UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


Form 10-Q


 (Mark One)

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

 

For the quarterly period ended June 30, 2020

 

OR

 

☐ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

 

Commission File Number 333-139298

 


Bridgeline Digital, Inc.

(Exact name of registrant as specified in its charter)


 

Delaware

52-2263942

State or other jurisdiction of incorporation or organization

IRS Employer Identification No.

 

100 Sylvan Road, Suite G7000 

 

Woburn, Massachusetts

01801

(Address of Principal Executive Offices)

(Zip Code)

 

(781) 376-5555

(Registrant’s telephone number, including area code)

 

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

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files)   ☒  Yes    ☐  No

 

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

 

Large accelerated filer  ☐

Accelerated filer  ☐

Non-accelerated filer  ☒

Smaller reporting company ☒

 

 

Emerging growth company ☐

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

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

 

Title of each class

Trading Symbols(s)

Name of each exchange on which registered

Common Stock, par value $0.001

BLIN

NASDAQ

 

The number of shares of Common Stock par value $0.001 per share, outstanding as of August 10, 2020 was 4,420,170.

 

1

 

 

Bridgeline Digital, Inc.

 

Quarterly Report on Form 10-Q

 

For the Quarterly Period ended June 30, 2020

 

Index

 

 

 

Page

 

Part I

Financial Information

 

 

 

 

 

 

Item 1.

Condensed Consolidated Financial Statements

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2020 and September 30, 2019

4

 

 

 

 

 

 

Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended June 30, 2020 and 2019

5

 

       
 

Condensed Consolidated Statements of Comprehensive Income/(Loss) (unaudited) for the three and nine months ended June 30, 2020 and 2019

6

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months ended June 30, 2020 and 2019 

7

 

       
 

Condensed Consolidated Statements of Cash Flows (unaudited) for the nine months ended June 30, 2020 and 2019 

8

 
       

 

Notes to Unaudited Condensed Consolidated Financial Statements

9

 

 

 

 

 

Item 2.

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

25

 

 

 

 

 

Item 3.

Qualitative and Quantitative Disclosures About Market Risk

34

 

 

 

 

 

Item 4.

Controls and Procedures

34

 

 

 

 

 

Part II

Other Information

 

 

 

 

 

 

Item 1.

Legal Proceedings

35

 

       

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

35

 

       

Item 6.

Exhibits

36

 

       

Signatures

 

38

 

       

 

2

 

 

 

Bridgeline Digital, Inc.

 

Quarterly Report on Form 10-Q

 

For the Quarterly Period ended June 30, 2020

 

All statements included in this Report on Form 10-Q , other than statements or characterizations of historical fact, are forward-looking statements.  These “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc.  These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions, including, but not limited to, the impact of the COVID – 19 pandemic and related public health measures on our financial results; business operations and the business of our customers, suppliers and partners; our ability to retain and upgrade current customers; increasing our recurring revenue; our ability to attract new customers; our revenue growth rate; our history of net loss and our ability to achieve or maintain profitability; our liability for any unauthorized access to our data or our users’ content, including through privacy and data security breaches; any decline in demand for our platform or products; changes in the interoperability of our platform across devices, operating systems, and third party applications that we do no control; competition in our markets; our ability to respond to rapid technological changes, extend our platform, develop new features or products, or gain market acceptance for such new features or products, particularly in light of potential disruptions to the productivity of our employees resulting from remote work; our ability to manage our growth or plan for future growth, and our acquisition of other businesses and the potential of such acquisitions to require significant management attention, disrupt our business, or dilute stockholder value; the volatility of the market price of our common stock; the ability to maintain our listing on the NASDAQ Capital Market; or our ability to maintain an effective system of internal controls as well as other risks described in our filings with the Securities and Exchange Commission.  Any of such risks could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement. We urge readers to review carefully the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 as well as in the other documents that we file with the Securities and Exchange Commission. You can read these documents at www.sec.gov.

 

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

 

3

 

PART I—FINANCIAL INFORMATION

 Item 1.

Condensed Consolidated Financial Statements.

 

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 (in thousands, except share and per share data)

 

 

               
    June 30, 2020     September 30, 2019  
ASSETS            
   

 

   

 

 

Current assets:

               

Cash and cash equivalents

  $ 1,165     $ 296  

Accounts receivable, net

    799       979  

Prepaid expenses

    267       351  

Other current assets

    18       49  

Total current assets

    2,249       1,675  

Property and equipment, net

    252       299  

Operating lease assets

    325       -  

Intangible assets, net

    2,831       3,509  

Goodwill

    5,557       5,557  

Other assets

    83       115  

Total assets

  $ 11,297     $ 11,155  
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               
                 

Current liabilities:

               

Current portion of long-term debt

  $ 466     $ -  

Current portion of operating lease liabilities

    96       -  

Accounts payable

    1,869       1,740  

Accrued liabilities

    588       835  

Deferred revenue

    1,779       1,262  

Total current liabilities

    4,798       3,837  
                 

Long term debt, net of current portion

    582       -  

Operating lease liabilities, net of current portion

    229       -  

Warrant liabilities

    2,436       3,514  

Other long term liabilities

    5       8  

Total liabilities

    8,050       7,359  
                 

Commitments and contingencies

               
                 

Stockholders’ equity:

               

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

               

Series C Convertible Preferred stock:

               

11,000 shares authorized; 355 shares issued and outstanding at June 30, 2020 and 441 shares at September 30, 2019, issued and outstanding

    -       -  

Series A Convertible Preferred stock:

               

264,000 shares authorized; no shares outstanding at June 30, 2020 and 262,310 shares at September 30, 2019, issued and outstanding

    -       -  

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

               

4,419,614 shares at June 30, 2020 and 2,798,475 shares at September 30, 2019, issued and outstanding

    4       3  

Additional paid-in capital

    78,255       75,620  

Accumulated deficit

    (74,652 )     (71,489 )

Accumulated other comprehensive loss

    (360 )     (338 )

Total stockholders’ equity

    3,247       3,796  

Total liabilities and stockholders’ equity

  $ 11,297     $ 11,155  

 

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

 

4

 

(Unaudited)

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

 (in thousands, except share and per share data)

  (Unaudited)

 

   

Three Months Ended
June 30,

   

Nine Months Ended
June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Net revenue:

                               

Digital engagement services

  $ 713     $ 1,118     $ 2,708     $ 3,102  

Subscription and perpetual licenses

    1,919       1,575       5,494       4,162  

Total net revenue

    2,632       2,693       8,202       7,264  

Cost of revenue:

                               

Digital engagement services

    395       416       1,432       1,635  

Subscription and perpetual licenses

    684       1,075       2,190       2,604  

Total cost of revenue

    1,079       1,491       3,622       4,239  

Gross profit

    1,553       1,202       4,580       3,025  

Operating expenses:

                               

Sales and marketing

    312       1,469       2,130       3,519  

General and administrative

    464       785       1,936       2,216  

Research and development

    402       592       1,218       1,499  

Depreciation and amortization

    224       257       731       361  

Goodwill impairment

    -       -       -       3,732  

Restructuring and acquisition related expenses

    1       938       373       1,242  

Total operating expenses

    1,403       4,041       6,388       12,569  

Income (loss) from operations

    150       (2,839 )     (1,808 )     (9,544 )

Interest expense and other, net

    (2 )     7       (3 )     (316 )

Amortization of debt discount

    -       -       -       (231 )

Warrant liability expense

    -       -       -       (11,272 )

Change in fair value of warrant liabilities

    (1,843 )     10,146       1,078       11,204  

Income (loss) before income taxes

    (1,695 )     7,314       (733 )     (10,159 )

Provision for income taxes

    6       3       9       7  

Net income (loss)

    (1,701 )     7,311       (742 )     (10,166 )

Dividends on convertible preferred stock

    -       (78 )     (106 )     (235 )

Deemed dividend on amendment of Series A convertible preferred stock

    -       -       (2,314 )     -  

Net income (loss) applicable to common shareholders

  $ (1,701 )   $ 7,233     $ (3,162 )   $ (10,401 )

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

                               

Basic

  $ (0.44 )   $ 3.62     $ (0.97 )   $ (12.38 )

Diluted

  $ (0.44 )   $ 3.56     $ (0.97 )   $ (12.38 )

Number of weighted average shares outstanding:

                               

Basic

    3,876,677       1,996,326       3,264,734       839,975  

Diluted

    3,876,677       2,032,766       3,264,734       840,975  

 

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

 

5

 

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

 (in thousands)

(Unaudited)

 

   

Three Months Ended
June 30,

   

Nine Months Ended
June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Net income (loss)

  $ (1,701 )   $ 7,311     $ (742 )   $ (10,166 )

Other comprehensive income (loss):

                               

Net change in foreign currency translation adjustment

    36       19       (22 )     18  

Comprehensive income (loss)

  $ (1,665 )   $ 7,330     $ (764 )   $ (10,148 )

 

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

  

6

 

 

 BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

 (in thousands, except share data)

(Unaudited)

 

   

For the Three and Nine Months Ended June 30, 2020

 
                                                   

Accumulated

         
   

Preferred Stock

   

Common Stock

   

Additional

           

Other

   

Total

 
                                   

Paid-in

   

Accumulated

   

Comprehensive

   

Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Loss

   

Equity

 

Balance at October 1, 2019

    262,751     $ -       2,798,475     $ 3     $ 75,620     $ (71,489 )   $ (338 )   $ 3,796  

Stock-based compensation expense

                                    30                       30  

Dividends on Series A convertible preferred stock

                                            (79 )             (79 )

Deemed dividend on amendment of Series A convertible preferred stock (Note 8)

                                    2,314       (2,314 )             -  

Net income

                                            136               136  

Foreign currency translation

                                                    1       1  

Balance at December 31, 2019

    262,751     $ -       2,798,475     $ 3     $ 77,964     $ (73,746 )   $ (337 )   $ 3,884  

Series A convertible preferred stock conversion to common

    (107,416 )             613,806                                       -  

Stock-based compensation expense

                                    50                       50  

Dividends on Series A convertible preferred stock

                                            (27 )             (27 )

Net income

                                            822               822  

Foreign currency translation

                                                    (59 )     (59 )

Balance at March 31, 2020

    155,335     $ -       3,412,281     $ 3     $ 78,014     $ (72,951 )   $ (396 )   $ 4,670  

Series A convertible preferred stock dividend liabilities settled in shares

                    112,960       1       188                       189  

Series A convertible preferred stock conversion to common

    (154,894 )             884,817                                       -  

Series C convertible preferred stock conversion to common

    (86 )             9,556                                       -  

Stock-based compensation expense

                                    53                       53  

Net loss

                                            (1,701 )             (1,701 )

Foreign currency translation

                                                    36       36  

Balance at June 30, 2020

    355     $ -       4,419,614     $ 4     $ 78,255     $ (74,652 )   $ (360 )   $ 3,247  

 

   

For the Three and Nine Months Ended June 30, 2019

 
                                                   

Accumulated

         
   

Preferred Stock

   

Common Stock

   

Additional

           

Other

   

Total

 
                                   

Paid-in

   

Accumulated

   

Comprehensive

   

Stockholders’

 
   

Shares

   

Amount

   

Shares

   

Amount

   

Capital

   

Deficit

   

Loss

   

Equity

 

Balance at October 1, 2018

    262,364     $ -       84,005     $ -     $ 66,553     $ (61,778 )   $ (351 )   $ 4,424  

Issuance of common stock, net of issuance costs

    (54 )             28,481       -       4,377                       4,377  

Stock-based compensation expense

                                    97                       97  

Preferred B stock conversion to common

                    169,139                                       -  

Dividends on Series A convertible preferred stock

                                            (79 )             (79 )

Net loss

                                            (4,955 )             (4,955 )

Cumulative effect of the adoption of ASC 606

                                            78               78  

Balance at December 31, 2018

    262,310     $ -       281,625     $ -     $ 71,027     $ (66,734 )   $ (351 )   $ 3,942  

Common stock issued in connection with acquisition of business

                    40,000               476                       476  

Stock-based compensation expense

                                    38                       38  

Preferred B stock conversion to common

                    3,201                                       -  

Dividends on Series A convertible preferred stock

                                            (78 )             (78 )

Net loss

                                            (12,522 )             (12,522 )

Foreign currency translation

                                                    (1 )     (1 )

Balance at March 31, 2019

    262,310     $ -       324,826     $ -     $ 71,541     $ (79,334 )   $ (352 )   $ (8,145 )

Issuance of common stock, net of issuance costs

                    1,382,039       3       3,969                       3,972  

Stock-based compensation expense

                                    74                       74  

Series C Convertible Perferred stock issurance and conversion to common

    441               1,087,443               1                       1  

Dividends on Series A convertible preferred stock

                                            (78 )             (78 )

Net loss

                                            7,311               7,311  

Foreign currency translation

                                                    19       19  

Balance at June 30, 2019

    262,751     $ -       2,794,308     $ 3     $ 75,585     $ (72,101 )   $ (333 )   $ 3,154  

 

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

 

7

 

 

BRIDGELINE DIGITAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

 (in thousands)

(Unaudited)

 

   

Nine Months Ended
June 30,

 
   

2020

   

2019

 

Cash flows from operating activities:

               

Net income (loss)

  $ (742 )   $ (10,166 )

Adjustments to reconcile net income (loss) to net cash used in operating activities:

               

Loss on disposal of property and equipment

    -       9  

Amortization of intangible assets

    678       310  

Depreciation

    40       50  

Other amortization

    13       32  

Goodwill impairment

    -       3,732  

Amortization of debt discount

    -       231  

Warrant liability expense

    -       11,272  

Change in fair value of warrant liabilities

    (1,078 )     (11,204 )

Stock-based compensation

    133       210  

Changes in operating assets and liabilities

               

Accounts receivable

    486       971  

Prepaid expenses

    155       3  

Other current assets and other assets

    11       129  

Accounts payable and accrued liabilities

    (65 )     329  

Deferred revenue

    174       722  

Other liabilities

    (32 )     62  

Total adjustments

    515       6,858  

Net cash used in operating activities

    (227 )     (3,308 )

Cash flows from investing activities:

               

Software development capitalization costs

    -       (12 )

Purchase of property and equipment

    -       (21 )

Acquisition of businesses

    -       (5,638 )

Net cash used in investing activities

    -       (5,671 )

Cash flows from financing activities:

               

Proceeds from issuance of common stock, net of issuance costs

    -       4,700  

Proceeds from issuance of preferred stock, net of issuance costs

    -       9,123  

Borrowing on bank line of credit

    -       75  

Proceeds received under Paycheck Protection Program

    1,048       -  

Payments on bank line of credit

    -       (2,156 )

Payments on term notes from Montage Capital

    -       (922 )

Payments on promissory term notes

    -       (941 )

Cash dividends paid on Series A convertible preferred stock

    -       (235 )

Net cash provided by financing activities

    1,048       9,644  

Effect of exchange rate changes on cash and cash equivalents

    48       (11 )

Net increase in cash and cash equivalents

    869       654  

Cash and cash equivalents at beginning of period

    296       644  

Cash and cash equivalents at end of period

  $ 1,165     $ 1,298  

Supplemental disclosures of cash flow information:

               

Cash paid for:

               

Interest

  $ -     $ 307  

Income taxes

  $ 3     $ 11  

Non cash investing and financing activities:

               

Consideration paid in Common Stock in connection with acquisition of business

  $ -     $ 480  

Dividends accrued or settled in shares on convertible preferred stock

  $ 189     $ 235  

Deemed dividend on amendment of Series A convertible preferred stock

  $ 2,314     $ -  

 

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

 

8

 

 

1.   Description of Business

 

Overview

 

Bridgeline Digital, The Digital Engagement Company™ (the “Company”), helps customers maximize the performance of their full digital experience from websites and intranets to online stores and campaigns and integrates Web Content Management, eCommerce, Marketing Automation, Site Search, Authenticated Portals, Social Media Management, Translation and Web Analytics to help organizations deliver digital experiences.

 

The Bridgeline Unbound platform is delivered through a cloud-based SaaS (“Software as a Service”) multi-tenant business model, providing maintenance, daily technical operation and support; or via a traditional perpetual licensing business model, in which the software resides on a dedicated server in either the customer’s facility or hosted by Bridgeline via a cloud-based hosted services model.

 

OrchestraCMS, delivered through a cloud-based SaaS, is the only content and digital experience platform built 100% native on Salesforce and helps customers create compelling digital experiences 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, delivered through a cloud-based SaaS, is a commerce-oriented, site search product that provides for Natural Language Processing with artificial intelligence to present very relevant search results based on long-tail keyword searches in seven languages.

 

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

 

Locations

 

The Company’s corporate office is located in Woburn, Massachusetts.  The Company maintains regional field offices serving the following geographical locations: Boston, Massachusetts; Chicago, Illinois; New York, New York; and Ontario, Canada. The Company has three wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd. located in Bangalore, India, Bridgeline Digital Canada, Inc. located in Ontario, Canada, and Stantive Technologies Pty. Ltd. located in Australia.

 

Going Concern

 

The Company has incurred operating losses and used cash in its operating activities for the past several years. Cash was used to fund operations, develop new products, and build infrastructure. During the prior fiscal years and continuing into the current fiscal year, the Company has executed a restructuring plan that included a reduction of workforce and office space, which significantly reduced operating expenses. In March 2020, the Company executed a reduction in force plan for its domestic and Canadian operations aimed at improving efficiencies by combining functions, certain responsibilities and eliminating redundancies, which resulted in a reduction of 15 positions. The reduction in force was part of the Company’s continuing and ongoing efforts to maintain a lower cost structure and was not an action taken in response to the coronavirus pandemic described below. The Company is continuing to maintain tight control over discretionary spending for the remainder of the 2020 fiscal year.

 

In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic. We expect our operations in all locations to be affected as the virus continues to proliferate. We have adjusted certain aspects of our operations to protect employees and customers while still meeting customers’ needs for vital technology. We will continue to monitor the situation closely and it is possible that we will implement further measures. In light of the uncertainty as to the severity and duration of the pandemic, the impact on our revenues, profitability and financial position is uncertain at this time.

 

9

 

On April 17, 2020, the Company entered into a loan with an aggregate principal amount of $1,047,500, pursuant to the Paycheck Protection Program (See Note 7).

 

While the Company believes that future revenues and cash flows, as acquisitions completed in the fiscal 2019 second quarter continue to be integrated and a full year of operations has occurred, will supplement its working capital and that it has an appropriate cost structure to support future revenue growth, based upon its current working capital and projected cash flows in the next twelve months, the Company will need additional sources of financing in place in order to ensure its operations are adequately funded.  On August 13, 2020, the Company entered into an arrangement with an investment banking firm to sell up to $3,822,339 of  shares of the Company’s common stock, $0.001 par value.  Refer to Note 8 under the caption, At the Market Offering, for a detailed description of this capital raising activity.  There are no obligations for the sale or purchase of the Company’s common stock pursuant to this offering.  Accordingly, there can be no assurances that the Company or investment banking firm will be successful in selling any portion of the shares available for sale pursuant to this offering.  No other definitive agreements for additional financing are in place as of the issuance date of this Form 10-Q and there can  be no assurances that additional sources of financing could be obtained on terms that are favorable or acceptable to us and that revenue growth and improvement in cash flows can be achieved.  Accordingly, management believes that there is substantial doubt about the Company’s ability to continue as a going concern for at least twelve months following the issuance date of this Form 10-Q. No adjustments have been made to the accompanying condensed consolidated financial statements as a result of this uncertainty. 

 

 

2.   Summary of Significant Accounting Policies

 

Basis of Presentation and Principles of Consolidation

 

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

 

Unaudited Interim Financial Information

 

The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), and with the instructions to Form 10-Q and Regulation S-X, and in the opinion of the Company’s management these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for their fair presentation. The operating results for the three and nine months ended June 30, 2020, are not necessarily indicative of the results to be expected for the year ending September 30, 2020. The accompanying September 30, 2019 Condensed Consolidated Balance Sheet has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by US GAAP for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended September 30, 2019 as filed with the Securities and Exchange Commission on December 27, 2019.

 

Reclassifications

 

Certain amounts in the prior period financial statements have been reclassified to conform to the presentation in the current period financial statements. These reclassifications had no effect on the previously reported net loss.

 

Leases

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, Leases: Topic 842 (“ASU 2016-02” or “ASC 842”), which outlines principles for the recognition, measurement, presentation and disclosure of leases applicable to both lessors and lessees. The new standard requires lessees to recognize most leases on their balance sheets for the rights and obligations created by those leases.

 

The Company adopted the new lease standard during the fiscal 2020 first quarter using the effective date of October 1, 2019 as the date of initial application; therefore, the comparative prior periods presented have not been adjusted and continue to be reported under the previous lease standard. The Company applied the new standard using certain practical expedients, including:

 

 

the package of practical expedients, which permits the Company not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs;

 

the short-term lease recognition exemption, which does not require the recognition of a right-of-use (“ROU”) asset or lease liability for those leases that qualify;

 

accounting for lease components and non-lease components as a single lease component for all underlying classes of assets.

 

As a result of adopting the new standard, substantially all of the Company’s operating lease commitments were recognized as operating lease assets and liabilities, initially measured as the present value of future lease payments for the remaining lease term discounted using an incremental borrowing rate of 7.0%. At October 1, 2019, the adoption date, the Company recognized operating lease assets and liabilities of approximately $545.

 

10

 

The adoption of the new standard is non-cash in nature and had no impact on net cash flows from operating, investing or financing activities. See Note 12 for additional information regarding the Company’s lease arrangements and updated summary of significant accounting policies related to our leases.

 

Accounting Pronouncements Pending Adoption

 

Intangibles Goodwill and Other - Internal-Use Software

 

In August 2018, the FASB issued ASU 2018-15, which addresses a customer’s accounting for implementation costs incurred in a cloud computing arrangement that is a service contract. Under the new standard, customers will apply the same criteria for capitalizing implementation costs as they would for an arrangement that has a software license. ASU 2018-15 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact of the new standard on its consolidated financial statements and related disclosures.

 

Fair Value

 

In August 2018, the FASB issued ASU 2018-13, which changes the fair value measurement disclosure requirements of ASC 820. ASU 2018-13 will be effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, with early adoption is permitted for any eliminated or modified disclosures upon issuance of this ASU. The Company is currently evaluating the impact of the new standard on its consolidated financial statements and related disclosures.

 

Financial Instruments – Credit Losses

 

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. ASU 2016-13 is effective for smaller reporting companies for annual reporting periods beginning after December 15, 2022, including interim periods within those annual reporting periods, with early adoption permitted. The Company is currently evaluating the impact of the new standard on its consolidated financial statements and related disclosures.

 

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

 

 

3. Accounts Receivable

 

Accounts receivable consists of the following:

 

   

As of
June 30, 2020

   

As of
September 30, 2019

 

Accounts receivable

  $ 920     $ 1,067  

Allowance for doubtful accounts

    (121 )     (88 )

Accounts receivable, net

  $ 799     $ 979  

 

As of June 30, 2020, two customers represented approximately 16% and 10% of accounts receivable. As of September 30, 2019, three customers represented approximately 16%, 14% and 12% of accounts receivable. For the three months ended June 30, 2020 one customer represented approximately 11% of the Company’s total revenue and for the three months ended June 30, 2019, two customers represented approximately 14% and 11% of the Company’s total revenue. For the nine months ended June 30, 2020, one customer represented approximately 12% of the Company’s total revenue and for the nine months ended June 30, 2019, two customers represented approximately 16% and 12% of the Company’s total revenue.

 

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4.   Fair Value Measurement and Fair Value of Financial Instruments

 

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

 

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

 

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

 

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

 

The Company believes the recorded values for accounts receivable and accounts payable approximate current fair values as of June 30, 2020 and September 30, 2019 because of their short-term nature.

 

The Company’s warrant liabilities are measured at fair value at each reporting period with changes in fair value recognized in earnings during the period. The fair value of the Company’s warrant liabilities are valued utilizing Level 3 inputs. Warrant liabilities are valued using a Monte Carlo option-pricing model, which takes into consideration the market values of comparable public companies, considering among other factors, the use of multiples of earnings, and adjusted to reflect the restrictions on the ability of our shares to trade in an active market. The Monte Carlo option-pricing model uses certain assumptions, including expected life and annual volatility. The significant inputs and assumptions utilized were as follows:

 

   

As of June 30, 2020

   

As of September 30, 2019

 
   

Montage Capital

   

Series C
Preferred

   

Montage Capital

   

Series C
Preferred

 

Volatility

    82 %     84.8 %     71 %     80.9 %

Risk-free rate

    0.32 %     0.20 %     1.59 %     1.59 %

Stock price

  $ 1.69     $ 1.69     $ 1.91     $ 1.91  

 

The Company recognized losses of $1,843 and gains of $10,146 for the three months ended June 30, 2020 and 2019, respectively and gains of $1,078 and $11,204 for the nine months ended June 30, 2020 and 2019, 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.

 

12

 

Assets and liabilities of the Company measured at fair value on a recurring basis as of June 30, 2020 and September 30, 2019 are as follows:

 

   

As of June 30, 2020

         
   

Level 1

   

Level 2

   

Level 3

   

Total

 
                                 

Liabilities:

                               

Warrant liability - Montage

  $ -     $ -     $ 26     $ 26  

Warrant liability - Series A, B and C

    -       -       2,410       2,410  

Total Liabilities

  $ -     $ -     $ 2,436     $ 2,436  

 

   

As of September 30, 2019

         
   

Level 1

   

Level 2

   

Level 3

   

Total

 
                                 

Liabilities:

                               

Warrant liability - Montage

  $ -     $ -     $ 14     $ 14  

Warrant liability - Series A, B and C

    -       -       3,500       3,500  

Total Liabilities

  $ -     $ -     $ 3,514     $ 3,514  

 

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

  

   

Nine Months Ended
June 30, 2020

 

Balance at beginning of period, October 1, 2019

  $ 3,514  

Additions

    -  

Exercises

    -  

Adjustment to fair value

    (1,101 )

Balance at end of period, December 31, 2019

  $ 2,413  

Additions

    -  

Exercises

    -  

Adjustment to fair value

    (1,820 )

Balance at end of period, March 31, 2020

  $ 593  

Additions

       

Exercises

       

Adjustment to fair value

    1,843  

Balance at end of period, June 30, 2020

  $ 2,436  

 

 

5.   Intangible Assets

 

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

 

   

As of
June 30, 2020

   

As of
September 30, 2019

 

Domain and trade names

  $ 10     $ 52  

Customer related

    1,634       2,032  

Technology

    1,187       1,425  

Balance at end of period

  $ 2,831     $ 3,509  

 

Total amortization expense related to intangible assets was $207 and $240 related to intangible assets for the three months ended June 30, 2020 and 2019, respectively, and $678 and $306 for the nine months ended June 30, 2020 and 2019, respectively, and is reflected in Operating expenses on the Condensed Consolidated Statements of Operations. The estimated amortization expense for fiscal year 2020 (remaining), 2021, 2022, 2023, 2024 and thereafter is $215, $860, $765, $684, $297 and $10, respectively.

 

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6.   Restructuring and Acquisition Related Expenses

 

Restructuring Activities

 

During the three and nine months ended June 30, 2019, the Company had certain expenditures related to restructuring plans, which had commenced in fiscal 2015, to improve efficiencies by implementing cost reductions in line with expected decreases in revenue. As part of these then on-going restructuring plans, the Company renegotiated several office leases and relocated to smaller space, negotiated sub-leases for the original space, executed a general work-force reduction and recognized costs for severance and termination benefits. These restructuring charges and accruals required estimates and assumptions, including contractual rental commitments or lease buy-outs for vacated office space and related costs, and estimated sub-lease income. The Company’s sub-lease assumptions include the rates to be charged to a sub-tenant and the timing of the sub-lease arrangement. All of the vacated lease spaces are currently contractually occupied by new sub-tenants for the remaining life of the lease. In the fiscal 2017 second quarter, the Company initiated a plan to shut down its operations in India, which was completed in the first half of fiscal 2020. During the three and nine months ended June 30, 2020, expenditures related to these previous restructuring plans were minimal and the Company does not expect to incur significant expenditures in future periods.

 

In March 2020, the Company recognized $365 related to a reduction in force 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. During the three and nine months ended June 30, 2020, the Company paid $192 and $338, respectively, related to this reduction in force.

 

As of June 30, 2020 and September 30, 2019, restructuring liabilities were $27 and $75, respectively, which are included in Accrued liabilities on the Condensed Consolidated Balance Sheets.

 

Acquisition Related Expenses

 

In connection with the fiscal 2019 second quarter acquisition of Stantive, the Company incurred legal, accounting and consulting fees of $552 during the three and nine months ended June 30, 2019, which are included in Restructuring and acquisition related expenses in the Condensed Consolidated Statement of Operations. There were no acquisition related expenses incurred during the three and nine months ended June 30, 2020.

 

 

7.   Debt

 

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 $1,047,500 (“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 Small Business Administration. 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. During the three and nine months ended June 30, 2020, interest expense was approximately $2 related to the Note. 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. The PPP Loan may be accelerated upon the occurrence of an event of default. The Company currently intends to use the proceeds for purposes consistent with the PPP, however, there can be no assurances that the Company will ultimately meet the conditions for forgiveness of the loan or that the Company will not take actions that could cause the Company to be ineligible for forgiveness of the loan, in whole or in part.

 

US 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 allow for the selection of accounting policies amongst acceptable alternatives. Based on facts and circumstances, the Company determined it most appropriate to account for the PPP Loan proceeds under the debt model. Under the debt model, the Company recognizes the proceeds received as debt, recognizes periodic interest expense in the period in which the interest accrues at the stated interest rate and defers the recognition of any potential forgiveness of the loan principal or interest until the period in which the Company has been legally released from its obligation by the lender. The Company deemed the debt model to be the most appropriate accounting policy for this arrangement as the underlying PPP Loan is a legal form of debt and there are significant contingencies outside of the control of the Company, mainly related to the third-party approval process for forgiveness.

 

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Other Credit Facilities

 

During the nine months ended June 30, 2019, the Company had a Line of Credit with Heritage Bank of Commerce (the “Line of Credit”) and a term loan with Montage Capital II, L.P. (the “Montage Loan”). Borrowings under the Line of Credit accrued interest at the Wall Street Journal Prime Rate plus 1.75% and the Montage Loan bore interest at 12.75% per annum. During the nine months ended June 30, 2019, interest expense was approximately $300 related to the Line of Credit and Montage Loan. The Company no longer maintains nor are any future borrowings available under the Line of Credit.

 

As more fully described in Note 8, in the fiscal 2019 second quarter, the Company concluded a private offering of Series C Convertible Preferred Stock, par value $0.001 per share. Proceeds were used, among other things, to pay-off in full the outstanding amounts on the Line of Credit and Montage Loan.

 

 

8.   Stockholders Equity

 

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 (i) to 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: Reduced 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.

 

Dividends: 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 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.

 

15

 

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 represents 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 and is included as a component of net loss applicable to common shareholders. 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.

 

During the nine months ended June 30, 2020, all previously outstanding shares of Series A Convertible Preferred Stock were converted into common stock.

 

Series B Convertible Preferred Stock

 

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

 

Series C Preferred Convertible Stock and Associated Warrants

 

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

 

At the time of issuance, no shares of Series C Preferred stock could be converted into Conversion Shares and no Series C Preferred Warrants could be exercised for shares of Common Stock, unless and until such time that the Company had obtained approval from its stockholders, at an annual or special meeting or via written consent, to (i) issue the Conversion Shares and warrants upon the conversion and exercise of the Series C Preferred stock and associated warrants, respectively, which number of shares in the aggregate exceeds 20% of the Company’s shares of Common Stock issued and outstanding immediately prior to the Closing Date, as required by Nasdaq Marketplace Rule 5635(d) (the “Issuance Approval”), and (ii) amend its Amended and Restated Certificate of Incorporation, as amended (“Charter”) to increase the number of shares of Common Stock available for issuance thereunder (or effect a reverse stock split of its issued and outstanding shares of Common Stock so as to effectively increase the number of shares of Common Stock available for issuance) by a sufficient amount to permit the conversion of all outstanding Series C Preferred stock into Conversion Shares and all Series C Preferred Warrants into warrant shares (the “Authorized Share Approval,” and together with the Issuance Approval, the “Stockholder Approvals”). In addition, the Company may not effect, and a Purchaser will not be entitled to, convert the Series C Preferred stock or exercise any Series C Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of Common Stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of Common Stock outstanding immediately after giving effect to the exercise. The Stockholder Approvals were obtained on April 26, 2019 and the Company’s Charter was amended on April 29, 2019. As of June 30, 2020, a total of 9,872.5 shares of Series C Preferred stock have been converted to 1,096,999 shares of Common Stock.

 

16

 

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

 

Common Stock

 

At the Market Offering

 

On August 13, 2020, the Company entered into an arrangement with an investment banking firm (the “Manager”) to sell up to 3,822,339 shares of the Company’s Common Stock, $0.001 par value (the “ATM Offering”).  Pursuant to the ATM Offering, shares may be sold on a daily basis, commencing no earlier than August 17, 2020, at a gross sales price equal to the market price for shares of the Company’s Common Stock on the Nasdaq Capital Market at the time of sale of such shares.  The Manager has no obligation to purchase shares of the Company’s Common Stock and is only obligated to use its commercially reasonable efforts consistent with its normal trading and sales practices to sell shares of the Company’s Common Stock. Accordingly, there can be no assurances that the Manager will be successful in selling any portion of the shares available for sale under the ATM Offering.  The Company shall pay to the Manager a placement fee of 2.5% of the gross sales price of shares sold.  The ATM Offering shall remain in effect until the earlier of August 13, 2021, or upon written notice of termination by either the Company or the Manager. 

 

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

 

Public Offering

 

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

 

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

 

Amended and Restated Stock Incentive Plan

 

The Company has granted common stock, common stock warrants, and common stock option awards (the “Equity Awards”) to employees, consultants, advisors and former debt holders of the Company and to former owners and employees of acquired companies that have become employees of the Company. The Company’s Amended and Restated Stock Incentive Plan (the “Plan”) provided for the issuance of up to 5,000 shares of common stock. This Plan expired in August 2016. As of June 30, 2020, there were 3,246 options outstanding under the Plan. On April 29, 2016, the stockholders approved a new stock incentive plan, The 2016 Stock Incentive Plan (the “2016 Plan”). The 2016 Plan authorizes the award of incentive stock options, non-statutory stock options, restricted stock, unrestricted stock, performance shares, stock appreciation rights and any combination thereof to employees, officers, directors, consultants, independent contractors and advisors of the Company. 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. As of June 30, 2020, there were 589,955 options outstanding and 210,045 shares available for future issuance under the 2016 Plan. 

 

17

 

Compensation Expense

 

Compensation expense is generally recognized on a graded accelerated basis over the vesting period of grants. Compensation expense is recorded in the Condensed Consolidated Statements of Operations with a portion charged to Cost of revenue and a portion to Operating expenses depending on the employee’s department. During the three and nine months ended June 30, 2020 and 2019, compensation expense related to share-based payments was as follows:

 

   

Three Months Ended
June 30,

   

Nine Months Ended
June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Cost of revenue

  $ 7     $ 136     $ 14     $ 144  

Operating expenses

    46       119       119       248  
    $ 53     $ 255     $ 133     $ 392  

 

As of June 30, 2020, the Company had approximately $358 of unrecognized compensation costs related to unvested options, which is expected to be recognized over a weighted-average period of 2.3 years.

 

Common Stock Warrants

 

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

 

Montage Warrant - As additional consideration for the Montage Loan, the Company issued to Montage Capital an eight-year warrant (the “Montage Warrant”) to purchase 1,326 shares of the Company’s common stock at a price equal to $132.50 per share. The Montage Warrant contains an equity buy-out provision upon the earlier of (1) dissolution or liquidation of the Company, (2) any sale or distribution of all or substantially all of the assets of the Company or (3) a “Change in Control” as defined within the meaning of Section 13(d) and 14(d)(2) of the Securities Exchange Act of 1934. Montage Capital has the right to receive an equity buy-out of $250. If the equity buy-out is exercised, the Montage Warrant will be surrendered to the Company for cancellation. The fair value of the Montage warrant liability at June 30, 2020 and September 30, 2019 was $26 and $14, respectively.

 

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


As of June 30, 2020, a total of 1,351,217 shares of Series C Warrants have been exercised and no Series A, B or placement agent warrants exercised. The fair value of the total warrant liability related to the Series A, B and C warrants and the placement agent warrants at June 30, 2020 and September 30, 2019 was $2,410 and $3,500, respectively.

 

18

 

Total warrants outstanding as June 30, 2020 were as follows:

 

Type

 

Issue
Date
 

Shares

   

Price

 

Expiration

Director/Shareholder

 

12/31/2015     120     $ 1,000.00  

12/31/2020

Placement Agent

 

5/17/2016     1,736     $ 187.50  

5/17/2021

Placement Agent

 

5/11/2016     1,067     $ 187.50  

5/11/2021

Placement Agent

 

7/15/2016     880     $ 230.00  

7/15/2021

Investors

 

11/9/2016     4,271     $ 175.00  

5/9/2022

Director/Shareholder

 

12/31/2016     120     $ 1,000.00  

12/31/2021

Financing (Montage)

 

10/10/2017     1,327     $ 132.50  

10/10/2025

Director/Shareholder

 

12/31/2017     120     $ 1,000.00  

12/31/2021

Investors

 

10/19/2018     3,120     $ 25.00  

10/19/2023

Placement Agent

 

10/16/2018     10,000     $ 31.25  

10/16/2023

Investors

 

3/12/2019     159,236     $ 4.00  

10/19/2023

Investors

 

3/12/2019     2,556,875     $ 4.00  

9/12/2024

Investors

 

3/12/2019     2,556,875     $ 4.00  

9/12/2021

Investors

 

3/12/2019     69,295     $ 0.05  

9/12/2024

Placement Agent

 

3/12/2019     127,848     $ 4.00  

9/12/2024

Total

        5,492,890            

 

Summary of Option and Warrant Activity and Outstanding Shares

 

During the nine months ended June 30, 2020, the Company granted options to purchase 681,353 shares at an exercise price of $1.40, of which 70,000 shares vest on November 20, 2020 and the remainder vest ratably over a three-year period commencing November 20, 2019 and 1,000 shares at an exercise price of $1.61 which vest ratably over a three-year period commencing on December 2, 2019. All such options granted expire ten years from the date of grant.

 

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 nine months ended June 30, 2020, are as follows:

 

Weighted-average fair value per share option

  $ 0.96  

Expected life (in years)

    6.0  

Volatility

    76.29 %

Risk-free interest rate

    1.61 %

Dividend yield

    0.0 %

 

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. Expected volatility is based on historical daily price changes of the Company’s common stock for a period equal to the expected life. The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of grant. 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.

 

19

 

A summary of combined stock option and warrant activity for the nine months ended June 30, 2020 are as follows:

 

   

Stock Options

   

Stock Warrants

 
           

Weighted

           

Weighted

 
           

Average

           

Average

 
           

Exercise

           

Exercise

 
   

Options

   

Price

   

Warrants

   

Price

 
                                 

Outstanding, October 1, 2019

    7,848     $ 306.41       5,493,857     $ 4.54  

Granted

    682,353       1.40       -       -  

Exercised

    -       -       -       -  

Forfeited/Exchanged

    (97,000 )     3.96       -       -  

Expired

    -       -       (967 )     952.11  

Outstanding, June 30, 2020

    593,201     $ 4.87       5,492,890     $ 4.37  

Options vested and exercisable, June 30, 2020

    6,605     $ 310.92                  

 

As of June 30, 2020, the aggregate intrinsic value of options outstanding was $169 and there was no aggregate intrinsic value of options exercisable. As of June 30, 2020, the weighted average remaining contractual term of options outstanding and exercisable was 9.3 and 5.6 years, respectively.

 

 

9.   Net Income (Loss) Per Share Attributable to Common Shareholders

 

Basic income (loss) per share is computed by dividing net income (loss) applicable 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.

 

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

 

(in thousands, except per share data)

 

Three Months Ended
June 30,

   

Nine Months Ended
June 30,

 
   

2020

   

2019

   

2020

   

2019

 

Numerator:

                               

Net income (loss)

  $ (1,701 )   $ 7,311     $ (742 )   $ (10,166 )

Accrued dividends on convertible preferred stock

    -       (78 )     (106 )     (235 )

Deemed dividend on amendment of Series A convertible preferred stock

    -       -       (2,314 )     -  

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

  $ (1,701 )   $ 7,233     $ (3,162 )   $ (10,401 )

Effect of dilutive securities:

                               

Change in warrant derivative liability

    -       (18 )     -       (18 )

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

  $ (1,701 )   $ 7,215     $ (3,162 )   $ (10,419 )
                                 

Denominator:

                               

Weighted-average shares outstanding for basic earnings per share

    3,876,677       1,996,326       3,264,734       839,975  

Effect of dilutive securities:

                               

Warrants

    -       1,000       -       1,000  

Preferred stock

    -       35,440       -       -  

Weighted-average shares outstanding for diluted earnings per share

    3,876,677       2,032,766       3,264,734       840,975  
                                 

Basic net income/(loss) per share

  $ (0.44 )   $ 3.62     $ (0.97 )   $ (12.38 )

Diluted net income/(loss) per share

  $ (0.44 )   $ 3.56     $ (0.97 )   $ (12.38 )

 

Potential common stock equivalents excluded from the computation of diluted net income (loss) per share because inclusion would have been anti-dilutive included stock options and warrants to purchase common stock totaling 593,201 and 5,403,954, respectively, for the three months ended June 30, 2020, and for the nine months ended June 30, 2020 included stock options and warrant to purchase common stock totaling 690,175 and 5,403,954, respectively, and preferred stock convertible into an aggregate of 39,444 common shares. For the three months ended June 30, 2019, stock options of 7,848 and warrants to purchase of 5,424,562 shares of common stock were not included in the computation of diluted net income per share because they were considered antidilutive and for the nine months ended June 30, 2019, diluted net loss per share is the same as the basic net loss per share as the effects of all the Company’s potential common stock equivalents are antidilutive because the Company reported a loss for the periods.

 

20

 

 

10.  Revenues and Other Related Items

 

Disaggregated Revenues

 

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

 

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

 

   

Three Months Ended
June 30,

   

Nine Months Ended
June 30,

 

Revenues:

 

2020

   

2019

   

2020

   

2019

 

United States

  $ 2,171     $ 2,369     $ 6,828     $ 6,631  

International

    461       324       1,374       633  
    $ 2,632     $ 2,693     $ 8,202     $ 7,264  

 

The Company’s revenue by type is as follows:

 

   

Three Months Ended
June 30,

   

Nine Months Ended
June 30,

 

Revenues:

 

2020

   

2019

   

2020

   

2019

 

Digital Engagement Services

  $ 713     $ 1,118     $ 2,708     $ 3,102  

Subscription

    1,591       1,230       4,498       2,934  

Perpetual Licenses

    5       -       13       145  

Maintenance

    92       92       259       332  

Hosting

    231       253       724       751  
    $ 2,632     $ 2,693     $ 8,202     $ 7,264  

 

Deferred Revenue

 

Amounts that have been invoiced are recorded in accounts receivable and deferred revenue or revenue, depending on whether the revenue recognition criteria have been met. Deferred revenue represents amounts billed for which revenue has not yet been recognized. Deferred revenue that is expected to be recognized during the succeeding 12-month period is recorded as current deferred revenue, and the remaining portion is recorded as noncurrent deferred revenue included in Other long-term liabilities. Deferred revenue during the nine months ended June 30, 2020 increased by $517.  As of June 30, 2020, approximately $5 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 nine months ended June 30, 2020:

 

   

Deferred Revenue

 
   

Current

   

Long Term

 

Balance as of October 1, 2019

  $ 1,262     $ 8  

Increase(decrease)

    701       (3 )

Balance as of December 31, 2019

  $ 1,963     $ 5  

Increase(decrease)

    (224 )     -  

Balance as of March 31, 2020

  $ 1,739     $ 5  

Increase(decrease)

    40       -  

Balance as of June 30, 2020

  $ 1,779     $ 5  

 

21

 

Deferred Capitalized Commission Costs

 

The incremental direct costs of obtaining a contract, which primarily consist of sales commissions paid for new subscription contracts, are deferred and amortized on a straight-line basis over a period of approximately three years.  The Company evaluated both qualitative and quantitative factors, including the estimated life cycles of its offerings, renewal rates, and its customer attrition to determine the amortization periods for the capitalized costs. The initial amortization period is generally the customer contract term, which is typically thirty-six (36) months, with some exceptions. Deferred capitalized commissions that will be recognized as expense during the succeeding 12-month period are 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 $31 and $70 as of June 30, 2020 and September 30, 2019, respectively. Current deferred capitalized commission costs are included in Other current assets in the Condensed Consolidated Balance Sheets and noncurrent deferred capitalized commission costs are included in Other assets in the Condensed Consolidated Balance Sheets.

 

 

11.  Income Taxes

 

Income tax expense was $9 and $7 for the nine months ended June 30, 2020 and 2019, respectively. Income tax expense consists of the estimated liability for state income taxes owed by the Company.  Net operating loss carry forwards are estimated to be sufficient to offset any potential taxable income for all periods presented. As of June 30, 2020 and September 30, 2019, the Company has a full valuation allowance on its net deferred tax assets.

 

 

12.  Leases

 

The Company leases facilities in the United States for its corporate and regional field offices. During the nine months ended June 30, 2020, the Company was also a lessee/sublessor for certain office locations relating to its restructuring plans commenced in fiscal 2015.

 

Determination of Whether a Contract Contains a Lease

 

We determine if an arrangement is a lease at inception or modification of a contract and classify each lease as either an operating or finance lease at commencement. The Company reassesses lease classification subsequent to commencement upon a change to the expected lease term or a modification to the contract. Operating leases represent the Company’s right to use an underlying asset as lessee for the lease term and lease obligations represent the Company’s obligation to make lease payments arising from the lease.

 

A contract contains a lease if the contract conveys the right to control the use of the identified property or equipment, explicitly or implicitly, for a period of time in exchange for consideration. Control of an underlying asset is conveyed if we obtain the rights to direct the use of and obtain substantially all of the economic benefit from the use of the underlying asset. At commencement, contracts containing a lease are further evaluated for classification as an operating lease or finance lease based on their terms.

 

ROU Model and Determination of Lease Term

 

The Company uses the ROU model to account for leases, which requires an entity to recognize a lease liability and ROU asset on the lease commencement date. A lease liability is measured equal to the present value of the remaining lease payments over the lease term and is discounted using the incremental borrowing rate, as the rates implicit in the Company’s leases are not readily determinable. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis over a similar term, an amount equal to the lease payments in a similar economic environment. Lease payments include payments made before the commencement date and any residual value guarantees, if applicable. The initial ROU asset consists of the initial measurement of the lease liability, adjusted for any payments made before the commencement date, initial direct costs and lease incentives earned. When determining the lease term, the Company includes option periods when it is reasonably certain that those options will be exercised.

 

Lease Costs

 

For operating leases, minimum lease payments, including minimum scheduled rent increases, are recognized as operating lease costs on a straight-line basis over the applicable lease terms. Some operating lease arrangements include variable lease costs, including real estate taxes, insurance, common area maintenance or increases in rental costs related to inflation. Such variable payments, other than those dependent upon a market index or rate, are excluded from the measurement of the lease liability and are expensed when the obligation for those payments is incurred.

 

22

 

Significant Assumptions and Judgements

 

Management makes certain estimates and assumptions regarding each new lease and sublease agreement, renewal and amendment, including, but not limited to, property values, market rents, useful life of the underlying property, discount rate and probable term, all of which can impact (1) the classification as either an operating or finance lease, (2) measurement of lease liabilities and right-of-use assets and (3) the term over which the right-of-use asset and leasehold improvements are amortized. The amount of depreciation and amortization, interest and rent expense would vary if different estimates and assumptions were used.

 

The components of net lease costs were as follows:

 

   

Three Months Ended
June 30, 2020

   

Nine Months Ended
June 30, 2020

 

Condensed Consolidated Statement of Operations:

               

Operating lease cost

  $ 62     $ 247  

Variable lease cost

    46       141  

Less: Sublease income, net

    (18 )     (73 )

Total

  $ 90     $ 315  

 

Cash paid for amounts included in the measurement of lease liabilities was $220 for the nine months ended June 30, 2020, which all represents operating cash flows from operating leases. As of June 30, 2020, the weighted average remaining lease term was 3.2 years and the weighted average discount rate was 7.0%.

 

At June 30, 2020, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year, which have commenced, were as follows:

 

 

   

Operating Leases

 

Fiscal year:

       

2020 (remaining)

  $ 39  

2021

    114  

2022

    88  

2023

    88  

2024

    32  

Total lease commitments

  $ 361  

Less: Amount representing interest

    (36 )

Present value of lease liabilities

  $ 325  

Less: Current portion

    (96 )

Operating lease liabilities, net of current portion

  $ 229  

 

In January 2020, the Company entered into a new lease arrangement for its offices in Woodbury, New York. As of June 30, 2020, the lease had not yet commenced as the new office space is currently under construction. The Company had originally expected to move into the new office space on or about May 1, 2020; however, due to the current state of the COVID-19 pandemic, there have been delays in construction, inclusive of obtaining necessary building permits from the local municipality. Due to the uncertainty associated with the COVID-19 pandemic, the Company cannot reasonably estimate when such construction efforts will be completed and by extension when the lease will commence. Future minimum non-cancellable payments upon commencement of the new lease are as follows:

 

From June 1, 2020 to May 31, 2021 *

  $ 78 *

From June 1, 2021 to May 31, 2022

    81  

From June 1, 2022 to May 31, 2023

    84  

From June 1, 2023 to May 31, 2024

    87  

From June 1, 2024 to end of lease term

    90  

Total

  $ 420  

 

* Future minimum non-cancellable lease payments during the period from June 1, 2020 to May 31, 2021 are approximately $6 per month following the date of substantial completion of construction of the associated office space. The amounts represented above are for a full 12-month period based on the original expectation of moving into the new office space on or about May 1, 2020. As described above, the Company cannot reasonably estimate when the commencement date will occur.

 

23

 

At September 30, 2019, future minimum rental commitments under non-cancelable leases with initial or remaining terms in excess of one year were as follows:

 

   

Payments
Operating Leases

   

Receipts
Subleases

   

Net Leases

 

Fiscal year:

                       

2020

  $ 152     $ 73     $ 79  

2021

    12       -       12  

Total lease commitments

  $ 164     $ 73     $ 91  

 

 

13.  Related Party Transactions

 

In November 2018, the Company engaged Taglich Brothers Inc, on a non-exclusive basis, to perform advisory and investment banking services to identify possible acquisition target possibilities. Michael Taglich, a director and shareholder of the Company, is the President and Chairman of Taglich Brothers Inc. Fees for the services were $8 per month for three months and $5 thereafter, cancellable at any time. Taglich Brothers Inc. could also earn a success fee ranging from $200 for a revenue target acquisition of under $5 million up to $1 million for an acquisition target over $200 million. In connection with the asset purchase of Stantive, during the second quarter of the Company’s 2019 fiscal year, The Taglich Brothers earned a success fee of $200.

 

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

 

 

14.  Legal Proceedings

 

The Company is subject to ordinary routine litigation and claims incidental to its business. As of June 30, 2020, the Company was not engaged with any material legal proceedings.

 

 

15. Subsequent Events

 

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

 

24

 

 

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

 

All statements included in this section , other than statements or characterizations of historical fact, are forward-looking statements.  These “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These statements appear in a number of places and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc.  These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions, including, but not limited to, the impact of the COVID – 19 pandemic and related public health measures on our financial results; business operations and the business of our customers, suppliers and partners; our ability to retain and upgrade current customers; increasing our recurring revenue; our ability to attract new customers; our revenue growth rate; our history of net loss and our ability to achieve or maintain profitability; our liability for any unauthorized access to our data or our users’ content, including through privacy and data security breaches; any decline in demand for our platform or products; changes in the interoperability of our platform across devices, operating systems, and third party applications that we do no control; competition in our markets; our ability to respond to rapid technological changes, extend our platform, develop new features or products, or gain market acceptance for such new features or products, particularly in light of potential disruptions to the productivity of our employees resulting from remote work; our ability to manage our growth or plan for future growth, and our acquisition of other businesses and the potential of such acquisitions to require significant management attention, disrupt our business, or dilute stockholder value; the volatility of the market price of our common stock; the ability to maintain our listing on the NASDAQ Capital Market; or our ability to maintain an effective system of internal controls as well as other risks described in our filings with the Securities and Exchange Commission.  Any of such risks could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement. We urge readers to review carefully the risk factors described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2019 as well as in the other documents that we file with the Securities and Exchange Commission.

 

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

 

Overview

 

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

 

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

 

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

 

The Unbound platform is delivered through a cloud-based software as a service (“SaaS”) model, whose flexible architecture provides customers with state-of-the-art deployment providing maintenance, daily technical operation and support; or via a traditional perpetual licensing business model, in which the software resides on a dedicated infrastructure in either the customer’s facility or manage-hosted by Bridgeline via a cloud-based hosted services model.

 

OrchestraCMS, delivered through a cloud-based SaaS, is the only content and digital experience platform built 100% native on Salesforce and helps customers create compelling digital experiences 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, delivered through a cloud-based SaaS, is a commerce oriented, site search product that provides for Natural Language Processing with artificial intelligence to present very relevant search results based on long-tail keyword searches in seven languages.

 

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

 

Locations

 

The Company’s corporate office is located in Woburn, Massachusetts.  The Company maintains regional field offices serving the following geographical locations: Boston, MA; Chicago, IL; New York, NY; and Ontario, Canada. The Company has three wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd. located in Bangalore, India, Bridgeline Digital Canada, Inc. located in Ontario, Canada, and Stantive Technologies Pty, Ltd. located in Australia.

 

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Customer Information

 

For the three months ended June 30, 2020 and 2019, one customer represented approximately 11% of the Company’s total revenue and for the three months ended June 30, 2019, two customers represented approximately 14% and 11% of the Company’s total revenue, respectively. For the nine months ended June 30, 2020, one customer represented approximately 12% of the Company’s total revenue and for the nine months ended June 30, 2019, two customers represented approximately 16% and 12% of the Company’s total revenue.

 

Results of Operations for the Three and Nine Months Ended June 30, 2020 compared to the Three and Nine Months Ended June 30, 2019

 

Total revenue for the three months ended June 30, 2020 was approximately $2.6 million and approximately $2.7 million for the three months ended June 30, 2019. We had a net loss of approximately $1.7 million and had net income of approximately $7.3 million for the three months ended June 30, 2020 and 2019, respectively. Included in net income for the three months ended June 30, 2020 and 2019 was a loss of approximately $1.8 million and a gain approximately $11.2 million, respectively, as a result of the change in fair value of certain warrant liabilities. Included in net income for the three months ended June 30, 2019 were one-time acquisition costs of approximately $938 thousand. Basic net income (loss) per share attributable to common shareholders was ($0.44) for the three months ended June 30, 2020 and $3.62 for the three months ended June 30, 2019.

 

Total revenue for the nine months ended June 30, 2020 was approximately $8.2 million and approximately $7.3 million for the nine months ended June 30, 2019. We had a net loss of approximately ($741) thousand for the nine months ended June 30, 2020 and a net loss of approximately ($10.2) million for the nine months ended June 30, 2019. Included in net income for the nine months ended June 30, 2020 was a gain of approximately $1.1 million as a result of the change in fair value of certain warrant liabilities. Included in net loss for the nine months ended June 30, 2019 was a goodwill impairment charge of approximately $3.7 million and restructuring and acquisition costs of approximately $1.2 million. During the nine months ended June 30, 2020, the Company amended its Series A Convertible Preferred Stock resulting in a deemed dividend of approximately $2.3 million charged against net income to arrive at net loss applicable to common shareholders for purposes of calculating earnings per share. Basic net loss per share attributable to common shareholders was ($0.97) for the nine months ended June 30, 2020 and ($12.38) for the nine months ended June 30, 2019.

 

(in thousands)

 

Three Months Ended
June 30,

                   

Nine Months Ended
June 30,

                 
                   

$

   

%

                   

$

   

%

 

 

 

2020

   

2019

   

Change

   

Change

   

2020

   

2019

   

Change

   

Change

 
Revenue                                                                

Digital engagement services

  $ 713     $ 1,118     $ (405 )     (36 %)   $ 2,708     $ 3,102       (394 )     (13 %)

% of total net revenue

    27 %     42 %                     33 %     43 %                

Subscription and perpetual licenses

    1,919       1,575       344       22 %     5,494       4,162       1,332       32 %

% of total net revenue

    73 %     58 %                     67 %     57 %                

Total net revenue

    2,632       2,693       (61 )     (2 %)     8,202       7,264       938       13 %
                                                                 

Cost of revenue

                                                               

Digital engagement services

    395       416       (21 )     (5 %)     1,432       1,635       (203 )     (12 %)

% of digital engagement services revenue

    55 %     37 %                     53 %     53 %                

Subscription and perpetual licenses

    684       1,075       (391 )     (36 %)     2,190       2,604       (414 )     (16 %)