UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
(Mark One)
For the quarterly period ended
OR
For the transition period from ______________ to ______________
Commission File Number
Bridgeline Digital, Inc.
(Exact name of registrant as specified in its charter)
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| State or other jurisdiction of incorporation or organization | IRS Employer Identification No. |
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| (Address of Principal Executive Offices) | (Zip Code) |
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| (Registrant’s telephone number, including area code) |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section (12)b of the Act:
| Title of each class | Trading Symbols(s) | Name of each exchange on which registered |
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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.
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) ☒
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the 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 ☐ |
| | Smaller reporting company |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of common stock par value $0.001 per share, outstanding as of August 10, 2023 was
Bridgeline Digital, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period ended June 30, 2023
Index
| Page |
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| Part I |
Financial Information |
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| Item 1. |
Condensed Consolidated Financial Statements |
|
| Condensed Consolidated Balance Sheets (unaudited) as of June 30, 2023 and September 30, 2022 |
4 |
|
| Condensed Consolidated Statements of Operations (unaudited) for the three and nine months ended June 30, 2023 and 2022 |
5 |
|
| Condensed Consolidated Statements of Comprehensive Income/(Loss) (unaudited) for the three and nine months ended June 30, 2023 and 2022 |
6 |
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| Condensed Consolidated Statements of Stockholders’ Equity (unaudited) for the three and nine months June 30, 2023 and 2022 |
7 |
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| Condensed Consolidated Statements of Cash Flows (unaudited) for the three and nine months ended June 30, 2023 and 2022 |
8 |
|
| Notes to Unaudited Condensed Consolidated Financial Statements |
9 |
|
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
22 |
| Item 3. |
Qualitative and Quantitative Disclosures About Market Risk |
29 |
| Item 4. |
Controls and Procedures |
29 |
| Part II |
Other Information |
|
| Item 1. |
Legal Proceedings |
30 |
| Item 1A. |
Risk Factors |
30 |
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
30 |
| Item 3. |
Defaults Upon Senior Securities |
30 |
| Item 4. |
Mine Safety Disclosures |
30 |
| Item 5. |
Other Information |
30 |
| Item 6. |
Exhibits |
31 |
| Signatures |
32 |
|
Bridgeline Digital, Inc.
Quarterly Report on Form 10-Q
For the Quarterly Period ended June 30, 2023
Statements contained in this Report on Form 10-Q, other than statements or characterizations of historical fact, are forward-looking statements. These “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, are based on our current expectations, estimates and projections about our industry, management's beliefs, and certain assumptions made by us, all of which are subject to change. Forward-looking statements can often be identified by words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "will," "should," "would," "could," "potential," "continue," "ongoing," similar expressions, and variations or negatives of these words. These statements appear in a number of places in this Form 10-Q and include statements regarding the intent, belief or current expectations of Bridgeline Digital, Inc. These forward-looking statements are not guarantees of future results and are subject to risks, uncertainties and assumptions, including, but not limited to, business operations and the business of our customers, suppliers and partners; our ability to retain and upgrade current customers; increasing our recurring revenue; our ability to attract new customers; our revenue growth rate; our history of net loss and our ability to achieve or maintain profitability, instability in the financial markets, including the banking sector; our liability for any unauthorized access to our data or our users’ content, including through privacy and data security breaches; any decline in demand for our platform or products; changes in the interoperability of our platform across devices, operating systems, and third-party applications that we do no control; competition in our markets; our ability to respond to rapid technological changes, extend our platform, develop new features or products, or gain market acceptance for such new features or products, particularly in light of potential disruptions to the productivity of our employees resulting from remote work; our ability to manage our growth or plan for future growth, and our acquisition of other businesses and the potential of such acquisitions to require significant management attention, disrupt our business, or dilute stockholder value; the volatility of the market price of our common stock; the ability to maintain our listing on the NASDAQ Capital Market; or our ability to maintain an effective system of internal controls as well as other risks described in our filings with the Securities and Exchange Commission. Any of such risks could cause our actual results to differ materially and adversely from those expressed in any forward-looking statement. Bridgeline Digital, Inc. assumes no obligation to, and does not currently intend to, update any such forward-looking statements, except as required by applicable law. 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, 2022, and 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) June 30, 2023 | September 30, 2022 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Operating lease assets | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Current portion of long-term debt | $ | $ | ||||||
| Current portion of operating lease liabilities | ||||||||
| Accounts payable | ||||||||
| Accrued liabilities | ||||||||
| Current portion of purchase price and contingent consideration payable | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Long-term debt, net of current portion (Note 7) | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Warrant liabilities | ||||||||
| Other long-term liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 13) | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock - $ par value; shares authorized; | ||||||||
| Series C Convertible Preferred stock: shares authorized; shares issued and outstanding at June 30, 2023 and September 30, 2022 | ||||||||
| Common stock - $ par value; shares authorized; shares issued and outstanding at June 30, 2023 and September 30, 2022 | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
| 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 |
Nine Months Ended |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Net revenue: |
||||||||||||||||
| Subscription and perpetual licenses |
$ | $ | $ | $ | ||||||||||||
| Digital engagement services |
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| Total net revenue |
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| Cost of revenue: |
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| Subscription and perpetual licenses |
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| Digital engagement services |
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| Total cost of revenue |
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| Gross profit |
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| Operating expenses: |
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| Sales and marketing |
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| General and administrative |
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| Research and development |
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| Depreciation and amortization |
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| Restructuring and acquisition related expenses |
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| Total operating expenses |
||||||||||||||||
| Loss from operations |
( |
) |
( |
) |
( |
) |
( |
) |
||||||||
| Change in fair value of contingent consideration, interest expense and other, net |
( |
) |
( |
) |
||||||||||||
| Change in fair value of warrant liabilities |
( |
) |
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| Income (loss) before income taxes |
( |
) |
( |
) |
||||||||||||
| Provision for income taxes |
||||||||||||||||
| Net income (loss) |
( |
) |
( |
) |
||||||||||||
| Net income (loss) per share attributable to common shareholders: |
||||||||||||||||
| Basic net income (loss) per share |
$ | ( |
) |
$ | $ | ( |
) |
$ | ||||||||
| Diluted net income (loss) per share |
$ | ( |
) |
$ | $ | ( |
) |
$ | ||||||||
| Number of weighted average shares outstanding: |
||||||||||||||||
| Basic |
||||||||||||||||
| Diluted |
||||||||||||||||
| 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 |
Nine Months Ended |
|||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Net income (loss) |
$ | ( |
) |
$ | $ | ( |
) |
$ | ||||||||
| Other comprehensive income (loss): |
||||||||||||||||
| Net change in foreign currency translation adjustment |
( |
) |
||||||||||||||
| Comprehensive income (loss) |
$ | ( |
) |
$ | $ | ( |
) |
$ | ||||||||
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 Nine Months Ended June 30, 2023 |
||||||||||||||||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||||||
| Preferred Stock |
Common Stock |
Additional |
Other |
Total |
||||||||||||||||||||||||||||
| Paid-in |
Accumulated |
Comprehensive |
Stockholders’ |
|||||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Loss |
Equity |
|||||||||||||||||||||||||
| Balance at October 1, 2022 |
$ | $ | $ | $ | ( |
) |
$ | ( |
) |
$ | ||||||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Net income (loss) |
- | - | ( |
) |
( |
) |
||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ( |
) |
( |
) |
||||||||||||||||||||||||||
| Balance at December 31, 2022 |
$ | $ | $ | $ | ( |
) |
$ | ( |
) |
$ | ||||||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Net income (loss) |
- | - | ( |
) |
( |
) |
||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ( |
) |
( |
) |
||||||||||||||||||||||||||
| Balance at March 31, 2023 |
$ | $ | $ | $ | ( |
) |
$ | ( |
) |
$ | ||||||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Net income (loss) |
- | - | ( |
) | ( |
) | ||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ||||||||||||||||||||||||||||||
| Balance at June 30, 2023 |
$ | $ | $ | $ | ( |
) |
$ | ( |
) |
$ | ||||||||||||||||||||||
| For the Three and Nine Months Ended June 30, 2022 |
||||||||||||||||||||||||||||||||
| Accumulated |
||||||||||||||||||||||||||||||||
| Preferred Stock |
Common Stock |
Additional |
Other |
Total |
||||||||||||||||||||||||||||
| Paid-in |
Accumulated |
Comprehensive |
Stockholders’ |
|||||||||||||||||||||||||||||
| Shares |
Amount |
Shares |
Amount |
Capital |
Deficit |
Loss |
Equity |
|||||||||||||||||||||||||
| Balance at October 1, 2021 |
$ | $ | $ | $ | ( |
) |
$ | ( |
) |
$ | ||||||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Issuance of common stock – warrants exercised |
||||||||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ||||||||||||||||||||||||||||||
| Balance at December 31, 2021 |
$ | $ | $ | $ | ( |
) |
$ | ( |
) |
$ | ||||||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Issuance of common stock – stock options exercised |
||||||||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ||||||||||||||||||||||||||||||
| Balance at March 31, 2022 |
$ | $ | $ | $ | ( |
) |
$ | ( |
) |
$ | ||||||||||||||||||||||
| Stock-based compensation expense |
- | - | ||||||||||||||||||||||||||||||
| Net income |
- | - | ||||||||||||||||||||||||||||||
| Foreign currency translation |
- | - | ||||||||||||||||||||||||||||||
| Balance at June 30, 2022 |
$ | $ | $ | $ | ( |
) |
$ | ( |
) |
$ | ||||||||||||||||||||||
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)
| Nine Months Ended June, |
||||||||
| 2023 |
2022 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income (loss) |
$ | ( |
) |
$ | ||||
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
||||||||
| Amortization of intangible assets |
||||||||
| Depreciation and other amortization |
||||||||
| Change in fair value of contingent consideration |
( |
) |
||||||
| Change in fair value of warrant liabilities |
( |
) |
( |
) |
||||
| Stock-based compensation |
||||||||
| Changes in operating assets and liabilities |
||||||||
| Accounts receivable |
( |
) |
||||||
| Prepaid expenses and other current assets |
( |
) |
( |
) |
||||
| Other assets |
( |
) |
||||||
| Accounts payable and accrued liabilities |
( |
) |
||||||
| Deferred revenue |
( |
) |
||||||
| Other liabilities |
( |
) |
||||||
| Total adjustments |
( |
) |
||||||
| Net cash provided by (used in) operating activities |
( |
) |
||||||
| Cash flows from investing activities: |
||||||||
| Purchase of property and equipment |
( |
) |
( |
) |
||||
| Software development capitalization costs | ( |
) | ||||||
| Net cash used in investing activities |
( |
) |
( |
) |
||||
| Cash flows from financing activities: |
||||||||
| Payments of contingent consideration and deferred cash payable |
( |
) |
( |
) |
||||
| Payments of long-term debt |
( |
) |
( |
) |
||||
| Proceeds from stock option exercises | ||||||||
| Net cash used in financing activities |
( |
) |
( |
) |
||||
| Effect of exchange rate changes on cash and cash equivalents |
( |
) |
||||||
| Net decrease in cash and cash equivalents |
( |
) |
( |
) |
||||
| Cash and cash equivalents at beginning of period |
||||||||
| Cash and cash equivalents at end of period |
$ | $ | ||||||
| Supplemental disclosures of cash flow information: |
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| Cash paid for: |
||||||||
| Interest |
$ | $ | ||||||
| Income taxes |
$ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
1. Description of Business
Overview
Bridgeline Digital is a marketing technology company that offers a suite of products that help companies grow online revenue by driving more traffic to their websites, converting more visitors to purchasers, and increasing average order value.
HawkSearch is a site search, recommendation, and personalization application, built for marketers, merchandisers, and developers to enhance, normalize, and enrich an online customer's content search and product discovery experience. HawkSearch leverages advanced artificial intelligence, machine learning and industry-leading merchandising features to deliver accurate and highly relevant results and recommendations derived from multiple data sources.
Celebros Search is a commerce-oriented site search product that provides Natural Language Processing with artificial intelligence to present relevant search results based on long-tail keyword searches with support for multiple languages.
Woorank is a Search Engine Optimization (“SEO”) audit tool that generates an instant performance audit of the site’s technical, on-page, and off-page SEO. Woorank’s clear, actionable insights help companies increase their search engine ranking, while boosting website traffic, audience engagement, conversion, and customer retention rates.
Our Unbound platform is a Digital Experience Platform that includes Web Content Management, eCommerce, Digital Marketing, and Web Analytics. The Unbound platform, combined with its professional services, assists customers in powering engaging digital experiences that drive lead generation, increase revenue, improve customer service and loyalty, enhance employee knowledge, and reduce operational costs.
The TruPresence product empowers large franchises, brand networks, and other multi-unit organizations to manage a large hierarchy of digital properties at scale. TruPresence provides centralized and distributed management of content and products from parent sites down to multiple child sites for consistency in branding and messaging, while also enabling regional / local site owners to manage the local messaging, products and promotions specific to their local market.
OrchestraCMS is the only content and digital experience platform built 100% native on Salesforce and helps customers create websites and intranets for their customers, partners, and employees. The software uniquely combines content with business data, processes and applications across any channel or device, including Salesforce Communities, social media, portals, intranets, websites, applications and services.
All of Bridgeline’s software is available through a cloud-based Software as a Service (“SaaS”) model, whose flexible architecture provides customers hosting and support. Additionally, Unbound and HawkSearch have the option to be available via a traditional perpetual licensing business model, in which the software can reside on a dedicated infrastructure either on premise at the customer’s facility, or manage-hosted by Bridgeline via a cloud-based, dedicated hosted services model.
Bridgeline Digital was incorporated under the laws of the State of Delaware on August 28, 2000.
Locations
The Company’s corporate office is located in Woburn, Massachusetts. The Company maintains regional field offices serving the following geographical locations: Woodbury, New York; Rosemont, Illinois; Atascadero, California; Ontario, Canada; and Brussels, Belgium.
The Company has four wholly-owned subsidiaries: Bridgeline Digital Pvt. Ltd., located in Bangalore, India; Bridgeline Digital Canada, Inc., located in Ontario, Canada; Hawk Search Inc. located in Rosemont, Illinois and Bridgeline Digital Belgium BV, located in Brussels, Belgium.
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 (“U.S. GAAP”), and with the instructions to Form 10-Q and Regulation S-X, and in the opinion of the Company’s management, these condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments and accruals, necessary for their fair presentation. The operating results for the three and nine months ended June 30, 2023 are not necessarily indicative of the results to be expected for the year ending September 30, 2023. The accompanying September 30, 2022 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 U.S. 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, 2022, filed with the Securities and Exchange Commission (“SEC”) on December 21, 2022.
Recently Adopted Accounting Pronouncements
Debt—Debt with Conversion and Other Options
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815- 40) (“ASU 2020-06”). The ASU 2020-06 simplifies the accounting for convertible instruments and application of the equity classification guidance and made certain disclosure amendments. In addition, this ASU also amends certain aspects of the earnings per share (“EPS”) guidance. ASU 2020-06 is effective for financial reporting periods beginning after December 15, 2021, except smaller reporting companies for which this ASU is effective for financial reporting periods beginning after December 15, 2023. Early adoption is permitted, and an entity should adopt this ASU as of the beginning of its annual fiscal year. The Company elected to early adopt ASU 2020-06 as of the first day of the fiscal year ending September 30, 2023, using the modified retrospective approach which allows for a cumulative-effect adjustment to the opening balance of retained earnings or accumulated deficit in the period of adoption. The adoption of ASU 2020-06 did not have any impact on the accumulated deficit or any other components of the condensed consolidated balance sheet as of October 1, 2022 nor did it have a material impact on earnings per share for the three and nine months ended June 30, 2023.
Accounting Pronouncements Pending Adoption
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.
Business Combinations
In October 2021, the FASB issued ASU No. 2021-08, Business Combinations (Topic 606): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which requires that an entity recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Topic 606 as if it had originated the contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements, if the acquiree prepared financial statements in accordance with U.S. GAAP. The amendment in this update is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The guidance should be applied prospectively to business combinations occurring on or after the effective date of the amendment in this update. The Company is evaluating the potential impact of this adoption 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 consist of the following:
| As of 2023 |
As of 2022 |
|||||||
| Accounts receivable |
$ | $ | ||||||
| Allowance for doubtful accounts |
( |
) |
( |
) |
||||
| Accounts receivable, net |
$ | $ | ||||||
As of June 30, 2023 and September 30, 2022, no customer exceeded 10% of accounts receivable.
4. Fair Value Measurement and Fair Value of Financial Instruments
The Company’s financial instruments consist principally of accounts receivable, accounts payable, warrant liabilities, contingent consideration and long-term debt arrangements. 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, under U.S. GAAP, 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 carrying value of the Company’s accounts receivable and accounts payable approximates fair value due to their short-term nature. As of June 30, 2023 and September 30, 2022, the aggregate fair values of long-term debts were $
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 volatilities of comparable public companies, due to the relatively low trading volume of the Company’s common stock. The Monte Carlo option-pricing model uses certain assumptions, including expected life and annual volatility. The range and weighted average volatilities of comparable public companies utilized was
| As of June 30, 2023 |
As of September 30, 2022 |
|||||||||||||||||||||||
| Montage |
Series C Preferred |
Series D Preferred |
Montage Capital |
Series C Preferred |
Series D Preferred |
|||||||||||||||||||
| Volatility |
% |
% |
% |
% |
% |
% |
||||||||||||||||||
| Risk-free rate |
% |
% |
% |
% |
% |
% |
||||||||||||||||||
| Stock price |
$ | $ | $ | $ | $ | $ | ||||||||||||||||||
The Company recognized gains/(losses) of ($
The Company’s contingent consideration obligations were from arrangements resulting from acquisitions completed in prior periods not presented that involve potential future payment of consideration that were contingent upon the achievement of revenue targets and operational goals. Contingent consideration is recognized at its estimated fair value at the date of acquisition based on the Company’s expected probability of future payment, discounted using a weighted-average cost of capital in accordance with accepted valuation methodologies.
The Company reviews and re-assesses the estimated fair value of contingent consideration liabilities at each reporting period and the updated fair value could differ materially from the initial estimates. The Company measures contingent consideration recognized in connection with acquisitions at fair value on a recurring basis using significant unobservable inputs classified as Level 3 inputs. The Company uses a simulation-based model to estimate the fair value of contingent consideration on the acquisition date and at each reporting period. The simulation model uses certain inputs and assumptions, including revenue projections, an estimate of revenue discount and volatility rate based on comparable public companies’ data, and risk-free rate. Significant increases or decreases to either of these inputs in isolation could result in a significantly higher or lower liability with a higher liability limited to the contractual maximum of the contingent consideration liabilities. Ultimately, the liability will be equivalent to the amount paid, and the difference between the fair value estimate on the acquisition date and each reporting period and the amount paid will be recognized in earnings.
Assets and liabilities of the Company measured at fair value on a recurring basis as of June 30, 2023 and September 30, 2022, are as follows:
| As of June 30, 2023 |
||||||||||||||||
| Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Liabilities: |
||||||||||||||||
| Warrant liabilities: |
||||||||||||||||
| Montage |
$ | $ | $ | $ | ||||||||||||
| Series A and C |
||||||||||||||||
| Series D |
||||||||||||||||
| Total warrant liabilities |
$ | $ | $ | $ | ||||||||||||
| As of September 30, 2022 |
||||||||||||||||
| Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Liabilities: |
||||||||||||||||
| Warrant liabilities: |
||||||||||||||||
| Montage |
$ | $ | $ | $ | ||||||||||||
| Series A and C |
||||||||||||||||
| Series D |
||||||||||||||||
| Total warrant liabilities |
||||||||||||||||
| Contingent consideration obligations |
||||||||||||||||
| Total Liabilities |
$ | $ | $ | $ | ||||||||||||
The following table provides a rollforward of the fair value, as determined by Level 3 inputs, as follows:
| Contingent Consideration Obligations |
Warrant Liabilities |
|||||||
| Balance at beginning of period, October 1, 2022 |
$ | $ | ||||||
| Additions |
||||||||
| Payments or exercises |
( |
) |
||||||
| Adjustment to fair value |
( |
) |
||||||
| Balance at end of period, December 31, 2022 |
$ | $ | ||||||
| Additions |
||||||||
| Payments or exercises |
||||||||
| Adjustment to fair value |
( |
) |
||||||
| Balance at end of period, March 31, 2023 |
$ | $ | ||||||
| Additions |
||||||||
| Exercises or payments |
||||||||
| Adjustment to fair value |
||||||||
| Balance at end of period, June 30, 2023 |
$ | $ | ||||||
5. Intangible Assets
The components of intangible assets, net of accumulated amortization, are as follows:
| As of 2023 |
As of 2022 |
|||||||
| Domain and trade names |
$ | $ | ||||||
| Customer related |
||||||||
| Technology |
||||||||
| Balance at end of period |
$ | $ | ||||||
Total amortization expense was $
6. Accrued Liabilities
Accrued liabilities consist of the following:
| As of 2023 |
As of 2022 |
|||||||
| Compensation and benefits |
$ | $ | ||||||
| Professional fees |
||||||||
| Taxes |
||||||||
| Insurance |
||||||||
| Other |
||||||||
| Balance at end of period |
$ | $ | ||||||
7. Long-term debt
On March 1, 2021, the Company assumed the outstanding long-term debt obligations of an acquired business and issued a seller note to one of the selling shareholders. The assumed debt obligations and seller note are denominated in Euros.
Long-term debt consisted of the following:
| As of 2023 | As of 2022 | |||||||
| Term loan payable, accruing interest at 3-Month EURIBOR plus % per annum, payable in quarterly installments starting in April 2023 and matures in July 2028. | $ | $ | ||||||
| Seller’s note payable (“Seller’s note”), due to one of the selling shareholders, accruing interest at a fixed rate of % per annum. The Seller’s note is payable over 5 installments and matures in . | ||||||||
| Vendor loan payable (“Vendor loan”), accruing interest at % per annum. | ||||||||
| Term loan payable, accruing interest at fixed rates ranging between % to % per annum, payable in monthly or quarterly payments of interest and principal and matured in . | ||||||||
| Total debt | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term debt, net of current portion | $ | $ | ||||||
At June 30, 2023, future maturities of long-term debt are as follows:
| Fiscal year: | ||||
| 2023 (remaining) | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Thereafter | ||||
| Total long-term debt | $ |
8. Stockholders’ Equity
Under our Certificate of Incorporation, we are authorized, subject to limitations prescribed by Delaware law and our Charter, to issue up to
Series A Convertible Preferred Stock
The Company has designated
Series B Convertible Preferred Stock
The Company has designated
Series C Convertible Preferred Stock
The Company has designated
Series D Convertible Preferred Stock
The Company has designated
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
Compensation Expense
Compensation expense is generally recognized on a graded accelerated basis over the vesting period of grants. Compensation expense is recorded in the consolidated statements of operations with a portion charged to Cost of revenue and a portion to Operating expenses, depending on the employee’s department.
During the three and nine months ended June 30, 2023 and 2022, compensation expense related to share-based payments was as follows:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Cost of revenue | $ | $ | $ | $ | ||||||||||||
| Operating expenses | ||||||||||||||||
| Change in fair value of contingent consideration, interest expense and other, net | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
Change in fair value of contingent consideration, interest expense and other, net includes compensation expense related to the fair value of fully-vested stock options granted to directors in April 2021. As of June 30, 2023, the Company had approximately $
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 to the Company. The warrants are typically exercisable months after the issue date, expire in years, and contain a cashless exercise provision and piggyback registration rights.
Montage Warrant - As additional consideration for a prior loan arrangement which was paid in full in a prior period not presented, the Company issued to Montage Capital an -year warrant (the “Montage Warrant”) to purchase the Company’s common stock at a price equal to $
Series A and B and C Preferred Warrants - In March 2019, in connection with the issuance of the Company’s Series C Preferred Stock, the Company issued warrants to purchase the Company’s common stock. These warrants were designated as (i) Series A Warrants with an initial term of years and an exercise price of (ii) Series B Warrants, which expired unexercised during the Company’s 2021 fiscal year, with an initial term of
As of June 30, 2023, the number of shares issuable upon exercise of the (i) Series A Warrants were
Series D Preferred Warrants – In May 2021, in connection with the issuance of the Company’s Series D Preferred Stock, the Company issued warrants to purchase the Company’s common stock. These warrants consisted of (i) warrants issued to investors in Series D Preferred Stock to purchase in the aggregate up to
The Company may not effect, and a holder will not be entitled to convert, the Series D Preferred Stock or exercise any Series D Preferred Warrants, which, upon giving effect to such conversion or exercise, would cause (i) the aggregate number of shares of common stock beneficially owned by the Purchaser (together with its affiliates) to exceed 4.99% (or, at the election of the holder, 9.99%) of the number of shares of common stock outstanding immediately after giving effect to the exercise. As of June 30, 2023,
The Montage Warrants, Series A and C Preferred Warrants, the Placement Agent Warrants issued in connection with the Series C Preferred Stock, and the Series D Warrants were all determined to be derivative liabilities and are subject to remeasurement each reporting period (see Note 4).
During nine months ended June 30, 2023,
Total warrants outstanding as June 30, 2023, were as follows:
| Type | Issue Date | Shares | Price | Expiration | |||||||
| Financing (Montage) |
| $ |
| ||||||||
| Investors |
| $ |
| ||||||||
| Placement Agent |
| $ |
| ||||||||
| Investors |
| $ |
| ||||||||
| Investors |
| $ |
| ||||||||
| Investors |
| $ |
| ||||||||
| Placement Agent |
| $ |
| ||||||||
| Placement Agent |
| $ |
| ||||||||
| Investors |
| $ |
| ||||||||
| Placement Agent |
| $ |
| ||||||||
| Total | |||||||||||
Summary of Option and Warrant Activity and Outstanding Shares
During the three months ended June 30, 2023, the Company, (i) issued
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 periods ended are as follows:
| 2023 | 2022 | |||||||||||
| Non-Board | Board | Non-Board | ||||||||||
| Weighted-average fair value per share option | $ | $ | $ | |||||||||
| Expected life (in years) | ||||||||||||
| Volatility | % | % | % | |||||||||
| Risk-free interest rate | % | % | % | |||||||||
| Dividend yield | % | % | % | |||||||||
The expected option term is the number of years the Company estimates the options will be outstanding prior to exercise based on historical trends of employee turnover. 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 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 restricted stock, stock option and warrant activity for the nine months ended June 30, 2023, is as follows:
| Restricted Stock | Stock Options | Stock Warrants | ||||||||||||||||||
| Weighted | Weighted | |||||||||||||||||||
| Awards | Awards | Exercise | Warrants | Exercise | ||||||||||||||||
| Outstanding, October 1, 2022 | $ | $ | ||||||||||||||||||
| Granted | ||||||||||||||||||||
| Exercised | ||||||||||||||||||||
| Forfeited | ( | ) | ||||||||||||||||||
| Expired | ( | ) | ||||||||||||||||||
| Outstanding, June 30, 2023 | $ | $ | ||||||||||||||||||
| Options vested and exercisable, June 30, 2023 | $ | |||||||||||||||||||
As of June 30, 2023, there was
9. Net Income (Loss) Per Share Attributable to Common Shareholders
Basic net 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 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 |
Nine Months Ended |
||||||||||||||
| 2023 |
2022 |
2023 |
2022 |
|||||||||||||
| Numerator: |
||||||||||||||||
| Net income (loss) – basic earnings per share |
$ | ( |
) |
$ | $ | ( |
) |
$ | ||||||||
| Effect of dilutive securities: |
||||||||||||||||
| Change in fair value of in-the-money warrant derivative liabilities |
( |
) |
( |
) | ( |
) |
||||||||||
| Net income (loss) applicable to common shareholders - diluted earnings per share |
$ | ( |
) |
$ | $ | ( |
) |
$ | ||||||||
| Denominator: |
||||||||||||||||
| Weighted-average shares outstanding for basic earnings per share |
||||||||||||||||
| Effect of dilutive securities: |
||||||||||||||||
| Options |
||||||||||||||||
| Warrants |
||||||||||||||||
| Preferred stock |
||||||||||||||||
| Weighted-average shares outstanding for diluted earnings per share |
||||||||||||||||
| Basic net income (loss) per share |
$ | ( |
) |
$ | $ | ( |
) |
$ | ||||||||
| Diluted net income (loss) per share |
$ | ( |
) |
$ | ||||||||||||