What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2022-12-21 compared with 2021-12-20 · 332 added, 472 removed, 932 unchanged (46% of the section changed)

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Financial Statements and Supplementary Data.

INDEX TO FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of September 30, 2022 and 2021

Consolidated Statements of Operations for the years ended September 30, 2022 and 2021

Consolidated Statements of Comprehensive Income/(Loss) for the years ended September 30, 2022 and 2021

Consolidated Statements of Shareholders’ Equity for the years ended September 30, 2022 and 2021

Consolidated Statements of Cash Flows for the years ended September 30, 2022 and 2021

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

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We have audited the accompanying consolidated balance sheet of Bridgeline Digital, Inc.

and Subsidiaries (the “Company”) as of September 30, 2021, and the related consolidated statements of operations, comprehensive income (loss), stockholders’

equity and cash flows for the year ended September 30, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021, and the results of its operations and its cash flows for the year ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.

and Subsidiaries (the “Company”) as of September 30, 2022 and 2021, and the related consolidated statements of operations, comprehensive income (loss), stockholders’

equity and cash flows for each of the two years in the period ended September 30, 2022, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended September 30, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit.

Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. 

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Accordingly, we express no such opinion.

Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audit provides a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Business Combinations –

Acquisitions of Woorank SRL and Hawk Search, Inc.

As described in Note 16 to the consolidated financial statements, the Company completed acquisitions of (1) Woorank SRL on March 1, 2021, for purchase consideration of approximately $2.4 million and (2) Hawk Search, Inc.

on May 28, 2021 for purchase consideration of approximately $9.9 million.

The purchase price allocations resulted in the Company recording $6.3 million of intangible assets and $3.5 million of contingent consideration payable, estimated at the acquisition date.

The Company accounted for both acquisitions under the acquisition method of accounting for business combinations.

Assets acquired and liabilities assumed have been recorded at their estimated fair values as of the acquisition date.

The fair value of intangible assets was determined based on valuations using a discounted cash flow model, which requires significant estimates and assumptions, including estimating future revenues and costs.

Management, with the assistance of an independent valuation expert, estimated the fair value of the intangible assets using the multi-period excess earnings method (customer relationships) and the relief from royalty methodology (tradename and developed technology).

The fair value of contingent consideration payable was determined based on the probability of achievement of the revenue targets and operational goals, which requires significant estimates and assumptions, including estimating future revenues.

Management, with the assistance of an independent valuation expert, estimated the fair value of the contingent consideration payable using the Monte Carlo simulation model.

Given the fair value determination of the intangible assets and contingent consideration payable requires management to make significant estimates and assumptions related to the forecasts of future cash flows and the selection of the discount rate, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included:

reviewing the purchase and sale agreements and evaluating the transactions to determine that  both acquisitions met the requirements of a business combination, and our analysis of the initial allocation of the purchase price accounting as well as the determination of the balance sheet classification of each component of the transaction.

obtaining  third party valuation reports to gain an understanding of the process and key assumptions for estimating the fair value of intangible assets and contingent consideration payable.

We utilized our valuation specialists to evaluate the adequacy and appropriateness of the methodologies and assumptions used in developing the forecast and the discount rates used.

agreeing the underlying data used as part of the valuations to  source documents, including the purchase and sale agreements, and assessing the reasonableness of management’s forecasts of future cash flows by comparing the projections to historical results.

performing independent shadow calculations to test the reasonableness and mathematical accuracy of the fair values concluded on by the Company.

evaluating whether the estimated future cash flows were consistent with projections used by the Company, as well as evidence obtained in other areas of the audit.

Furthermore, we assessed the appropriateness of the disclosures in the consolidated financial statements.

Derivative Instruments

As described in Note 12 to the consolidated financial statements, in May 2021, the Company offered and sold, in a registered direct offering, shares of its common stock and entered into a private placement which consisted of Series D Convertible Preferred Stock and warrants to purchase common stock upon conversion of the Series D Preferred Stock for aggregate gross proceeds of $5.1 million.

The Company allocated the proceeds between equity instruments and derivative liabilities using the relative fair value approach.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Warrant Liabilities

As described in Note 5 to the consolidated financial statements, the Company classifies warrants on its Series A, C and D convertible preferred stock as liabilities that are subject to re-measurement on a quarterly basis.

Management, with the assistance of an independent valuation expert, estimates the fair value of the warrant liabilities using Monte Carlo simulation and Black Scholes models, which take into consideration the volatilities of the Company and comparable public companies.

Given the determination of the fair values of equity instruments and derivative liabilities require management to make significant estimates and assumptions regarding the relevant valuation calculations, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve professionals in our firm having the expertise in the valuation of financial instruments.

Management, with the assistance of an independent valuation expert, estimates the fair value of the warrant liabilities using the Monte Carlo option-pricing model, which takes into consideration the volatilities of the Company and comparable public companies.

Given the determination of the fair value of warrant liabilities requires management to make significant estimates and assumptions regarding the relevant valuation calculations, performing audit procedures to evaluate the reasonableness of these estimates and assumptions required a high degree of auditor judgment and an increased extent of effort, including the need to involve professionals in our firm having the expertise in the valuation of financial instruments.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included:

evaluating management’s assessment and the Company’s accounting analysis as to the classification of equity instruments and derivative liabilities, including the determination of the balance sheet classification of each component of the transaction and identification of any derivatives included in the arrangements.

obtaining third party valuation reports to gain an understanding of management’s key assumptions in determining the fair value of warrant liabilities and assessing the source information underlying the valuation assumptions.

with the assistance of our valuation specialists, evaluating the methodologies and assumptions used to assess the Company’s fair value of equity instruments and derivative liabilities, including the selection of the valuation methodology and other significant assumptions used by the Company.

evaluating management’s assessment and accounting analysis as to the classification of warrant liabilities.

obtaining third party valuation reports to gain an understanding of management’s key assumptions used in determining the fair value of warrant liabilities.

with the assistance of our valuation specialists, evaluating the methodologies and key assumptions used by management to assess the Company’s fair value of warrant liabilities, including assessing the reasonableness of the source information underlying the valuation assumptions.

performing independent shadow calculations to test the reasonableness of the fair values for warrant liabilities concluded on by the Company’s specialist

Such calculations assessed the mathematical accuracy of the valuation model and assessed the source information underlying the valuation assumptions used in the model to determine the fair value for the Series D issuance at inception and liability classified warrants on a quarterly basis.

assess the appropriateness of the disclosures in the consolidated financial statements.

/s/ PKF O'Connor Davies, LLP

PKF O'Connor Davies, LLP

New York, New York

December 20, 2022

We have served as the Company’s auditor since February 27, 2021.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Bridgeline Digital, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheet of Bridgeline Digital, Inc.

(the “Company”) as of September 30, 2020, the related consolidated statements of operations, comprehensive income/(loss), stockholders’

equity and cash flows for the year ended September 30, 2020, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2020, and the results of its operations and its cash flows for the year ended September 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph –

Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As more fully described in Note 1, the Company has a significant working capital deficiency, has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations.

These conditions raise substantial doubt about the Company's ability to continue as a going concern.

Management's plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB .

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting.

Accordingly, we express no such opinion.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit provides a reasonable basis for our opinion.

/s/ Marcum LLP

We have served as the Company’s auditor since 2006 (such date takes into account the acquisition of a portion of UHY LLP by Marcum LLP in April 2010) to 2021.

December 23, 2020

We have served as the Company’s auditor since 2021.

BRIDGELINE DIGITAL, INC.

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$ 2,856  

$ 8,852  

Accounts receivable, net

Prepaid expenses

Other current assets

Prepaid expenses and other current assets

Total current assets

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$ 27,513  

$ 34,967  

LIABILITIES AND STOCKHOLDERS ’

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Purchase price and contingent consideration payable, current portion (Note 17)

Paycheck Protection Program Liability (Note 10)

Deferred revenue

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1,000,000 shares authorized;

Series A Convertible Preferred stock:

264,000 shares authorized;

no shares issued and outstanding at September 30, 2021 and 2020  

Series C Convertible Preferred stock:

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20,352  

17,577  

Total liabilities and stockholders’

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Digital engagement services

$ 3,259  

$ 3,296  

Subscription and perpetual licenses

13,560  

Total net revenue

16,819  

13,259  

Cost of revenue:

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Total cost of revenue

11,702  

Operating expenses:

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Total operating expenses

13,599  

Loss from operations

Interest expense and other, net

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

Government grant income (Note 10)

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Net income (loss)

Dividends on Series A convertible preferred stock

Deemed dividend on convertible preferred stock (Notes 12 and 16)

Net loss attributable to common shareholders

Net loss per share attributable to common shareholders:

Deemed dividend on convertible preferred stock (Note 12)

Net loss attributable to common shareholders

$ 2,145  

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

$ 0.21  

$ 0.20  

Number of weighted average shares outstanding:

10,232,862  

5,935,981  

10,366,907  

5,935,981  

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

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Net income (loss)

$ 2,145  

Other comprehensive income (loss):

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Comprehensive income (loss)

Dividends on Series A convertible preferred stock

Deemed dividend on convertible preferred stock (Notes 12 and 16)

Deemed dividend on convertible preferred stock (Note 12)

Comprehensive loss attributable to common shareholders

$ 2,278  

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

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Stockholders ’

Balance at October 1, 2019

262,751  

2,798,475  

$ 75,620  

$ 3,796  

Dividends on Series A convertible preferred stock

Deemed dividend on amendment of Series A convertible preferred stock (Note 12)

Series A convertible preferred stock dividend liabilities settled in shares

112,960  

Series A convertible preferred stock conversion to common

1,498,623  

Series C convertible preferred stock conversion to common

10,112  

Stock-based compensation expense

Foreign currency translation

Balance at September 30, 2020

4,420,170  

$ 78,316  

$ 4,356  

Stock-based compensation expense

Deemed dividend on beneficial conversion feature (Notes 12 and 16)

( 2,015 )  

Deemed dividend on beneficial conversion feature (Note 12)

Issuance of common stock –

stock options exercised

27,333  

Issuance of common stock –

warrants exercised

1,928,086  

12,371  

12,374  

Issuance of common stock, net of offering costs

1,940,000  

Issuance of stock in connection with acquisition of a business

29,433  

Issuance of Series D convertible preferred stock, net of offering costs

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Series D convertible preferred stock conversion to common

1,842,106  

(6,689 )  

Foreign currency translation

Balance at September 30, 2021

10,187,128  

$ 100,207  

$ 17,577  

Stock-based compensation expense

Issuance of common stock –

stock options exercised

Issuance of common stock –

warrants exercised

Issuance of restricted common stock

Foreign currency translation

Balance at September 30, 2022

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

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Amortization of intangible assets

Other amortization

Depreciation and other amortization

Change in fair value of contingent consideration

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Accounts receivable

Prepaid expenses

Other current assets and other assets

Prepaid expenses and other current assets and other assets

Accounts payable and accrued liabilities

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Proceeds from stock option and warrant exercises

Proceeds received under Paycheck Protection Program

Payments of contingent consideration and deferred cash payable

Payments of long-term debt

Net cash provided by financing activities

Net cash (used in) provided by financing activities

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

Supplemental disclosures of cash flow information:

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Non-cash investing and financing activities:

Right-of-use asset obtained in exchange for new operating lease liability

Consideration paid in stock in connection with acquisition of businesses

Offering costs settled by issuance of liability classified warrants

Dividends accrued or settled in shares on convertible preferred stock

Deemed dividend on convertible preferred stock (Notes 12 and 16)

Deemed dividend on convertible preferred stock (Note 12)

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

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Description of Business

Bridgeline Digital is a marketing technology software company that helps companies 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, 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.

Bridgeline Digital is a marketing technology company that offers a suite of products that help companies grow online revenue by driving more traffic to their websites, converting more visitors to purchasers, and increasing average order value.

HawkSearch is a site search, recommendation, and personalization application, built for marketers, merchandisers, and developers to enhance, normalize, and enrich an online customer's content search and product discovery experience.

HawkSearch leverages advanced artificial intelligence, machine learning and industry-leading merchandising features to deliver accurate and highly relevant results and recommendations derived from multiple 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 with support for multiple languages.

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

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

Our Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, Digital Marketing, and Web Analytics.

The Unbound platform, combined with its professional services, assists customers in powering engaging digital experiences that drive lead generation, increase revenue, improve customer service and loyalty, enhance employee knowledge, and reduce operational costs. 

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

TruPresence provides centralized and distributed management of content and products from parent sites down to multiple child sites for consistency in branding and messaging, while also enabling regional / local site owners to manage the local messaging, products and promotions specific to their local market.

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 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.

The software uniquely combines 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 Bridgeline’s software is available through a cloud-based Software as a Service (“

SaaS ”) model, whose flexible architecture provides customers with hosting and support. 

Additionally, Unbound and Hawk Search is 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.

SaaS ”) model, whose flexible architecture provides customers hosting and support.

Additionally, Unbound and HawkSearch have the option to be available via a traditional perpetual licensing business model, in which the software can reside on a dedicated infrastructure either on premise at the customer’s facility, or manage-hosted by Bridgeline via a cloud-based, dedicated hosted services model.

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

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;

Rosemont, Illinois;

Atascadero, California;

Ontario, Canada;

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The Company has four wholly-owned subsidiaries:

Bridgeline Digital Pvt.

Ltd., located in Bangalore, India;

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

Hawk Search Inc.

located in Illinois, United States and Bridgeline Digital Belgium BV, located in Brussels, Belgium.

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

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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Property and Equipment

The components of property and equipment are stated at cost, net of accumulated depreciation.

Depreciation is computed using the straight-line method over the estimated useful lives of the related assets ( three to five years).

The components of property and equipment are stated at cost, net of accumulated depreciation and amortization.

Depreciation and amortization are computed using the straight-line method over the estimated useful lives of the related assets ( three to five years).

Leasehold improvements are amortized using the straight-line method over the lesser of the estimated useful life of the asset or the lease term.  Repairs and maintenance costs are expensed as incurred.

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Capitalization ceased upon completion of all substantial testing.

The Company also capitalized costs related to specific upgrades and enhancements when it was probable that the expenditures would result in additional functionality.  Capitalized costs were recorded as part of equipment and improvements.

Training costs were expensed as incurred.  Internal use software was amortized on a straight-line basis over its estimated useful life, generally three years.

In August 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.

2018 - 15, which addresses a customer’s accounting for implementation costs incurred in a cloud-computing arrangement that is a service contract.

The effective date of this new standard for the Company was October 1, 2020.

Under the new standard, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license.

As of October 1, 2020, the Company did not have significant implementation costs incurred in a cloud-computing arrangement that is a service contract and therefore upon adoption the impact of the new standard on its consolidated financial statements and related disclosures was not material.

All future implementation costs in such arrangements will be capitalized and amortized over the life of the arrangement, which may have a material impact in those future periods if such costs are material. 

Implementation costs incurred in cloud-computing arrangements that are a service contract are capitalized and amortized over the life of the arrangement.

Research and Development and Software Development Costs

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Capitalization ceases when a product is available for general release to customers.

Capitalization costs are included in other assets in the consolidated financial statements.  The Company did not incur development costs during fiscal 2021 and 2020.

Capitalization costs are included in other assets in the consolidated financial statements.  The Company incurred development costs of $ 0.1  million during fiscal 2022 and none in fiscal 2021.

Intangible Assets

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BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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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 before income taxes within the consolidated statements of operations.

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.

Foreign Currency

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dollars at average exchange rates for the period.

The adjustments are recorded as a separate component of stockholders’

The adjustments are recognized as a separate component of stockholders’

equity and are included in accumulated other comprehensive income (loss).

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BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Common Stock Purchase Warrants

The Company estimated the fair value of common stock warrants issued to non-employees using the binomial options pricing model.

The Company estimated the fair value of common stock warrants issued to non-employees using a binomial options pricing model.

The Company evaluates common stock warrants as they are issued to determine whether they should be classified as an equity instrument or a liability.

Those warrants that are classified as a liability are carried at fair value at each reporting date, with changes in their fair value recorded in change in fair value of warrant liabilities in the consolidated statements of operations. 

Those warrants that are classified as a liability are carried at fair value at each reporting period, with changes in their fair value recognized in change in fair value of warrant liabilities in the consolidated statements of operations. 

Advertising Costs

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income taxes on the undistributed earnings of its foreign subsidiaries, which the Company considers to be permanent investments.

Net Loss Per Share

The Company presents basic and diluted earnings per share information for its common stock.

Net Income (Loss) Per Share

The Company presents basic and diluted income (loss) per share information for its common stock.

The Series D Preferred Stock was considered participating securities, as the security may participate in undistributed earnings with common stock.

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Diluted earnings per share for the common stock is computed using the more dilutive of the two -class method or the “if-converted”

and treasury stock methods. During the fourth quarter of fiscal 2021, all Series D Preferred Stock were converted to common shares with no remaining Series D Preferred Stock outstanding at September 30, 2021.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Basic net loss per share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding.  Diluted net income per share attributable to common shareholders is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock options and warrants using the “treasury stock”

Basic net income (loss) per share is computed by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding.  Diluted net income (loss) per share attributable to common shareholders is computed using the weighted average number of common shares outstanding during the period plus the dilutive effect of outstanding stock options and warrants using the “treasury stock”

method and convertible preferred stock using the as-if-converted method.  The computation of diluted earnings per share does not include the effect of outstanding stock options, warrants and convertible preferred stock that are considered anti-dilutive.

For the years ended September 30, 2021 and 2020, diluted net loss per share was the same as basic net loss per share, as the effects of all the Company’s potential common stock equivalents are anti-dilutive, as the Company reported a net loss attributable to common shareholders for the periods and the impact of in-the-money warrants was also anti-dilutive.

Potential common stock equivalents excluded were the Company’s Convertible Preferred Stock, stock options and warrants (See Note 12 ) and conti

ngently issuable shares associated with acquired businesses (See Note 16 ).

Recently Issued Accounting Pronouncements Not Yet Effective

Debt —

Debt with Conversion and Other Options

In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020 - 06, Debt —

Debt with Conversion and Other Options (Subtopic 470 - 20 ) and Derivatives and Hedging —

Contracts in Entity ’

s Own Equity (Subtopic 815 - 40 ) (“ASU 2020 - 06”

The ASU 2020 - 06 simplifies the accounting for convertible instruments and application of the equity classification guidance and made certain disclosure amendments.

In addition, this ASU also amends certain aspects of the earnings per share (“EPS”) guidance.

ASU 2020 - 06 is effective for financial reporting periods beginning after December 15, 2021, except smaller reporting companies for which this ASU is effective for financial reporting periods beginning after December 15, 2023.

Early adoption is permitted, and an entity should adopt this ASU as of the beginning of its annual fiscal year.

The Company elected to early adopt ASU 2020 - 06 as of the first day of the fiscal year ending September 30, 2023, using the modified retrospective approach.

Based on an evaluation performed, the Company determined that the adoption of ASU 2020 - 06 will not have any impact on its accumulated deficit as of October 1, 2022 or any other components of the balance sheet.

The Company does not expect that the adoption of ASU 2020 - 06 to have a material impact on its earnings per share.

Financial Instruments –

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The Company is currently evaluating the impact of the new standard on its consolidated financial statements and related disclosures.

Debt with Conversion and Other Options and Derivatives and Hedging

In August 2020, the FASB issued ASU No.

2020 - 06,  

Debt - Debt with Conversion and Other Options  

(Subtopic 470 - 20 )  

and Derivatives and Hedging - Contracts in Entity ’

s Own Equity  

(Subtopic 815 - 40 ):

Accounting for Convertible Instruments and Contracts in an Entity ’

s Own Equity .

The amendments in ASU No.

2020 - 06 simplify the complexity associated with applying U.S.

GAAP for certain financial instruments with characteristics of liabilities and equity.

More specifically, the amendments focus on the guidance for convertible instruments and derivative scope exceptions for contracts in an entity’s own equity.

ASU 2020 - 06  is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

The Company is currently evaluating the impact of the new standard on its consolidated financial statements and related disclosures.

Business Combinations

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

BRIDGELINE DIGITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Accounts Receivable

3 unchanged sentences

$ 1,332  

$ 1,403  

Allowance for doubtful accounts

1 unchanged sentence

$ 1,182  

$ 1,370  

As of and for the year ended September 30, 2022, no customers exceeded 10% of accounts receivable and no customers exceeded 10% of the Company’s total revenues.

As of and for the year ended September 30, 2021, two customers represented approximately 13 %, and 10 % of accounts receivable and no customers exceeded 10% of the Company’s total revenues.

As of and for the year ended September 30, 2020, three customers represented approximately 15 %, 14 % and 10 % of accounts receivable and one customer represented approximately 12 % of total revenues.

Property and equipment

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The carrying value of the Company’s accounts receivable and accounts payable approximate their fair value due to their short-term nature.

Debts with an aggregate fair value of $1.7 million have an aggregate carrying value of $ 1.9 million.

As of September 30, 2022 and 2021, the aggregate fair values of long-term debts were $0.9 million and $ 1.7 million, respectively, with an aggregate carrying value of $ 1.0 million and $ 1.9 million, respectively.

The fair value is based on interest rates that are currently available to the Company for issuance of debt with similar terms and remaining maturities.

1 unchanged sentence

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

6 unchanged sentences

The significant inputs and assumptions utilized were as follows:

As of September 30, 2021  

As of September 30, 2022

88.7 %  

83.9 %  

85.7 %  

84.0 %  

84.1 %  

As of September 30, 2021

Risk-free rate

6 unchanged sentences

$ 2.50  

$ 4.11  

$ 1.86  

$ 2.50  

The Company recognized a gain (loss) of ($ 5,885 ) and $ 1,028 for the years ended September 30, 2021 and 2020, respectively, related to the change in fair value of warrant liabilities.

The Company recognized a gain of $ 3,655 and a loss of ($ 5,885 ) for the years ended September 30, 2022 and 2021, respectively, related to the change in fair value of warrant liabilities.

The changes in fair value of warrant liabilities were due to changes in inputs, primarily a change in the stock price and the risk-free rate, to the Monte Carlo option-pricing model.

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Significant increases or decreases to either of these inputs in isolation could result in a significantly higher or lower liability with a higher liability limited to the contractual maximum of the contingent consideration liabilities.

Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate on the acquisition date and each reporting period and the amount paid will be recorded in earnings.

The significant inputs and assumptions utilized were as follows:

At September 30,

At acquisition

Revenue discount rate

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11.0 %  

20.3 %  

Discount rate

10.5 %  

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

Assets and liabilities of the Company measured at fair value on a recurring basis as of September 30, 2022 and 2021, are as follows:

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Total Liabilities

$ 8,053  

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

As of September 30, 2021

Warrant liabilities - Montage

Warrant liabilities - Series A, B and C

Warrant liabilities:

Series A and C

Total warrant liabilities

Contingent consideration obligations

Total Liabilities

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$ 3,649  

$ 4,404  

Exercises or payments

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Balance at end of period, September 30, 2022

$ 3,649  

$ 4,404  

The carrying value of goodwill is not amortized, but is tested for impairment annually as of September 30th, as well as whenever events or changes in circumstances indicate that the carrying amount of a reporting unit may not be recoverable. The purpose of an impairment test is to identify any potential impairment by comparing the carrying value of a reporting unit including goodwill to its fair value.

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Annual tests were performed at September 30, 2022 and 2021.

Management performed a qualitative assessment that did not result in any impairment indictors at September 30, 2021 and 2020.

Management performed a qualitative assessment that did not result in any impairment indicators at September 30, 2022 and 2021.

Impairment charges are reflected as a reduction in goodwill in the Company’s consolidated balance sheets and an expense in the Company’s consolidated statements of operations. 

8 unchanged sentences

$ 15,985  

BRIDGELINE DIGITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Intangible Assets

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Customer related

Intangibles, net

Intangible, assets net

$ 6,268  

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Professional fees

Balance at end of period

Restructuring and Acquisition Related Expenses

Restructuring Activities

In March 2020, the Company recognized $ 366 of expenses related to a reduction in 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.

There were no restructuring activities during the year ended September 30, 2021.

The following table summarizes the restructuring charges reserve activity:

Severance and

Balance at beginning of period, October 1, 2019

Charges to operations

Cash disbursements

Changes in estimates

Accretion expense

Balance at end of period, September 30, 2020

There were no accrued restructuring costs included in Accrued Liabilities as of September 30, 2021 and 2020, respectively.

Acquisition Related Expenses

In connection with the acquisition of businesses completed during the fiscal 2021 second and third quarters (see Note 16 ), the Company incurred acquisition expenses of $ 1,235 during the year ended September 30, 2021, which are included in Restructuring and acquisition related expenses in the consolidated statements of operations.

There were no acquisition related expenses incurred during the year ended September 30, 2020.

Accrued liabilities

Restructuring and Acquisition Related Expenses

In connection with the acquisition of businesses completed during fiscal 2021  (see Note 17 ), the Company incurred restructuring and acquisition related expenses of $ 0.2 million and $ 1.2 million during the year ended September 30, 2022 and 2021, which are included in Restructuring and acquisition related expenses in the consolidated statements of operations.

BRIDGELINE DIGITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Long-term Debt

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The assumed debt obligations and seller note are denominated in Euros.

At September 30, 2021, long-term debt consisted of the following:

Long-term debt consists as follows:

As of September 30,

Vendor loan payable (“Vendor loan”), accruing interest at 3.0 % per annum.

Principal and interest are payable in two lump-sum installments and the loan matures on February 1, 2023.

Term loan payable, accruing interest at fixed rates ranging between 0.99% to 1.5% per annum, payable in monthly or quarterly payments of interest and principal and matures on October 10, 2022.

Term loan payable, accruing interest at 1.3% per annum, payable in quarterly installments and matures on April 30, 2027.

Principal and interest are payable in one remaining installment in March 2023.

Term loan payable, accruing interest at fixed rates ranging between 0.99 % to 1.5 % per annum, payable in monthly or quarterly payments of interest and principal and matures in October 2022.

Term loan payable, accruing interest at 3-Month EURIBOR plus 1.3 % per annum, payable in quarterly installments starting in April 2023 and matures in July 2028.

Seller’s note payable (“Seller’s note”), due to one of the selling shareholders, accruing interest at a fixed rate of 4.0% per annum.

The Seller’s note is payable over 5 installments and matures on January 1, 2026.

The Seller’s note is payable over 5 installments and matures in September 2025 .

Less current portion:

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$ 1,017  

Payroll Protection Program

On April 17, 2020, Bridgeline Digital, Inc.

entered into a loan with BNB Bank as the lender in an aggregate principal amount of $ 1,048 (“PPP Loan”) pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

The PPP Loan is evidenced by a promissory note (“Note”).

Subject to the terms of the Note, the PPP Loan bears interest at a fixed rate of one percent ( 1% ) per annum, with the first six months of interest deferred, has an initial term of two years, and is unsecured and guaranteed by the U.S.

Small Business Administration (“SBA”).

Payments are deferred for at least the first six months and payable in 18 equal consecutive monthly installments of principal and interest commencing upon expiration of the deferral period of the PPP Loan date.

The Company may apply to the lender for forgiveness of the PPP Loan, with the amount which may be forgiven equal to the sum of payroll costs, covered rent obligations, and covered utility payments incurred by the Company during the twenty-four week period beginning on April 21, 2020, calculated in accordance with the terms of the CARES Act.

The Note provides for prepayment and customary events of default, including, among other things, cross-defaults on any other loan with the lender.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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 facts and circumstances outlined below, 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 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 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.

At the time in which the PPP Loan was obtained, U.S.

GAAP did not contain authoritative accounting guidance and subsequently, ASU 2021 - 10, Government Assistance (Topic 832 ) , was issued to address disclosure requirements about transactions with a government that are accounted for by applying a grant model, such as IAS 20.

The following provides the balance and activity related to the PPP Loan:

As of September 30,

Balance at beginning of period

$ 1,048  

Qualified expenses incurred during the period eligible for forgiveness

Balance at end of period

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

The Company classified 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 as government grant income.

As of September 30, 2020, unexpended loan proceeds of $ 88 were classified as a current liability.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data) 

The Company leases facilities in the United States for its corporate and regional field offices.

During the years ended September 30, 2021 and 2020, the Company was also a lessee/sublessor for certain office locations relating to its restructuring plans commenced in fiscal 2015.

During the years ended September 30, 2022 and 2021, the Company was also a lessee/sublessor for certain office locations.

Determination of Whether a Contract Contains a Lease

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BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

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As of September 30,

Condensed Consolidated Statements of Operations:

Operating lease cost

1 unchanged sentence

Sublease income, net

Cash paid for amounts included in the measurement of lease liabilities was $ 225 for the year ended September 30, 2021, all of which represents operating cash flows from operating leases.

As of September 30, 2021, the weighted average remaining lease term was 3.3 years and the weighted average discount rate was 7.0 %.

Cash paid for amounts included in the measurement of lease liabilities was $ 108 and $ 225 for the years ended September 30, 2022 and 2021, respectively, all of which represents operating cash flows from operating leases.

As of September 30, 2022 and 2021, the weighted average remaining lease term was 3.4 and 3.3 years, respectively, and the weighted average discount rate was 7.0 % for both periods.

At September 30, 2022, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year, which have commenced, were as follows:

4 unchanged sentences

Operating lease liabilities, net of current portion

As of September 30, 2021, the Company had no lease commitments that extend past 2026.

In fiscal 2022 the Company entered into a lease which ends in January 2028 for office space in Rosemont, IL. 

Total rental payments over the full term will be $ 0.4 million. 

There is an option, at the Company’s election, to terminate the lease early in August 2025.

If the early termination option were to be executed, the total rent payments would be $0.2 million, plus a $ 0.1 million termination fee.

As of September 30, 2022, the Company had no lease commitments that extend past fiscal 2029.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

1 unchanged sentence

Total lease commitments

Amount representing interest

Present value of lease liabilities

Current portion

Operating lease liabilities, net of current portion

Stockholders ’

Under our Certificate of Incorporation, we are authorized, subject to limitations prescribed by Delaware law and our Charter, to issue up to 1,000,000  shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each series and to fix the designation, powers, preferences and rights of the shares of each series and any of its qualifications, limitations or restrictions.

Our Board of Directors can increase or decrease the number of shares of any series, but not below the number of shares of that series then outstanding, without any further vote or action by our stockholders.

Our Board of Directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of the common stock. 

Series A Convertible Preferred Stock

The Company has designated 264,000 shares of its preferred stock as Series A Convertible Preferred Stock (“Series A Preferred Stock”).

The shares of Series A Preferred Stock may be converted, at the option of the holder at any time, into such number of shares of common stock (“Conversion Shares”) equal to (i) the number of shares of Series A Preferred Stock to be converted, multiplied by the stated value of $ 10.00 (the “Stated Value”) and (ii) divided by the conversion price in effect at the time of conversion.

On December 31, 2019 ( the “Amendment Date”), the Company filed a First Amended and Restated Certificate of Designations of the Series A Convertible Preferred Stock (the “Series A Amendment”) with the Secretary of State for the State of Delaware, which amended and restated the Series A Preferred Stock, as more particularly set forth below:

Conversion Price:

Reduces the conversion price from $ 812.50 per share to $ 1.75 per share, subject to adjustment in the event of stock splits or stock dividends.

Mandatory Conversion:

The Company has the right, in its sole discretion, to require the holders to convert shares of the Series A Preferred Stock into Conversion Shares if (i) the Company’s common stock has closed at or above $ 2.28 ($ 32.50 prior to the Series A Amendment) for fifteen ( ten prior to the Series A Amendment) consecutive trading days and (ii) the Conversion Shares are (a) registered for resale on an effective registration statement or (b) may be resold pursuant to Rule 144.

Company ’

s Redemption Option:

The Company may redeem all or a portion of the outstanding shares of Series A Preferred Stock, at its option, provided that the Company provides ten business days’

prior written notice of its intent to redeem the Series A Preferred Stock to the holder and in cash at a price per share of Series A Preferred Stock equal to 100% of the Stated Value of such shares of Series A Preferred Stock plus all accrued and unpaid dividends.

Notwithstanding, the holder may convert its Series A Preferred Stock prior to the exercise of the Company’s redemption option.

Each outstanding share of Series A Preferred Stock is entitled to receive cumulative dividends, payable quarterly in arrears, at a rate of 5 % per annum for the first eighteen months commencing on January 1, 2020 after which time the dividend rate will increase to 12 % per annum (the dividend rate was 12 % per annum prior to the Series A Amendment).

Dividends are payable in cash or, at the election of the Company, by delivery of additional shares (“PIK Shares”) of Series A Preferred Stock, subject to a cap of 64,000 PIK Shares, in the aggregate.

Any accrued but unpaid dividends on the shares of Series A Preferred Stock to be converted shall also be converted into common stock at the conversion price.

In the event of any liquidation, dissolution, or winding up of the Company, the holders of shares of Series A Preferred Stock will be entitled to receive in preference to the holders of common stock, the amount equal to the Stated Value per share of Series A Preferred Stock plus declared and unpaid dividends, if any.

After such payment has been made, the remaining assets of the Company will be distributed ratably to the holders of common stock.

The Series A Preferred Stock shall vote with the common stock on an as-converted basis.

Prior to fiscal 2019, the Company had issued 64,000 shares of Series A Preferred Stock as PIK Shares to the Series A preferred shareholders, which is the maximum amount of cumulative PIK Shares authorized.

Therefore, all future dividend payments will be cash dividends.

The Company determined that the Series A Amendment represented an extinguishment for accounting purposes.

In making this determination, the Company considered the significance of the contractual terms added and revisions to existing contractual terms, including, but not limited to, the significant change in the conversion price and the addition of the Company’s redemption option.

These additions and revisions to existing contractual terms were considered to be qualitatively significant.

The extinguishment of equity-classified convertible preferred stock is recognized as a deemed dividend measured as the difference between ( 1 ) the fair value of the consideration transferred;

that is, the Series A Preferred Stock, as amended, and ( 2 ) the carrying value of the Series A Preferred Stock.

At the Amendment Date, the fair value of the Series A Preferred Stock, as amended, was approximately $ 2,629 and its carrying value was approximately $ 315 , resulting in a deemed dividend of $ 2,314 recognized as an increase to accumulated deficit and an increase to additional paid-in capital, which was included as a component of net loss attributable to common shareholders during fiscal 2020.

The estimated Amendment Date fair value of the Series A Preferred Stock was determined using the present value of probability weighted scenario analysis based on the per share publicly traded closing stock price of the Company’s common stock.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

As of September 30, 2020, all previously outstanding shares of Series A Convertible Preferred Stock were converted into common stock.

The shares of Series A Preferred Stock may be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series A Preferred Stock to be converted, multiplied by the stated value of $ 10 and (ii) divided by the conversion price in effect at the time of conversion.

As of September 30, 2022 and 2021, the Company had no shares of Series A Preferred Stock outstanding.

Series B Convertible Preferred Stock

The Company has designated 5,000 shares of its preferred stock as Series B Convertible Preferred Stock (“Series B Preferred Stock”).

The shares of Series B Preferred Stock may be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series B Preferred Stock to be converted, multiplied by the stated value of $ 1,000 and (ii) divided by the conversion price in effect at the time of conversion.

As of September 30, 2022 and 2021, the Company had no shares of Series B Preferred Stock outstanding. 

Series C Convertible Preferred Stock

The Company has designated 11,000 shares of its preferred stock as Series C Convertible Preferred Stock (“Series C Preferred Stock”).

The Company may not effect, and a holder will not be entitled to, convert the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99% ) of the number of shares of common stock outstanding immediately after giving effect to the exercise.

As of September 30, 2021, the Company had 350 shares of Series C Preferred Stock outstanding which were convertible into an aggregate of 38,889 shares of the Company’s common stock.

The shares of Series C Preferred Stock may be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series C Preferred Stock to be converted, multiplied by the stated value of $ 1,000 and (ii) divided by the conversion price in effect at the time of conversion.

Series C Preferred Stock vote on an as-converted basis along with shares of the Company’s common stock, are not entitled to receive dividends, unless specifically declared by our Board of Directors, and in the event of any liquidation, dissolution or winding up of the Company the holders of Series C Preferred Stock are entitled to receive in preference to the holders of common stock, Series A Preferred Stock, Series B Preferred Stock and any other stock, the amount equal to the stated value per share of Series C Preferred Stock.

The Company may not effect, and a holder will not be entitled to, convert the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99% ) of the number of shares of common stock outstanding immediately after giving effect to the exercise.

As of September 30, 2022 and 2021, the Company had 350 shares of Series C Preferred Stock outstanding, which were convertible into an aggregate of 38,889 shares of the Company’s common stock. 

BRIDGELINE DIGITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Registered Offering of Common Stock and Private Placement of Series D Convertible Preferred Stock (the “

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In addition, the Company issued to the Placement Agents warrants, in substantially the same form as the Series D Preferred Warrants, to purchase an aggregate of 179,536 shares of common stock.

In connection with the Private Placement, the Company filed the Certificate of Designation of Preferences, Rights and Limitations of the Series D Convertible Preferred Stock, with the Secretary of State for the State of Delaware, designating 4,200 shares of the Company’s preferred stock as Series D Preferred.

The terms and conditions set forth in the Certificate of Designation are summarized below:

Stated Value:

Each share of Series D Preferred Stock has a stated value of $ 1,000 per share.

Commencing six months after the issuance date and terminating upon receipt of Stockholder Approval, as discussed below, Series D Preferred holders are entitled to receive cumulative dividends at a rate of 9 % per annum of the stated value per share.

The Company will pay dividends, if accrued, on the last day of each calendar quarter with respect to the Series D Preferred Stock held by a holder during such calendar quarter.

Shares of Series D Preferred Stock have no general voting rights.

However, as long as any shares of Series D Preferred Stock are outstanding, the Company may not, without the affirmative vote of the holders of a majority of the then outstanding shares of Series D Preferred Stock, (i) alter or change adversely the powers, preferences or rights given to the Series D Preferred Stock or alter or amend the Certificate of Designation, (ii) amend its certificate of incorporation or other charter documents in any manner that adversely affects any rights of the holders of Series D Preferred Stock, (iii) increase the number of authorized shares of Series D Preferred, or (iv) enter into any agreement with respect to any of the foregoing.

Liquidation Preference:

Prior to Stockholder Approval, upon any liquidation, dissolution or winding-up of the Company, whether voluntary or involuntary, the holders of Series D Preferred Stock will be entitled to receive out of the Company’s assets an amount equal to the Stated Value, plus any accrued and unpaid dividends thereon and any other fees or liquidated damages then due and owing thereon under the Certificate of Designation, before any distribution or payment is made to the holders of any other securities and if the Company’s assets will be insufficient to pay in full such amounts, then the entire assets to be distributed to the holders of Series D Preferred Stock will be ratably distributed among such holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

After Stockholder Approval, the Series D Preferred Stock has no liquidation preference.

Each share of Series D Preferred Stock is convertible, at any time after the issuance date at the option of the holder thereof, into that number of shares of common stock determined by dividing the Stated Value by the conversion price which is $ 2.28 (subject to adjustment for the effect of stock dividends, stock splits, recapitalizations and the like);

provided, however, that holders of the Series D Preferred Stock may not convert any of their Series D Preferred Stock into conversion shares unless and until the Stockholder Approval Date.

In addition, holders of Series D Preferred Stock are prohibited from converting Series D Preferred Stock into conversion shares if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99 % (or 9.99 % upon the election of the holder prior to the issuance of the Series D Preferred Stock) of the total number of shares of common stock then issued and outstanding.

Series D Preferred Stock issued in Private Placement, subject to Stockholder Approval, is convertible into an aggregate of 1,184,211 shares of common stock.

Stockholder Approval:

In connection with the Private Placement, the Company has designated 4,200 shares of its preferred stock as Series D Convertible Preferred Stock. 

The shares of Series D Preferred Stock may be converted, at the option of the holder at any time, into such number of shares of common stock equal to (i) the number of shares of Series D Preferred Stock to be converted, multiplied by the stated value of $ 1,000 and (ii) divided by the conversion price in effect at the time of conversion. 

Holders of Series D Preferred Stock were prohibited from converting Series D Preferred Stock into conversion shares if, as a result of such conversion, the holder, together with its affiliates, would own more than 4.99 % (or 9.99 % upon the election of the holder prior to the issuance of the Series D Preferred Stock) of the total number of shares of common stock then issued and outstanding.

At the original issuance date, shares of Series D Preferred Stock issued in Private Placement were convertible into an aggregate of 1,184,211 shares of common stock.

The Company’s common stock is listed on the NASDAQ Capital Market, and, as such, it is subject to the applicable rules of the Nasdaq Stock Market LLC, including Nasdaq Listing Rule 

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Upon issuance, the Company had determined that such prohibition did not represent an inability for the Company to satisfy its obligation to deliver shares upon conversion, as the holders’

conversion option itself is contingent upon Stockholder Approval.

conversion option itself was contingent upon Stockholder Approval.

On September 16, 2021, the Company obtained Stockholder Approval.

The Company determined that the Series D Preferred Stock should be classified as permanent equity.

The Series D Preferred Stock contains an embedded conversion feature that could affect the ultimate settlement of the Series D Preferred Stock.

The Series D Preferred Stock contained an embedded conversion feature that could affect the ultimate settlement of the Series D Preferred Stock.

The Company determined that the embedded conversion feature’s economic characteristics and risks were clearly and closely related to the economic characteristics and risks of the Series D Preferred Stock.

As a result, the embedded conversion feature was not required to be bifurcated from the Series D Preferred Stock.

The Series D Preferred Stock issued contains a beneficial conversion feature, which arises when a debt or equity security is issued with an embedded conversion option that is deemed beneficial to the investor, that is, in-the-money, at inception, as the conversion option has an effective conversion price that is less than the market price of the underlying stock at the commitment date.

The Series D Preferred Stock issued contained a beneficial conversion feature, which arises when a debt or equity security is issued with an embedded conversion option that is deemed beneficial to the investor, that is, in-the-money, at inception, as the conversion option has an effective conversion price that is less than the market price of the underlying stock at the commitment date.

An embedded beneficial conversion feature is required to be recognized separately by allocating a portion of the proceeds equal to the intrinsic value, at the commitment date, of the feature to additional paid-in capital.

As discussed below, the May 2021 Offerings cash proceeds allocated to the Series D Preferred Stock based on its relative fair value resulted in an effective conversion price of $ 1.41 , which was below the commitment date fair value of the underlying shares of common stock of $ 2.50 , resulting in a beneficial conversion feature measured at $ 1.3 million.

As discussed in Note 16, upon the acquisition of Hawk Search during the third quarter of fiscal 2021, Series D Preferred Stock was issued as part of consideration transferred in which the intrinsic value of the embedded conversion feature was calculated at $ 724 as of the acquisition date.

As of September 30, 2021, the Company recognized the impact of the beneficial conversion feature upon Stockholder Approval, as the beneficial conversion feature became immediately exercisable, at the option of the holder.

As discussed in Note 17, upon the acquisition of HawkSearch during the third quarter of fiscal 2021, Series D Preferred Stock was issued as part of consideration transferred in which the intrinsic value of the embedded conversion feature was calculated at $ 724 as of the acquisition date.

BRIDGELINE DIGITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

During the fourth quarter of fiscal 2021, the Company recognized the impact of the beneficial conversion feature upon Stockholder Approval, as the beneficial conversion feature became immediately exercisable, at the option of the holder.

The Company recognized full accretion of the beneficial conversion feature as a deemed dividend of $ 2.0 million to the Series D Preferred Stock.

Such deemed dividend is recognized as an increase to accumulated deficit and an increase to additional paid-in capital and is included as a component of net loss attributable to common stockholders. During the fourth quarter of fiscal 2021, all Series D Preferred Stock were converted to common shares with no remaining Series D Preferred Stock outstanding at September 30, 2021.

Such deemed dividend was recognized as an increase to accumulated deficit and an increase to additional paid-in capital and was included as a component of net loss attributable to common stockholders. During the fourth quarter of fiscal 2021, all Series D Preferred Stock was converted to common shares with no remaining Series D Preferred Stock outstanding at September 30, 2022 and 2021.

As noted above, in connection with the May 2021 Offerings, the Company issued Series D Preferred Warrants and Placement Agents Warrants to purchase up to 592,106 and 179,536 shares of common stock, respectively.

4 unchanged sentences

Accordingly, the May 2021 Offerings proceeds, net of certain fees due to placement agents, inclusive of the fair value of warrants issued to placement agents, and transaction-related expenses, of $ 4.3 million were allocated $ 1.0 million to the Series D Preferred Warrants based on their issuance-date fair value, $ 1.9 million to common stock and $ 1.3 million to Series D Preferred Stock based on their respective relative fair values.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The issuance-date fair value of the Series D Warrants issued to placement agents was determined to be incremental cost directly attributable to the May 2021 Offerings and was charged by the Company against proceeds along with other fees paid to the Placement Agents.

Registration Rights

The registration rights agreement, entered into in connection with the Series D Preferred Stock Units Private Placement, requires the Company to file with the SEC a registration statement no later than 15 days after the Closing Date (issuance date) registering for resale the maximum number of common shares issuable upon conversion of the Series D Preferred Stocks and the exercise of the Series D Warrants.

Such registration rights agreement requires the Company to use commercially reasonable best efforts to have the registration statement declared effective by the SEC, as soon as practicable, but in no event later than the effectiveness deadline of 60 days after the closing date (or in the event of a full review by the SEC the effectiveness deadline will be 90 days after the closing date).

If such registration statement is not effective by the contractually agreed upon date, or such registration statement effectiveness is not maintained, then, the Company is required to make payments on account of liquidated damages to the investors of 2 % of their Series D Preferred Stock Units subscription amount on the date of such events, and on each monthly anniversary thereafter until the effectiveness is cured.

Pursuant to the terms of the registration rights agreement, the Company on May 28, 2021, filed a registration statement on Form S- 3 with the SEC to register the common shares issuable upon the conversion of the Series D Preferred Stocks and the exercise of the Series D Warrants.

As of August 18, 2021, the registration statement was declared effective by the SEC.

Registered Offering and Sale of Common Stock

6 unchanged sentences

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 “Placement Agents”).

acted as co-placement agent for the Offering.

As compensation for their services, the Company paid to the Placement Agents a fee equal to 8 % of the aggregate purchase price paid for shares placed by the Placement Agents at closing and reimbursed the Placement Agents for certain expenses incurred in connection with the Offering.

1 unchanged sentence

The Placement Agent Warrants have a term of five years from the date of issuance and an exercise price of $3.875 per share.

BRIDGELINE DIGITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Amended and Restated Stock Incentive Plan

5 unchanged sentences

The 2016 Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company.

In November 2019, the Company increased the number of common shares available for issuance under the 2016 Plan from 10,000 shares to 800,000 shares.

There were no revisions to exercise prices, terms or any other underlying provisions of existing stock options outstanding.

At the annual meeting held on March 30, 2022, the Company’s stockholders voted to amend the 2016 Plan to increase the number of shares of the Company’s common stock available for issuance as awards granted under the Stock Incentive Plan to 1,650,000 shares.

As of September 30, 2022, there were 1,356,594  options outstanding and 239,074  shares available for future issuance under the 2016 Plan.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Compensation Expense

Compensation expense is generally recognized on a graded accelerated basis over the vesting period of grants.

Compensation expense is recorded in the consolidated statements of operations with a portion charged to Cost of revenue and a portion to Operating expenses, depending on the employee’s department.

Compensation expense is recognized in the consolidated statements of operations with a portion charged to Cost of revenue and a portion to Operating expenses, depending on the employee’s department.

During the years ended September 30, 2022 and 2021, compensation expense related to share-based payments was as follows:

2 unchanged sentences

Operating expenses

Interest expense and other, net

Interest expense and other, net includes compensation expense related the fair value of fully-vested stock options granted in August 2021. 

100,000 shares were granted to directors, as more fully described below under the caption “

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

Change in fair value of contingent consideration, interest expense and other, net includes compensation expense related the fair value of fully-vested stock options granted in August 2021 and April 2022. 

During fiscal 2022 and 2021, 120,000 shares and 100,000 shares, respectively, were granted to directors, as more fully described below under the caption “

Summary of Option and Warrant Activity and Outstanding Shares .” 

As of September 30, 2021, the Company had approximately $ 385 of unrecognized compensation costs related to unvested options, which are expected to be recognized over a weighted-average period of 2.1 years.

As of September 30, 2022, the Company had approximately $ 0.9  million of unrecognized compensation costs related to unvested options, which is expected to be recognized over a weighted-average period of 2.14  years.

Common Stock Warrants

7 unchanged sentences

If the equity buy-out is exercised, the Montage Warrant will be surrendered to the Company for cancellation.

The fair value of the Montage warrant liability at September 30, 2021 and 2020, was $ 13 and $ 26 , respectively.

Series A, B and C Preferred Warrants - In March 2019, in connection with the issuance of the Company’s Series C Preferred Stock, the Company issued warrants to purchase the Company’s common stock.

Series A and B and C Preferred Warrants - In March 2019, in connection with the issuance of the Company’s Series C Preferred Stock, the Company issued warrants to purchase the Company’s common stock.

These warrants were designated as (i) Series A Warrants with an initial term of 5.5 years and an exercise price of $4.00;

(ii) Series B Warrants with an initial term of 24 months and an exercise price of $4.00;

(ii) Series B Warrants, which expired unexercised during the Company’s 2021 fiscal year, with an initial term of 24 months and an exercise price of $4.00;

and (iii) Series C Warrants with an initial term of 5.5 years and an exercise price of $ 0.05 (collectively, hereinafter referred to as the “Series C Preferred Warrants”).

The Company also issued warrants with an exercise price of $ 4.00 to purchase shares of the Company’s common stock to the Placement Agents.

The Company may not effect, and a holder will not be entitled to convert, the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99% ) of the number of shares of common stock outstanding immediately after giving effect to the exercise.

During year ended September 30, 2021, 1,684,250 Series A Warrants were exercised, 2,556,875 Series B Warrants expired unexercised, 55,557 Series C Warrants were exercised and 236,580 Placement Agent Warrants were exercised. 

The Company may not effect, and a holder will not be entitled to convert, the Series C Preferred Stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99% ) of the number of shares of common stock outstanding immediately after giving effect to the exercise.

BRIDGELINE DIGITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

As of September 30, 2022, the number of shares issuable upon exercise of the (i) Series A Warrants were 872,625 shares;

(ii) Series C Warrants were 13,738 shares;

(iii) the Placement Agent Warrants issued in connection with the Series C Preferred Stock were 11,992 shares and (iv) Investor Warrants were 41,141 shares.

(iii) the Placement Agent Warrants issued in connection with the Series C Preferred Stock were 11,992 shares;

and (iv) Investor Warrants were 41,621 shares.

Series D Preferred Warrants - The Units sold in Private Placement on May 14, 2021 also consisted of Series D Warrants to purchase up to 592,106 shares of common stock.

The Series D Preferred Warrants issued on May 14, 2021 have an initial exercise date of November 14, 2021, with a term of five and half of years which ends on November 16, 2026.

The Series D Preferred Warrants issued on May 14, 2021 have an initial exercise date of November 14, 2021, with a term of five and a half years which ends on November 16, 2026.

Series D Preferred Warrants have an exercise price of $2.51.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

In addition, pursuant to the May 2021 Offerings, the Company issued to the Placement Agents warrants to purchase an aggregate of 179,536 shares of common stock.

3 unchanged sentences

As of September 30, 2022, no Series D Warrants have been exercised and the aggregate number of shares issuable upon exercise was 592,106 and 179,536 shares for investors and placement agents, respectively.

The Montage Warrants, Series C Preferred Warrants, the Placement Agent Warrants issued in connection with the Series C Preferred Stock, and the Series D Warrants were all determined to be derivative liabilities and are subject to remeasurement each reporting period (see Note 5 ).

The Montage Warrants, Series A and C Preferred Warrants, the Placement Agent Warrants issued in connection with the Series C Preferred Stock, and the Series D Warrants were all determined to be derivative liabilities and are subject to remeasurement each reporting period (see Note 5 ).

During year ended September 30, 2022, 26,605 Placement Agent Warrants were exercised. 

Total warrants outstanding as September 30, 2022, were as follows:

$ 175.00  

Director/Shareholder

$ 1,000.00  

Financing (Montage)

$ 132.50  

Director/Shareholder

$ 25.00  

Placement Agent

20 unchanged sentences

Warrant Issuances

The Company did not issue warrants to purchase common stock during the year ended September 30, 2022.

During the year ended September 30, 2021, the Company issued warrants to purchase common stock as follows:

11 unchanged sentences

829,811  

During the year ended September 30, 2020, there were no warrants issued.

BRIDGELINE DIGITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Summary of Option and Warrant Activity and Outstanding Shares

During the year ended September 30, 2022, the Company, (i) issued 5,000 total options at an exercise price of $ 3.99 , which vest ratably over a 3 -year period, (ii) issued 120,000 total options to Board members at an exercise price of $ 1.85 , which vested immediately upon issuance, (iii) issued 362,000 total options to its Chief Executive Officer at an exercise price of $ 1.85 , which vest ratably over a 3 -year period, (iv) issued 48,000 total options to employees at an exercise price of $ 1.27 , which vest ratably over a 3 -year period and (v) issued 200,000 total shares of restricted stock to its Chief Executive Officer at grant-date fair value of $ 1.29 , based upon the closing price of the Company’s common stock on the grant date, which vest quarterly over a 3 -year period.

All such options granted expire ten years from date of grant.

During the year ended September 30, 2021, the Company granted options to purchase 240,000  shares of which (a) 95,500 shares were granted at an exercise price of $2.51, which vest ratably over a three -year period commencing on June 1, 2021, ( b) 100,000 shares were granted to directors at an exercise price of $ 5.92 which vested immediately upon the grant date of August 2, 2021, and (c) 44,500 shares were granted at an exercise price of $ 4.11 , which vest ratably over a three -year period commencing on September 30, 2021.

All such options granted expire ten years from the date of grant.

During the year ended September 30, 2020, the Company granted options to purchase 681,353  shares at an exercise price of $ 1.40 , of which (a) 70,000 shares vest on November 20, 2020 and the remainder vest ratably over a three -year period commencing on November 20, 2019, ( b) 1,000 shares at an exercise price of $ 1.61 , which vest ratably over a three -year period commencing on December 2, 2019, and (c) 20,000 shares at an exercise price of $1.61,  which vest ratably over a three -year period commencing on June 15, 2020.

All such options granted expire ten years from the date of grant.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The weighted-average option fair values, as determined using the Black-Scholes option valuation model, and the assumptions used to estimate these values for stock options granted during the years ended September 30, 2021 and 2020, are as follows:

September 30,

Weighted-average fair value per share option

1 unchanged sentence

$ 1.40  

$ 3.99  

$ 2.22  

Expected life (in years)

1 unchanged sentence

Dividend yield

The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise based on historical trends of employee turnover.

The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise.

Expected volatility is based on historical daily price changes of the Company’s common stock for a period equal to the expected life.

2 unchanged sentences

The expected dividend yield is zero since the Company does not currently pay cash dividends on its common stock and does not anticipate doing so in the foreseeable future.

A summary of combined stock option and warrant activity is as follows: 

A summary of combined restricted stock, stock option and warrant activity is as follows:

Restricted Stock  

Stock Options

Stock Warrants

Weighted Average

Awards  

Exercise Price

Outstanding, October 1, 2021

4 unchanged sentences

240,200  

829,811  

( 1,976,387 )

470.77  

( 2,560,678 )  

Outstanding, September 30, 2021

12 unchanged sentences

1,757,629  

$ 3.64  

There were 619,461  and 295,649 options vested and exercisable as of September 30, 2022 and 2021, respectively.

The options outstanding at September 30, 2022 and 2021 had an aggregate intrinsic value of $ 2 and $ 1,530 , respectively.

A summary of the status of unvested shares is as follows:

BRIDGELINE DIGITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

A summary of the status of unvested options is as follows:

Weighted Average

Unvested at October 1, 2021

2 unchanged sentences

535,000  

Forfeited/Cancelled

Unvested at September 30, 2022

538,466  

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

$ 1.83  

The following table summarizes information about outstanding stock options at September 30, 2022:

Weighted Average  

Remaining  

Number of  

Contractual Life  

Weighted Average  

Aggregate  

Exercise Price

Contractual Life

Exercise Price

3 unchanged sentences

$ 3.49  

$ 1,639,847  

Options exercisable

1 unchanged sentence

$ 4.93  

Net Income (Loss) Per Share Attributable to Common Shareholders

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

(in thousands, except share and per share data)

As of September 30,

Net income (loss) –

basic earnings per share

$ 2,145  

Deemed dividend on amendment of Series A convertible preferred stock

Net income (loss) applicable to common shareholders - basic earnings per share

Effect of dilutive securities:

Change in fair value of in-the-money warrant derivative liabilities

( 39 )  

Net income (loss) applicable to common shareholders - diluted earnings per share

$ 2,106  

Weighted-average shares outstanding for basic earnings per share

10,232,862  

5,935,981  

Effect of dilutive securities:

81,765  

13,391  

Preferred stock

38,889  

Weighted-average shares outstanding for diluted earnings per share

10,366,907  

5,935,981  

Basic net income (loss) per share

$ 0.21  

Diluted net income (loss) per share

$ 0.20  

Potential common stock equivalents excluded from the computation of diluted net income (loss) per share because their inclusion would have been anti-dilutive were as follows (in shares):

As of September 30,

Stock options

712,907  

765,232  

1,743,891  

1,788,745  

Convertible preferred stock

38,889  

6 unchanged sentences

The Company has purchased insurance policies covering professional errors and omissions, property damage and general liability that reduce its monetary exposure for warranty-related claims and enable it to recover a portion of any future amounts paid.

The Company’s contracts typically provide for testing and client acceptance procedures that are designed to mitigate the likelihood of warranty-related claims, although there can be no assurance that such procedures will be effective for each project.  The Company has not paid any material amounts related to warranties for its solutions.  The Company sometimes commits unanticipated levels of effort to projects to remedy defects covered by its warranties.  The Company’s estimate of its exposure to warranties on contracts is immaterial as of September 30, 2021.

The Company’s agreements with customers generally require the Company to indemnify the customer against claims in which the Company’s products infringe third -party patents, copyrights, or trademarks and indemnify against product liability matters.

16 unchanged sentences

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

4 unchanged sentences

$ 3,296  

11,995  

Perpetual Licenses

5 unchanged sentences

Deferred revenue that will be recognized during the succeeding 12 -month period is recognized as current deferred revenue and the remaining portion is recognized as noncurrent deferred revenue and is included in Other long-term liabilities.

As of September 30, 2021, approximately $ 418 of revenue is expected to be recognized from remaining performance obligations for contracts with original performance obligations that exceed one year.

 The Company expects to recognize revenue on approximately 99 % of these remaining performance obligations over the next 12 months, with the balance recognized thereafter.  

The following table summarizes the classification and net change in deferred revenue as of and for the years ended September 30, 2022 and 2021:

3 unchanged sentences

Balance as of September 30, 2021

Increase (decrease)

Balance as of September 30, 2022

$ 1,943  

Deferred Capitalized Commissions Costs

The incremental direct costs of obtaining a contract, which primarily consist of sales commissions paid for new subscription contracts, are deferred and amortized on a straight-line basis over a period of approximately three years.

The Company evaluated both qualitative and quantitative factors, including the estimated life cycles of its offerings, renewal rates, and its customer attrition to determine the amortization periods for the capitalized costs.

The initial amortization period will generally be the customer contract term, which is typically thirty-six ( 36 ) months, with some exceptions.

Deferred capitalized commission expense that will be recognized as expense during the succeeding 12 -month period is recognized as current deferred capitalized commission costs, and the remaining portion is recognized as long-term deferred capitalized commission costs.

Total deferred capitalized commissions were $ 8 and $ 20 as of September 30, 2021 and 2020, respectively.

Current deferred capitalized commission costs are included in Other current assets in the consolidated balance sheets and noncurrent deferred capitalized commission costs are included in Other assets in the consolidated balance sheets.

Amortization expense was $ 2 and $ 16 the years ended September 30, 2021 and 2020, respectively.

BRIDGELINE DIGITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The components of the Company’s tax provision (benefit) as of September 30, 2022 and 2021, is as follows:

Year Ended September 30,

$ ( 11 )  

Total current

( 953 )  

( 217 )  

( 26 )  

Total deferred

( 1,196 )  

$ ( 1,174 )  

The Company’s income tax provision was computed using the federal statutory rate and average state statutory rates, net of related federal benefit.

3 unchanged sentences

Permanent differences, net

( 691 )  

State income tax provision/(benefit)

Foreign tax rate differences

Change in valuation allowance attributable to operations

True up to prior year NOL

AMT tax refundable under CARES act

As of September 30, 2021, the Company has federal net operating loss (“NOL”) carryforwards of approximately $32 million in which the 20 -year carryforward expires on various dates through 2037 and the remaining NOL carryforward is indefinite.

Foreign income taxed at different rates

( 55 )  

Change in valuation allowance on deferred tax assets

True up adjustments

As of September 30, 2022, the Company has federal net operating loss (“NOL”) carryforwards of approximately $ 27.8  million 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.

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

3 unchanged sentences

However, if performed, Section 382 may be found to limit potential future utilization of the Company’s NOL carryforwards.

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

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

The Company has deferred tax assets that are available to offset future taxable income.

2 unchanged sentences

Accordingly, the Company has established a valuation allowance against a portion of its deferred tax assets at September 30, 2022 and 2021.

For the years ended September 30, 2021 and 2020, the valuation allowance for deferred tax assets decreased by $ 1.1 million and increased by $ 543 thousand, respectively.

The acquisition of Hawk Search, Inc.

(see Note 16 ) resulted in the recognition of deferred tax liabilities of approximately $ 1,181 , related to intangible assets.

For the years ended September 30, 2022 and 2021, the valuation allowance for deferred tax assets increased by $ 0.4  million and decreased by $ 1.2  million, respectively.

The acquisition of HawkSearch, Inc.

in fiscal 2021 (see Note 17 ) resulted in the recognition of deferred tax liabilities of approximately $ 1,181  related to intangible assets.

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

9 unchanged sentences

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

5 unchanged sentences

Accrued expenses

AMT carryforward

Net operating loss carryforwards

Contribution carryforward

Right of use liability

Debt forgiveness

Stock options

6 unchanged sentences

Right of use asset

Expenses related to debt forgiveness

Total deferred tax liabilities

1 unchanged sentence

Net deferred tax assets are reflected in Other assets and net deferred tax liabilities are reflected in Other long-term liabilities on the consolidated balance sheets.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $ 0 and $ 85 at September 30, 2021 and 2020, respectively.

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $ 0 at September 30, 2022 and 2021.

The 2017 Tax Act subjects a U.S.

4 unchanged sentences

taxpayers that sell goods or services to foreign customers under the new Foreign Derived Intangible Income Deduction ("FDII") rules.

As of September 30, 2021, the Company reported no GILTI tax expense for the year ended September 30, 2021.

As of September 30, 2022, the Company reported GILTI of $ 0.4 million, which resulted in $ 0.1 million of tax expense for the year ended September 30, 2022.

When accounting for uncertain income tax positions, the impact of uncertain tax positions is recognized in the consolidated financial statements if they are more likely than not of being sustained upon examination, based on the technical merits of the position.

The Company’s management has determined that the Company has no uncertain tax positions requiring recognition as of September 30, 2022 and 2021.

The Company does not expect any change to this determination in the next twelve months.

WooRank Acquisition

4 unchanged sentences

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 (“common stock”), 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 .

600 thousand (approximately $ 723 thousand at acquisition date) 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 (“common stock”), 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 for a portion of the purchase price.

At September 30, 2021, €

550 thousand of the remaining purchase price and related earn-out may be settled, at the Company’s option, in shares of the Company’s common stock.

The Company accounted for the WooRank transaction as a business combination.

9 unchanged sentences

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

Hawk Search Acquisition

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, an Illinois corporation.

HawkSearch Acquisition

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, an Illinois corporation.

The purchase price consisted of ( 1 ) an initial cash payment at closing, ( 2 ) issuance of 1,500 shares of the Company’s newly designated Series D Preferred Stock, and ( 3 ) 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 Company accounted for the Hawk Search transaction as a business combination.

The Hawk Purchase Agreement also provided for additional consideration, in the event of achievement of certain revenue targets, to the selling shareholders as an additional earn-out, payable in two installments, as amended and as follows;

(i) on or before July 1, 2022, the aggregate sum of $ 1,799 thousand (which was paid on July 1, 2022);

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

The Company accounted for the HawkSearch transaction as a business combination.

The Company determined that the fair value of the gross assets acquired was not concentrated in a single identifiable asset of a group of similar assets.

6 unchanged sentences

The excess of the purchase price over the assets acquired and liabilities assumed was recognized as goodwill.

The goodwill is attributable to expected synergies and customer cross selling opportunities between the Company and Hawk Search.

The goodwill is attributable to expected synergies and customer cross selling opportunities between the Company and HawkSearch.

The acquisition date fair value of consideration transferred was as follows:

11 unchanged sentences

$ 12,321  

The preliminary acquisition date fair value of assets acquired, and liabilities assumed was as follows:

The acquisition date fair value of assets acquired, and liabilities assumed was as follows:

Assets acquired:

18 unchanged sentences

$ 12,321  

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

The average useful lives of the identifiable intangible assets acquired were as follows:

2 unchanged sentences

Domain and trade names

Total revenue from the Woorank and Hawk Search acquisitions was $ 1.0 million and $ 1.9 million respectively, for the year ended September 30, 2021.

Total revenue from the WooRank and HawkSearch acquisitions from their respective date of acquisition through September 30, 2021 

was $ 1.0 million and $ 1.9 million, respectively.

Total earnings from the acquisitions are impracticable to disclose as the operations were merged with existing operations and certain costs were not accounted for separately.

Pro Forma Information (Unaudited)

The following is the unaudited pro forma information assuming the acquisitions occurred on October 1, 2019:

September 30,

The following is the pro forma information assuming the acquisitions occurred on October 1, 2020:

(in thousands, except share and per share data)  

September 30,

(in thousands, except share and per share data)

$ 16,381  

$ 16,817  

Net income (loss) attributable to common shareholders - basic

$ ( 8,773 )  

Net income (loss) attributable to common shareholders - diluted

$ ( 8,773 )  

Net income (loss) attributable to common shareholders - basic

Net income (loss) attributable to common shareholders - diluted

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

$ ( 1.49 )  

Weighted average common shares outstanding - basic

5,935,981  

3,555,032  

Weighted average common shares outstanding - diluted

5,935,981  

3,555,032  

Pro forma information for the year ended September 30, 2022, is not presented as the amount reported in the Consolidated Statements of Operations include the activities of these acquisitions for the period then ended.

Related Party Transactions

9 unchanged sentences

Each warrant share expires five and one -half years from the date of issuance and is exercisable for $ 175 per share beginning six months from the date of issuance, or May 9, 2017. 

The warrants expire May 9, 2022.

The warrants expired in May 9, 2022.

BRIDGELINE DIGITAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(in thousands, except share and per share data)

13 unchanged sentences

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

(a)     

Dismissal of Previous Independent Registered Accounting Firm

On February 26, 2021, the Audit Committee of the Company’s board of directors, informed Marcum LLP (“

Marcum ”) of its decision to dismiss Marcum as the Company's independent registered public accounting firm, effective as of that date.

Marcum’s report on the Company’s consolidated financial statements as of September 30, 2020 and September 30, 2019 did not contain an adverse opinion or a disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope or accounting principles, other than, in each of the years ended September 30, 2020 and September 30, 2019, to include an explanatory paragraph regarding substantial doubt as to the Company’s ability to continue as a going concern.

During the years ended September 30, 2020 and September 30, 2019 and the subsequent interim period through February 26, 2021, there were no “disagreements”

(as such term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304) with Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements if not resolved to the satisfaction of Marcum would have caused Marcum to make reference to the subject matter of the disagreements or reportable events in connection with its reports on the financial statements for such years.

During the years ended September 30, 2020 and September 30, 2019 and the subsequent interim period through February 26, 2021, there have been no “reportable events”

(as such term is defined in Item 304(a)(1)(v) of Regulation S-K).

In accordance with Item 304(a)(3) of Regulation S-K, the Company provided Marcum with a copy of the disclosure it is making in this Current Report on Form 8-K and requested that Marcum furnish the Company with a copy of its letter addressed to the Securities and Exchange Commission stating whether Marcum agrees with the statements made by the Company in response to Item 304(a) of Regulation S-K.

(b)     

Appointment of New Independent Registered Public Accounting Firm

On February 27, 2021, the Company’s Audit Committee approved the engagement of PKF O’Connor Davies (“

PKF ”) as the Company’s new independent registered public accounting firm for the fiscal year ending September 30, 2021, effective immediately.

During the fiscal years ended September 30, 2020 and September 30, 2019 and through the subsequent interim period as of February 26, 2021, neither the Company, nor any party on behalf of the Company, consulted with PKF regarding either (a) the application of accounting principles to a specified transaction, either completed or proposed, or the audit opinion that might be rendered regarding the Company’s consolidated financial statements, and no written report or oral advice was provided to the Company that PKF concluded was an important factor considered by the Company in deciding on any accounting, auditing or financial reporting issue, or (b) any matter subject of any “disagreement”

(as such term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a “reportable event”

(as such term is defined in Item 304(a)(1)(v) of Regulation S-K).

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 7A. Quantitative and Qualitative Disclosures About Market Risk