Bridgeline Digital, Inc 10-Q for FY2020 Q2
Bridgeline Digital, Inc. (BLIN)
About this 10-Q
Bridgeline Digital, Inc filed this 10-Q on May 14, 2020, covering the quarter ended March 31, 2020 (FY2020 Q2).
Headline figures
Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.74M
- up 24.7% from $2.2M a year earlier
- Net income
- $822K
- compared with a net loss of $12.52M a year earlier
- Diluted EPS
- $0.17
- compared with -$41.52 a year earlier
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 March 31, 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 |
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State or other jurisdiction of incorporation or organization |
IRS Employer Identification No. |
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100 Sylvan Road, Suite G7000 |
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Woburn, Massachusetts |
01801 |
|
(Address of Principal Executive Offices) |
(Zip Code) |
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(781) 376-5555 |
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(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, a smaller reporting company, or an emerging growth 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 ☒ Emerging growth company ☐ |
Smaller reporting 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 May 11, 2020 was 3,412,281.
Bridgeline Digital, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period ended March 31, 2020
Index
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Page |
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Part I |
Financial Information |
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Item 1. |
Condensed Consolidated Financial Statements |
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Condensed Consolidated Balance Sheets (unaudited) as of March 31, 2020 and September 30, 2019 |
4 |
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Condensed Consolidated Statements of Operations (unaudited) for the three and six months ended March 31, 2020 and 2019 |
5 |
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Condensed Consolidated Statements of Comprehensive Income/(Loss) (unaudited) for the three and six months ended March 31, 2020 and 2019 |
6 |
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Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and six months ended March 31, 2020 and 2019 |
7 |
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Condensed Consolidated Statements of Cash Flows (unaudited) for the six months ended March 31, 2020 and 2019 |
8 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
9 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
26 |
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Item 3. |
Qualitative and Quantitative Disclosures About Market Risk |
35 |
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Item 4. |
Controls and Procedures |
35 |
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Part II |
Other Information |
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Item 1. |
Legal Proceedings |
36 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
36 |
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Item 6. |
Exhibits |
37 |
| Signatures | 39 | |
Bridgeline Digital, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period ended March 31, 2020
Statements contained in this Report on Form 10-Q that are not based on historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as “should,” “could,” “may,” “will,” “expect,” “believe,” “estimate,” “anticipate,” “intends,” “continue,” or similar terms or variations of those terms or the negative of those terms. 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. Forward-looking statements are merely our current predictions of future events. Investors are cautioned that any such forward-looking statements are inherently uncertain, are not guaranties of future performance and involve risks and uncertainties. Actual results may differ materially from our predictions. Important factors that could cause actual results to differ from our predictions include the impact of the weakness in the U.S. and international economies on our business, our inability to manage our future growth effectively or profitably, fluctuations in our revenue and quarterly results, our license renewal rate, the impact of competition and our ability to maintain margins or market share, the limited market for our common stock, the volatility of the market price of our common stock, the ability to maintain our listing on the NASDAQ Capital market, the ability to raise capital, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, dependence on third parties, the security of our software and response to cyber security risks, our ability to meet our financial obligations and commitments, our dependence on our management team and key personnel, our ability to hire and retain future key personnel, or our ability to maintain an effective system of internal controls, and our ability to respond to government regulations. Although we have sought to identify the most significant risks to our business, we cannot predict whether, or to what extent, any of such risks may be realized, nor is there any assurance that we have identified all possible issues which we might face. We assume no obligation to update our forward-looking statements to reflect new information or developments. 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.
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)
(Unaudited)
|
March 31, 2020 |
September 30, 2019 |
|||||||
| ASSETS | ||||||||
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Current assets: |
||||||||
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Cash and cash equivalents |
$ | 234 | $ | 296 | ||||
|
Accounts receivable, net |
874 | 979 | ||||||
|
Prepaid expenses |
299 | 351 | ||||||
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Other current assets |
30 | 49 | ||||||
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Total current assets |
1,437 | 1,675 | ||||||
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Property and equipment, net |
267 | 299 | ||||||
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Operating lease assets |
385 | - | ||||||
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Intangible assets, net |
3,040 | 3,509 | ||||||
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Goodwill |
5,557 | 5,557 | ||||||
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Other assets |
101 | 115 | ||||||
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Total assets |
$ | 10,787 | $ | 11,155 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Current portion of operating lease liabilities |
$ | 157 | $ | - | ||||
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Accounts payable |
2,236 | 1,740 | ||||||
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Accrued liabilities |
1,159 | 835 | ||||||
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Deferred revenue |
1,739 | 1,262 | ||||||
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Total current liabilities |
5,291 | 3,837 | ||||||
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Operating lease liabilities, net of current portion |
228 | - | ||||||
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Warrant liabilities |
593 | 3,514 | ||||||
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Other long term liabilities |
5 | 8 | ||||||
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Total liabilities |
6,117 | 7,359 | ||||||
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Commitments and contingencies |
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Stockholders’ equity: |
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Preferred stock - $0.001 par value; 1,000,000 shares authorized; |
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Series C Convertible Preferred stock: |
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11,000 shares authorized; 441 shares issued and outstanding at March 31, 2020 and September 30, 2019 |
- | - | ||||||
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Series A Convertible Preferred stock: |
||||||||
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264,000 shares authorized; 154,894 shares at March 31, 2020 and 262,310 shares at September 30, 2019, issued and outstanding (liquidation preference $1,734 at March 31, 2020) |
- | - | ||||||
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Common stock - $0.001 par value; 50,000,000 shares authorized; |
||||||||
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3,412,281 shares at March 31, 2020 and 2,798,475 shares at September 30, 2019, issued and outstanding |
3 | 3 | ||||||
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Additional paid-in capital |
78,014 | 75,620 | ||||||
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Accumulated deficit |
(72,951 | ) | (71,489 | ) | ||||
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Accumulated other comprehensive loss |
(396 | ) | (338 | ) | ||||
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Total stockholders’ equity |
4,670 | 3,796 | ||||||
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Total liabilities and stockholders’ equity |
$ | 10,787 | $ | 11,155 | ||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
BRIDGELINE DIGITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share data)
(Unaudited)
|
Three Months Ended |
Six Months Ended |
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2020 |
2019 |
2020 |
2019 |
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Net revenue: |
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Digital engagement services |
$ | 899 | $ | 911 | $ | 1,995 | $ | 1,984 | ||||||||
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Subscription and perpetual licenses |
1,839 | 1,285 | 3,575 | 2,587 | ||||||||||||
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Total net revenue |
2,738 | 2,196 | 5,570 | 4,571 | ||||||||||||
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Cost of revenue: |
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Digital engagement services |
457 | 571 | 1,026 | 1,421 | ||||||||||||
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Subscription and perpetual licenses |
727 | 1,036 | 1,517 | 1,675 | ||||||||||||
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Total cost of revenue |
1,184 | 1,607 | 2,543 | 3,096 | ||||||||||||
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Gross profit |
1,554 | 589 | 3,027 | 1,475 | ||||||||||||
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Operating expenses: |
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Sales and marketing |
786 | 945 | 1,818 | 1,702 | ||||||||||||
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General and administrative |
723 | 744 | 1,472 | 1,431 | ||||||||||||
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Research and development |
426 | 489 | 816 | 907 | ||||||||||||
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Depreciation and amortization |
249 | 78 | 507 | 104 | ||||||||||||
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Goodwill impairment |
- | - | - | 3,732 | ||||||||||||
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Restructuring and acquisition related expenses |
367 | 304 | 372 | 304 | ||||||||||||
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Total operating expenses |
2,551 | 2,560 | 4,985 | 8,180 | ||||||||||||
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Loss from operations |
(997 | ) | (1,971 | ) | (1,958 | ) | (6,705 | ) | ||||||||
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Interest expense and other, net |
(1 | ) | (104 | ) | (1 | ) | (333 | ) | ||||||||
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Amortization of debt discount |
- | (221 | ) | - | (221 | ) | ||||||||||
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Warrant liability expense |
- | (11,272 | ) | - | (11,272 | ) | ||||||||||
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Change in fair value of warrant liabilities |
1,820 | 1,046 | 2,921 | 1,058 | ||||||||||||
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Income (loss) before income taxes |
822 | (12,522 | ) | 962 | (17,473 | ) | ||||||||||
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Provision for income taxes |
- | - | 3 | 4 | ||||||||||||
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Net income (loss) |
822 | (12,522 | ) | 959 | (17,477 | ) | ||||||||||
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Dividends on convertible preferred stock |
(27 | ) | (78 | ) | (106 | ) | (157 | ) | ||||||||
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Deemed dividend on amendment of Series A convertible preferred stock |
- | - | (2,314 | ) | - | |||||||||||
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Net income (loss) applicable to common shareholders |
$ | 795 | $ | (12,600 | ) | $ | (1,461 | ) | $ | (17,634 | ) | |||||
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Net income (loss) per share attributable to common shareholders: |
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Basic |
$ | 0.25 | $ | (41.52 | ) | $ | (0.49 | ) | $ | (67.36 | ) | |||||
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Diluted |
$ | 0.17 | $ | (41.52 | ) | $ | (0.50 | ) | $ | (67.36 | ) | |||||
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Number of weighted average shares outstanding: |
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Basic |
3,124,174 | 303,443 | 2,960,435 | 261,800 | ||||||||||||
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Diluted |
4,412,935 | 303,443 | 3,027,147 | 261,800 | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
BRIDGELINE DIGITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)
(in thousands)
(Unaudited)
|
Three Months Ended |
Six Months Ended |
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2020 |
2019 |
2020 |
2019 |
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Net income (loss) |
$ | 822 | $ | (12,522 | ) | $ | 959 | $ | (17,477 | ) | ||||||
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Other comprehensive income (loss): |
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Net change in foreign currency translation adjustment |
(59 | ) | 1 | (58 | ) | 1 | ||||||||||
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Comprehensive income (loss) |
$ | 763 | $ | (12,521 | ) | $ | 901 | $ | (17,476 | ) | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
BRIDGELINE DIGITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(in thousands, except share data)
(Unaudited)
|
For the Three and Six Months Ended March 31, 2020 |
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Accumulated |
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Preferred Stock |
Common Stock |
Additional |
Other |
Total |
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Paid-in |
Accumulated |
Comprehensive |
Stockholders’ |
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Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Loss |
Equity |
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Balance at October 1, 2019 |
262,751 | $ | - | 2,798,475 | $ | 3 | $ | 75,620 | $ | (71,489 | ) | $ | (338 | ) | $ | 3,796 | ||||||||||||||||
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Stock-based compensation expense |
30 | 30 | ||||||||||||||||||||||||||||||
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Dividends on Series A convertible preferred stock |
(79 | ) | (79 | ) | ||||||||||||||||||||||||||||
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Deemed dividend on amendment of Series A convertible preferred stock (Note 8) |
2,314 | (2,314 | ) | - | ||||||||||||||||||||||||||||
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Net income |
136 | 136 | ||||||||||||||||||||||||||||||
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Foreign currency translation |
1 | 1 | ||||||||||||||||||||||||||||||
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Balance at December 31, 2019 |
262,751 | $ | - | 2,798,475 | $ | 3 | $ | 77,964 | $ | (73,746 | ) | $ | (337 | ) | $ | 3,884 | ||||||||||||||||
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Issuance of common stock - warrant exercises |
- | |||||||||||||||||||||||||||||||
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Series A convertible preferred stock conversion to common |
(107,416 | ) | 613,806 | - | ||||||||||||||||||||||||||||
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Stock-based compensation expense |
50 | 50 | ||||||||||||||||||||||||||||||
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Dividends on Series A convertible preferred stock |
(27 | ) | (27 | ) | ||||||||||||||||||||||||||||
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Net income |
822 | 822 | ||||||||||||||||||||||||||||||
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Foreign currency translation |
(59 | ) | (59 | ) | ||||||||||||||||||||||||||||
|
Balance at March 31, 2020 |
155,335 | $ | - | 3,412,281 | $ | 3 | $ | 78,014 | $ | (72,951 | ) | $ | (396 | ) | $ | 4,670 | ||||||||||||||||
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For the Three and Six Months Ended March 31, 2019 |
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Accumulated |
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Preferred Stock |
Common Stock |
Additional |
Other |
Total |
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Paid-in |
Accumulated |
Comprehensive |
Stockholders’ |
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|
Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Loss |
Equity |
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|
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 | ||||||||||||||||||||||||||
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Stock-based compensation expense |
97 | 97 | ||||||||||||||||||||||||||||||
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Preferred B stock conversion to common |
169,139 | - | ||||||||||||||||||||||||||||||
|
Dividends on Series A convertible preferred stock |
(79 | ) | (79 | ) | ||||||||||||||||||||||||||||
|
Net loss |
(4,955 | ) | (4,955 | ) | ||||||||||||||||||||||||||||
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Cumulative effect of the adoption of ASC 606 |
78 | 78 | ||||||||||||||||||||||||||||||
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Balance at December 31, 2018 |
262,310 | $ | - | 281,625 | $ | - | $ | 71,027 | $ | (66,734 | ) | $ | (351 | ) | $ | 3,942 | ||||||||||||||||
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Common stock issued in connection with acquisition of business |
40,000 | 476 | 476 | |||||||||||||||||||||||||||||
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Stock-based compensation expense |
38 | 38 | ||||||||||||||||||||||||||||||
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Preferred B stock conversion to common |
3,201 | - | ||||||||||||||||||||||||||||||
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Dividends on Series A convertible preferred stock |
(78 | ) | (78 | ) | ||||||||||||||||||||||||||||
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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 | ) | |||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
BRIDGELINE DIGITAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
|
Six Months Ended |
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2020 |
2019 |
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Cash flows from operating activities: |
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Net income (loss) |
$ | 959 | $ | (17,477 | ) | |||
|
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Loss on disposal of property and equipment |
- | 9 | ||||||
|
Amortization of intangible assets |
470 | 66 | ||||||
|
Depreciation |
28 | 34 | ||||||
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Other amortization |
9 | 22 | ||||||
|
Goodwill impairment |
- | 3,732 | ||||||
|
Amortization of debt discount |
- | 231 | ||||||
|
Change in fair value of warrant liabilities |
(2,921 | ) | 10,215 | |||||
|
Stock-based compensation |
80 | 135 | ||||||
|
Changes in operating assets and liabilities |
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Accounts receivable |
386 | 268 | ||||||
|
Prepaid expenses |
59 | (558 | ) | |||||
|
Other current assets and other assets |
16 | 394 | ||||||
|
Accounts payable and accrued liabilities |
733 | 84 | ||||||
|
Deferred revenue |
109 | 230 | ||||||
|
Other liabilities |
(18 | ) | 66 | |||||
|
Total adjustments |
(1,049 | ) | 14,928 | |||||
|
Net cash used in operating activities |
(90 | ) | (2,549 | ) | ||||
|
Cash flows from investing activities: |
||||||||
|
Software development capitalization costs |
- | (11 | ) | |||||
|
Purchase of property and equipment |
- | (17 | ) | |||||
|
Acquisition of businesses |
- | (5,608 | ) | |||||
|
Net cash used in investing activities |
- | (5,636 | ) | |||||
|
Cash flows from financing activities: |
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|
Proceeds from issuance of common stock, net of issuance costs |
- | 4,373 | ||||||
|
Proceeds from issuance of preferred stock, net of issuance costs |
- | 8,878 | ||||||
|
Borrowing on bank line of credit |
- | 75 | ||||||
|
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 |
- | (157 | ) | |||||
|
Net cash provided by financing activities |
- | 9,150 | ||||||
|
Effect of exchange rate changes on cash and cash equivalents |
28 | 6 | ||||||
|
Net increase (decrease) in cash and cash equivalents |
(62 | ) | 971 | |||||
|
Cash and cash equivalents at beginning of period |
296 | 644 | ||||||
|
Cash and cash equivalents at end of period |
$ | 234 | $ | 1,615 | ||||
|
Supplemental disclosures of cash flow information: |
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Cash paid for: |
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Interest |
$ | - | $ | 271 | ||||
|
Income taxes |
$ | 3 | $ | - | ||||
|
Non cash investing and financing activities: |
||||||||
|
Consideration paid in Common Stock in connection with acquisition of business |
$ | - | $ | 480 | ||||
|
Dividends accrued on convertible preferred stock |
$ | 106 | $ | 157 | ||||
|
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.
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. The Company had zero debt at March 31, 2020.
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.
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 occurs, 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. No 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 six months ended March 31, 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:
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● |
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; |
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● |
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; |
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● |
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.
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:
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As of |
As of |
|||||||
|
Accounts receivable |
$ | 987 | $ | 1,067 | ||||
|
Allowance for doubtful accounts |
(113 | ) | (88 | ) | ||||
|
Accounts receivable, net |
$ | 874 | $ | 979 | ||||
As of March 31, 2020, two customers represented approximately 18% and 14% of accounts receivable. As of September 30, 2019, three customers represented approximately 16%, 14% and 12% of accounts receivable. For the three months ended March 31, 2020 and 2019, one customer represented approximately 13% and 19% of the Company’s total revenue, respectively. For the six months ended March 31, 2020, one customer represented approximately 12% of the Company’s total revenue and for the six months ended March 31, 2019, two customers represented approximately 15% and 19% of the Company’s total revenue.
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 March 31, 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:
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As of March 31, 2020 |
As of September 30, 2019 |
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Montage Capital |
Series C Preferred |
Montage Capital |
Series C Preferred |
|||||||||||||
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Volatility |
80 | % | 83.4 | % | 71 | % | 80.9 | % | ||||||||
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Risk-free rate |
0.42 | % | 0.30 | % | 1.59 | % | 1.59 | % | ||||||||
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Stock price |
$ | 0.67 | $ | 0.67 | $ | 1.91 | $ | 1.91 | ||||||||
The Company recognized gains of $1,820 and $1,046 for the three months ended March 31, 2020 and 2019, respectively and $2,921 and $1,058 for the six months ended March 31, 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 decline in stock price and the risk-free rate, to the Monte Carlo option-pricing model.
Assets and liabilities of the Company measured at fair value on a recurring basis as of March 31, 2020 and September 30, 2019 are as follows:
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As of March 31, 2020 |
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|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
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Liabilities: |
||||||||||||||||
|
Warrant liability - Montage |
$ | - | $ | - | $ | 13 | $ | 13 | ||||||||
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Warrant liability - Series A, B and C |
- | - | 580 | 580 | ||||||||||||
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Total Liabilities |
$ | - | $ | - | $ | 593 | $ | 593 | ||||||||
|
As of September 30, 2019 |
||||||||||||||||
|
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
|
Liabilities: |
||||||||||||||||
|
Warrant liability - Montage |
$ | - | $ | - | $ | 14 | $ | 14 | ||||||||
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Warrant liability - Series A, B and C |
- | - | 3,500 | 3,500 | ||||||||||||
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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:
|
Six Months Ended |
||||
|
Balance at beginning of period, October 1, 2019 |
$ | 3,514 | ||
|
Additions |
- | |||
|
Exercises |
- | |||
|
Adjustment to fair value |
(1,101 | ) | ||
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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 | ||
5. Intangible Assets
The components of intangible assets, net of accumulated amortization, are as follows:
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As of |
As of |
|||||||
|
Domain and trade names |
$ | 10 | $ | 52 | ||||
|
Customer related |
1,765 | 2,032 | ||||||
|
Technology |
1,265 | 1,425 | ||||||
|
Balance at end of period |
$ | 3,040 | $ | 3,509 | ||||
Total amortization expense related to intangible assets was $230 and $62 related to intangible assets for the three months ended March 31, 2020 and 2019, respectively, and $470 and $66 for the six months ended March 31, 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 $428, $856, $761, $681, $304 and $10, respectively.
6. Restructuring and Acquisition Related Expenses
Restructuring Activities
During the three and six months ended March 31, 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 buyouts 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 six months ended March 31, 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 six months ended March 31, 2020, the Company paid $155 related to this reduction in force.
As of March 31, 2020, and September 30, 2019, restructuring liabilities were $219 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 $304 during the three and six months ended March 31, 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 six months ended March 31, 2020.
7. Debt
During the six months ended March 31, 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 six months ended March 31, 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. As of and during the three and six months ended March 31, 2020, the Company had no debt and did not incur any related interest expense.
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. 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 eight-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.
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.
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.
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 March 31, 2020, a total of 9,786.5 shares of Series C Preferred stock have been converted to 1,087,443 shares of Common Stock.
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
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 March 31, 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 March 31, 2020, there were 589,955 options outstanding and 210,045 shares available for future issuance under the 2016 Plan.
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 six months ended March 31, 2020 and 2019, compensation expense related to share-based payments was as follows:
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Three Months Ended |
Six Months Ended |
|||||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
Cost of revenue |
$ | 5 | $ | 3 | $ | 7 | $ | 7 | ||||||||
|
Operating expenses |
45 | 35 | 73 | 128 | ||||||||||||
| $ | 50 | $ | 38 | $ | 80 | $ | 135 | |||||||||
As of March 31, 2020, the Company had approximately $399 of unrecognized compensation costs related to unvested options, which is expected to be recognized over a weighted-average period of 2.5 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 March 31, 2020 and September 30, 2019 was $13 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.
During the six months ended March 31, 2020, no warrants were exercised. As of March 31, 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 March 31, 2020 and September 30, 2019 was $580 and $3,500, respectively.
Total warrants outstanding as March 31, 2020 were as follows:
|
Issue |
|||||||||||
|
Type |
Date |
Shares |
Price |
Expiration |
|||||||
|
Director/Shareholder |
5/12/2015 |
240 | $ | 1,000.00 |
5/12/2020 |
||||||
|
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 | 5,493,130 | ||||||||||
Summary of Option and Warrant Activity and Outstanding Shares
During the six months ended March 31, 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 six months ended March 31, 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.
A summary of combined stock option and warrant activity for the six months ended March 31, 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 | ) | 1.50 | - | - | |||||||||||
|
Expired |
- | - | (727 | ) | 936.30 | |||||||||||
|
Outstanding, March 31, 2020 |
593,201 | $ | 5.13 | 5,493,130 | $ | 4.41 | ||||||||||
|
Options vested and exercisable, March 31, 2020 |
7,307 | $ | 303.13 | |||||||||||||
As of March 31, 2020, there was no aggregate intrinsic value of options outstanding or exercisable, and the weighted average remaining contractual term was 9.6 and 5.9 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 |
Six Months Ended |
||||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
Numerator: |
||||||||||||||||
|
Net income (loss) |
$ | 822 | $ | (12,522 | ) | $ | 959 | $ | (17,477 | ) | ||||||
|
Accrued dividends on convertible preferred stock |
(27 | ) | (78 | ) | (106 | ) | (157 | ) | ||||||||
|
Deemed dividend on amendment of Series A convertible preferred stock |
- | - | (2,314 | ) | - | |||||||||||
|
Net income (loss) applicable to common shareholders - basic earnings per share |
$ | 795 | $ | (12,600 | ) | $ | (1,461 | ) | $ | (17,634 | ) | |||||
|
Effect of dilutive securities: |
||||||||||||||||
|
Change in warrant derivative liability |
(60 | ) | - | (60 | ) | - | ||||||||||
|
Accrued dividends on convertible preferred stock |
27 | - | - | - | ||||||||||||
|
Net income (loss) applicable to common shareholders - diluted earnings per share |
$ | 762 | $ | (12,600 | ) | $ | (1,521 | ) | $ | (17,634 | ) | |||||
|
Denominator: |
||||||||||||||||
|
Weighted-average shares outstanding for basic earnings per share |
3,124,174 | 303,443 | 2,960,435 | 261,800 | ||||||||||||
|
Effect of dilutive securities: |
||||||||||||||||
|
Warrants |
66,546 | - | 66,713 | - | ||||||||||||
|
Preferred stock |
1,222,215 | - | - | - | ||||||||||||
|
Weighted-average shares outstanding for diluted earnings per share |
4,412,935 | 303,443 | 3,027,147 | 261,800 | ||||||||||||
|
Basic net income/(loss) per share |
$ | 0.25 | $ | (41.52 | ) | $ | (0.49 | ) | $ | (67.36 | ) | |||||
|
Diluted net income/(loss) per share |
$ | 0.17 | $ | (41.52 | ) | $ | (0.50 | ) | $ | (67.36 | ) | |||||
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 March 31, 2020, and for the six months ended March 31, 2020 included stock options and warrant to purchase common stock totaling 690,201 and 5,403,954, respectively, and preferred stock convertible into an aggregate of 934,109 common shares. For both the three and six months ended March 31, 2019, diluted net loss per share was the same as basic net loss per share as the effects of all the Company’s potential common stock equivalents are anti-dilutive as the Company reported a net loss applicable to common shareholders for the periods and the impact of in-the-money warrants were also anti-dilutive.
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 |
Six Months Ended |
|||||||||||||||
|
Revenues: |
2020 |
2019 |
2020 |
2019 |
||||||||||||
|
United States |
$ | 2,252 | $ | 911 | $ | 4,657 | $ | 4,424 | ||||||||
|
International |
486 | 1,285 | 913 | 147 | ||||||||||||
| $ | 2,738 | $ | 2,196 | $ | 5,570 | $ | 4,571 | |||||||||
The Company’s revenue by type is as follows:
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
Revenues: |
2020 |
2019 |
2020 |
2019 |
||||||||||||
|
Digital Engagement Services |
$ | 899 | $ | 911 | $ | 1,995 | $ | 1,984 | ||||||||
|
Subscription |
318 | 940 | 668 | 1,704 | ||||||||||||
|
Perpetual Licenses |
1,203 | (9 | ) | 2,247 | 145 | |||||||||||
|
Maintenance |
82 | 113 | 167 | 240 | ||||||||||||
|
Hosting |
236 | 241 | 493 | 498 | ||||||||||||
| $ | 2,738 | $ | 2,196 | $ | 5,570 | $ | 4,571 | |||||||||
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 six months ended March 31, 2020 increased by $477. As of March 31, 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 six months ended March 31, 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 | ||||
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 $41 and $70 as of March 31, 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 $3 and $4 for the six months ended March 31, 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 March 31, 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. The Company is 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.
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 |
Six Months Ended |
|||||||
|
Condensed Consolidated Statement of Operations: |
||||||||
|
Operating lease cost |
$ | 102 | $ | 185 | ||||
|
Variable lease cost |
20 | 73 | ||||||
|
Less: Sublease income, net |
(28 | ) | (55 | ) | ||||
|
Total |
$ | 94 | $ | 203 | ||||
Cash paid for amounts included in the measurement of lease liabilities was $160 for the six months ended March 31, 2020, which all represents operating cash flows from operating leases. As of March 31, 2020, the weighted average remaining lease term was 3.1 years and the weighted average discount rate was 7.0%.
At March 31, 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:
|
Payments Operating Leases |
Receipts |
Net Leases |
||||||||||
|
Fiscal year: |
||||||||||||
|
2020 (remaining) |
$ | 111 | $ | 18 | $ | 93 | ||||||
|
2021 |
114 | - | 114 | |||||||||
|
2022 |
88 | - | 88 | |||||||||
|
2023 |
88 | - | 88 | |||||||||
|
2024 |
30 | - | 30 | |||||||||
|
Total lease commitments |
$ | 431 | $ | 18 | $ | 413 | ||||||
|
Less: Amount representing interest |
(46 | ) | ||||||||||
|
Present value of lease liabilities |
$ | 385 | ||||||||||
|
Less: current portion |
(157 | ) | ||||||||||
|
Operating lease liabilities, net of current portion |
$ | 228 | ||||||||||
In January 2020, the Company entered into a new lease arrangement for its offices in Woodbury, New York. As of March 31, 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.
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 |
Receipts |
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’ 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 March 31, 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, except as already disclosed in these financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This section contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a variety of factors and risks including the impact of the weakness in the U.S. and international economies on our business, our inability to manage our future growth effectively or profitably, fluctuations in our revenue and quarterly results, our license renewal rate, the impact of competition and our ability to maintain margins or market share, the limited market for our common stock, the ability to maintain our listing on the NASDAQ Capital Market, the volatility of the market price of our common stock, the ability to raise capital, the performance of our products, our ability to respond to rapidly evolving technology and customer requirements, our ability to protect our proprietary technology, the security of our software and response to cyber security risks, our ability to meet our financial obligations and commitments, our dependence on our management team and key personnel, our ability to hire and retain future key personnel, our ability to maintain an effective system of internal controls, or our ability to respond to government regulations. These and other risks are more fully described herein and in our other filings with the Securities and Exchange Commission.
This section should be read in combination with the accompanying 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.
Customer Information
For the three months ended March 31, 2020 and 2019, one customer represented approximately 13% and 19% of the Company’s total revenue, respectively. For the six months ended March 31, 2020, one customer represented approximately 12% of the Company’s total revenue and for the six months ended March 31, 2019, two customers represented approximately 15% and 19% of the Company’s total revenue.
Results of Operations for the Three and Six Months Ended March 31, 2020 compared to the Three and Six Months Ended March 31, 2019
Total revenue for the three months ended March 31, 2020 was $2.7 million and $2.2 million for the three months ended March 31, 2019. We had net income of $822 thousand for the three months ended March 31, 2020 and a net loss of ($12.5) million for the three months ended March 31, 2019. Included in net income for the three months ended March 31, 2020 was a gain of $1.8 million as a result of the change in fair value of certain warrant liabilities. Included in net loss for the three months ended March 31, 2019 were one-time acquisition costs of $304 thousand and a warrant expense charge of $10.3 million, net related to the fair value allocation of Series C Preferred stock warrants. Basic net income (loss) per share attributable to common shareholders was $0.25 for the three months ended March 31, 2020 and ($41.52) for the three months ended March 31, 2019.
Total revenue for the six months ended March 31, 2020 was $5.6 million and $4.6 million for the six months ended March 31, 2019. We had net income of $959 thousand for the six months ended March 31, 2020 and a net loss of ($17.5) million for the six months ended March 31, 2019. Included in net income for the six months ended March 31, 2020 was a gain of $2.9 million as a result of the change in fair value of certain warrant liabilities. Included in net loss for the six months ended March 31, 2019 was a goodwill impairment charge of $3.7 million, one-time acquisition costs of $304 thousand, and a warrant expense charge of $10.3 million, net related to the fair value allocation of Series C Preferred stock warrants. During the six months ended March 31, 2020, the Company amended its Series A Convertible Preferred Stock resulting in a deemed dividend of $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 ($0.49) for the six months ended March 31, 2020 and ($67.36) for the six months ended March 31, 2019.
|
(in thousands) |
Three Months Ended |
Six Months Ended |
||||||||||||||||||||||||||||||
|
$ |
% |
$ |
% |
|||||||||||||||||||||||||||||
|
Revenue |
2020 |
2019 |
Change |
Change |
2020 |
2019 |
Change |
Change |
||||||||||||||||||||||||
|
Digital engagement services |
$ | 899 | $ | 911 | $ | (12 | ) | (1% | ) | $ | 1,995 | $ | 1,984 | 11 | 1% | |||||||||||||||||
|
% of total net revenue |
33 | % | 41 | % | 36 | % | 43 | % | ||||||||||||||||||||||||
|
Subscription and perpetual licenses |
1,839 | 1,285 | 554 | 43% | 3,575 | 2,587 | 988 | 38% | ||||||||||||||||||||||||
|
% of total net revenue |
67 | % | 59 | % | 64 | % | 57 | % | ||||||||||||||||||||||||
|
Total net revenue |
2,738 | 2,196 | 542 | 25% | 5,570 | 4,571 | 999 | 22% | ||||||||||||||||||||||||
|
Cost of revenue |
||||||||||||||||||||||||||||||||
|
Digital engagement services |
457 | 571 | (114 | ) | (20% | ) | 1,026 | 1,421 | (395 | ) | (28% | ) | ||||||||||||||||||||
|
% of digital engagement services revenue |
51 | % | 63 | % | 51 | % | 72 | % | ||||||||||||||||||||||||
|
Subscription and perpetual licenses |
727 | 1,036 | (309 | ) | (30% | ) | 1,517 | 1,675 | (158 | ) | (9% | ) | ||||||||||||||||||||
|
% of subscription and perpetual revenue |
40 | % | 81 | % | 42 | % | 65 | % | ||||||||||||||||||||||||
|
Total cost of revenue |
1,184 | 1,607 | (423 | ) | (26% | ) | 2,543 | 3,096 | (553 | ) | (18% | ) | ||||||||||||||||||||
|
Gross profit |
1,554 | 589 | 965 | 164% | 3,027 | 1,475 | 1,552 | 105% | ||||||||||||||||||||||||
|
Gross profit margin |
57 | % | 27 | % | 54 | % | 32 | % | ||||||||||||||||||||||||
|
Operating expenses |
||||||||||||||||||||||||||||||||
|
Sales and marketing |
786 | 945 | (159 | ) | (17% | ) | 1,818 | 1,702 | 116 | 7% | ||||||||||||||||||||||
|
% of total revenue |
29 | % | 43 | % | 33 | % | 37 | % | ||||||||||||||||||||||||
|
General and administrative |
723 | 744 | (21 | ) | (3% | ) | 1,472 | 1,431 | 41 | 3% | ||||||||||||||||||||||
|
% of total revenue |
26 | % | 34 | % | 26 | % | 31 | % | ||||||||||||||||||||||||
|
Research and development |
426 | 489 | (63 | ) | (13% | ) | 816 | 907 | (91 | ) | (10% | ) | ||||||||||||||||||||
|
% of total revenue |
16 | % | 22 | % | 15 | % | 20 | % | ||||||||||||||||||||||||
|
Depreciation and amortization |
249 | 78 | 171 | 219% | 507 | 104 | 403 | 388% | ||||||||||||||||||||||||
|
% of total revenue |
9 | % | 4 | % | 9 | % | 2 | % | ||||||||||||||||||||||||
|
Goodwill impairment |
- | - | - | 0% | - | 3,732 | (3,732 | ) | (100% | ) | ||||||||||||||||||||||
|
% of total revenue |
0 | % | 0 | % | 0 | % | 82 | % | ||||||||||||||||||||||||
|
Restructuring and acquisition related expenses |
367 | 304 | 63 | 21% | 372 | 304 | 68 | 22% | ||||||||||||||||||||||||
|
% of total revenue |
13 | % | 14 | % | 7 | % | 7 | % | ||||||||||||||||||||||||
|
Total operating expenses |
2,551 | 2,560 | (9 | ) | (0% | ) | 4,985 | 8,180 | (3,195 | ) | (39% | ) | ||||||||||||||||||||
|
Loss from operations |
(997 | ) | (1,971 | ) | 974 | (49% | ) | (1,958 | ) | (6,705 | ) | 4,747 | (71% | ) | ||||||||||||||||||
|
Interest expense and other, net |
(1 | ) | (104 | ) | 103 | (99% | ) | (1 | ) | (333 | ) | 332 | (100% | ) | ||||||||||||||||||
|
Amortization of debt discount |
- | (221 | ) | 221 | (100% | ) | - | (221 | ) | 221 | (100% | ) | ||||||||||||||||||||
|
Warranty liability expense |
- | (11,272 | ) | 11,272 | (100% | ) | - | (11,272 | ) | 11,272 | (100% | ) | ||||||||||||||||||||
|
Change in fair value of warrant liabilities |
1,820 | 1,046 | 774 | 74% | 2,921 | 1,058 | 1,863 | 176% | ||||||||||||||||||||||||
|
Income (loss) before income taxes |
822 | (12,522 | ) | 13,344 | (107% | ) | 962 | (17,473 | ) | 18,435 | (106% | ) | ||||||||||||||||||||
|
Provision for income taxes |
- | - | - | 0% | 3 | 4 | (1 | ) | (25% | ) | ||||||||||||||||||||||
|
Net income/(loss) |
$ | 822 | $ | (12,522 | ) | $ | 13,344 | (107% | ) | $ | 959 | $ | (17,477 | ) | $ | 18,436 | (105% | ) | ||||||||||||||
|
Non-GAAP Measure: |
||||||||||||||||||||||||||||||||
|
Adjusted EBITDA |
$ | (331 | ) | $ | (1,546 | ) | $ | 1,215 | (79% | ) | $ | (999 | ) | $ | (2,412 | ) | $ | 1,413 | (59% | ) | ||||||||||||
Revenue
Our revenue is derived from two sources: (i) digital engagement services and (ii) subscription and perpetual licenses.
Digital Engagement Services
Digital engagement services revenue is comprised of implementation and retainer related services. In total, revenue from digital engagement services decreased $12 thousand, or 1%, to $899 thousand for the three months ended March 31, 2020 compared to $911 thousand for the three months ended March 31, 2019 and increased $11 thousand, or 1%, to $2.0 million for the six months ended March 31, 2020 compared to $2.0 million for the six months ended March 31, 2019. Digital engagement services revenue as a percentage of total revenue decreased to 33% from 41% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 and decreased to 36% from 43% for the six months ended March 31, 2020 compared to the six months ended March 31, 2019. The decrease as a percentage of total revenue is attributable to increases in revenues generated from subscription and perpetual licenses during the three and six months ended March 31, 2020.
Subscription and Perpetual Licenses
Revenue from subscription (SaaS) and perpetual licenses increased $554 thousand, or 43%, to $1.8 million for the three months ended March 31, 2020 compared to $1.3 million for the three months ended March 31, 2019 and increased $988 thousand, or 38%, to $3.6 million for the six months ended March 31, 2020 compared to $2.6 million for the six months ended March 31, 2019. The increase for the three and six months ended March 31, 2020 compared to the prior period is primarily due to license revenues of $760 thousand and $1.5 million, respectively, realized from our two acquisitions completed in the fiscal 2019 second quarter, partially offset by cancelled SaaS subscriptions for legacy customers. Subscription and perpetual license revenue as a percentage of total revenue increased to 67% from 59% for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 and increased to 64% from 57% for the six months ended March 31, 2020 compared to the six months ended March 31, 2019. The increase as a percentage of total revenue is primarily attributable to the two acquisitions completed in the fiscal 2019 second quarter which resulted in the Company acquiring a larger proportion of subscription and perpetual licenses over digital engagement service contracts.
Costs of Revenue
Total cost of revenue decreased $423 thousand, or 26%, to $1.2 million for the three months ended March 31, 2020 compared to $1.6 million for the three months ended March 31, 2019 and decreased $553 thousand, or 18%, to $2.5 million for the six months ended March 31, 2020 compared to $3.1 million for the six months ended March 31, 2019. The gross profit margin increased to 57% for the three months ended March 31, 20120, compared to 27% for the three months ended March 31, 2019 and increased to 54% for the six months ended March 31, 2020 compared to 32% for the six months ended March 31, 2019. The increase in the gross profit margin for the three and six months ended March 31, 2020 compared to the prior period is primarily attributable to decreases in headcount and increases in the proportion of license revenue, which are generally associated with higher margins, to digital engagement service revenue.
Cost of Digital Engagement Services
Cost of digital engagement services decreased $114 thousand, or 20%, to $457 thousand for the three months ended March 31, 2020 compared to $571 thousand for the three months ended March 31, 2019 and decreased $395 thousand, or 28%, to $1.0 million for the six months ended March 31, 2019 compared to $1.4 million for the six months ended March 31, 2019. The decrease for the three and six months ended March 31, 2020 compared to the prior period is primarily due to the allocation of support team and third-party subcontractor costs. The cost of digital engagement services as a percentage of digital engagement services revenue decreased to 51% for the three months ended March 31, 2020 compared to 63% for the three months ended March 31, 2019 and decreased to 51% for the six months ended March 31, 2020 compared to 72% for the six months ended March 31, 2019. The decrease as a percentage of revenues for the three months ended March 31, 2020 compared to the prior period is primarily due to the overall decreases in digital engagement services revenue.
Cost of Subscription and Perpetual License
Cost of subscription and perpetual licenses decreased $309 thousand, or 30%, to $727 thousand for the three months ended March 31, 2020 compared to $1.0 million for the three months ended March 31, 2019 and decreased $158 thousand, or 9%, to $1.5 million for the six months ended March 31, 2020 compared to $1.7 million for the six months ended March 31, 2019. The decrease for the three and six months ended March 31, 2020 compared to the prior period is primarily due to a reduction of the workforce and less allocated time by the delivery team and third-party subcontractors on platform support projects. The cost of subscription and perpetual licenses as a percentage of subscription and perpetual license revenue decreased to 40% for the three months ended March 31, 2020 compared to 81% for the three months ended March 31, 2019 and decreased to 42% for the six months ended March 31, 2020 compared to 65% for the six months ended March 31, 2019. These decreases are primarily attributable to a reduction of the workforce and less allocated time by the delivery team and third-party subcontractors on platform support projects.
Operating Expenses
Sales and Marketing Expenses
Sales and marketing expenses decreased $159 thousand, or 17%, to $786 thousand for the three months ended March 31, 2020 compared to $945 thousand for the three months ended March 31, 2019 and increased $116 thousand, or 7%, to $1.8 million for the six months ended March 31, 2020 compared to $1.7 million for the six months ended March 31, 2019. Sales and marketing expenses represented 29% and 43% of total revenue for the three months ended March 31, 2020 and 2019, respectively, and 33% and 37% of total revenue for the six months ended March 31, 2020 and 2019, respectively. The decrease for the three months ended March 31, 2020 compared to the prior period is attributable to decreases in headcount. The increase for the six months ended March 31, 2020 compared to the prior period is attributable to an increase in headcount and personnel from acquisitions.
General and Administrative Expenses
General and administrative expenses decreased $21 thousand, or 3%, to $723 thousand for the three months ended March 31, 2020 compared to $744 thousand for the three months ended March 31, 2019 and increased $41 thousand, or 3%, to $1.5 million for the six months ended March 31, 2020 compared to $1.4 million for the six months ended March 31, 2019. General and administrative expenses represented 26% and 34% of total revenue for the three months ended March 31, 2020 and 2019, respectively, and 26% and 31% of total revenue for the six months ended March 31, 2020 and 2019, respectively. The decrease for the three months ended March 31, 2020 compared to the prior period was primarily due to the decrease in overall support headcount and personnel expenses. The increase for the six months ended March 31, 2020 compared to the prior period was primarily due to an increase in headcount and personnel from acquisitions.
Research and Development
Research and development expense decreased $63 thousand, or 13%, to $426 thousand for the three months ended March 31, 2020 compared to $489 thousand for the three months ended March 31, 2019 and decreased $91 thousand, or 10%, to $816 thousand for the six months ended March 31, 2020 compared to $907 thousand for the six months ended March 31, 2019. Research and development expenses represented 16% and 22% of total revenue for the three months ended March 31, 2020 and 2019, respectively, and 15% and 20% of total revenue for the six months ended March 31, 2020 and 2019, respectively. The decrease for the three and six months ended March 31, 2020 compared to the prior period is primarily attributable to decreases in headcount and the increases in revenues.
Depreciation and Amortization
Depreciation and amortization expense increased $171 thousand, or 219%, to $249 thousand for the three months ended March 31, 2020 compared to $78 thousand for the three months ended March 31, 2019 and increased $403 thousand, or 388%, to $507 thousand for the six months ended March 31, 2020 compared to $104 thousand for the six months ended March 31, 2019. The increase is primarily due to amortization of intangible assets resulting from acquisitions. Depreciation and amortization represented 9% and 4% of total revenue for the three months ended March 31, 2020 and 2019, respectively, and 9% and 2% of total revenue for the six months ended March 31, 2020 and 2019, respectively,
Goodwill Impairment
During the six months ended March 31, 2019, the Company performed an interim impairment test, which resulted in an impairment charge of $3.7 million. An impairment charge is recognized for the amount by which the carrying amount exceeds the Company’s fair value. There were no impairment charges for the six months ended March 31, 2020.
Restructuring and Acquisition Related Expenses
During the three and six months ended March 31, 2020, the Company recognized $365 thousand 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 six months ended March 31, 2019, the Company incurred acquisition related expenses of $304 thousand related to the acquisition of Stantive. There were no acquisition related expenses incurred during the three and six months ended March 31, 2020.
Net Income (Loss)
Net Loss from Operations
The loss from operations was ($1.0) million for the three months ended March 31, 2020 compared to a loss of ($2.0) million for the three months ended March 31, 2019 and ($2.0) million for the six months ended March 31, 2020 compared to a loss of ($6.7) million for the six months ended March 31, 2019. Operating expenses increased $9 thousand, or less than 1%, to $2.6 million for the three months ended March 31, 2020 compared to $2.6 million for the three months ended March 31, 2019 and decreased $3.2 million, or 39%, to $5 million for the six months ended March 31, 2020 compared to $8.2 million for the six months ended March 31, 2019. The decreases for the three months ended March 31, 2020 compared to the prior period were primarily due to reduction in headcounts and for the six months ended March 31, 2020 compared to the prior period were primarily attributable to a goodwill impairment charge of $3.7 million which occurred in the prior period and similar charges did not recur.
Other Income (Expense), net
The Company recognized a gain related to the change in fair value of warrant liabilities of $1.8 million for the three months ended March 31, 2020 compared to $1.0 million for the three months ended March 31, 2019 and $2.9 million for the six months ended March 31, 2020 compared to $1.1 million for the six months ended March 31, 2019. During the six months ended March 31, 2019, we also recognized a warranty liability expense of $11.3 million related to the excess of fair value allocated to warrants over the proceeds received from the issuance of Series C Preferred Convertible Stock and associated warrants.
During the three and six months ended March 31, 2019, interest expense, inclusive of amortization of debt discounts, was $325 thousand and $554 thousand, respectively. During the three and six months ended March 31, 2020, we did not have any interest expense as we did not have any debt outstanding.
Income Taxes
The provision for income tax expense was $3 thousand and $4 thousand for the six months ended March 31, 2020 and 2019, respectively. Income tax expense represents the estimated liability for federal and state income taxes owed. We have net operating loss carryforwards and other deferred tax benefits that are available to offset any potential taxable income.
Adjusted EBITDA
We also measure our performance based on a non-GAAP (“Generally Accepted Accounting Principles”) measurement of earnings before interest, taxes, depreciation, amortization, stock-based compensation expense, impairment of goodwill and intangible assets, non-cash warrant related expenses, change in fair value of derivative instruments and restructuring and acquisition related charges (“Adjusted EBITDA”).
We believe this non-GAAP financial measure of Adjusted EBITDA is useful to management and investors in evaluating our operating performance for the periods presented and provide a tool for evaluating our ongoing operations.
Adjusted EBITDA, however, is not a measure of operating performance under U.S. GAAP and should not be considered as an alternative or substitute for U.S. GAAP profitability measures such as (i) loss from operations and net income (loss), or (ii) cash flows from operating, investing and financing activities, both as determined in accordance with U.S. GAAP. Adjusted EBITDA as an operating performance measure has material limitations since it excludes the financial statement impact of income taxes, net interest expense, amortization of intangibles, depreciation, goodwill impairment, restructuring charges, loss on disposal of assets, other amortization, changes in fair value of warrant liabilities and stock-based compensation, and therefore does not represent an accurate measure of profitability. As a result, Adjusted EBITDA should be evaluated in conjunction with net income (loss) for a complete analysis of our profitability, as net income (loss) includes the financial statement impact of these items and is the most directly comparable U.S. GAAP operating performance measure to Adjusted EBITDA. Our definition of Adjusted EBITDA may also differ from and therefore may not be comparable with similarly titled measures used by other companies, thereby limiting its usefulness as a comparative measure. Because of the limitations that Adjusted EBITDA has as an analytical tool, investors should not consider it in isolation, or as a substitute for analysis of our operating results as reported under U.S. GAAP.
The following table reconciles net income (loss) (which is the most directly comparable U.S. GAAP operating performance measure) to Adjusted EBITDA (in thousands):
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
|
2020 |
2019 |
2020 |
2019 |
|||||||||||||
|
Net income (loss) |
$ | 822 | $ | (12,522 | ) | $ | 959 | $ | (17,477 | ) | ||||||
|
Provision for income tax |
- | - | 3 | 4 | ||||||||||||
|
Interest expense, net |
1 | 104 | 1 | 333 | ||||||||||||
|
Amortization of debt discount |
- | 221 | - | 221 | ||||||||||||
|
Warrant liability expense |
- | 11,272 | - | 11,272 | ||||||||||||
|
Change in fair value of warrants |
(1,820 | ) | (1,046 | ) | (2,921 | ) | (1,058 | ) | ||||||||
|
Amortization of intangible assets |
233 | 62 | 470 | 66 | ||||||||||||
|
Depreciation |
12 | 14 | 28 | 34 | ||||||||||||
|
Goodwill impairment |
- | - | - | 3,732 | ||||||||||||
|
Restructuring and acquisition related charges |
367 | 304 | 372 | 304 | ||||||||||||
|
Other amortization |
4 | 7 | 9 | 22 | ||||||||||||
|
Stock based compensation |
50 | 38 | 80 | 135 | ||||||||||||
|
Adjusted EBITDA |
$ | (331 | ) | $ | (1,546 | ) | $ | (999 | ) | $ | (2,412 | ) | ||||
Adjusted EBITDA increased year over year, which is primarily attributable to increases in revenues and cost control measures.
Liquidity and Capital Resources
Cash Flows
Operating Activities
Cash used in operating activities was $90 thousand for the six months ended March 31, 2020 compared to cash used in operating activities of $2.5 million for the six months ended March 31, 2019. The change in cash provided by operating activities compared to the prior period was primarily due to a decrease in loss from operations and increases in accounts payable.
Investing Activities
We did not have any cash flows from investing activities for the six months ended March 31, 2020 compared to cash used in investing activities of $5.6 million for the six months ended March 31, 2019. Cash used in investing activities during the prior comparable period was primarily related to the acquisition of Stantive and Seevolution. The Company does not expect material expenditures for property and equipment during the 2020 fiscal year.
Financing Activities
We did not have any cash flows from financing activities for the six months ended March 31, 2020 compared to cash provided by financing activities of $9.2 million for the six months ended March 31, 2019. Cash provided by financing activities for the six months ended March 31, 2019 was attributable to the public offering in October 2018 and a private offering in March 2019, partially offset by repayments of term and promissory notes.
Capital Resources and Liquidity Outlook
In March 2020, the World Health Organization declared the outbreak of novel coronavirus disease (“COVID-19”) as a pandemic, and 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.
At March 31, 2020, the Company had no debt. 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.
While the Company believes that future revenues and cash flows, as we continue to integrate and realize a full year of operations from acquisitions completed in the fiscal 2019 second quarter, will supplement its working capital and 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. No definitive agreements for additional financing are in place as of the 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 there is substantial doubt about the Company’s ability to continue as a going concern for at least twelve months following the issuance of this Form 10-Q.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements, financings or other relationships with unconsolidated entities or other persons, other than our operating leases and contingent acquisition payments.
We currently do not have any variable interest entities. We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Therefore, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Commitments and Contingencies
The Company leases its facilities in the United States and Canada. The following summarizes our cash contractual obligations and commitments by maturity as of March 31, 2020:
|
(in thousands) |
||||||||||||||||||||||||||||
|
Payment obligations by year |
FY20 |
FY21 |
FY22 |
FY23 |
FY24 |
Thereafter |
Total |
|||||||||||||||||||||
|
Operating leases |
$ | 137 | $ | 193 | $ | 170 | $ | 173 | $ | 117 | $ | 60 | $ | 850 | ||||||||||||||
|
Sublease income |
(18 | ) | - | - | - | - | - | (18 | ) | |||||||||||||||||||
|
Net cash contractual obligations |
$ | 119 | $ | 193 | $ | 170 | $ | 173 | $ | 117 | $ | 60 | $ | 832 | ||||||||||||||
Critical Accounting Policies
These critical accounting policies and estimates by our management were prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and should be read in conjunction with Note 2 Summary of Significant Accounting Policies to the Consolidated Financial Statements of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 27, 2019.
The preparation of financial statements in accordance US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. We regularly make estimates and assumptions that affect the reported amounts of assets and liabilities. The most significant estimates included in our financial statements are the valuation of accounts receivable and long-term assets, including intangibles, goodwill and deferred tax assets, stock-based compensation, amounts of revenue to be recognized on service contracts in progress, unbilled receivables, and deferred revenue. We base our estimates and assumptions on current facts, historical experience and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by us may differ materially and adversely from our estimates. To the extent there are material differences between our estimates and the actual results, our future results of operations will be affected.
We consider the following accounting policies to be both those most important to the portrayal of our financial condition and those that require the most subjective judgment:
|
● |
Revenue recognition; |
|
● |
Allowance for doubtful accounts; |
|
● |
Accounting for cost of computer software to be sold, leased or otherwise marketed; |
|
● |
Accounting for goodwill and other intangible assets; and |
|
● |
Accounting for stock-based compensation. |
Revenue Recognition
The Company derives its revenue from two sources: (i) Software Licenses, which are comprised of subscription fees ("SaaS"), perpetual software licenses, and maintenance for post-customer support (“PCS”) on perpetual licenses and (ii) Digital Engagement Services, which are professional services to implement our products such as web development, digital strategy, information architecture and usability engineering, search. Customers who license the software on a subscription basis, which can be described as “Software as a Service” or “SaaS” do not take possession of the software.
Revenue is recognized when control of these services is transferred to the Company’s customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. If the consideration promised in a contract includes a variable amount, for example, overage fees, contingent fees or service level penalties, the Company includes an estimate of the amount it expects to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company’s subscription service arrangements are non-cancelable and do not contain refund-type provisions. Revenue is reported net of applicable sales and use tax.
The Company recognizes revenue from contracts with customers using a five-step model, which is described below:
|
• |
Identify the customer contract; |
|
|
• |
Identify performance obligations that are distinct; |
|
|
• |
Determine the transaction price; |
|
• |
Allocate the transaction price to the distinct performance obligations; and |
|
• |
Recognize revenue as the performance obligations are satisfied. |
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts which represents estimated losses resulting from the inability, failure or refusal of our clients to make required payments.
We analyze historical percentages of uncollectible accounts and changes in payment history when evaluating the adequacy of the allowance for doubtful accounts. We use an internal collection effort, which may include our sales and services groups as we deem appropriate. Although we believe that our allowances are adequate, if the financial condition of our clients deteriorates, resulting in an impairment of their ability to make payments, or if we underestimate the allowances required, additional allowances may be necessary, resulting in increased expense in the period in which such determination is made.
Accounting for Cost of Computer Software to be Sold, Leased or Otherwise Marketed
We charge research and development expenditures for technology development to operations as incurred. However, in accordance with Codification 985-20 Costs of Software to be Sold Leased or Otherwise Marketed, we capitalize certain software development costs subsequent to the establishment of technological feasibility. Based on our product development process, technological feasibility is established upon completion of a working model. Certain costs incurred between completion of a working model and the point at which the product is ready for general release is capitalized if significant. Once the product is available for general release, the capitalized costs are amortized in cost of sales.
Accounting for Goodwill and Intangible Assets
Goodwill is tested for impairment annually during the fourth quarter of every year and more frequently if events and circumstances indicate that the asset might be impaired. The purpose of an impairment test is to identify any potential impairment by comparing the carrying value of a reporting unit including goodwill to its fair value. An impairment charge is recognized for the amount by which the carrying amount exceeds the reporting unit’s fair value, however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.
Factors that could lead to a future impairment include material uncertainties such as operational, economic and competitive factors specific to the key assumptions underlying the fair value estimate we use in our impairment testing that have a reasonable possibility of changing. This could include a significant reduction in projected revenues, a deterioration of projected financial performance, future acquisitions and/or mergers, and a decline in our market value as a result of a significant decline in our stock price.
Accounting for Stock-Based Compensation
At March 31, 2020, we maintained two stock-based compensation plans, one of which has expired but still contains vested and unvested stock options. The two plans are more fully described in Note 13 to the Consolidated Financial Statements of our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 27, 2019.
The Company accounts for stock-based compensation awards in accordance with ASC 718 Compensation-Stock Topic of the Codification. Share-based payments (to the extent they are compensatory) are recognized in our Consolidated Statements of Operations based on their fair values.
We recognize stock-based compensation expense for share-based payments issued or assumed after October 1, 2006 that are expected to vest on a straight-line basis over the service period of the award, which is generally three years. We recognize the fair value of the unvested portion of share-based payments granted prior to October 1, 2006 over the remaining service period, net of estimated forfeitures. In determining whether an award is expected to vest, we use an estimated, forward-looking forfeiture rate based upon our historical forfeiture rate and reduce the expense over the recognition period. Estimated forfeiture rates are updated for actual forfeitures quarterly. We also consider, each quarter, whether there have been any significant changes in facts and circumstances that would affect our forfeiture rate. Although we estimate forfeitures based on historical experience, actual forfeitures in the future may differ. In addition, to the extent our actual forfeitures are different than our estimates, we record a true-up for the difference in the period that the awards vest, and such true-ups could materially affect our operating results.
We estimate the fair value of employee stock options using the Black-Scholes-Merton option valuation model. The fair value of an award is affected by our stock price on the date of grant as well as other assumptions including the estimated volatility of our stock price over the term of the awards and the estimated period of time that we expect employees to hold their stock options. The risk-free interest rate assumption we use is based upon United States treasury interest rates appropriate for the expected life of the awards. We use the historical volatility of our publicly traded options in order to estimate future stock price trends. In order to determine the estimated period of time that we expect employees to hold their stock options, we use historical trends of employee turnovers. Our expected dividend rate is zero since we do not currently pay cash dividends on our common stock and do not anticipate doing so in the foreseeable future. The aforementioned inputs entered into the option valuation model we use to fair value our stock awards are subjective estimates and changes to these estimates will cause the fair value of our stock awards and related stock-based compensation expense we record to vary.
We record deferred tax assets for stock-based awards that result in deductions on our income tax returns, based on the amount of stock-based compensation recognized and the statutory tax rate in the jurisdiction in which we will receive a tax deduction.
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Item 3. |
Qualitative and Quantitative Disclosures About Market Risk. |
Not required.
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Item 4. |
Controls and Procedures. |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Quarterly Report on Form 10-Q, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of March 31, 2020.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on Controls
Our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving the desired control objectives. Our management recognizes that any control system, no matter how well designed and operated, is based upon certain judgments and assumptions and cannot provide absolute assurance that its objectives will be met. Similarly, an evaluation of controls cannot provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.
PART II – OTHER INFORMATION
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Item 1. |
Legal Proceedings. |
From time to time we are subject to ordinary routine litigation and claims incidental to our business. We are not currently involved in any legal proceedings that we believe are material beyond those previously disclosed in our Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 27, 2019.
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
There were no sales of unregistered equity securities in the six months ended March 31, 2020.
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Item 6. |
Exhibits. |
| Exhibit No. | Description of Document | |
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1.1 |
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3.1 |
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3.2 |
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3.3 |
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3.4 |
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3.5 |
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3.6 |
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3.7 |
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3.8 |
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3.9 |
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4.1 |
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4.2 |
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Form of Warrant (incorporated by reference to Exhibit 4.1 to our Form 8-K filed on October 19, 2018) |
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4.3 |
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Form of Warrants (incorporated by reference to Exhibits 4.1, 4.2 ,4.3, 4.4 and 4.5 to our Form 8-K filed on March 13, 2019) |
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4.4 |
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10.1* |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS* XBRL Instance
101.SCH* XBRL Taxonomy Extension Schema
101.CAL* XBRL Taxonomy Extension Calculation
101.DEF* XBRL Taxonomy Extension Definition
101.LAB* XBRL Taxonomy Extension Labels
101.PRE* XBRL Taxonomy Extension Presentation
*Management compensatory plan
**XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 and 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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Bridgeline Digital, Inc. |
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(Registrant) |
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May 14, 2020 |
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/s/ Roger Kahn |
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Date |
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Roger Kahn President and Chief Executive Officer (Principal Executive Officer)
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May 14, 2020 |
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/s/ Mark Downey |
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Date |
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Mark Downey Chief Financial Officer (Principal Financial and Accounting Officer)
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EXHIBIT 31.1
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Roger Kahn, certify that:
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1. |
I have reviewed this Quarterly Report on Form 10-Q of Bridgeline Digital, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
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4. |
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
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(a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c)
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Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d)
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Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
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(a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
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Date: May 14, 2020 |
/s/ Roger Kahn |
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Name: |
Roger Kahn |
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Title: |
President and Chief Executive Officer (Principal Executive Officer) |
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EXHIBIT 31.2
CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Mark Downey, certify that:
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I have reviewed this Quarterly Report on Form 10-Q of Bridgeline Digital, Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements and other financial information included in this report fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report; |
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4. |
The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d- 15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have: |
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
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(d) |
Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter (the Company’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
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5. |
The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: May 14, 2020
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/s/ Mark Downey |
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Name: |
Mark Downey |
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Title: |
Chief Financial Officer (Principal Financial and Accounting Officer) |
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EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Bridgeline Digital, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Roger Kahn, President and Chief Executive Officer of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
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Date: May 14, 2020 |
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/s/ Roger Kahn |
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Name: |
Roger Kahn |
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Title: |
President and Chief Executive Officer (Principal Executive Officer) |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Bridgeline Digital, Inc. (the “Company”) on Form 10-Q for the period ended March 31, 2020, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Mark Downey, Chief Financial Officer of the Company certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
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Date: May 14, 2020 |
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/s/ Mark Downey |
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Name: |
Mark Downey |
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Title: |
Executive Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.