What changed in this filing

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Item 1A. Risk Factors

2020-12-23 compared with 2019-12-27 · 114 added, 93 removed, 112 unchanged (65% of the section changed)

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Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition and/or operating results.

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

We anticipate that continued expansion of our core business will require us to address potential market opportunities.

For example, we may need to expand the size of our research and development, sales, corporate finance or operations staff.

There can be no assurance that our infrastructure will be sufficiently flexible and adaptable to manage our projected growth or that we will have sufficient resources, human or otherwise, to sustain such growth.

If we are unable to adequately address these additional demands on our resources, our profitability and growth might suffer.

Also, if we continue to expand our operations, management might not be effective in expanding our physical facilities and our systems, and our procedures or controls might not be adequate to support such expansion.

Our inability to manage our growth could harm our business and decrease our revenues.

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

We may require additional funding to further expand our operations.

We depend on financing sources, either debt or equity, or a combination thereof, which may not be available to us in a timely basis if at all, or on terms acceptable to us.

Further, our ability to obtain financing may be limited by rules of the Nasdaq Capital Market.

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

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

We have contractual commitments in operating lease arrangements, which are not reflected on our consolidated balance sheets.

Our ability to meet our expenses and contractual commitments will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors.

We will not be able to control many of these factors, such as economic conditions and governmental regulations.

Further, our operations may not generate sufficient cash to enable us to service our working capital needs or contractual obligations resulting from our leases.

If we are at any time unable to generate sufficient cash flows from operations, we may be required to obtain additional sources of financing.

There can be no assurance that we would be able to successfully renegotiate such terms, that additional financing could be obtained on terms that are favorable or acceptable to us.

We have incurred significant net losses since inception and expect to continue to incur operating losses for the foreseeable future.

We may never achieve or sustain profitability, which would depress the market price of our common stock and could cause you to lose all or a part of your investment.

We have incurred net losses in each fiscal year since our inception in 2000, including net losses of $9.5 million (inclusive of goodwill impairment charge of $3.7 million) and $7.2 million for the fiscal years ended September 30, 2019 and 2018, respectively.

We have net income of $326 thousand for the year ended September 30, 2020, which includes government grant income of $960 thousand.

Since our inception in 2000 through fiscal 2019, we have incurred net losses.

During fiscal 2019, net losses were $9.5 million, inclusive of goodwill impairment charge of $3.7 million.

As of September 30, 2020, we had an accumulated deficit of approximately $73.6 million.

We do not know whether or when we will become profitable.

Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity (deficit) and working capital.

Our prior losses, combined with expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital.

Because of the numerous risks and uncertainties associated with our business, we are unable to predict the extent of any future losses or when we will become profitable, if at all.

Even if we do become profitable, we may not be able to sustain or increase our profitability on a quarterly or annual basis.

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

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

These factors include, among others:

changes in demand for our products;

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

market acceptance of our new products;

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

size and timing of significant orders;

budgeting cycles of customers;

mix of products and services sold;

changes in the level of operating expenses;

completion or announcement of acquisitions;

general economic conditions in regions in which we conduct business.

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

The decision by a customer to purchase our products often involves the development of a complex implementation plan across a customer’s business.

This process often requires a significant commitment of resources both by prospective customers and us.

Given the significant investment and commitment of resources required in order to implement our software, it may take several months, or even several quarters, for marketing opportunities to materialize.

If a customer’s decision to purchase our products is delayed or if the installation of our products takes longer than originally anticipated, the date on which we may recognize revenue from these sales would be delayed.

Such delays and fluctuations could cause our revenue to be lower than expected in a particular period and we may not be able to adjust our costs quickly enough to offset such lower revenue, potentially negatively impacting our results of operations.

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

We may require additional funding to further expand our operations.

We depend on financing sources, either debt or equity, or a combination thereof, which may not be available to us in a timely basis if at all, or on terms acceptable to us.

Further, our ability to obtain financing may be limited by rules of the NASDAQ Capital Market.

On August 17, 2020, the Company entered into an arrangement with an investment banking firm (the “Manager”) to sell up to $4,796,090 of shares of the Company’s common stock, $0.001 par value (the “ATM Offering”).

The ATM Offering shall remain in effect until the earlier of August 17, 2021, or upon written notice of termination by either the Company or the Manager.

The Company currently intends to use the net proceeds from the sale of shares pursuant to the ATM Offering for working capital and general corporate purposes.

As of September 30, 2020, there have been no shares of common stock sold under the ATM offering.

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

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

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

During fiscal year 2019, two of our customers in aggregate accounted for approximately 26% of total sales.

During fiscal 2020, one of our customers accounted for approximately 12% of total sales.

Our customers have no obligation to renew their subscription licenses, and some customers have elected not to do so, including a number of our large customers in the recent two fiscal years.

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A decline in license renewal rates could cause our revenue to decline, which would have a material adverse effect on our operations.

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

The decision by a customer to purchase our products often involves the development of a complex implementation plan across a customer’s business.

This process often requires a significant commitment of resources both by prospective customers and us.

Such delays and fluctuations could cause our revenue to be lower than expected in a particular period, and we may not be able to adjust our costs quickly enough to offset such lower revenue, potentially negatively impacting our results of operations.

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

We host our SaaS and managed hosting customers via a third-party, Amazon Web Services.

If upon renewal date our third-party provider does not provide commercially reasonable terms, we may be required to transfer our services to a new provider, such as a data center facility, and we may incur significant equipment costs and possible service interruption in connection with doing so.

Interruptions in our services might reduce our revenue, cause us to issue credits or refunds to customers, subject us to potential liability, or harm our renewal rates.

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

Security breaches could expose us to a risk of loss of our customers’ information, litigation and possible liability.

While we have security measures in place, they may be breached as a result of third-party action, including intentional misconduct by computer hackers, employee error, malfeasance or otherwise and result in someone obtaining unauthorized access to our IT systems, our customers’ data or our data, including our intellectual property and other confidential business information.

Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently and generally are not recognized until launched against a target, we may be unable to implement adequate preventative measures.

In addition, our customers may authorize third-party technology providers to access their customer data, and some of our customers may not have adequate security measures in place to protect their data that is stored on our services.

Because we do not control our customers or third-party technology providers, or the processing of such data by third-party technology providers, we cannot ensure the integrity or security of such transmissions or processing.

Malicious third parties may also conduct attacks designed to temporarily deny customers access to our services.

Any security breach could result in a loss of confidence in the security of our services, damage our reputation, negatively impact our future sales, disrupt our business and lead to legal liability.

We rely on encryption and authentication technology from third parties to provide the security and authentication to effectively secure transmission of confidential information, including consumer payment card numbers.

Such technology may not be sufficient to protect the transmission of such confidential information or these technologies may have material defects that may compromise the confidentiality or integrity of the transmitted data.

Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could harm our reputation, business and operating results.

We might be required to expend significant capital and other resources to protect further against security breaches or to rectify problems caused by any security breach, which, in turn could divert funds available for corporate growth and expansion or future acquisitions.

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

We have contractual commitments in operating lease arrangements.

Our ability to meet our expenses and contractual commitments will depend on our future performance, which will be affected by financial, business, economic, regulatory and other factors.

We will not be able to control many of these factors, such as economic conditions and governmental regulations.

Further, our operations may not generate sufficient cash to enable us to service our working capital needs or contractual obligations resulting from our leases.

If we are at any time unable to generate sufficient cash flows from operations, we may be required to obtain additional sources of financing.

There can be no assurance that we would be able to successfully renegotiate such terms, that additional financing could be obtained on terms that are favorable or acceptable to us.

Refer to the Risk Factor - We may require additional financing to execute our business plan and further expand our operations, for a description of capital raising activities.

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

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As a result, they are able to devote greater resources to the development, promotion and sale of their products than we can.

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

The average shares traded per day in fiscal 2019 was approximately 264,000 shares per day compared to approximately 406,000 shares for fiscal 2018, 26,000 for fiscal 2017 and 38,000 for fiscal 2016.

Our average trading volume of our common stock can be very sporadic and may impair the ability of holders of our common stock to sell their shares at the time they wish to sell them or at a price that they consider reasonable.

A low trading volume may also reduce the fair market value of the shares of our common stock.

Accordingly, there can be no assurance that the price of our common stock will reflect our actual value.

There can be no assurance that the daily trading volume of our common stock will increase or improve either now or in the future.

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

The market price of our common stock is volatile and could fluctuate significantly for many reasons, including, without limitation:

as a result of the risk factors listed in this annual report on Form 10-K;

actual or anticipated fluctuations in our operating results;

and general economic and industry conditions.

During fiscal 2019, the closing price of our common stock as reported by NASDAQ fluctuated between $1.76 and $59.

We are required to meet certain financial criteria in order to maintain our listing on the NASDAQ Capital Market.

One such requirement is that we maintain a minimum closing bid price of at least $1.00 per share for our common stock.

If we fail this requirement then NASDAQ will issue a notice that we are not in compliance and we will need to take corrective actions in order to not be delisted.

Such corrective actions could be a reverse stock split.

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

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Overlaying the risks associated with our existing products and enhancements are ongoing technological developments and rapid changes in customer requirements.

Our future success will depend upon our ability to develop and introduce in a timely manner new product that take advantage of technological advances and respond to new customer requirements.

Our future success will depend upon our ability to develop and introduce, in a timely manner, new products that take advantage of technological advances and respond to new customer requirements.

The development of new products is increasingly complex and uncertain, which increases the risk of delays.

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

We host our SaaS and managed hosting customers via a third-party, Amazon Web Services.

If upon renewal date our third-party provider does not provide commercially reasonable terms, we may be required to transfer our services to a new provider, such as data center facility, and we may incur significant equipment costs and possible service interruption in connection with doing so.

Interruptions in our services might reduce our revenue, cause us to issue credits or refunds to customers, subject us to potential liability, or harm our renewal rates.

Security breaches could expose us to a risk of loss of our customers’ information, litigation and possible liability.

Malicious third parties may also conduct attacks designed to temporarily deny customers access to our services.

Any security breach could result in a loss of confidence in the security of our services, damage our reputation, negatively impact our future sales, disrupt our business and lead to legal liability.

Any imposition of liability, particularly liability that is not covered by insurance or is in excess of insurance coverage, could harm our reputation, business and operating results.

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

We are subject not only to regulations applicable to businesses generally, but also to laws and regulations directly applicable to electronic commerce.

In addition, an inability to satisfy the standards of certain voluntary third-party certification bodies that our customers may expect, such as an attestation of compliance with the Payment Card Industry (“ PCI ”) Data Security Standards, may have an adverse impact on our business and results.

Further, there are various statutes, regulations, and rulings relevant to the direct email marketing and text-messaging industries, including the Telephone Consumer Protection Act (“ TCPA ”), the CAN-SPAM Act and related Federal Communication Commission (“ FCC ”) orders.

The interpretation of many of these statutes, regulations, and rulings is evolving in the courts and administrative agencies and an inability to comply may have an adverse impact on our business and results.

If in the future we are unable to achieve or maintain industry-specific certifications or other requirements or standards relevant to our customers, it may harm our business and adversely affect our results.

We may also expand our business in countries that have more stringent data protection laws than those in the United States, and such laws may be inconsistent across jurisdictions and are subject to evolving and differing interpretations.

In particular, the European Union has passed the General Data Protection Regulation (“ GDPR ”), which came into force on May 25, 2018.

The GDPR includes more stringent operational requirements for entities that receive or process personal data (as compared to U.S.

privacy laws and previous EU laws), along with significant penalties for non-compliance, more robust obligations on data processors and data controllers, greater rights for data subjects, and heavier documentation requirements for data protection compliance programs.

Additionally, both laws regulating privacy and third-party products purporting to address privacy concerns could negatively affect the functionality of, and demand for, our products and services, thereby reducing our revenue.

General Risk Factors

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

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

These factors include, among others:

changes in demand for our products;

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

market acceptance of our new products;

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

size and timing of significant orders;

budgeting cycles of customers;

mix of products and services sold;

changes in the level of operating expenses;

completion or announcement of acquisitions;

general economic conditions in regions in which we conduct business.

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

We anticipate that continued expansion of our core business will require us to address potential market opportunities.

For example, we may need to expand the size of our research and development, sales, corporate finance or operations staff.

If we are unable to adequately address these additional demands on our resources, our profitability and growth might suffer.

Our inability to manage our growth could harm our business and decrease our revenues.

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

The average shares traded per day in fiscal 2020 was approximately 484,000 shares per day compared to approximately 264,000 shares for fiscal 2019, 406,000 for fiscal 2018 and 26,000 for fiscal 2017.

A low trading volume may also reduce the fair market value of the shares of our common stock.

Accordingly, there can be no assurance that the price of our common stock will reflect our actual value.

There can be no assurance that the daily trading volume of our common stock will increase or improve either now or in the future.

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

The market price of our common stock is volatile and could fluctuate significantly for many reasons, including, without limitation:

as a result of the risk factors listed in this annual report on Form 10-K;

actual or anticipated fluctuations in our operating results;

and general economic and industry conditions.

During fiscal 2020, the closing price of our common stock as reported by NASDAQ fluctuated between $0.53 and $3.62.

We are required to meet certain financial criteria in order to maintain our listing on the NASDAQ Capital Market.

One such requirement is that we maintain a minimum closing bid price of at least $1.00 per share for our common stock.

If we fail this requirement then NASDAQ will issue a notice that we are not in compliance and we will need to take corrective actions in order to not be delisted.

Such corrective actions could be a reverse stock split.

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

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In addition to hiring services personnel to meet our needs, we may also engage additional third-party consultants as contractors, which could have a negative impact on our financial results.

If we are unable to hire or retain qualified personnel, or if newly hired personnel fail to develop the necessary skills or reach productivity slower than anticipated, it would be more difficult for us to sell our products and services, and we could experience a shortfall in revenue and not achieve our planned growth.

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

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Additionally, any impairment of goodwill or other intangible assets acquired in an acquisition or in an investment, or charges to earnings associated with any acquisition or investment activity, may materially reduce our earnings which, in turn, may have an adverse material effect on the price of our common stock.

We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control.

Together these provisions may make the removal of management more difficult and may discourage transactions that otherwise could involve payment of a premium over prevailing market prices for our securities.

Provisions in our amended and restated bylaws and Delaware law may have the effect of discouraging lawsuits against our directors and officers.

Our amended and restated bylaws require that derivative actions brought in our name, actions against our directors, officers, other employees or stockholders for breach of fiduciary duty and other similar actions may be brought only in the Court of Chancery in the State of Delaware.

Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and consented to the forum provisions in our amended and restated bylaws.

This choice of forum provision may limit a stockholder’s ability to bring a claim in a judicial forum that it finds favorable for disputes with us or any of our directors, officers, other employees or stockholders, which may discourage lawsuits with respect to such claims.

Alternatively, if a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

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

We are subject not only to regulations applicable to businesses generally, but also to laws and regulations directly applicable to electronic commerce.

In particular, the European Union has passed the General Data Protection Regulation (“ GDPR ”), which came into force on May 25, 2018.

The GDPR includes more stringent operational requirements for entities that receive or process personal data (as compared to U.S.

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

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Since we have no plan to pay cash dividends, an investor would only realize income from his investment in our shares if there is a rise in the market price of our common stock, which is uncertain and unpredictable.

We are also subject to anti-takeover provisions under Delaware law, which could delay or prevent a change of control.

Provisions in our amended and restated bylaws and Delaware law may have the effect of discouraging lawsuits against our directors and officers.

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

The World Health Organization has declared the COVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our services.

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

Several public health organizations have recommended, and some governments have implemented, certain measures to slow and limit the transmission of the virus, including shelter in place, social distancing ordinances, and business shutdowns.

There is considerable uncertainty regarding the extent to which the COVID-19 outbreak will continue to spread, and the extent and duration of governmental and other measures implemented to try to slow the spread of the virus.

The pandemic and such preventive measures, or others required or that we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations;

decreased employee availability;

increased claims or other expenses;

potential border closures;

These disruptions and challenges may continue for an indefinite period of time and may also materially affect our future access to our sources of liquidity, particularly our cash flows from operations, financial condition, capitalization, and capital investments.

Additionally, the effects of COVID-19 on the global economy could adversely affect our ability to access the capital and other financial markets, and if so, we may need to consider alternative sources of funding for some of our operations and for working capital, which may increase our cost of, as well as adversely impact our access to, capital.

These uncertain economic conditions may also result in the inability of our customers to make payments to us, on a timely basis or at all.

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

Unresolved Staff Comments

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors