Bridgeline Digital(BLIN) - 2021 Q4 - Annual Report

PART I Business Bridgeline Digital offers a Digital Experience Platform (DXP) and expanded its product suite via key acquisitions in fiscal 2021 - The company's core offering is the Bridgeline Unbound platform, a comprehensive Digital Experience Platform (DXP) available as a SaaS or perpetual license[11][12][21] - Bridgeline expanded its product suite through two key acquisitions in fiscal 2021: Woorank, an SEO audit tool, for a total purchase price of $2.4 million, and Hawk Search, a search and personalization application, for $9.9 million[51][52] - The company's sales strategy focuses on direct sales to mid-sized and large companies in specific vertical markets, including financial services, franchise networks, and retail[43] - As of September 30, 2021, the company had approximately 60 full-time employees; for fiscal 2021, no single customer accounted for more than 10% of total revenues, diversifying its customer base from the previous year where one customer represented 12%[57][59] - Research and development expenses increased to approximately $2.4 million (18% of revenues) in fiscal 2021, up from $1.6 million (15% of revenues) in fiscal 2020, reflecting continued investment in product innovation[54] Risk Factors The company faces substantial risks including historical net losses, financing needs, cloud platform reliance, competition, acquisition integration, and pandemic impacts - The company has a history of significant net losses, reporting a loss of $6.7 million for the year ended September 30, 2021, and has an accumulated deficit of approximately $82.3 million as of that date[71] - Bridgeline may require additional financing to execute its business plan; the company has recently raised capital through stock offerings and warrant exercises but also has significant deferred payment and contingent consideration obligations from its 2021 acquisitions of Woorank and Hawk Search[73][77][78] - The business is dependent on a third-party cloud provider, Amazon Web Services (AWS), for its SaaS and managed hosting services; any disruption from this provider could harm the business[87][88] - The company faces intense competition from a fragmented market with low barriers to entry, including larger competitors like Big Commerce, Salesforce, Optimizely, Hubspot, Sitecore, and Adobe[93][96] - Future acquisitions, like the two completed in fiscal 2021, may be difficult to integrate, could disrupt business, dilute stockholder value, and divert management's attention[121][122] - The COVID-19 pandemic is cited as a material risk that could adversely affect operations, financial condition, and liquidity due to economic uncertainty and potential disruptions[131][132][133] Properties The company leases all its office locations, including its corporate office and other professional spaces across multiple regions Leased Office Locations | Geographic Location | Address | Size | | :--- | :--- | :--- | | Woburn, Massachusetts | 100 Sylvan Rd Suite G-700 Woburn, MA 01801 | 775 square feet, professional office space | | Woodbury, New York | 150 Woodbury Road Woodbury, NY 11797 | 3,630 square feet, professional office space | | Brussels, Belgium | Cours Saint Michel 30B 1040 Brussels, Belgium | PO Box | | Raleigh, North Carolina | 4242 Six Forks Rd Suite 1550 North Hills Tower II Raleigh, NC 27609 | 202 square feet, professional office space | | Vancouver, Canada | 1055 West Hastings St, Suite 1700 Guinness Tower Vancouver BC V6E 2E9 | PO Box | | Des Plaines, Illinois | 2700 S River Rd, Suite 400 Des Plaines, IL 60018 | 2,500 square feet, professional office space | Legal Proceedings The company is not currently involved in any material legal proceedings - The Company is not currently involved in any material legal proceedings[137] PART II Market for Common Equity, Related Stockholder Matters and Issuer Purchase of Equity Securities The company's common stock is widely held, with no current dividend plans, and recent capital raises through preferred stock and warrant offerings - The company has never paid cash dividends on its common stock and does not plan to in the near future[140] - On May 14, 2021, the company raised approximately $4.6 million in net proceeds through a registered direct offering of common stock and a concurrent private placement of 2,700 shares of Series D Convertible Preferred Stock and warrants[142] - On May 28, 2021, 1,500 shares of Series D Convertible Preferred Stock were issued as part of the purchase price for the acquisition of Hawk Search; all 4,200 shares of Series D Preferred Stock (from both the private placement and acquisition) were converted into common shares by September 30, 2021[142][144] Management's Discussion and Analysis of Financial Condition and Results of Operations Fiscal 2021 saw revenue growth driven by acquisitions, improved gross profit, but a net loss due to warrant revaluation, with liquidity strengthened by financing activities Fiscal Year 2021 vs. 2020 Financial Performance (in thousands) | Metric | FY 2021 | FY 2020 | Change (%) | | :--- | :--- | :--- | :--- | | Total Net Revenue | $13,259 | $10,907 | +22% | | Subscription & Licenses Revenue | $9,963 | $7,498 | +33% | | Digital Engagement Services Revenue | $3,296 | $3,409 | -3% | | Gross Profit | $8,726 | $6,400 | +36% | | Gross Profit Margin | 66% | 59% | +7 p.p. | | Loss from Operations | ($1,183) | ($1,644) | -28% | | Net (Loss)/Income | ($6,689) | $326 | -2,152% | | Change in Fair Value of Warrants | ($5,885) | $1,028 | -672% | | Adjusted EBITDA (Non-GAAP) | $1,442 | ($116) | N/A | - The 33% increase in subscription and perpetual license revenue to $10.0 million was primarily due to significant multi-year license renewals and the inclusion of $2.6 million in revenue from the fiscal 2021 acquisitions[169] - Restructuring and acquisition-related expenses surged to $1.2 million in fiscal 2021 from $366 thousand in fiscal 2020, driven by legal and investment banking fees for the Woorank and Hawk Search acquisitions[180] - The company's net loss of $6.7 million in FY2021 was heavily impacted by a $5.9 million non-cash loss on the change in fair value of warrant liabilities, compared to a $1.0 million gain in FY2020[183] - Cash provided by financing activities was $13.5 million, primarily from approximately $14.3 million in proceeds from the issuance of common stock, preferred stock, and warrant exercises, which significantly improved the company's liquidity position[197][199][200] Financial Statements and Supplementary Data This section presents audited financial statements, highlighting critical audit matters, increased assets from acquisitions, and strengthened equity from financing activities Consolidated Balance Sheet Highlights (in thousands) | Account | As of Sep 30, 2021 | As of Sep 30, 2020 | | :--- | :--- | :--- | | Cash and cash equivalents | $8,852 | $861 | | Total Current Assets | $10,418 | $1,905 | | Goodwill | $15,985 | $5,557 | | Intangible assets, net | $7,755 | $2,617 | | Total Assets | $34,967 | $10,660 | | Total Current Liabilities | $8,335 | $3,605 | | Warrant liabilities | $4,404 | $2,486 | | Total Liabilities | $17,390 | $6,304 | | Total Stockholders' Equity | $17,577 | $4,356 | Consolidated Statement of Operations Highlights (in thousands) | Account | Year Ended Sep 30, 2021 | Year Ended Sep 30, 2020 | | :--- | :--- | :--- | | Total net revenue | $13,259 | $10,907 | | Gross profit | $8,726 | $6,400 | | Loss from operations | ($1,183) | ($1,644) | | Change in fair value of warrant liabilities | ($5,885) | $1,028 | | Net (loss) / income | ($6,689) | $326 | | Net loss per share (Basic & Diluted) | ($1.47) | ($0.59) | - The auditor's report for FY2021 identified two critical audit matters: the valuation of intangible assets and contingent consideration related to the Woorank and Hawk Search acquisitions, and the valuation of derivative instruments (warrant liabilities)[251][256] - The acquisitions of Woorank and Hawk Search added a combined $10.4 million in goodwill and $6.3 million in net intangible assets to the balance sheet in fiscal 2021[363][472] - The company's $1.05 million Paycheck Protection Program (PPP) loan was fully forgiven by the SBA in August 2021; the company recognized the forgiveness as government grant income[373][376] PART III Directors, Executive Officers and Corporate Governance This section details biographical information for directors and executive officers, including a CFO change, and outlines the structure of independent board committees - Thomas R. Windhausen was appointed as Chief Financial Officer and Treasurer effective November 30, 2021, succeeding Mark G. Downey[501][515] - The Board of Directors has an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee, with charters available on the company's website[521] - The Board has determined that directors Kenneth Galaznik and Scott Landers each qualify as an 'audit committee financial expert'[523] Executive Compensation This section details compensation for named executive officers, including the CEO and former CFO, and outlines the compensation structure for non-employee directors Named Executive Officer Compensation (FY 2021 vs. FY 2020) | Name and Principal Position | Fiscal Year | Salary | Bonus | Total | | :--- | :--- | :--- | :--- | :--- | | Roger Kahn (President and CEO) | 2021 | $318,750 | $135,791 | $454,541 | | | 2020 | $300,000 | $15,624 | $315,624 | | Mark G. Downey (Former EVP & CFO) | 2021 | $240,000 | $58,949 | $298,949 | | | 2020 | $240,000 | $5,000 | $245,000 | - Non-employee directors receive an annual retainer of $12,000, $1,500 per board meeting attended, and additional annual fees for committee membership and chair positions[537][538] - Mark G. Downey resigned as CFO on November 30, 2021, and will provide transition services as a consultant until January 30, 2022[532] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section discloses beneficial ownership of common and preferred stock by management and directors, and summarizes equity compensation plan information - As of December 20, 2021, all current executive officers and directors as a group beneficially owned 676,236 shares, or 6.28% of the outstanding common stock[547][554] - Director Michael Taglich and his spouse beneficially owned 100% of the 350 outstanding shares of Series C Preferred Stock[546] Equity Compensation Plan Information (as of Sep 30, 2021) | Plan Category | Securities to be Issued Upon Exercise (Options, Warrants) | Weighted-Average Exercise Price | Securities Remaining for Future Issuance | | :--- | :--- | :--- | :--- | | Approved by security holders | 799,201 | $4.66 | 4,045 | | Not approved by security holders | 1,788,745 | $4.18 | - | Certain Relationships and Related Transactions, and Director Independence This section discloses related-party transactions, primarily with director Michael Taglich and his firm, involving advisory services, fees, and warrant issuances - Director Michael Taglich is the Chairman and President of Taglich Brothers, Inc., a securities firm that has acted as a placement agent and advisor for many of the Company's financing and acquisition activities[562] - Taglich Brothers, Inc. earned a success fee of $200,000 in connection with the asset purchase of Stantive and a fee of $21,000 for advisory services related to the Series A Preferred Stock[568][570] - In connection with the February and May 2021 offerings, Taglich Brothers, Inc. received warrants to purchase a combined 82,945 shares of the Company's common stock[571][572] Principal Accounting Fees and Services This section details fees paid to independent auditors for audit, audit-related, and tax services, all pre-approved by the Audit Committee Auditor Fees (Fiscal Year Ended September 30) | Type of Service | 2021 | 2020 | | :--- | :--- | :--- | | Audit Fees | $261,951 | $261,397 | | Audit-Related Fees | $68,544 | — | | Tax Fees | — | — | | Total | $330,495 | $261,397 | - The company changed its independent registered public accounting firm during the year, dismissing Marcum LLP on February 26, 2021, and engaging PKF O'Connor Davies LLP on February 27, 2021[485][489] - Audit-related fees in 2021 consisted of services performed in connection with the company's acquisitions[577] PART IV Exhibits and Financial Statement Schedules This section lists all documents filed as part of the Form 10-K, including consolidated financial statements, notes, and a comprehensive index of exhibits - The filing includes the consolidated financial statements for the years ended September 30, 2021 and 2020[583] - A comprehensive list of exhibits is provided, including key agreements such as the Share Purchase Agreements for the Woorank and Hawk Search acquisitions and employment agreements for executive officers[587][588] - Certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed as exhibits[588]