $240 thousand and $306 thousand for the three and nine months ended June 30, 2019, respectively. Depreciation and amortization represented 10% and 3% of total revenue for the three months ended June 30, 2019 and 2018, respectively, and 5% and 3% of total revenue for the nine months ended June 30, 2019 and 2018, respectively.   

 

Goodwill Impairment

 

The Company performed an interim impairment test for the three months ended December 31, 2018, which resulted in an impairment charge of $3.7 million. An impairment charge is recognized for the amount by which the carrying amount exceeds the Company’s fair value. There was no impairment at June 30, 2019.

 

Restructuring and Acquisition Related Expenses

 

In the quarter ended June 30, 2019, we committed to a restructuring plan to reorganize our international operations to maximize efficiencies and reduce operating costs. Restructuring expenses were $814 thousand for the three and nine months ended June 30, 2019, respectively, and represented 30% and 11% of total revenue for the three months and nine months ended June 30, 2019, respectively.

 

Acquisition related expenses related to the acquisition of Stantive Technologies Group Inc. consummated in March 2019 were $124 thousand and $428 thousand for the three and nine months ended June 30, 2019, and represented 5% and 6% of total revenue for the three months and nine months ended June 30, 2019, respectively.

 

35

 

 

Net Loss

 

Loss from operations

 

The loss from operations was ($2.8) million for three months ended June 30, 2019 compared to a loss of ($5.2) million for the three months ended June 30, 2018 and ($9.5) million for the nine months ended June 30, 2019 compared to a loss of ($6.1) million for the nine months ended June 30, 2018. Operating expenses decreased $2.7 million, or 40%, to $4.0 million for the three months ended June 30, 2019 compared to $6.7 million for the three months ended June 30, 2018. The increases for the three months ended June 30, 2019 is primarily attributable to restructuring and acquisition expenses and additional headcount from acquisitions. Operating expenses increased $1.0 million, or 9%, to $12.6 million for the nine months ended June 30, 2019 compared to $11.5 million for the nine months ended June 30, 2018. The increase is due to restructuring and acquisition related expenses of $1.2 million and a goodwill impairment charge of $3.7 million. We do not expect to incur any significant additional restructuring and acquisition related costs for the remainder of the fiscal year.

 

Other income (expense), net

 

In the three months ended June 30, 2019, we recorded income related to the change in fair value of derivative liabilities of $10.1 million. In the nine months ended June 30, 2019, we recorded expense of $11.3 million related to warrant expense as a result of the allocation of proceeds from the sale of Preferred Series C stock and associated warrants, which was almost entirely offset by the aggregate income recorded for the change in fair value of derivative liabilities.

 

Income Taxes

 

The provision for income tax expense was $3 thousand and $10 thousand for the three months ended June 30, 2019 and 2018, respectively, and $7 thousand and $11 thousand for the nine months ended June 30, 2019 and 2018, respectively.  Income tax expense represents the estimated liability for federal and state income taxes owed.  We have net operating loss carryforwards and other deferred tax benefits that are available to offset any potential taxable income.

 

 

Adjusted EBITDA

 

We also measure our performance based on a non-GAAP (“Generally Accepted Accounting Principles”) measurement of earnings before interest, taxes, depreciation, and amortization and before stock-based compensation expense and impairment of goodwill and intangible assets (“Adjusted EBITDA”).

 

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

 

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

 

36

 

 

The following table reconciles Net income/(loss) (which is the most directly comparable GAAP operating performance measure) to Adjusted EBITDA (in thousands):

 

   

Three Months Ended

   

Nine Months Ended

 
   

June 30,

   

June 30,

 
   

2019

   

2018

   

2019

   

2018

 

Net income/(loss)

  $ 7,311     $ (5,162 )   $ (10,166 )   $ (6,272 )

Provision for income tax

    3       10       7       11  

Interest and other expense, net

    (7 )     70       316       200  

Change in fair value of warrants/warrant expense

    (10,146 )     (133 )     68       (156 )

Amortization of debt discount

    -       28       231       82  

Amortization of intangible assets

    240       71       306       214  

Depreciation

    16       20       50       85  

Goodwill impairment

    -       4,615       3,732       4,615  

Restructuring and acquisition related charges

    938       6       1,242       187  

Other amortization

    9       17       31       50  

Stock based compensation

    74       126       209       373  

Adjusted EBITDA

  $ (1,562 )   $ (332 )   $ (3,974 )   $ (611 )

 

 

Adjusted EBITDA decreased year over year and is primarily attributable to a decrease in revenues.

 

 

Liquidity and Capital Resources

 

Cash Flows

 

Operating Activities

 

Cash used in operating activities was $3.3 million for the nine months ended June 30, 2019 compared to cash used in operating activities of $972 thousand for the nine months ended June 30, 2018. The increase in the use of cash compared to the prior period was primarily due to an increase in accounts receivable and a decrease in accounts payable.

  

Investing Activities

 

Cash used in investing activities was $5.7 million for the nine months ended June 30, 2019 compared to $30 thousand for the nine months ended June 30, 2018.  We primarily used cash to acquire the assets of Stantive and Seevolution. Expenditures for property and equipment during the current fiscal year will not be material.

 

Financing Activities

 

Cash provided by financing activities was $9.6 million for the nine months ended June 30, 2019 compared to $682 thousand for the nine months ended June 30, 2018.  Cash provided by financing activities for the nine months ended June 30, 2019 is attributable to the public offering in October 2018 and a private offering in March 2019. In October 2018, we sold an aggregate of (i) 28,480 Class A Units (the “Class A Units”) at a price of $25.00 per Class A Unit, consisting of (i) one share of the Company’s common stock and one five-year warrant to purchase one share of Company common stock at an exercise price of $25.00 and (ii) Preferred stock of 4,288 Class B Units, with each Class B Unit, convertible into 40 shares of the Company’s common stock at a conversion price of $25.00. The net proceeds to the Company after deducting the underwriter’s fees and expenses was approximately $5.0 million. The proceeds of the October public offering were used to paydown the Promissory Term Notes of $941 thousand. In a private offering in March 2019, the Company sold Preferred stock of 10,227.50 Class C Units, with each Class C Unit convertible into 1,136,390 shares of the Company’s common stock at a conversion price of $9.00, for net proceeds of $9.1 million. The proceeds of the March 2019 private offering were used to pay down the Heritage Bank of Commerce line of credit by $2.2 million leaving a zero balance at March 31, 2019, as well as, the loan due to Montage Capital in the amount of $922 thousand. The proceeds also funded the asset purchase of Stantive Technologies Group Inc for $5.2 million.

 

37

 

 

Capital Resources and Liquidity Outlook 

 

In the second quarter of this current fiscal year, we concluded a private offering that raised a net $9.2 million in cash. We used these proceeds to pay down our Heritage Bank of Commerce line of credit to zero and pay our outstanding loan to Montage Capital II, L.P in full, so we had no debt at March 31, 2019 and June 30, 2019. Also, in the quarter ended March 31, 2019, we used cash to purchase the assets of Seevolution, Inc and Stantive Technologies Group Inc., which assets included technology and customers. We believe the future revenues and cash flows from these newly acquired customers combined with our existing accounts and cash balance of $1.3 million as of June 30, 2019 will be sufficient to meet the Company’s obligations for a minimum of twelve months from the financial statement issuance date.  Other sources of financing may not be available to us in a timely basis if at all, or on terms acceptable to us. 

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons, other than our operating leases and contingent acquisition payments.

  

We currently do not have any variable interest entities. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.

 

Commitments and Contingencies

 

As of June 30, 2019, we have no material commitments or contingencies.

 

Critical Accounting Policies

 

These critical accounting policies and estimates by our management were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and should be read in conjunction with Note 2 Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 28, 2018.

 

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

 

38

 

 

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

 

 

Revenue recognition;

 

 

Allowance for doubtful accounts;

 

 

Accounting for cost of computer software to be sold, leased or otherwise marketed;

 

 

Accounting for goodwill and other intangible assets; and

 

 

Accounting for stock-based compensation.

 

 

Revenue Recognition

 

The Company derives its revenue from three sources: (i) Software Licenses, which are comprised of subscription fees ("SaaS"), perpetual software licenses, and maintenance for post-customer support (“PCS”) on perpetual licenses, (ii) Digital Engagement Services, which are professional services to implement our products such as web development, digital strategy, information architecture and usability engineering, search and (iii) hosting of perpetual licenses. 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:

 

 

Identify the customer contract;

 

Identify performance obligations that are distinct;

 

Determine the transaction price;

 

Allocate the transaction price to the distinct performance obligations; and

 

Recognize revenue as the performance obligations are satisfied.

 

 

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.

 

39

 

 

Accounting for Cost of Computer Software to be Sold, Leased or Otherwise Marketed   

 

We charge research and development expenditures for technology development to operations as incurred.  However, in accordance with Codification 985-20 Costs of Software to be Sold Leased or Otherwise Marketed, we capitalize certain software development costs subsequent to the establishment of technological feasibility.  Based on our product development process, technological feasibility is established upon completion of a working model. Certain costs incurred between completion of a working model and the point at which the product is ready for general release is capitalized if significant. Once the product is available for general release, the capitalized costs are amortized in cost of sales.

 

Accounting for Goodwill and Intangible Assets

 

Goodwill is tested for impairment annually during the fourth quarter of every year and more frequently if events and circumstances indicate that the asset might be impaired. 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 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 Stock-Based Compensation

 

At June 30, 2019, we maintained two stock-based compensation plans, one of which has expired but still contains vested and unvested stock options and are more fully described in Note 12 to the Consolidated Financial Statements of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 28, 2018.

 

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

 

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

 

40

 

 

Item 3.

Qualitative and Quantitative Disclosures About Market Risk.

 

Not required.

 

 

Item 4.

Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of June 30, 2019.

 

Changes in Internal Control over Financial Reporting

 

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on Controls

 

Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

 

41

 

 

PART II – OTHER INFORMATION

 

Item 1.

Legal Proceedings.

 

From time to time we are subject to ordinary routine litigation and claims incidental to our business. We are not currently involved in any legal proceedings that we believe are material beyond those previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 28, 2018.

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds.

 

There were no sales of unregistered equity securities in the three months ended June 30, 2019.

 

42

 

 

Item 6.

Exhibits.

 

Exhibit No.

 

Description of Document

     

1.1

  Underwriting Agreement (incorporated by reference to Exhibit 1.1 to our Form 8-K filed on October 19, 2018)
     
3.1   Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to our Quarterly Report on Form 10-Q filed on May 15, 2013)
     
3.2   Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated May 4, 2015 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on May 5, 2015)
     
3.3   Certificate of Designations of the Series A Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on November 4, 2014)
     
3.4   Amended and Restated By-laws (incorporated by reference to Exhibit 3.2 to our current Report on Form 10-Q filed on February 17, 2015)
     
3.5   Certificate of Designations of the Series B Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on October 19, 2018)
     
3.6   Amended and Restated By-laws (incorporated by reference to Exhibit 3.1 to our current Report on Form 8-K filed on December 14, 2018)
     
3.7   Certificate of Designations of the Series C Convertible Preferred Stock (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on March 13, 2019)
     
3.8   Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated April 26, 2019 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on April 26, 2019)
     
3.9   Certificate of Amendment to Amended and Restated Certificate of Incorporation, dated May 1, 2019 (incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K filed on May 1, 2019)
     
4.1   Registration Rights Agreement, dated November 3, 2016, by and between Bridgeline Digital, Inc. and the Investors party thereto (incorporated by reference to Exhibit 10.3 to our Current Report on Form 8-K Filed on November 4, 2016)
     
4.2   Form of Warrant (incorporated by reference to Exhibit 4.1 to our Form 8-K filed on October 19, 2018)
     
4.3   Form of Warrants (incorporated by reference to Exhibits 4.1, 4.2 ,4.3, 4.4 and 4.5 to our Form 8-K filed on March 13, 2019)
     
4.4   Registration Rights Agreement, dated March 12, 2019, by and between Bridgeline Digital, Inc. and the Investors party thereto (incorporated by reference to Exhibit 10.4 to our Current Report on Form 8-K Filed on March 13, 2019)
     
10.1*   Employment Agreement with Mark G. Downey dated July 1, 2019 (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K Filed on July 3, 2019)

 

43

 

 

31.1

 

Certification required by Rule 13a-14(a) or Rule 15d-14(a).

     
31.2   Certification required by Rule 13a-14(a) or Rule 15d-14(a).
     

32.1

 

Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

 

 

 

32.2

 

Certification required by Rule 13a-14(b) or Rule 15d-14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code (18 U.S.C. §1350).

     
101.INS*   XBRL Instance
     
101.SCH*   XBRL Taxonomy Extension Schema
     
101.CAL*    XBRL Taxonomy Extension Calculation
     
101.DEF*   XBRL Taxonomy Extension Definition
     
101.LAB*   XBRL Taxonomy Extension Labels
     
101.PRE*   XBRL Taxonomy Extension Presentation

            

*Management compensatory plan

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

 

44

 

 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

 

Bridgeline Digital, Inc.

 

 

(Registrant)

 

 

 

August 14, 2019

 

/s/    Roger Kahn

Date

 

Roger Kahn

President and Chief Executive Officer 

(Principal Executive Officer)

 

 

 

 

August 14, 2019

 

/s/    Mark Downey

Date

 

Mark Downey

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

45