What changed in this filing

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Item 1A. Risk Factors

2022-12-21 compared with 2021-12-20 · 163 added, 202 removed, 444 unchanged (45% 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.

Risk Factors Related to our Business

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

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

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

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

We incurred net income of approximately $2.2 million for the year ended September 30, 2022, which includes income related to the change in the fair value of warrant liabilities.

Since our inception in 2000 and through fiscal 2019, and in fiscal 2021, we have incurred net losses, and may do so again.

As of September 30, 2022, we had an accumulated deficit of approximately $80 million.

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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.

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 may become profitable.

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

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

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

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

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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.

In connection with the acquisition of HawkSearch 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 (subsequently amended), 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, (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, and (4) recognized contingent earn-out payments of $1.3 million (acquisition date fair value) which were 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.

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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 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, during which time the Company will not make any sales of Placement Shares.

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

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

Our customers have no obligation to renew their subscription licenses, and some customers have elected not to do so.

Our customers have no obligation to renew their subscription licenses, and some customers have elected or may elect not to do so.

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

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

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

We may become dependent upon a concentration 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.

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.

We have previously and may from time to time derive a significant portion of our revenues from a relatively concentrated number of customers.

Considering a reduction in our license renewal rate could reduce our revenue, these consequences could be exacerbated if we are dependent upon several major customers and any one of them were to elect not to renew.

The length of our sales cycle can alternate markedly, 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.

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

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

We 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 or interference in service, our business and reputation could suffer.

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

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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.

Interference from unauthorized access to or tampering with these systems, including those resulting from cyber-attacks, could result in a variety of consequences, including devaluation of our intellectual property, goodwill, increased expenditures on data security and litigation, and can have a material adverse effect on our business, revenues, reputation, operating results and financial condition.

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

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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’

While we have security measures in place, they may be breached as a result of third-party action, including intentional misconduct by computer hackers and cybercriminals, 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.

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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.

Malicious third parties may also conduct cyber-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.

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Such pricing pressures and increased competition generally could result in reduced sales, reduced margins or the failure of our product and service offerings to achieve or maintain more widespread market acceptance.

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

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

The marketplace is highly fragmented with a large number of competitors and potential competitors.

Our prominent public company competitors include companies such as Coveo, Elastic, Semrush and WeCommerce.

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

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

The average shares traded per day in fiscal 2022 was approximately 286,000 shares per day compared to approximately 2,839,000 for fiscal 2021, and 484,000 for fiscal 2020.

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.

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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.

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

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

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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.

Such corrective actions could include a reverse stock split, which may adversely affect the liquidity of our common stock.

Additionally, there is no way to guarantee that such a measure, if implemented, would help us regain compliance with the minimum bid price requirement or maintain compliance with other NASDAQ listing rules.

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

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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 ’

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.

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

Any such acquisition may not be successful in generating revenues, income or other returns to us, and the resources committed to such activities will not be available to us for other purposes.

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Our inability to take advantage of growth opportunities for our business or to address risks associated with acquisitions or investments in businesses may negatively affect our operating results.

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

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 a material adverse effect on the price of our common stock.

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

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

Our Certificate of Incorporation authorizes the issuance of up to 1,000,000 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.

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

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

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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Woburn, MA 01801

775 square feet,

Professional office space

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Woodbury, NY 11797

3,630 square feet,

Professional office space

Rosemont, Illinois

5600 North River Rd, Suite 100

Rosemont, IL 60018

Professional office space

Atascadero, California

6225 Atascadero Ave

Atascadero, CA 93422

Professional office space

Ontario, Canada

Perth Mews RO

Perth, ON K7H 3A0

Brussels, Belgium

Cours Saint Michel 30B

1040 Etterbeek

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

Professional office space is of varying size, ranging up to approximately 3,600 square feet.

Legal Proceedings.

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

Market Information

Our common stock is currently traded on The NASDAQ Stock Market LLC, under the trading symbol “BLIN”.

Number of Shareholders

As of December 10, 2022, we had approximately 60 stockholders of record.

Since many stockholders choose to hold their shares under the name of their brokerage firm, we estimate that the actual number of stockholders was over 6,000. 

Dividend Policy

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.

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

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

acted as co-placement agent for the offering.

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

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

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

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

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.

There were no sales of unregistered or registered equity securities during the fiscal year ended September 30, 2022.

Selected Financial Data.

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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.

Bridgeline Digital is a marketing technology company that offers a suite of products that help companies grow online revenue and share information with customers, partners, and employees.

HawkSearch 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.

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

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

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.

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

The 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 TruPresence 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.

All of our software is available through a cloud-based software as a service (“

SaaS ”) model.

Additionally, Unbound and HawkSearch are available via a traditional perpetual licensing business model, in which the software resides on a dedicated infrastructure in either the customer’s facility, or manage-hosted by Bridgeline via a cloud-based hosted services model.

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.

These companies are generally categorized in the following vertical markets: 

Distributors and Wholesalers

Multi-Unit Franchises & Enterprises

Manufacturers

eCommerce Retailers

Industrial Distribution (Electrical, Plumbing, Building, Cleaning, Restaurant, Furniture Suppliers)

Health Services and Life Sciences

High Technology (software and hardware)

Credit Unions and Regional Banks

Associations and Foundations

Each of the Bridgeline companies goes to market through two main types of partnerships.

The first partner category includes platforms such as Optimizely, BigCommerce, Adobe, Sitefinity and others.

The Bridgeline software often embeds directly into these platforms through connectors and SDK solutions that Bridgeline develops in concert with each platform.

The second category includes web-development agencies which typically have deep relationships with end-customers and have the technical expertise to implement the Bridgeline software solutions according to client needs, platform requirements, and industry standards.

Bridgeline will continue to evaluate expanding its distribution of its suite of products and 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.

This integration may reduce the aggregate of such expenses for the combined businesses and similarly improve 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.

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) a $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.

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. 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. 

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

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 HawkSearch, Inc., an Illinois corporation (“HawkSearch”).

The total purchase price of approximately $9.9 million consisted of (1) $4.8 million initial cash payment at closing, (2) an 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).

(i) the aggregate sum of $1,779 thousand which was paid on July 1, 2022;

and (ii) the aggregate sum of $250 thousand, which was paid on October 3, 2022, as included within the Amendment to the Stock Purchase Agreement, dated June 15, 2022.

The fair value of contingent consideration was $250 thousand on September 30, 2022, all of which was paid in October 2022

Customer Information

We currently have over 2,000 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.

For the years ended September 30, 2022 and 2021, no customers exceeded 10% 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.

Total revenue for the fiscal year ended September 30, 2022 (“fiscal 2022”) increased to $16.8 million from $13.3 million for the fiscal year ended September 30, 2021 (“fiscal 2021”). The loss from operations for fiscal 2022 was $1.9 million, compared with a loss from operations of $1.2 million for fiscal 2021.

We had a net income for fiscal 2022 of $2.1 million, which included a gain of approximately $3.7 million as a result of the change in fair value of certain warrant liabilities, compared with a net loss of $6.7 million, which included 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 in fiscal 2021.

Basic net income (loss) per share attributable to common shareholders for fiscal 2022 was $0.21 compared with the equivalent basic net loss per share attributable to common shareholders of ($1.47) for fiscal 2021.

Diluted net income (loss) per share attributable to common shareholders for fiscal 2022 was $0.20 compared with the equivalent diluted net loss per share attributable to common shareholders of ($1.47) for fiscal 2021.

(in thousands)

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Loss from operations

Interest expense and other, net

Change in fair value of contingent consideration, interest expense and other, net

Government grant income

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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 is comprised of implementation and retainer-related services.

Total revenue from digital engagement services of $3.3 million in fiscal 2022 decreased 1% from $3.3 million in fiscal 2021.

Digital engagement services revenue as a percentage of total revenue decreased to 19% in fiscal 2022 from 25% in fiscal 2021.

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.

The decreases compared to the prior period are attributable to the increase in subscription and perpetual licenses, including additional revenue related to business acquisitions during fiscal 2021.

Subscription and Perpetual Licenses

Revenue from subscription (SaaS) and perpetual licenses increased $3.6 million, or 36%, to $13.6 million in fiscal 2022 from $10.0 million in fiscal 2021.

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.

The increase compared to the prior period is primarily due to significant multi-year license renewals across our diverse portfolio of companies and the inclusion of a full year of revenue from the Company’s fiscal 2021 acquisitions compared to fiscal 2021, which only included revenues from the acquisition date to period end.

Subscription and perpetual license revenue as a percentage of total revenue increased to 81% in fiscal 2022 from 75% in fiscal 2021.

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.

The increase as a percentage of total revenue is attributable to the increase in subscription licenses, including renewals and additional revenue related to the business acquisitions during fiscal 2021.

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. 

Total cost of revenue for fiscal 2022 of $5.1 million increased $0.6 million, or 13%, from $4.5 million.

The increase for fiscal 2022 compared to fiscal 2021 is primarily attributable to costs incurred related to the business acquisitions during fiscal 2021. 

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 digital engagement services increased 1%, to $1.8 million in fiscal 2022 from $1.7 million in fiscal 2021.

The increase in cost of digital engagement services in fiscal 2022 compared to fiscal 2021 is primarily due to personnel costs, including costs incurred related to the business acquisitions during fiscal 2021.

The cost of total digital engagement services as a percentage of total digital engagement services revenue increased to 54% in fiscal 2022 from 53% in fiscal 2021.

The increase as a percentage of revenues in fiscal 2022 compared to fiscal 2021 is primarily due to the overall decrease in digital engagement services revenue and costs incurred related to business acquisitions during fiscal 2021, 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.

Cost of subscription and perpetual licenses of $3.4 million in fiscal 2022 increased $0.6 million, or 20%, from $2.8 million in fiscal 2021.

The increase in cost of subscription and perpetual licenses in fiscal 2022 compared to fiscal 2021 is primarily due to higher costs to operate our cloud-based hosting model with Amazon Web Services and additional personnel costs, including costs incurred related to the business acquisitions during fiscal 2021.

The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue decreased to 25% in fiscal 2022 from 28% in fiscal 2021. 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.

Gross profit of $11.7 million increased $3.0 million, or 34%, in fiscal 2022 to compared to $8.7 million for fiscal 2021.

The gross profit margin increased to 70% for fiscal 2022 compared to 66% for fiscal 2021.

The increase in the gross profit margin for fiscal 2022 compared to fiscal 2021 is primarily attributable to the 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.

Sales and marketing expenses of $5.2 million in fiscal 2022 increased $2.5 million, or 92%, from $2.7 million in fiscal 2021.

Sales and marketing expense as a percentage of total revenue increased to 31% in fiscal 2022 compared to 21% in fiscal 2021.

The increase compared to the prior period is primarily attributable to higher personnel costs and additional sales and marketing costs, including such additional costs related to the business acquisitions during fiscal 2021.

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.

General and administrative expenses of $3.4 million in fiscal 2022 increased $1.0 million, or 44%, from $2.4 million in fiscal 2021.

General and administrative expense as a percentage of revenue increased to 20% in fiscal 2022 compared to 18% in fiscal 2021.

These increases are primarily due to additional costs related to the business acquisitions during 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 of $3.2 million in fiscal 2022 increased $0.8 million, or 35%, from $2.4 million in fiscal 2021.

Research and development expense as a percentage of total revenue increased to 19% in fiscal 2022 compared to 18% for fiscal 2021.

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.

These increases compared to the prior period are primarily attributable to personnel and other additional costs related to the business acquisitions during 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.

Depreciation and amortization expense of $1.6 million in fiscal 2022 increased by $0.4 million, or 33%, from $1.2 million in fiscal 2021.

Depreciation and amortization as a percentage of total revenue increased to 10% in fiscal 2022 compared to 9% in fiscal 2021.

These increases are primarily due to amortization of intangible assets resulting from business acquisitions during fiscal 2021.

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;

The loss from operations was $1.9 million for fiscal 2022 compared to a loss from operations of $1.2 million for fiscal 2021, an increase of $0.7 million or 60%.

Change in fair value of contingent consideration, 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.

The Company recognized a gain related to the change in fair value of warrant liabilities of $3.7 million, for the year ended September 30, 2022 and a loss related to the change in fair value of warrant liabilities of $5.9 million for the year ended September 30, 2021, respectively.

During the year ended September 30, 2021, the Company recognized government grant income of $88 thousand associated with proceeds received under the PPP deemed probable to be forgiven based on the actual expenditures for qualified expenses during the period.

As of the first quarter of fiscal 2021, the Company expended all loan proceeds on qualified expenses incurred during the period.

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.

During the years ended September 30, 2022 and 2021, change in fair value of contingent consideration, interest expense and other, net, was $0.4 million of gain in fiscal 2022 compared to a loss of $0.9 million in fiscal 2021, 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.

The provision for (benefit from) income taxes was $30 thousand for fiscal 2022 and ($1.2) million for fiscal 2021, 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.

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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.

As of September 30, 2022 and 2021, the Company had a valuation allowance on its net deferred tax assets of $10.5 million and $10.1 million, respectively.

The Federal NOL carryforward is approximately $27.8 million as of September 30, 2022 of which $21.9 million is subject to the 20-year carryforward and expire on various dates through 2039. The remaining federal NOL carryforward of $5.9 million is indefinite.

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

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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.

The Company also has approximately $46.8 million in state NOLs which expire on various dates through 2041.

The acquisition of HawkSearch during the third quarter of fiscal 2021 resulted in the recognition of deferred tax liabilities of approximately $1.2 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.

Consequently, the impact of such resulted in the release of $1.2 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 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 income/expense, 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.

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Provision for income tax

Interest expense and other, net

Change in fair value of contingent consideration, interest expense and other, net

Government grant income

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Amortization of intangible assets

Depreciation and other amortization

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.

Adjusted EBITDA decreased year over year, which is primarily attributable to additional costs related to the business acquisitions during fiscal 2021 as well as additional sales and marketing spend.

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.

Cash used in operating activities was $0.1 million during fiscal 2022 compared to $1.0 million during fiscal 2021.  The change in cash used in operating activities compared to the prior period was primarily due to an increase in net earnings partially offset by changes in non-cash items, including changes in fair value of warrant liabilities, and changes to accounts payable and accrued liabilities as well as 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 was $0.2 million during fiscal 2022 compared to cash used in investing activities of $4.5 million during fiscal 2021.

Cash used in investing activities during fiscal 2022 related primarily to software development capitalized costs and purchases of property and equipment.

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.

Cash used in financing activities was $5.5 million during fiscal 2022 compared with cash provided of $13.5 million during fiscal 2021.

Cash used in financing activities during fiscal 2022 was primarily related to deferred purchase price and contingent consideration payments related to acquisitions completed during fiscal 2021.

Cash provided by financing activities during fiscal 2021, 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.

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.

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

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

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

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

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

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

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

In connection with an acquisition of a business completed during the 2021 fiscal year third quarter (HawkSearch), the Company recognized a contingent consideration obligation with a current carrying value of $0.3 million as of September 30, 2022, all of which was paid in October 2022.

In connection with an acquisition of a business completed during the 2021 fiscal year second quarter (WooRank), the Company assumed the outstanding long-term debt obligations of which approximately $1.0 million remains outstanding at September 30, 2022, with $0.4 million payable over the next twelve months.

The Company has historically incurred operating losses and used cash on hand and from financing activities to fund operations as well as develop new products.

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.

The Company may offer and sell, from time to time, in one or more offerings, up to $50 million of its debt or equity securities, or any combination thereof. 

Such securities offerings may be made pursuant to the Company’s currently effective registration statement on Form S-3 (File No.

333-262764), which was initially filed with the Securities and Exchange Commission on February 16, 2022 and declared effective on March 4, 2022 (the “Shelf Registration”). 

A complete description of the types of securities that the Company may sell is described in the Preliminary Prospectus contained in the Shelf Registration.  

As of the date of the filing of this Quarterly Report, there are no active offerings for the sale or obligations to purchase any of the Company’s securities pursuant to the Shelf Registration. 

There can be no assurances that the Company will offer any securities for sale or that if the Company does offer any securities that it will be successful in selling any portion of the securities offered on a timely basis if at all, or on terms acceptable to us. 

Further, our ability to offer or sell such securities may be limited by rules of the NASDAQ Capital Market.

Off-Balance Sheet Arrangements

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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.

The gross obligations for operating leases and subleases is $0.6 million of which $0.2 million is expected in the next twelve months.

Debt payments on the Company’s various debt obligations total $1.0 million of which $0.4 million is expected to be paid in the next twelve months.

In connection with an acquisition of a business completed in the Company’s 2021 fiscal year, contingent consideration obligations total $0.3 million, which was paid in October 2022.

Critical Accounting Policies and Estimates

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Accounting for business combinations;

Accounting for Payroll Protection Program;

Accounting for stock-based compensation.

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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.

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

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.

At September 30, 2022, we maintained two stock-based compensation plans, one of which has expired but still contains vested 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.

We recognize stock-based compensation expense for share-based payments issued that are expected to vest on a straight-line basis over the service period of the award, which is generally three years.  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.

 In addition, to the extent our actual forfeitures are different than our estimates, we recognize 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.

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 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.

We recognize 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