What changed in this filing

/stocks — the workspaceLOADING

Item 1A. Risk Factors

2021-12-20 compared with 2020-12-23 · 471 added, 51 removed, 175 unchanged (75% of the section changed)

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Our actual results could differ materially from those discussed herein.

In addition to the risks discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” our business is subject to the risks set forth below.

In addition to the risks discussed in “

Management ’

s Discussion and Analysis of Financial Condition and Results of Operations, ”

our business is subject to the risks set forth below.

We operate in a rapidly changing environment that involves certain risks and uncertainties, some of which are beyond our control.

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

We have incurred a net loss of $6.7 million for the year ended September 30, 2021, which includes expenses related to the change in the fair value of warrant liabilities.

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

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

As of September 30, 2021, we had an accumulated deficit of approximately $82.3 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 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 prior losses have had an adverse effect on our stockholders’

equity and working capital.

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

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

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 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.

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

On May 14, 2021, the Company offered and sold, in a registered direct offering, a total of 1,060,000 shares of its common stock at a price of $2.28 per share.

On the same day, the Company entered into securities purchase agreements with certain institutional investors in connection with a private placement of 2,700 shares of newly designated Series D Convertible Preferred Stock at a price of $1,000 per share and warrants to purchase up to an aggregate of 592,105 shares of common stock at an exercise price of $2.51 per share.

The aggregate proceeds, net of cash paid for certain fees due to placement agents and transaction related expenses, of these two transactions that occurred on the same day was $4.6 million.

On February 4, 2021, the Company offered and sold a total of 880,000 shares of its common stock, par value $0.001 per share, to certain institutional and accredited investors at a public offering price of $3.10 per share in a registered direct offering.

The aggregate proceeds from this transaction, net of certain fees due to placement agents and transaction expenses, was approximately $2.5 million.

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

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

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

There are no obligations for the sale or purchase of the Company’s common stock pursuant to this offering.

Accordingly, there can be no assurances that the Company or investment banking firm will be successful in selling any portion of the shares available for sale pursuant to this offering.

On December 18, 2020, the Company delivered written notice to Roth Capital Partners that it was suspending all offers and sales under the At the Market Offering Agreement (the “Suspension Period”), during which time the Company will not make any sales of Placement Shares.

On August 17, 2021, the ATM offering expired unused.

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

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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.

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 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.

We are dependent upon a small number of major customers, and a  

failure to renew our licenses with such customers could reduce our revenue.

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

Our license renewal rates may decline or fluctuate as a result of a number of factors, including customer dissatisfaction with our products and services, our failure to update our products to maintain their attractiveness in the market, or constraints or changes in budget priorities faced by our customers.

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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.

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

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

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

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

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

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

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.

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

If our security measures or those of our third-party cloud computing platform provider are breached and unauthorized access is obtained to a 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.

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.

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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.

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.

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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.

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

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

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If we are unable to successfully compete for new business and license renewals, our revenue growth and operating margins may decline.

The market for our Bridgeline Unbound platform (Content Manager, Insights, Commerce, Marketer, Social) and web development services are competitive and rapidly changing.

The market for our platforms and web development services are competitive and rapidly changing.

Barriers to entry in such markets are relatively low.

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The web development/services market is highly fragmented with a large number of competitors and potential competitors.

Our prominent public company competitors are Big Commerce, Salesforce (Commerce Cloud), Episerver, Hubspot, Sitecore, and Adobe (Experience Manager).

Our prominent public company competitors are Big Commerce, Salesforce (Commerce Cloud), Optimizely (Episerver), Hubspot, Sitecore, and Adobe (Experience Manager).

We face competition from customers and potential customers who develop their own applications internally.

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We develop and sell complex web engagement software which may contain undetected errors or bugs.

Such errors can be detected at any point in a product’s life cycle but are frequently found after introduction of new software or enhancements to existing software.

We continually introduce new products and new versions of our products.

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Even when our software does not cause these problems, the existence of these errors might cause us to incur significant costs, divert the attention of our technical personnel from our product development efforts, impact our reputation, or cause significant customer relations problems.

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

We will need to continue to enhance our products in order to maintain our competitive position.

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

Claims of infringement are becoming increasingly common as the software industry develops and as related legal protections, including but not limited to patents, are applied to software products.

Claims of infringement are becoming increasingly common as the software industry continues to develop and as related legal protections, including but not limited to patents, are applied to software products.

Although we do not believe that our products infringe on the rights of third parties, a third party may assert that our technology or technologies of entities we acquire violates its intellectual property rights.

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require us to redesign our products;

divert management’s attention and our other resources;

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

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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.

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.

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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.

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.

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.

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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.

The average shares traded per day in fiscal 2021 was approximately 2,839,000 shares per day compared to approximately 484,000 shares for fiscal 2020, and 264,000 for fiscal 2019.

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

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

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.

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If we are unable to hire or retain qualified personnel, or if newly hired personnel fail to develop the necessary skills or reach productivity slower than anticipated, it would be more difficult for us to sell our products and services, and we could experience a shortfall in revenue and fail to achieve our planned growth.

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

We have acquired multiple businesses since our inception in 2000.

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.

We have acquired multiple businesses since our inception in 2000, including two in fiscal 2021.

Future acquisitions could involve substantial investment of funds or financings by issuance of debt or equity securities and could result in one-time charges and expenses and have the potential to either dilute the interests of existing shareholders or result in the issuance or assumption of debt.

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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.

We may issue additional shares of preferred stock in order to consummate a financing or other transaction, in lieu of the issuance of common stock.

The rights and preferences of any such class or series of preferred stock would be established by our board of directors in its sole discretion and may have dividend, voting, liquidation and other rights and preferences that are senior to the rights of our common stock.

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

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

We have never paid cash dividends and do not believe that we will pay any cash dividends on our common stock in the future.

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

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

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

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

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

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

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

In 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the virus continues to spread in areas where we operate and sell our services.

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

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

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

decreased employee availability;

increased claims or other expenses;

potential border closures;

The pandemic and such preventive measures, or others required or that we may voluntarily put in place, may have a material adverse effect on our business for an indefinite period of time, such as the potential shut down of certain locations, decreased employee availability, increased claims or other expenses, potential border closures, and others.

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

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Unresolved Staff Comments

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

Geographic Location

Woburn, Massachusetts

100 Sylvan Rd Suite G-700

Woburn, MA 01801

775 square feet,

professional office space

Woodbury, New York

150 Woodbury Road

Woodbury, NY 11797

3,630 square feet,

professional office space

Brussels, Belgium

Cours Saint Michel 30B

1040 Brussels, Belgium

Raleigh, North Carolina

4242 Six Forks Rd Suite 1550

North Hills Tower II

Raleigh, NC 27609

202 square feet,

professional office space

Vancouver, Canada

1055 West Hastings St, Suite 1700

Guinness Tower

Vancouver BC V6E 2E9

Des Plaines, Illinois

2700 S River Rd, Suite 400

Des Plaines, IL 60018

2,500 square feet,

professional office space

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.

Mine Safety Disclosures

Not applicable.

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

We have not declared or paid cash dividends on our common stock and do not plan to pay cash dividends to our common shareholders in the near future.

As of December 13, 2021, our common stock was held of record by approximately 12,435 shareholders. Most of the Company’s shares of common stock are held in street name through one or more nominees.

Recent Sales of Unregistered Securities;

Use of Proceeds From Registered Securities

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

The securities in the below-referenced transactions were (i) issued without registration and (ii) were subject to restrictions under the Securities Act and the securities laws of certain states, in reliance on the private offering exemptions contained in Sections 4(a)(2), 4(a)(6) and/or 3(b) of the Securities Act and on Regulation D promulgated there under, and in reliance on similar exemptions under applicable state laws as transactions not involving a public offering.

Unless stated otherwise, no placement or underwriting fees were paid in connection with these transactions.

On May 14, 2021, the Company offered and sold, in a registered direct offering, a total of 1,060,000 shares of its common stock at a price of $2.28 per share.

Joseph Gunnar & Company, LLC acted as lead placement agent for the offering and Taglich Brothers, Inc.

acted as co-placement agent for the offering.

The Company issued to the placement agents common stock purchase warrants to purchase an aggregate of 179,536 shares of common stock.

The warrants have a term of five years from the commencement of sales and an exercise price of $2.85 per share.

The aggregate proceeds, net of cash paid for certain fees due to placement agents and transaction related expenses, of these two transactions that occurred on the same day was $4.6 million.

As of September 30, 2021, all 2,700 shares of Series D Preferred Stock were converted to 1,184,211 common shares.

On May 28, 2021, the Company issued 1,500 shares of the newly designated Series D Convertible Preferred Stock as a component of the purchase price for the acquisition of Hawk Search.

As of September 30, 2021, all 1,500 shares of Series D Preferred Stock were converted to 657,895 common shares.

Selected Financial Data.

Not required.

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 any weakness in the U.S.

and international economies on our business, our inability to manage our future growth effectively or profitably, fluctuations in our revenue and quarterly results, our license renewal rate, the impact of competition and our ability to maintain margins or market share, the limited market for our common stock, the ability to maintain our listing on the NASDAQ Capital Market, the volatility of the market price of our common stock, the ability to raise capital, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, the security of our software and response to cyber security risks, our ability to meet our financial obligations and commitments, our dependence on our management team and key personnel, our ability to hire and retain future key personnel, our ability to maintain an effective system of internal controls, or our ability to respond to government regulations.

These and other risks are more fully described herein and in our other filings with the Securities and Exchange Commission.

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

GAAP ”

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

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

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

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

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

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

Woorank SRL (“Woorank”) is a Search Engine Optimization (“SEO”) audit tool that generates an instant audit of the site’s technical, on-page and off-page SEO.

Woorank’s clear, actionable insights help companies increase their search ranking, website traffic, audience engagement, conversion, and customer retention rates.

Hawk Search, Inc.

(“Hawk Search”) is a search, recommendation, and personalization application, built for marketers, merchandisers and developers that enhances, normalizes and enriches a customer's site search and browse experience.

Hawk Search leverages advanced artificial intelligence, machine learning and industry leading analyzers to deliver accurate results from federated data sources.

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

Sales and Marketing

Bridgeline employs a direct sales force which focuses its efforts on selling to mid-sized and large companies.

These companies are generally categorized in the following vertical markets: financial services, franchise/dealer networks, retail brand names, health services and life sciences, high technology (software and hardware), credit unions and regional banks, as well as associations and foundations.

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

The Company’s corporate office is located in Woburn, Massachusetts.  The Company maintains regional field offices serving the following geographical locations:

Boston, Massachusetts;

Woodbury, New York;

Chicago, Illinois;

Raleigh, North Carolina;

Ontario, Canada;

and Brussels, Belgium.

The Company has four wholly-owned subsidiaries:

Bridgeline Digital Pvt.

Ltd., located in Bangalore, India;

Bridgeline Digital Canada, Inc., located in Ontario, Canada;

and Bridgeline Digital Belgium BV, located in Brussels, Belgium.

Bridgeline will continue to evaluate expanding its distribution of Bridgeline Unbound and its interactive development capabilities through acquisitions.

We may make additional acquisitions in the foreseeable future.

These potential acquisitions will be consistent with our growth strategy by providing Bridgeline with new geographical distribution opportunities, an expanded customer base, an expanded sales force and an expanded developer force.

In addition, integrating acquired companies into our existing operations allows us to consolidate the finance, human resources, legal, marketing, and research and development of the acquired businesses with our own internal resources, hence reducing the aggregate of these expenses for the combined businesses and resulting in improved operating results.

On March 1, 2021, the Company, pursuant to a Share Purchase Agreement (the “Woorank Purchase Agreement”), acquired all of the issued and outstanding shares of Woorank SRL (“Woorank”), an entity located in Belgium.

The total purchase price of approximately $2.4 million consisted of (1) $285 thousand in cash paid at closing or in close proximity to closing, (2) $376 thousand of deferred cash payable in installments post-closing, (3) $352 thousand seller note issued to one of the selling shareholders, and (4) amounts payable to one selling shareholder as consideration for assistance with certain matters related to the acquisition for a period of one year from the closing date of the acquisition.

The Woorank Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets and operational goals, to the selling shareholders pursuant to three separate earn-out provisions. 

The acquisition date fair value of contingent consideration was $1.3 million.

Under certain conditions, up to €

600 thousand (approximately $723 thousand) of the purchase price is payable, at the Company’s discretion, in shares of the Company’s common stock, par value $0.001 per share, at a price per share equal to the greater of (i) the closing price of the Company’s common stock on the date of issuance or (ii) $3.38.

On the closing date, the Company issued 29,433 shares of its common stock, with an aggregate issuance date fair value of $99 thousand, for a portion of the purchase price.

On May 28, 2021, the Company, pursuant to a Share Purchase Agreement (the “Hawk Purchase Agreement”), acquired all of the issued and outstanding shares of Hawk Search, Inc., an Illinois corporation (“Hawk Search”).

The total purchase price of approximately $9.9 million consisted of (1) $4.8 million initial cash payment at closing, (2) issuance of 1,500 shares of the Company’s newly designated Series D Preferred Stock with an aggregate issuance date fair value of $930 thousand, and (3) $2.0 million deferred cash payable on or before December 31, 2021.

The Hawk Purchase Agreement also provides for additional consideration, in the event of achievement of certain revenue targets, to the selling shareholders as an additional earn-out, payable no later than December 31, 2022.  

The acquisition date fair value of contingent consideration was approximately $2.2 million.

Customer Information

We currently have over 150,000 active customers.

For the year ended September 30, 2021, no customers exceeded 10% of the Company’s total revenue.

For the year ended September 30, 2020, one customer represented approximately 12% of the Company’s total revenue.

Summary of Results of Operations

Total revenue for the fiscal year ended September 30, 2021 (“fiscal 2021”) increased to $13.3 million from $10.9 million for the fiscal year ended September 30, 2020 (“fiscal 2020”). Loss from operations for fiscal 2021 was $1.2 million, compared with loss from operations of $1.6 million for fiscal 2020.

We had a net loss for fiscal 2021 of $6.7 million, which included government grant income related to Paycheck Protection Program (“PPP”) loan forgiveness of $88 thousand, a loss of approximately $5.9 million as a result of the change in fair value of certain warrant liabilities and a $1.2 million discrete benefit in taxes, compared with net income of $326 thousand, which included government grant income related to PPP loan forgiveness of $960 thousand and a gain of approximately $1.0 million as a result of the change in fair value of certain warrant liabilities for fiscal 2020.

Basic and diluted net loss per share calculation attributable to common shareholders for fiscal 2021 was ($1.47) compared with the equivalent basic net loss per share attributable to common shareholders of ($0.59) for fiscal 2020.

(in thousands)

September 30,

Digital engagement services

% of total net revenue

Subscription and perpetual licenses

% of total net revenue

Total net revenue

Cost of revenue

Digital engagement services

% of digital engagement services revenue

Subscription and perpetual licenses

% of subscription and perpetual revenue

Total cost of revenue

Gross profit margin

Operating expenses

Sales and marketing

% of total revenue

General and administrative

% of total revenue%

Research and development

% of total revenue

Depreciation and amortization

% of total revenue

Restructuring and acquisition related expenses

% of total revenue

Total operating expenses

Loss from operations

Interest expense and other, net

Government grant income

Change in fair value of warrant liabilities

Income (loss) before income taxes

Provision for (benefit from) income taxes

Net income/(loss)

Non-GAAP Measure:

Adjusted EBITDA

Our revenue is derived from two sources:

(i) digital engagement services and (ii) subscription and perpetual licenses.

Digital Engagement Services

Digital engagement services revenue is comprised of Bridgeline Unbound implementation and retainer-related services.

Total revenue from digital engagement services decreased $113 thousand, or 3%, to $3.3 million in fiscal 2021 from $3.4 million in fiscal 2020.

Digital engagement services revenue as a percentage of total revenue decreased to 25% in fiscal 2021 from 31% in fiscal 2020.

The decrease compared to the prior period is primarily due to a decrease in new service engagements partially offset by $325 thousand related to revenues from the Company’s fiscal 2021 acquisitions.

Subscription and Perpetual Licenses

Revenue from subscription (SaaS) and perpetual licenses increased $2.5 million, or 33%, to $10.0 million in fiscal 2021 from $7.5 million in fiscal 2020.

The increase compared to the prior period is primarily due to significant multi-year license renewals across our diverse portfolio of Fortune 500 companies and the inclusion of revenue of $2.6 million from the Company’s fiscal 2021 acquisitions.

Subscription and perpetual license revenue as a percentage of total revenue increased to 75% in fiscal 2021 from 69% in fiscal 2020.

The increase as a percentage of total revenue is attributable to the additional increase in subscription and perpetual licenses during the period compared to digital services revenue.

Cost of Revenue

Total cost of revenue for fiscal 2021 increased $26 thousand, or 1%, to $4.5 million from $4.5 million.

The increase for fiscal 2021 compared to fiscal 2020 is primarily attributable to decreases in headcount and the use of third-party consultants. 

Cost of Digital Engagement Services

Cost of digital engagement services decreased $88 thousand, or 5%, to $1.7 million in fiscal 2021 from $1.8 million in fiscal 2020.

The decrease in cost of digital engagement services in fiscal 2021 compared to fiscal 2020 is primarily due to the allocation of support team and third-party subcontractor costs and additional costs related to the fiscal 2021 business acquisitions.

The cost of total digital engagement services as a percentage of total digital engagement services revenue decreased to 53% in fiscal 2021 from 54% in fiscal 2020.

The decrease as a percentage of revenues in fiscal 2021 compared to fiscal 2020 is primarily due to the overall decrease in digital engagement services revenue and costs incurred related to fiscal 2021 business acquisitions, as noted above.

Cost of Subscription and Perpetual License

Cost of subscription and perpetual licenses increased $114 thousand, or 4%, to $2.8 million in fiscal 2021 compared to $2.7 million in fiscal 2020.

The increase in cost of subscription and perpetual licenses in fiscal 2021 compared to fiscal 2020 is primarily due to a reduction within our fixed costs to operate our cloud-based hosting model with Amazon Web Services and variable internal support costs.

The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue decreased to 28% in fiscal 2021 from 36% in fiscal 2020. The decrease as a percentage of revenues is primarily due to the overall increases in subscription and perpetual license revenue.

Gross profit increased $2.3 million, or 36%, in fiscal 2021 to $8.7 million compared to $6.4 million in fiscal 2020.The gross profit margin increased to 66% for fiscal 2021 compared to 59% for fiscal 2020.

The increase in the gross profit margin for fiscal 2021 compared to fiscal 2020 is primarily attributable to decreases in headcount and the use of third-party consultants and an increase in the proportion of license revenue, which is generally associated with higher margins, to digital engagement service revenue.

Operating Expenses

Sales and Marketing Expenses

Sales and marketing expenses increased $112 thousand, or 4%, to $2.7 million in fiscal 2021 from $2.6 million in fiscal 2020.

Sales and marketing expense as a percentage of total revenue decreased to 21% in fiscal 2021 compared to 24% in fiscal 2020.

The increase compared to the prior period is primarily attributable to the allocation of third-party subcontractor and partner costs and additional costs related to the fiscal 2021 business acquisitions.

The decrease as a percentage of revenues is primarily due to the overall increase in revenues.

General and Administrative Expenses

General and administrative expenses decreased $96 thousand, or 4%, to $2.4 million in fiscal 2021 from $2.5 million in fiscal 2020.

General and administrative expense as a percentage of revenue decreased to 18% in fiscal 2021 compared to 23% in fiscal 2020.

These net decreases compared to the prior period are primarily attributable to an overall decrease in support headcount and personnel expenses offset by increases associated with business acquisitions in fiscal 2021.

Research and Development

Research and development expense increased $746 thousand, or 45%, to $2.4 million in fiscal 2021 from $1.6 million in fiscal 2020.

Research and development expense as a percentage of total revenue increased to 18% in fiscal 2021 compared to 15% for fiscal 2020.

These increases compared to the prior period are primarily attributable to the allocation of support team and third-party subcontractor costs and additional research and development expenses related to the business acquisitions in fiscal 2021.

Depreciation and Amortization

Depreciation and amortization expense increased by $234 thousand, or 24%, to $1.2 million in fiscal 2021 from $968 thousand in fiscal 2020.

Depreciation and amortization as a percentage of total revenue remained consistent at 9% in fiscal 2021 and 2020.

The increase compared to the prior period is primarily due to amortization of intangible assets resulting from acquisitions completed during fiscal 2021.

Restructuring and Acquisition Related Expenses

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

During fiscal 2020, the Company recognized $366 thousand related to a reduction in the workforce in its U.S.

and Canada operations aimed at improving efficiencies by combining functions, certain responsibilities and eliminating redundancies, which resulted in a reduction of 15 positions.

Loss from Operations

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

Interest expense and other, net;

Government grant income;

Change in fair value of warrant liabilities

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

During the years ended September 30, 2021 and 2020, the Company recognized government grant income of $88 thousand and $960 thousand, respectively, associated with proceeds received under the PPP deemed probable to be forgiven based on the actual expenditures from the date proceeds were received by the Company through September 30, 2020. The Company applied for full PPP loan forgiveness on March 29, 2021 and received approval from the U.S.

Small Business Administration’s (the “SBA”) in August 2021.

The Company classifies unexpended loan proceeds on the accompanying consolidated balance sheets as a current or noncurrent liability based on the contractual maturities of the underlying loan agreement.

During the first quarter of fiscal 2021, the remaining loan proceeds were expended on qualified expenses and as a result, the Company recognized $88 thousand of government grant income.

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

Provision for Income Taxes

The provision for (benefit from) income taxes was ($1.2) million for fiscal 2021 and $11 thousand for fiscal 2020, respectively.

Income tax expense consists of estimated liability for federal and state income taxes owed by the Company.  Net operating loss (“NOL”) carryforwards are estimated to be sufficient to offset any potential taxable income for all periods presented.

A valuation allowance is established if it is more likely than not that all or a portion of the deferred tax asset will not be realized.

The Company maintains a valuation allowance against its net deferred tax assets.

As of September 30, 2021 and 2020, the Company had a full valuation allowance on its net deferred tax assets.

The Federal NOL carryforward is approximately $32 million as of September 30, 2021 in which the 20-year carryforward expires on various dates through 2037 and the remaining NOL carryforward is indefinite.

Net operating losses incurred after December 31, 2017 carry forward indefinitely.

Internal Revenue Code Section 382 places certain limitations on the amount of taxable income that can be offset by NOL carryforwards after a change in control of a loss corporation.

Generally, after a change in control, a loss corporation cannot deduct NOL carryforwards in excess of the Section 382 limitation.

Due to these “change of ownership”

provisions, utilization of NOL carryforwards may be subject to an annual limitation on utilization against taxable income in future periods.

The Company has not performed a Section 382 analysis.

However, if performed, Section 382 may be found to limit potential future utilization of our NOL carryforwards.

The Company also has approximately $30 million in state NOLs which expire on various dates through 2039.

The acquisition of Hawk Search, Inc.

during the third quarter of fiscal 2021 resulted in the recognition of deferred tax liabilities of approximately $1.1 million, related to intangible assets.

Prior to the business combination, the Company had a full valuation allowance on its net deferred tax assets.

The deferred tax liabilities generated from the business combination netted against the Company’s pre-existing deferred tax assets.

Consequently, the impact of such resulted in the release of $1.1 million of the pre-existing valuation allowance against the deferred tax assets and corresponding deferred tax benefit recognized during fiscal 2021.

Adjusted EBITDA

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

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

Adjusted EBITDA, however, is not a measure of operating performance under accounting principles generally accepted in the United States of America (“U.S.

GAAP”) and should not be considered as an alternative or substitute for U.S.

GAAP profitability measures such as (i) income from operations and net income, or (ii) cash flows from operating, investing and financing activities, both as determined in accordance with U.S.

Adjusted EBITDA as an operating performance measure has material limitations because it excludes the financial statement impact of income taxes, net interest expense, amortization of intangibles, depreciation, goodwill impairment, restructuring charges, acquisition related expenses, loss on disposal of assets, other amortization, changes in fair value of warrant liabilities, changes in fair value of contingent consideration and stock-based compensation, and therefore does not represent an accurate measure of profitability.

As a result, Adjusted EBITDA should be evaluated in conjunction with net income (loss) for a complete analysis of our profitability, as net income (loss) includes the financial statement impact of these items and is the most directly comparable U.S.

GAAP operating performance measure to Adjusted EBITDA.

Our definition of Adjusted EBITDA may also differ from and therefore may not be comparable with similarly titled measures used by other companies, thereby limiting its usefulness as a comparative measure.

Because of the limitations that Adjusted EBITDA has as an analytical tool, investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under U.S.

The following table reconciles net income (loss) (which is the most directly comparable U.S.

GAAP operating performance measure) to Adjusted EBITDA:

September 30,

Net income (loss)

Provision for income tax

Interest expense and other, net

Government grant income

Change in fair value of warrants

Amortization of intangible assets

Restructuring and acquisition related charges

Other amortization

Stock-based compensation

Adjusted EBITDA

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

Liquidity and Capital Resources

Operating Activities

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

Investing Activities

Cash used in investing activities was $4.5 million during fiscal 2021 and we did not have any cash flows from investing activities during fiscal 2020.

Cash used in investing activities during fiscal 2021 was primarily related to net cash paid for the purchase of businesses during the second and third fiscal quarters of 2021.

Financing Activities

Cash provided by financing activities was $13.5 million during fiscal 2021 compared with $1.0 million during fiscal 2020.

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

Cash provided by financing activities for fiscal 2020 was attributable to the proceeds received under the PPP.

Capital Resources and Liquidity Outlook

In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic.

We expect our operations in all locations to be affected as the virus continues to proliferate.

We have adjusted certain aspects of our operations to protect employees and customers while still meeting customers’

needs for vital technology.

We will continue to monitor the situation closely and it is possible that we will implement further measures.

In light of the uncertainty as to the severity and duration of the pandemic, the impact on our revenue, profitability and financial position is uncertain at this time.

On May 14, 2021, the Company offered and sold, in a registered direct offering, a total of 1,060,000 shares of its common stock par value $0.001 per share, at a price of $2.28 per share.

The aggregate proceeds, net of cash paid for certain fees due to placement agents and transaction-related expenses, of these two transactions that occurred on the same day was $4.6 million.

The aggregate proceeds from this transaction, net of certain fees due to placement agents and transaction expenses, was approximately $2.5 million.

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

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

In prior years, the Company incurred operating losses and used cash to fund operations, develop new products, and build infrastructure.

During its 2020 fiscal year, the Company executed an operating plan that reduced operating expenses and headcount.

The Company continued to maintain tight control over discretionary spending for the 2021 fiscal year.

The Company believes that future revenues and cash flows will supplement its working capital and it has an appropriate cost structure to support future revenue growth.

On April 17, 2020, the Company entered into a loan with an aggregate principal amount of $1,047,500, pursuant to the PPP.

The Company performed initial calculations for PPP loan forgiveness according to the terms and conditions of the SBA Loan Forgiveness Application (Revised June 16, 2020) and, based on such calculations, expected that the PPP loan will be forgiven in full based on usage of related proceeds over a period less than 24 weeks.

In addition, the Company determined it was probable the Company will meet all the conditions of the PPP loan forgiveness.

The Company applied for full PPP loan forgiveness on March 29, 2021, and received approval from the SBA in August 2021.

During the first quarter of fiscal 2021, the remaining loan proceeds were expended on qualified expenses and as a result, the Company recognized $88 thousand as government grant income.

Off-Balance Sheet Arrangements

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

Contractual Obligations

We lease all of our office locations.

The gross obligations for operating leases and subleases is $550 thousand and $236 thousand, respectively, of which $185 thousand and $101 thousand is expected in the next twelve months.

  Debt payments on the Company’s various debt obligations total $1.9 million of which $732 thousand is expected to be paid in the next twelve months.

Contingent consideration payments total $3.4 million of which $1.2 million is expected to be paid in the next twelve months.

Deferred purchase price payments total $2.4 million of which $2.2 million is expected to be paid in the next twelve months.

Critical Accounting Policies and Estimates

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

The preparation of consolidated financial statements in accordance with U.S.

GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting periods.

We regularly make estimates and assumptions that affect the reported amounts of assets and liabilities.

The most significant estimates included in our consolidated financial statements are the valuation of accounts receivable and long-term assets, including intangibles, goodwill and deferred tax assets, stock-based compensation, amounts of revenue to be recognized on service contracts in progress, unbilled receivables, and deferred revenue.

We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.

The actual results experienced by us may differ materially and adversely from our estimates.

To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.

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

Revenue recognition;

Allowance for doubtful accounts;

Accounting for goodwill and other intangible assets;

Accounting for business combinations;

Accounting for Payroll Protection Program;

Accounting for stock-based compensation.

Revenue Recognition

The Company derives its revenue from two sources:

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

Customers who license the software on a subscription basis, which can be described as “Software as a Service”

or “SaaS”, do not take possession of the software.

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;

Recognize revenue as the performance obligations are satisfied.

Identify the customer contract

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

Identify performance obligations that are distinct

A performance obligation is a promise to provide a distinct good or service or a series of distinct goods or services.

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

Determine the transaction price

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

Allocate the transaction price to distinct performance obligations

The transaction price is allocated to each performance obligation based on the relative standalone selling prices (“SSP”) of the goods or services being provided to the customer.

The Company determines the SSP of its goods and services based upon the historical average sales prices for each type of software license and professional services sold.

Recognize revenue as the performance obligations are satisfied

Revenue is recognized when or as control of the promised goods or services is transferred to customers.

Revenue from SaaS licenses is recognized ratably over the subscription period beginning on the date the license is made available to customers.

Most subscription contracts are three-year terms.

Customers who license the software on a perpetual basis receive rights to use the software for an indefinite time period and an option to purchase post-customer support (“PCS”).

PCS revenue is recognized ratably on a straight-line basis over the period of performance and the perpetual license is recognized upon delivery.

The Company also offers hosting services for those customers who purchase a perpetual license and do not want to run the software in their environment.

Revenue from hosting is recognized ratably over the service period, ranging from one to three-year terms.

The Company recognizes revenue from professional services as the services are provided.

Customer Payment Terms

Payment terms with customers typically require payment 30 days from invoice date.

Payment terms may vary by customer but generally do not exceed 45 days from invoice date.  Invoicing for digital engagement services are either monthly or upon achievement of milestones and payment terms for such billings are within the standard terms described above.

Invoices for subscriptions and hosting are typically issued monthly and are generally due in the month of service.

The Company’s subscription and hosting agreements provide for refunds when service is interrupted for an extended period of time and are reserved for in the month in which they occur, if necessary.

Our digital engagement services agreements with customers do not provide for any refunds for services or products and therefore no specific reserve for such is maintained.

In the infrequent instances where customers raise a concern over delivered products or services, we have endeavored to remedy the concern and all costs related to such matters have been insignificant in all periods presented.

Certain arrangements include a warranty period, which is generally 30 days from the completion of work.

In hosting arrangements, we provide warranties of up-time reliability.

We continue to monitor the conditions that are subject to the warranties to identify if a warranty claim may arise.

If we determine that a warranty claim is probable, then any related cost to satisfy the warranty obligation is estimated and accrued.

Warranty claims to date have been immaterial.

Allowance for Doubtful Accounts

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

We analyze historical percentages of uncollectible accounts and changes in payment history when evaluating the adequacy of the allowance for doubtful accounts.

We use an internal collection effort, which may include our sales and services groups as we deem appropriate.

Although we believe that our allowances are adequate, if the financial condition of our clients deteriorates, resulting in an impairment of their ability to make payments, or if we underestimate the allowances required, additional allowances may be necessary, resulting in increased expense in the period in which such determination is made.

Accounting for Goodwill and Intangible Assets

Goodwill is tested for impairment annually during the fourth quarter of every fiscal year and more frequently if events and circumstances indicate that the asset might be impaired. The purpose of an impairment test is to identify any potential impairment by comparing the carrying value of a reporting unit including goodwill to its fair value.

An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value;

however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  

Factors that could lead to a future impairment include material uncertainties such as operational, economic and competitive factors specific to the key assumptions underlying the fair value estimate we use in our impairment testing that have a reasonable possibility of changing.

This could include a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and a decline in our market value as a result of a significant decline in our stock price.

Accounting for Business Combinations

The Company allocates the amount it pays for each acquisition to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, including identifiable intangible assets which arise from a contractual or legal right or are separable from goodwill.

The Company bases the fair value of identifiable intangible assets acquired in a business combination on detailed valuations that use information and assumptions provided by management, which consider management’s best estimates of inputs and assumptions that a market participant would use.

The Company allocates any excess purchase price that exceeds the fair value of the net tangible and identifiable intangible assets acquired to goodwill.

The use of alternative valuation assumptions, including estimated growth rates, cash flows and discounts rates and estimated useful lives could result in different purchase price allocations and amortization expense in current and future periods.

Transaction costs associated with these acquisitions are expensed as incurred through general and administrative expense on the consolidated statements of operations.

In those circumstances where an acquisition involves a contingent consideration arrangement, the Company recognizes a liability equal to the fair value of the contingent payments expected to be made as of the acquisition date.

The Company re-measures this liability each reporting period and records changes in the fair value through income (loss) before income taxes within the consolidated statements of operations.

Accounting for Payroll Protection Program

GAAP does not contain authoritative accounting standards for forgivable loans provided by governmental entities to a for-profit entity.

Absent authoritative accounting standards, interpretative guidance issued and commonly applied by financial statement preparers allows for the selection of accounting policies amongst acceptable alternatives.

Based on the facts and circumstances, the Company determined it most appropriate to account for the PPP loan proceeds as an in-substance government grant by analogy to International Accounting Standards 20 (“IAS 20”), Accounting for Government Grants and Disclosure of Government Assistance.

Under the provisions of IAS 20, “a forgivable loan from a government is treated as a government grant when there is reasonable assurance that the entity will meet the terms for forgiveness of the loan.”

IAS 20 does not define “reasonable assurance”;

however, based on certain interpretations, it is analogous to “probable”

as defined in Financial Accounting Standards Board (“FASB”) ASC 450-20-20 under U.S.

GAAP, which is the definition the Company has applied to its expectations of PPP loan forgiveness.

Under IAS 20, government grants are recognized in earnings on a systematic basis over the periods in which the Company recognizes costs for which the grant is intended to compensate (i.e.

qualified expenses).

Further, IAS 20 permits for the recognition in earnings either separately under a general heading such as other income, or as a reduction of the related expenses.

The Company has elected to recognize government grant income separately within other income to present a clearer distinction in its consolidated financial statements between its operating income and the amount of net income resulting from the PPP loan and subsequent expected forgiveness.

The Company believes this presentation method promotes greater comparability amongst all periods presented.

Accounting for Stock-Based Compensation

At September 30, 2021, we maintained two stock-based compensation plans, one of which has expired but still contains vested and unvested stock options.

The two plans are more fully described in Note 12 of these consolidated financial statements.

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

We recognize stock-based compensation expense for share-based payments issued or assumed after October 1, 2006 that are expected to vest on a straight-line basis over the service period of the award, which is generally three years.  We recognize the fair value of the unvested portion of share-based payments granted prior to October 1, 2006 over the remaining service period, net of estimated forfeitures. 

In determining whether an award is expected to vest, we use an estimated, forward-looking forfeiture rate based upon our historical forfeiture rate and reduce the expense over the recognition period.

Estimated forfeiture rates are updated for actual forfeitures quarterly.

 We also consider, each quarter, whether there have been any significant changes in facts and circumstances that would affect our forfeiture rate.  Although we estimate forfeitures based on historical experience, actual forfeitures in the future may differ.

 In addition, to the extent our actual forfeitures are different than our estimates, we record a true-up for the difference in the period that the awards vest, and such true-ups could materially affect our operating results.

We estimate the fair value of stock options using the Black-Scholes-Merton option valuation model.  The fair value of an award is affected by our stock price on the date of grant as well as other assumptions, including the estimated volatility of our stock price over the term of the awards and the estimated period of time that we expect employees to hold their stock options.

 The risk-free interest rate assumption we use is based upon United States Treasury interest rates appropriate for the expected life of the awards. 

We use the historical volatility of our publicly traded options in order to estimate future stock price trends. 

In order to determine the estimated period of time that we expect employees to hold their stock options, we use historical trends of employee turnovers.

 Our expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future.

The aforementioned inputs entered into the option valuation model we use to fair value our stock awards are subjective estimates and changes to these estimates will cause the fair value of our stock awards and related stock-based compensation expense we record to vary.

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

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